Good day, everyone, and welcome to the Verisk Second Quarter 2024 Earnings Results Conference Call. This call is being recorded. For opening remarks and introductions, I would like to turn the call over to Verisk's Head of Investor Relations, Ms. Stacey Brodbar. Ms. Brodbar, please go ahead.

Thank you, operator, and good day, everyone. We appreciate you joining us today for a discussion of our second quarter 2024 financial results. On the call today are Lee Shavel, Verisk's President and Chief Executive Officer; and Elizabeth Mann, Chief Financial Officer. The earnings release referenced on this call as well as our traditional quarterly earnings presentation and the associated 10-Q can be found in the Investors section of our website, verisk.com. The earnings release has also been attached to an 8-K that we have furnished to the SEC. A replay of this call will be available for 30 days on our website and by dial-in. As set forth in more detail in today's earnings release, I will remind everyone today's call may include forward-looking statements about Verisk's future performance, including those related to our financial guidance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance is contained in our recent SEC filings. A reconciliation of reported and historic non-GAAP financial measures discussed on this call is provided in our 8-K and today's earnings presentation posted on the Investors section of our website, verisk.com. However, we are not able to provide a reconciliation of projected adjusted EBITDA and adjusted EBITDA margin to the most directly comparable expected GAAP results because of the unreasonable effort and high unpredictability of estimating certain items that are excluded from projected non-GAAP adjusted EBITDA and adjusted EBITDA margin, including, for example, tax consequences, acquisition-related costs, gains and losses from dispositions and other non-recurring expenses, the effect of which may be significant. And now I'd like to turn the call over to Lee Shavel.

Thanks, Stacey. Good morning, and thank you for participating in this morning's call. As we mark the halfway point in 2024, I can confidently say that we are on track to deliver against the strategic, operational, and financial goals that we articulated at Investor Day and in our 2024 full year guidance. Elizabeth will provide the detailed financials, but at a high level, Verisk delivered solid organic constant currency revenue growth led most importantly by strong subscription growth of 8.3% that was broad-based across most of our businesses. This was partly offset in the quarter by modest declines in our transactional business, related to historically high volumes in auto shopping and elevated weather-related activity in the prior year quarter, which made for tough comparisons to normalized activity this quarter. We also experienced a drag on our transactional growth from the conversion of transaction-based contracts to subscriptions, which enhances the consistency of our growth going forward. To put this quarter in perspective and minimize the transaction to subscription conversion impact on a two-year compound annual growth rate basis, our total organic constant currency revenue growth has been 8%, at the high end of our Investor Day revenue growth targets. We are driving subscription growth through strong renewals and improved price realization as our customers recognize the innovation and value-added upgrades we have incorporated into existing solutions. This is something that we've heard repeatedly in our renewal discussions with our largest clients. Our focus on cost discipline and operating efficiency resulted in healthy organic constant currency adjusted EBITDA growth and strong margin expansion, translating into 15% adjusted EPS growth. We delivered these results while continuing to invest in innovation and technologies that can help our clients improve speed, efficiency, and accuracy through deeper insights, improved data, and increased automation. Our strategy is unchanged as we focus on building long-term value for the insurance ecosystem while delivering consistent and predictable growth with high returns on capital for shareholders. The industry backdrop in which we are currently operating is one marked by continued strong premium growth as rate increases continue to earn in. In fact, in the first quarter of 2024, industry-wide direct premium growth increased 10%, and Swiss Re's forecast is for 8% growth for the full year. Profitability across the sector has improved, and industry-wide combined ratios have come down, though there is variability by line and geography. Carriers continue to be cautious in an uncertain environment and focused on driving profitability. Specific to the homeowners line of insurance, 2023 was the worst year on record for catastrophic losses with $15.2 billion in losses, and direct combined ratios in 17 states were above the breakeven threshold of 100. This has driven carriers to restrict underwriting in certain markets and in some cases, exit challenging states and lines of business. We are working with our clients and innovating new solutions that target these problem areas, including introducing new roof analytics that leverage aerial imagery and engaging with the respective departments of insurance in Western states to share the updates we have made to our wildfire solutions. In the near term, these market conditions may present some headwinds for our predominantly subscription property business, but in the longer term, we continue to believe it highlights the need for the most accurate information to best price the risk. Technological and regulatory change also continue to challenge the industry structurally. And we continue to partner with clients to help them address the rapid pace of technological change as well as increased regulatory scrutiny on data privacy, fairness, generative AI, and climate risk. As another example of our work to support understanding of broad industry challenges, we recently co-authored a paper along with research organization RAND Corporation analyzing the impact of social inflation in insurance casualty claims payments with a focus on better understanding the trends, impact, and potential structural factors in growing jury verdicts and trial awards. At the center of our growth strategy is our effort to engage with our clients on a more strategic level. As an example of what I've been hearing recently from clients, I've had conversations with both client CEOs and CIOs about the importance of integrating data sets across their enterprise for efficiency and consistency. We are the natural trusted technology partner to help with this data asset convergence as we are best positioned, given our deep data and domain expertise, our position in the industry, and our proven track record of aggregating and integrating industry data at scale. These C-suite level and strategic conversations are opening up broader and enterprise-wide opportunities and applications of our data and analytics with the industry and new avenues for growth for Verisk.

