The operator welcomes everyone to the Verisk Second Quarter 2024 Earnings Results Conference Call and introduces the Head of Investor Relations, Stacey Brodbar, who will be joined by Verisk's President and CEO, Lee Shavel, and CFO, Elizabeth Mann. The earnings release, presentation, and 10-Q 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 a reconciliation of non-GAAP financial measures is provided in the company's SEC filings and earnings presentation.

Verisk has provided a solid update on their financial performance for the first half of 2024. They are on track to meet their strategic, operational, and financial goals outlined at Investor Day and in their 2024 full year guidance. The company saw strong organic constant currency revenue growth, driven by a robust subscription business, but offset by a decline in transactional business due to tough comparisons to the previous year. The conversion of transaction-based contracts to subscriptions also impacted growth, but on a two-year compound annual growth rate basis, the company's total organic constant currency revenue growth is at 8%, which is in line with their targets.

The company is experiencing subscription growth through renewals and improved pricing, while also focusing on cost efficiency and investing in innovation. The insurance industry is seeing strong premium growth and improved profitability, but there are challenges in the homeowners line of insurance due to high catastrophic losses.

The company is addressing problem areas in the insurance industry by working with clients and introducing new solutions. They are also facing challenges from technological and regulatory changes and are partnering with clients to address these issues. The company is also focused on engaging with clients on a strategic level and helping them integrate data sets for efficiency and consistency. They believe they are the best technology partner for this task due to their expertise, position in the industry, and track record.

Verisk is using their data and analytics to have strategic conversations with industry leaders and find new opportunities for growth. They have developed solutions for casualty claims and are building a network for the insurance industry, with solid growth in their specialty business solutions. They have also formed partnerships and collaborations to integrate with their ClaimSearch platform.

The integration of advanced fraud analysis and detection will save time and reduce costs for clients. ISO Experience Index, a new benchmarking tool, has been launched to modernize risk analysis for the insurance industry. This tool offers more frequent updates and empowers clients to make informed decisions in real time. The company's investment in Core Lines Reimagine has resulted in better price realization and improved client relationships. The company also listens to customer requests and provides valuable insights. Elizabeth Mann will now provide a detailed financial review.

In the second quarter, the company saw a 6.2% increase in revenue and a 51% increase in income from continuing operations. This growth was driven by consistent levels of growth in underwriting and claims, as well as a lower effective tax rate and lower average share count. On an organic constant currency basis, the company's operating results showed steady growth in both underwriting and claims. Subscription revenues, which make up 81% of total revenue, saw an 8.3% increase. This growth was driven by strong renewals and expanded relationships with existing customers, as well as the conversion of some temporary assignments to longer-term contracts. Customers also showed a preference for fixed pricing rather than volume-based pricing.

Verisk is experiencing a trend of growth in subscription-based services, particularly in forms rules and loss costs, anti-fraud solutions, and extreme event solutions. This growth is driven by improved price realization, new solutions, and multiyear renewals with existing clients. However, transactional revenues declined due to tough comparisons from the previous year and the impact of weather-related claims activity. The tough comparisons are expected to continue for the rest of the year, particularly in the auto shopping sector.

In the second quarter, the frequency of weather-related events increased while the severity and associated claims volume decreased compared to the previous year. However, there is still a long-term trend of growing weather-related claims in the property sector. The adjusted EBITDA growth was 8.5% and the total adjusted EBITDA margin increased by 130 basis points compared to the previous year. This was due to sales leverage, cost discipline, and global talent optimization efforts. The net interest expense decreased from the previous year. The company expects to accelerate hiring in the second half of the year to support growth investments and maintains a margin target of 54% to 55% for the full year.

During the second quarter, the company issued $600 million in senior notes and successfully bought back $400 million in notes. This will result in higher net interest expense in the second half of the year. The company's leverage is at a comfortable level of 2x EBITDA. The reported effective tax rate decreased due to timing of certain items and is expected to be at the low end of the 23% to 25% range for the full year. Adjusted net income and diluted adjusted EPS increased due to revenue growth, margin expansion, lower tax rate, and lower average share count. Cash flow metrics reflect the results of the company's insurance-only business. There were no M&A activities in the quarter, but the company received $112 million in cash proceeds from previous sales of businesses.

The company has a strong financial position and is committed to returning capital to shareholders. Their outlook for 2024 remains unchanged, with expected revenue, adjusted EBITDA, and adjusted earnings per share in specific ranges. The company's focus remains on delivering growth and investing in opportunities to drive value for clients, employees, and shareholders.

In the paragraph, the speaker thanks the audience for their support and opens the line for questions. The first question is about the 8% growth on a two-year stack, which the speaker attributes to increased demand for their products and success in capturing more value from their investments. This is a sustainable trend that will continue, along with the addition of new products and innovations.

The company saw strong growth in their specialty business solutions, particularly in their white space platform with strong network effects. They also saw growth in their international and life insurance businesses, with a focus on adding value and capturing value through pricing. The company has also had success in opening up new opportunities with clients at the CEO level. The trend of transition in the industry is happening in various ways, some structural and some episodic, but is expected to have a diminishing impact over time. In terms of transaction activity, there has been some elevated activity related to weather, particularly in the auto sector, but it is expected to decrease in the future.

