The operator introduces the Verisk Fourth Quarter and Full Year 2023 Earnings Results Conference Call and provides instructions for the call. Verisk's Head of Investor Relations, Stacey Brodbar, is also introduced. The earnings release, presentation, and 10-K can be found on the company's website and a replay of the call will be available. The call may include forward-looking statements and information about factors that could affect future performance. The financial results for recent dispositions are included in the results but excluded from organic growth figures.

The speaker, Lee Shavel, recaps Verisk's exceptional year, highlighting their strong financial performance and value creation for clients and shareholders. They exceeded their expectations for organic revenue and adjusted EBITDA growth, and achieved their margin improvement goal a year earlier than planned. Despite the separation of their non-Insurance business, they still saw growth in free cash flow.

The company has shown capital discipline by returning $4 billion to shareholders through share repurchases, improving capital efficiency and returns on invested capital. The long-term opportunity in addressing clients' needs gives confidence in their strategy for consistent growth. The insurance industry is facing profitability challenges due to higher losses and inflation, leading to a negative outlook for homeowners and personal auto. The industry also experienced a record number of catastrophe events in 2023, but the fourth quarter was relatively quiet compared to the previous year.

The insurance industry is seeing success in raising rates and driving premium growth, but is also facing challenges such as technological change, regulatory focus, and aging systems. The company's business model and strategy are designed to address these challenges and provide value to clients. Their priorities for 2024 and beyond include delivering consistent and predictable growth through strategic dialogue and innovation. They have made progress in elevating their strategic dialogue with clients and becoming a data and technology partner.

The CEO met with many client CEOs and discussed three main themes: accelerating and expanding data and analytics delivery, augmenting colleague capabilities, and improving ecosystem connectivity. Verisk is addressing these opportunities through projects such as Core Lines Reimagine and the use of low no-code and micro services technology. They are also applying generative AI technology in their casualty business and developing augmented underwriting applications. Additionally, they are investing in their Xactware platform to support integration with more ecosystem partners. The recent Elevate Conference had record attendance and demonstrated the potential of improved connectivity and efficiency in the business.

The company is pleased with Marsh's expansion of its digital trading initiative and expects it to drive greater efficiency in the market. They have also launched a solution called FairCheck to address regulatory requirements on fairness and discrimination in underwriting. The company has made changes to their go-to-market strategy, including investing in sales effectiveness and identifying pricing and packaging opportunities in their solutions.

Verisk's second priority from Investor Day is driving operating efficiency and profitability. They plan to achieve this through their global talent optimization initiative, expanding their real estate footprint in talent-rich and low-cost markets, and modernizing and optimizing their technology infrastructure. They also aim to improve operational efficiency through Lean Six Sigma and organizational structure reviews. Their third priority is disciplined capital allocation, with a focus on investing in value-creating opportunities and returning excess capital to shareholders. They plan to invest in emerging technologies, international expansion, and upgrading and re-platforming their core solutions to support future innovation.

The company is making progress on their Core Lines Reimagine project and is engaging with clients for customer-facing modules launching in 2024. They are also investing in modernizing their property estimating solutions platform to create a more open ecosystem and are excited about opportunities to create incremental value through insurance-related acquisitions. The company has also made recent leadership announcements, including three new business leaders joining the Verisk Senior Operating Committee.

Verisk had a successful fourth quarter, with revenue of $677 million, up 7.4% from the previous year. However, income from continuing operations was down 15.5% and diluted GAAP earnings per share were down 8.8%, primarily due to a litigation reserve expense and elevated depreciation and amortization expenses. This was partially offset by strong revenue growth, lower net interest expense, and the benefit from an accelerated share repurchase program. The company experienced organizational and leadership changes in 2023 but is confident in its talented management bench and succession planning process.

In the fourth quarter, Verisk's organic constant currency revenues grew 6%, driven by strong growth in underwriting and claims. This was a record year for the company, with total organic constant currency revenue growth of 8.7%. This growth was fueled by key industry and environmental trends, including the hard insurance market, increased transaction activity, and active US weather patterns. Subscription revenues, which make up 80% of total revenue, grew 7.3% on an organic constant currency basis. The quarter's growth was consistent with trends seen throughout the year, including the impact of stronger net premium growth in 2021 on contract pricing.