Thanks, Lee, and good day to everyone on the call. On a consolidated and GAAP basis, second quarter revenue was $717 million, up 6.2% versus the prior year, reflecting consistent levels of growth across both underwriting and claims. Income from continuing operations was $308 million, up 51% versus the prior year, while diluted GAAP earnings per share from continuing operations were $2.15, up 53% versus the prior year. The GAAP figures include a cumulative $102 million net gain associated with retained interest in previously disposed businesses as well as a gain associated with the bond tender transaction we entered in June. The underlying EPS growth reflects strong revenue and profit growth combined with a lower effective tax rate and a lower average share count. Moving to our organic constant currency results for the second quarter. Adjusted for non-operating items as defined in the non-GAAP financial measures section of our press release, our operating results demonstrated consistent growth across both underwriting and claims. OCC revenues grew 6% with growth of 6% in underwriting and 5.8% in claims. This was a slowdown in growth as expected from the first quarter as we overlap the tough comparison to our largest ever transactional revenue dollar quarter in the second quarter of 2023. Our subscription revenues, which comprised 81% of our total revenue in the quarter, grew 8.3% on an OCC basis during the second quarter. We experienced broad-based growth across most of our subscription-based solutions with strong renewals and expanded relationships with existing customers and solid sales of new solutions. Our subscription growth also reflects the benefit of conversion to subscription from previously transactional contracts. In some cases, temporary assignments or pilots are converting into longer-term contracts. In other cases, customers are looking to move away from pricing mechanisms tied to volume and instead opting for fixed pricing to give more visibility in their own cost structures. We are experiencing this trend across underwriting data solutions, anti-fraud solutions, specialty, and property estimating solutions. And we expect the impact of these conversions to continue for the remainder of the year.

Thanks, Elizabeth. In summary, our execution priorities are unchanged as we remain focused on delivering consistent and predictable growth while allocating capital to our highest return on investment opportunities. Our focus on heightened strategic engagement with clients, both large and small, has strengthened relationships and has fostered new product and business opportunities for the industry where we can invest at scale to drive value for our clients, employees, and shareholders. We continue to appreciate the support and interest in Verisk. With that, I'll ask the operator to open the line for questions.

The first question comes from the line of Manav Patnaik from Barclays. Please go ahead.

Thank you. Good morning. Lee, I just wanted to follow up. You talked about the 8% growth on a two-year stack that's above kind of what it used to be. I was just wondering the components of that outperformance. I know you talked about pricing before. I was wondering this transition from transaction to subscription if there was a way to quantify how much that might have helped and just the sustainability of this for the next several years.