In the second quarter of 2023, the company experienced a 12.4% growth in shopping activity in the auto business due to rising rates and a high level of weather-related claims activity. This contributed to a tough comparison for the company, along with the migration from transactional to subscription services. The company expects tough comparisons for the rest of the year due to these factors.

Toni Kaplan from Morgan Stanley asks if there are any other products besides the Claims Essential bundle that will be converted to subscription, causing a short-term decrease in growth but long-term benefits. Elizabeth Mann responds that this is a trend seen across the business as customers lock into longer-term subscriptions or upgrade to higher tiers. The mix of subscription and transactional revenues has remained steady, but new products and markets may enter on a transactional basis. The company will continue to add to both subscription and transactional revenue streams.

Lee Shavel, responding to a question from Ashish Sabadra, stated that Verisk does not break down their revenue by individual businesses, but the life insurance solutions business continues to contribute to their growth rate. In response to a question from Andrew Steinerman, Elizabeth Mann confirmed that the auto insurance related revenue continued to grow in the second quarter, but at a slower rate due to a higher year-over-year comparison. She also stated that Verisk believes they are maintaining their market share in this area. In response to a question from Gregory Peters, Lee mentioned that Verisk is focused on strengthening relationships with their customers.

Lee Shavel explains that while the company's focus is on larger clients, they also value and provide services to smaller and mid-sized clients. These clients benefit from the company's scale and data, and there is no evidence of higher attrition or disintermediation. The company's stability and reliability give them an advantage over smaller technology vendors.

The company has been working on integrating new technology providers into their systems to benefit clients. They have not observed clients leaving for other technology providers, but clients leaving a line of business or state has a bigger impact. The impact of the transition to subs versus transaction may have added 70 bps to the quarter's growth, and the core growth was likely in the mid-7s. The overall revenue growth over the two-year period was 8%, which was at the high end of the range.

The speaker discusses a specific contract that has affected the growth of the company's subscription revenue. They also mention that there were some seasonal and structural elements that contributed to a tough comparison in transactional revenue growth. However, they do not provide specific numbers for each element. The next question is about the underwriting segment and how it connects to the business highlights mentioned earlier. The speaker explains that while core growth is good and life and SBS remain accretive, there are some transactional headwinds in claims and marketing that have led to a deceleration in underwriting. The main factor driving this deceleration is the slowdown in auto rate shopping.

In response to a question about underwriting solutions, Elizabeth Mann of Verisk discusses the company's focus on auto insurance shopping activity. She also addresses a question about the insurance cycle and how Verisk's revenue is impacted by premium growth. Mann explains that while the company has historically grown during both hard and soft markets, they must continue to innovate and deliver value to customers to sustain growth.

The questioner asks about the company's quarterly guidance and the possible slowdown in adjusted EPS growth in the second half of the year. The company's CFO responds by mentioning seasonality in margins and the intention to invest in the business. They also mention the tax rate and certain benefits in the first half of the year that may not continue in the second half. Another question is asked about pricing and the company's net written premiums for 2023. The CFO responds by mentioning the company's 3-4% pricing target and the potential for being at the higher end of that range.

The speaker mentions that they will not go beyond the guidance statement they have provided. They also mention that pricing is influenced by premium growth and psychological factors, but the most important factor is providing value to clients. They then ask Saurabh Khemka to share how clients perceive the value of their investments and he mentions that clients have given positive feedback on their content and technology innovations.

Customers are pleased with the new insights and efficiency tools provided by the company. The company has been flexible in delivering their content to cater to the needs of different customers. Two specific examples of product innovation are the update to the Mozart product and the Experience Index, which provide value to customers in managing policy forms and providing timely information for underwriting.

George Tong from Goldman Sachs asked about the decline in transactional revenue in the second quarter and if there were any unusual factors that contributed to it. The company's CFO, Elizabeth Mann, responded that they remain active in M&A markets and are looking for unique opportunities that would benefit their insurance end market. She also mentioned that there were no specific headwinds to note and that the decline in 2Q may not be indicative of future trends.

The company's transactional revenue has some variability, but it grew in the second quarter compared to the first quarter. The company has launched a new Experience Index, which has received positive feedback from customers and has the potential to become a new revenue opportunity. The index provides more frequent and current data to customers.

The Experience Index is a tool that helps customers benchmark their experience in the industry and make better decisions. Customers have responded positively and are asking for it to be expanded to other lines of business. This is a result of a Voice of the Customer exercise that identified the need for more investment in data and insights. This creates value for the company and there is an appetite for more data from clients. The second theme from the exercise was for more insights, specifically on emerging issues and trends in the industry.

The paragraph discusses three key themes that have been identified by clients as important for the company to focus on. These include enhancing data analytics, improving efficiency and ease of operation, and connecting the ecosystem. These themes have been identified by listening to clients and understanding their expectations from the company. The paragraph concludes with the operator announcing the end of the Q&A session and the conference call.

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