In the anti-fraud sector, the business showed strength due to the conversion of customers to subscription services, but this benefit is expected to moderate in 2024. However, there was weakness in Verisk Marketing Solutions and some attrition in the business. Transactional revenue increased by 0.8% on an OCC basis, with a 4.1% increase when adjusting for the impact of Hurricane Ian. Strong results were seen in auto solutions and life insurance solutions, as well as better-than-expected growth in extreme events. Adjusted EBITDA growth was 6.5% on an OCC basis and the total adjusted EBITDA margin increased by 70 basis points from the previous year.

The fourth quarter margin rate for Verisk was positively impacted by sales leverage, cost discipline, and foreign currency changes, but was offset by margin pressure from higher incentive compensation, acquisitions, and organic investments. Despite this, the company saw significant growth and efficiency in 2023, with a total adjusted EBITDA margin of 53.5%. Operational efficiency and profitability remain a key priority for the company in 2024 and beyond. Net interest expense decreased due to lower debt balances and higher interest on cash balances. Depreciation and amortization of fixed assets increased due to the completion of certain software projects. The reported effective tax rate increased due to a one-time tax benefit in the prior year and a litigation reserve in the current year. Adjusted net income and diluted EPS both decreased for the fourth quarter.

The company experienced negative impact from a one-time tax benefit and higher depreciation and amortization expenses, but was partially offset by solid revenue and EBITDA growth, lower net interest expense, and a lower share count due to share repurchases. Cash flow increased and the company returned $3 billion to shareholders through dividends and repurchases. The Board has approved a 15% increase in the quarterly cash dividend and an additional $1 billion in share repurchases. The company expects to meet its Investor Day targets for 2024 with growth and margins in line with expectations.

The company plans to invest in their sales force and expand internationally through acquisitions and new technologies. They expect depreciation, amortization, and tax rate to be in a certain range, resulting in adjusted earnings of $6.30 to $6.60 per share. Capital expenditures are expected to be between $240 million and $260 million. The earnings slide deck with all guidance measures can be found on the company's website. The CEO concludes by expressing excitement for future opportunities and asking analysts to limit themselves to one question during the Q&A session. The first question is about the revenue guidance.

Liz and Lee discuss the factors that drove strong performance in 2023, including the pricing environment in the hard insurance market, rebound in transactional activity, and elevated weather activity. They expect the hard market to persist in 2024, but anticipate normalization in transactional activity and weather. They also note that overall premium growth has been strong due to insurers securing rate approvals.

In Paragraph 16, the speaker discusses the company's revenue base and how approximately 20% to 25% of it is tied to prior two-year premium growth. They also mention their ability to deliver value to clients through their Core Lines Reimagine project, which has resulted in stronger pricing momentum than anticipated. The company has also identified areas to capture more value for clients through pricing structures. In response to a question about Verisk auto underwriting revenues, the speaker confirms that it is largely transactional with some subscription revenues and that shopping activity in the fourth quarter was still elevated but expected to taper down to more historic levels.

Doug Caccese, Elizabeth Mann, and Andrew discuss the current state of the company's environment and how it has affected their business. They mention a slight slowdown in shopping activity in Q4 and expect it to continue, but still anticipate elevated levels in 2024. They also mention focusing on non-rate action campaigns to help carriers bring in premium immediately. The next question is about subscription growth and Elizabeth explains that carriers are still struggling to achieve profitable growth and have not yet turned on their marketing spend, but they are starting to see green shoots and expect it to return to more normalized levels in the second half of the year. Another question is asked about how to think about the headwinds in the marketing solutions, attrition, and contracted activity in the insurance deck for 2024. Elizabeth responds by saying that they are assuming it will start to return to more normalized levels in the second half of the year.

The speaker is excited about the new products and developments that the company has been working on, particularly in the area of generative AI. They have already deployed generative AI in their claims business and are exploring its application in other areas. The company has strong levels of client engagement and has co-created solutions with ecosystem partners. They have deployed traditional and generative AI methods in data extraction and medical file summary for casualty bodily injury and property estimation. This has allowed them to deliver value and automation to their customers.

The speaker discusses XactXpert as a solution for driving productivity, speed, and accuracy for customers. They also mention the success of low and no-code technology in the Life Insurance business and the potential for it to be applied to the P&C area. The company has also been integrating data sets in their extreme events and specialty business solutions, which has been facilitated by their migration to the cloud. The speaker is asked about the procyclicality of bookings and the potential for increased demand in areas such as marketing as the environment becomes more profitable.