Good morning. Thank you, Manav, for the question. Yes. I appreciate the focus on the 8% two-year stack growth rate because I think it does give broader context beyond what we experienced in this quarter. And to answer your question, the drivers of that have been, generally speaking, more demand for our products from the industry as they are facing a variety of challenges in underwriting, on the claims side, the value of what we have been providing to them. But also, and I think this is the element that is the sustainable aspect of it is the success that we've had in increasing our value capture from the investments that we have made across the business. And this is something I referenced in the earlier comments. We are hearing it repeatedly from clients that they recognize the innovations, the investments that we have made, and that's enabling us in this environment to capture more of that value. We believe that, that is a longer-term trend that will enable us to continue to meet that growth, supplemented by new products and new innovations that we are adding. We continued to see strong growth in our specialty business solutions area, where we've been innovating with our white space platform, which has those very strong network effects. We have continued to see growth in our international businesses, which is a penetration opportunity for us and growth in our life insurance business. So as we said at Investor Day, we have core strength where we are adding value and capturing that value in pricing. That's supplemented by new penetration opportunities that we believe will sustain that growth over time. And then I'd finally add that the elevated strategic dialogue that we have accomplished with our clients is opening up new opportunities to provide our products on a broader enterprise and global basis to our clients.

Thank you, Lee. Is there any way to characterize the level of transaction activity related to things like weather? I think you guys mentioned auto remains elevated, but just get a better sense of how should we think about that on a go-forward basis or maybe in historical context?

Thank you, Surinder. So I think the thing that I would emphasize is that when you look at the second quarter of 2023 and you see the 12.4% growth, this is in the investor presentation that we had provided on the website. What we're experiencing was a very high level of shopping activity in auto as a function of rising rates within that business. You can look at the commentary of that. It was an exceptional level of shopping activity that was driving that transaction element. In addition, as you will see in the description around claims business, we were experiencing still a high level of weather-related claims activity that was also driving that business. And so that's really what is contributing to what we're - we are experiencing a relatively tough comparison enhanced by some of the transaction to subscription migrations that are more pronounced in this quarter. As we think about that element on an ongoing basis, I think we generally expect that our transactional growth rates are ones that are generally at our broader growth rates to slightly higher because in many cases, they represent some of our higher-growth businesses that tend to have more of a transactional aspect at the early stage. So with that, I'll ask Elizabeth to add some perspective.

Yes. Thanks, Lee, for characterizing the factors that impact our transaction growth, and you can see the historical trends of it in that earnings presentation that he referenced. I think for mechanical reasons - well, first of all, it is variable over time. It's inherently harder to predict. We don't try to predict the weather. But that inherent variability for some of the mechanical factors, for example, the conversion of transactional to subscription, that can have a one-year - that effect can persist for a full year after a subscription locks in. So I just want to - we do expect tough comparisons for the balance of the year on that transactional revenue side.

Thanks so much. And I sort of wanted to continue on this conversion topic. So I guess over the years, there have been some times that I can remember moving some revenue streams to subscription from transaction. And over time, I think that makes a lot of sense. In the near term, it creates a little bit of noise. And so I know you said you expect this to continue. But are there other products that you can think of within the portfolio that you will also pursue this conversion for as well? Like should we expect this to every so often come up as a theme that maybe the growth is a little bit lower in a quarter, but for the long term, we're thinking of moving stuff to subscription? Are there other products that could fall into that as well? Thanks.