The speaker discusses the complexity of the question and the company's efforts to understand it. They mention that the company is not highly sensitive to economic cycles but is affected by weather events and the ILS market. They also note that as the insurance industry does well, it encourages investment in technology, which can benefit the company. The speaker then addresses a question about margin and explains that the company is focused on efficiency and constantly looking for ways to improve.

The company is focused on delivering efficiency in their core business in order to fund investments and maintain margin expansion. They have revised their margin guidance for 2024 to a tighter range, but still expect to see an increase in 2025. The company has been steadily increasing margins over the past three years and is balancing this with investments in growth.

The differential in the midpoint of the company's guide and the midpoint at Investor Day is due to three incremental investments made since then. These investments, including sales force expansion, international expansion, and investments in generative AI, will help the company deliver on its client-facing goals while still achieving 100 basis points of margin expansion. The company is confident in its ability to deliver on these targets and believes it will surpass its previous targets set in March. The company is most excited about its solutions in the claims and underwriting side, as well as its pricing initiatives. They also see potential growth in their life and rest of world solutions.

All of the company's businesses are experiencing strong organic growth and are creating value in different ways. The forms rules and loss cost area is the most scaled opportunity for incremental value, and the company is also focused on building network value through partnerships. The specialty business solutions, including the Marsh announcement, will contribute to this network expansion. Saurabh Khemka, who leads the core lines reimagine project, will discuss how the company is adding value to clients through this program.

The company is planning to deliver more value to their customers through the modernization of their internal systems. This will include faster access to analytics, new insights, and innovations in their forms management platform. They have received positive feedback from clients and are excited for these changes to come to fruition. Additionally, they are looking into moving some of their traditional products into a SaaS model to further increase value for clients. The company has also made changes to their go-to-market strategy, including investments in the sales force and changes in compensation structure, in order to improve their overall performance.

The company has been focusing on aligning their sales team's interests with customers and improving retention. They have also been looking at pricing relative to value and making sure their sales efforts are tied into senior-level strategic dialogue. The higher-growth businesses are on track to represent 20% of the company's business in 2025 and have achieved strong results in 2023.

At Investor Day, the company outlined a growth strategy for 2023, but the largest change in their growth mix has been due to the overperformance of their core businesses. During the Q&A, an analyst asked about the company's free cash flow yield, which is currently at the low end of their peer group. The company responded by stating that their insurance business has strong free cash flow, and they expect it to continue growing in line with their bottom line. They also mentioned a commitment to increasing dividends as a demonstration of their confidence in their free cash flow generation. The company does not give guidance on free cash flow, but it should approximate their overall EBITDA growth rate in the long term. In 2024, there may be slightly higher CapEx growth due to opportunities within the business, such as the generative AI opportunity.

The speaker discusses the potential for higher levels of CapEx investment to impact overall free cash flow growth, but believes that in the long-term, it will be in line with adjusted EBITDA growth. They also mention pricing opportunities in certain areas, which are factored into their 2024 revenue growth expectations and will likely be a source of growth in the future. This aligns with their overall operating model of creating value through data and technology, and they aim for a 6-8% growth rate on a consistent basis.

During an investor call, a question was asked about the company's capital management philosophy, specifically regarding repurchases versus acquisitions or internal investments. The company's CFO, Elizabeth Mann, responded by stating that their philosophy focuses on generating returns on invested capital, and they will invest in the business and actively evaluate M&A opportunities that can bring value to Verisk. She also mentioned that their incremental returns on invested capital for the year were 19%. The CEO, Lee Shavel, added that the company's investors have expressed a preference for internal investments, which the company shares and will prioritize. The final question of the call came from George Tong of Goldman Sachs.

The speaker discusses transaction revenue trends, noting that in the previous quarter, growth was 4% on an organic constant currency basis when adjusted for storm comps. They expect this growth to continue in 2024, but note that it may be affected by factors such as auto rate shopping behavior and the conversion of transaction revenue to subscription revenue. They also mention that previous strong growth was driven by auto shopping activity and weather trends, but these are expected to normalize in the future. The speaker concludes by thanking participants and ending the call.

This summary was generated with AI and may contain some inaccuracies.