Yes. Thanks for the question, Toni. You're right that we have previously talked about this in the context of our Claims Essential bundle, where there was a targeted effort for a certain customer segment. I would say as you hear us talk now more broadly across the business, we are seeing it in a number of different businesses where customers are on a pilot and choose to lock that in for a longer-term subscription or they have a subscription with overage tiers. And as their business grows, they lock into a higher subscription so that they have more visibility into their own price point. So those are trends that we will continue to see across the business. Over time, you've still seen that subscription-transactional mix of our revenues be fairly steady at 80-20-ish. And probably as some of our transactional customers convert into subscription, at the same time, we will have new and introductory products or new markets that we're entering where it's more common to enter it on a transactional basis. So we will continue to top up, I think, that transactional revenue base as well.

Thanks for taking my question. Last quarter, there was also a reference to a double-digit growth within life insurance solutions and benefited the transactional revenue growth. I was wondering if you could highlight what is going on with the life insurance solution, both on the subscription but also transactional side? Thanks.

Yes. Thank you for the question, Ashish. We do not break out for individual businesses that the transactional versus subscription. There are transactional elements for the development opportunities that we have within life. As I indicated earlier in response to Manav's question, that's a business that continues to contribute and add to our growth rate, generally falling into that higher - the double-digit rate that we have for many of our higher-growth businesses.

Sure. Hi. It's Andrew. Could you quantify if you're willing to how Verisk's auto insurance revenue growth did in the second quarter? And specifically, when thinking about data providers into that end market, does Verisk believe that's gaining, losing, or maintaining share currently for auto insurance?

Yes. Thanks, Andrew. Our auto insurance related - the shopping-related revenue did continue to grow in this quarter. But the year-over-year comp means that it's growing off a much higher level. So there's deceleration there. From a market share standpoint, we believe we're generally steady in the market.

Good morning, everyone. I'm going to pivot back to your comments, Lee, about strengthening relationships among your customer set. I have no doubt that your focus has really helped with your larger accounts. Maybe you could spend a minute and provide us an update on how you're progressing with your smaller accounts and also speak to potential disintermediation risk that might exist inside the smaller customer set?

Great. Thank you very much for the question. And I appreciate we have a broad range of clients. Naturally, our largest clients receive a lot of focus because of their sophistication, their specific needs. But to your point, we want to make certain that we are delivering value for the entire insurance ecosystem. One thing that I would say specific to the small and the midsized clients is that proportionately, they receive a greater value from the scale that we are able to deliver to them, both from an operational standpoint and from the value of data that we provide to them because often they have a lower share of access to overall loss costs or general information. I think they benefit more from the scale competitiveness that we provide them in a variety of claim solutions. And we have not seen any evidence of higher levels of attrition or disintermediation of that range of clients within our business. And that is something that we've watched and we've asked the question around. I think two points that I would make supplementally is that a lot of our clients, while they are interested in new ideas, the risk of taking on a new, small, private technology vendor is something that they think about very carefully because they have to know that some - a firm that they can rely on over the long term. This is clearly an advantage for us because of our stability and reliability. And to that end, we have also been working, as we've talked about, kind of most significantly in the claims area of finding ways to deliver some of those new technology providers by integrating them into our systems and platforms so that our clients can receive the benefit of that, but also with greater confidence that we have vetted and are supporting and integrating those products into our overall systems. So I really appreciate the perspective. It's not something that we have observed in terms of the behavior of our clients. Obviously, I think a much bigger impact is occasionally, our clients decide to leave a line of business or leave a state. That will have more influence, and we haven't seen any pattern of clients in the smaller, the midsized that have been leaving to another technology provider.

Yes. Hello, everyone. Apologies in advance for harping on the whole subs versus transaction one more time, but clearly, it matters to people and also for the quarter in particular. So maybe you can just help us talk about the impact of the transition in this specific quarter. I know, Lee, you gave the two-year stack. And if you're not willing to be so specific for this year, I look at what you said, 8% over two years. I think the average of the reported numbers were 8.7. So is it fair that maybe that added 70 bps this quarter and maybe the core growth was more in mid-7s? Any help would be helpful since people are clearly asking.

Yes. And Alex, I am - we're trying to relate the 8.7 that you have and the 8% was looking at our total revenue, not a subscription versus transaction. So just kind of taking into account the - or trying to eliminate the impact of that migration between subs and trans, I wanted to point out our overall revenue growth over that two-year period at 8% was still at the high end of that range. The thing that I would say further is that there was a specific significant contract that has a function of the renewal of that contract. And some of the regulatory aspects of how that needed to be approved had to be characterized as transactional in the prior year and was a subscription is now on the subscription side. So that is an element. We're not going to quantify that within it. But I would characterize that as a kind of a specific situation that added to the weakness in the subscription growth. And beyond that, we have other - I'm sorry, the weakness in the transactional growth there. So this was last year revenue from a contractual standpoint was transactional. And now that, that contract has been confirmed and executed is now subscription. So that is an element. In addition to what I think, you can look at those historical transactional growth rates in the second quarter of 2023 and see a normalization more to that longer-term growth rate. So those are the elements. We don't think it makes sense to break all of those pieces apart. But hopefully, it's clear enough that you had some seasonal highs or cyclical highs in the prior year quarter plus some structural elements that were contributing to an exceptional tough comparison on the transactional revenue growth.

Yes. Thank you. Good morning. My question is on underwriting, or I guess, Slide 8. I'm having trouble connecting the descriptors under business highlights with the line chart showing deceleration. I guess it sounds like core growth is good. Life and SBS remain accretive. And two of the three bullets that you're talking about for transactional headwinds fall into claims. And I think marketing has been weak for a while. So what are the primary factors driving the OCC deceleration in underwriting just beyond the slowdown in auto rate shopping? Thank you.

Yes. Jeff, thanks for the question. To map it in underwriting solutions, that first descriptor, you've got the underwriting data analytics solutions. That is where the auto insurance shopping activity sits. So that's an element.

Hi. Good morning. Thanks for taking my question. So there's been a lot of discussion around where we are in the cycle for the insurance industry and whether we'll see pricing kind of peaking in 2025. Since 20% to 25% of Verisk revenue comes from contracts that have premium growth as a direct input in price increases but also with a two-year lag, does this basically insulate there into 2027 if 2025 was kind of the pricing peak for insurance companies? Or how should we think about the cyclical dynamics here?

Yes. Kelsey, thanks for the question, and welcome to the call. On the question of the insurance cycle, look, we've talked over time about being in a hard market broadly in the property and casualty industry. That's hitting different segments, certainly at different times. But we know it's not going to last forever. So it's a when, not an if that hard market begins to peak and becomes more competitive. I think one of the strengths of Verisk, you have seen us continue to grow historically through both hard markets and softer markets in the insurance cycle. I would not go so far as to say we are insulated. I think the pressure remains on us to continue to deliver value to our clients through all the innovations and product strength that we've talked about on the call. So I think if we continue to do that, we will continue to deliver value to our customers and continue to grow revenue throughout the cycle.

Thanks so much. My question is about your outlook. I know you don't give quarterly guidance, but you had some pretty good quarters in the first half of this year from a bottom line perspective. By maintaining your guidance, it implies a pretty slowdown in adjusted EPS growth in the back half of the year. I know you called out accelerated hiring. Is there anything going on maybe from a timing perspective, but if you can provide a little bit more insight that would be appreciated. Thanks.

Yes. Thanks for the question, Jeff. A couple of things. We have historically talked about some of the seasonality in our margin. Any quarter's margin can vary based on revenue mix as well as just the timing of spending. And we've signaled - we’ve commented that we intend to invest in the business. So that our margin guidance gives you and our EBITDA guidance gives you a good feeling of where we expect to end up on an EBITDA basis. If you look at the EPS rate, in addition, there's the tax rate where we've had certain benefits in the first half of the year that we don't expect to continue in the second half of the year.

Hi. Good morning. I just wanted to piggyback on Kelsey's question earlier on pricing and just ask, your net written premiums as we go into next year, I guess, the 2023 net written premiums were quite strong. It sounds like you're seeing very good value realization in terms of pricing from what you're doing in Core Lines. As we think about your 3% to 4% pricing target that you said at your Investor Day, do you think you're positioned to be at the higher end of that or even above based on what you're seeing? And how should we think about pricing in the near term? Thank you.

Yes. Thank you, Heather. I appreciate the question. One, I'm not going to go beyond the guidance the guidance questions or the guidance statement that we've made, just remaining confident in that we've provided. I do want to try to address the pricing aspect a little further. As I mentioned in my earlier comments, the fundamental dynamic almost regardless of the premium growth, which does, I think, influence it in some cases, directly to a modest impact but also from a psychological standpoint, it's helpful. But even with those two, if we aren't providing value to our clients and they don't perceive that value then that's where we are going to run into challenges in improving pricing and driving the revenue. That's why the value of the investments that we have made in our Core Lines business and with our reimagine initiative, while one example of how we are driving value is what's critical - is the most critical factor in what sustains our revenue growth. And that's where we continue to get very strong feedback for how we are helping our clients improve the value of what they're doing.

Absolutely. Thanks, Lee. Yes, if you look on the Core Lines Reimagine side, our engagement with our customers has really demonstrated the value of our content, and the upcoming innovations that we have is delivering additional value for them. So for example, the feedback has been very encouraging across the spectrum of our customers, large and small. They are seeing additional value in the new insights like the Experience Index, the executive insights as well as the new technology innovations that we have on delivery of our content, which is creating efficiencies for them. And so what we are hearing from our customers is these new insights are helping them to be better in terms of reacting to market conditions, and these new efficiency tools are helping them to be more efficient in their operations. So it's been very good.

Yes. Hi. Thanks for taking my question. You made a point in the pre-remarks about putting out the fact that you're at the bottom end of the target leverage range. I'm keen to hear your thoughts on future capital deployment and potential use of that debt capacity. I'm wondering if you might look to inorganic growth again soon. We've, obviously, had a period where you haven't been that active, particularly if rates come down. And if you do, maybe could you talk to what areas you might target for inorganic growth, particularly wondering if there's more you could do, for example, in the life space, that would be great? Thanks.

Yes. Thanks for the question, Russell. So yes, as we look at our target leverage range and where we are relative to the two to three times, we go back to our capital allocation philosophy. We are willing to deploy to support the business. We do remain active in M&A markets and looking at what is available. We tend to focus on businesses that are unique in their markets that serve our insurance end market, but for which Verisk has a unique reason to be the right owner of that business. And so those can be data opportunities that we can add to our existing services. They can be customer opportunities or geographic or market expansion.

Hi. Thanks. Good morning. Going back to transactional revenue performance, the 3% decline you saw in the quarter, were there any unusual headwinds you would call out that may not persist? Just trying to understand the overall trend since if you look at the quarterly cadence, the swing from plus three in 1Q to down three in 2Q was quite significant and want to understand if that trajectory should be carried forward into future quarters or if the 2Q decline is a reasonable rate to persist into 3Q, which also represents a tough comp if you look at the year-ago period.

Yes. Thanks for the question, George. So yes, we always highlight that our transactional revenue does have some variability to it. One important thing that I will point to, of course, from a growth perspective, we always look year-over-year, but it is interesting also to look on a sequential basis this quarter relative to the first quarter. Our total revenues grew relative to the first quarter. And in fact, our transactional revenues also grew relative to the first quarter. So it's just the year-over-year that has that pattern. Now there's some seasonality and things that hit the second quarter typically and that we're particularly strong in the second quarter of last year. And the ones that we called out were the weather impact, which was historically strong in the second quarter of last year, the auto shopping activity for which we've anniversaried that tough comp, and then the transition of transactional revenues to subscription.

Ladies and gentlemen, this concludes our Q&A session and today's conference call. Thank you for your participation. You may now disconnect.