Hello, and welcome to the Ultimate Services Investor Conference. I'm Alex Hess with J.P. Morgan, and we are here today with Elizabeth Mann, the CFO of Verisk. Elizabeth's been in the role for what? Just over a year now? That's right, 15 months. Excellent, and we're so excited to have you. So I want to maybe just start. Organic revenue growth has been quite strong year to date, and I'm under no illusions that you guys flipped a switch, and all of a sudden, we're this 9%+ grower. But you know what? Maybe it is a step back. What has changed? Yeah. While we'd love to take credit for it as a new management team and say it was all flipping a switch, as you say, that's, it's never, it's never that easy. I think you're seeing a couple different things manifest itself in the strong revenue growth this year. And let me start with, you know, you really see it on the transaction revenue growth, which is only about 20% of our revenue, but has been up double digits each of the quarters this year. And some of that is just a sort of generalized recovery comparing to weaker transactional revenue in 2022, which was still experiencing sort of a post-COVID downturn. But there's a couple other environmental factors that have driven, particularly that transaction growth, and then I'll turn to subscription after that. On the transaction side, you know, you've heard us talk a lot about the performance of the auto underwriting data products, and that's due to strong consumer shopping, insurance shopping behavior as the pricing on car insurance policies have increased dramatically this year. So that's been one strong sort of environmental tailwind manifesting in our transaction revenue. Also, on the auto side, we've got what we call a non-rate action deal with a large national insurer. We can talk more about that in a bit. But that's sort of a unique one-time tailwind this year. The other elements have been, you know, strong weather activity. While 2023 has been unique in not having a single kind of large hurricane, like Hurricane Ian was in October of 2022. At the same time, the level of localized weather activity has been high, and the Verisk PCS data is tracking for, you know, the highest-one of the highest natural catastrophe years on record in 2023. So those have been all contributors on the transaction side. And then finally, on the subscription side, the pricing environment has been a constructive environment. You know, generalized across all industries, you've heard people talking about inflation and pricing. Specific to the insurance industry and what drives our revenues, you know, the strong net written premium growth, particularly even, going back to 2021, has been a driver on some of our contracts in 2023. Then finally, despite some challenges in the environment, the actual experience year to date of liquidations or large mergers has been less than historical average, so that has been a benefit for us in the sense of an absence of something that's a typical headwind. Got it. Maybe we'll ask the narrow question, then we'll go to the broad question. You know, you cited the auto underwriting data that you have has been sort of a big, and I believe the biggest sort of year-on-year transactional growth piece. You know, you've never framed the revenue contribution from auto underwriting. How much, I'll just ask it outright, how much revenues are you earning from those underwriting solutions, like LightSpeed? And you know, how or how much are they up year to date? Can you give investors some sense for how to conventionalize this? Yeah, we haven't broken it out separately. The, you know, the auto piece sits inside that underwriting data products where we gave kind of the annual pie chart disclosure at our Investor Day. So it's a, you know, a meaningful part of our underwriting business. We've also said in the past that revenues from the end market, from the auto insurance end market, is a ballpark of 10% of our revenues. That covers some of those data products, but also data in the anti-fraud, anti-fraud and other forms, rules, and loss cost areas. I'll try, I'll try it one other way. Yeah. If we were at roughly 10% a year ago, at the end of 2022, where are we year to date as a percentage of total revs? For those of you listening in, she shrugged. We're not getting that one today. Okay, so back to a big picture question. You know, we are in an environment where there have been elevated profitability pressures in parts of the P&C insurance industry, and I'll oversimplify by saying it seems to be in part due to higher rates of inflation, as well as climate change. How does the operating strategy at Verisk evolve sales, product, client service at with various stages of the P&C underwriting cycle? Yeah, it's a great question 'cause you're right that the end market, the insurance carriers are challenged. If you think about the inflationary environment, the cost of most claims that they might have on policies that they might have underwritten are coming in higher than they might have expected at the time, and that fundamentally is causing their profitability challenges. For us at Verisk, it's in some ways a challenge if our customers are under some pressure. But it's also a good catalyst for them for action and for them to be thinking about Verisk as what we were originally created to do, which is to help them better use data and analytics to price and select risk appropriately, and to more efficiently process claims and identify fraud. So what does that concretely mean for us? It means that there's an opportunity for us to pivot to products that are going to help them deliver immediate returns. You know, the non-rate action deal is a good example of that. When, you know, in 2022, auto carriers were challenged for the inflationary reasons we were talking about. Their claims became much more expensive than they'd seen when underwriting the policy. In order to compensate for that, they typically raise premium rates. That needs to get approved by regulators in each of the 50 states, and it took a while. We're now largely through that pricing approval cycle, but it took a while to do so. As they were trying to think about how to do that, it became a good point for a product for us, which is almost a defensive product. So a non-rate action deal is a non-rate action is when an insurer can find a reason, a contractual reason, that they should be getting more premium from a customer that's not actually a rate increase. And so on the auto side, the typical example is if you have a teenage driver who is now driving your vehicle at your home, you may or may not have reported that to your car insurer. On the other hand, it's public record that there was a 16-year-old who is now has a new driver's license. And so they can, they can search through their book for places that are not getting enough premium. That seems like a no-brainer and immediate, you know, value delivery to the, to the customer. There's many other examples that we have of products that are designed for that. The XactXpert tool in our property estimating solutions helps them, deliver and build more rules into the pricing assessment. It helps their contractor workforce and the insurance carriers, the insurance adjusters, work much more efficiently with rules-based engines that help them identify the Xact right pricing for an individual claim. You know, the Discovery Navigator, which is automated review of medical files for workers' comp, has an immediate efficiency for them in terms of the use of skilled workforce, medical professionals and lawyers that are reviewing those files. So any products that can deliver that immediate ROI are the right, you know, the right things at the right time. And the shift on us is to make sure that our product development is focused on delivering products that can be used very efficiently by our customers, that don't have a long implementation or investment cycle on the part of the customer. And our go-to-market should be focusing, you know, with the mind on that kind of defensive environment. Great. Great. So look, I, I think, you know, for those of you who are interested, we, we maintain a product sheet on Verisk, and, and, you know, can, can dive in on some of these products. But really, some of these new products have, have truly really compelling data behind them, the non-rate action deal being a classic example. Verisk have been upgrading in their core, in the core, the forms, rules, and loss cost business, the contributory database there as well. You've been adding new contributors, increasing the quality of data. Can you give investors a sense, within that core, you know, what percentage of clients are, are data contributors? How has that figure evolved? What's the North Star? Yeah. We don't give a sort of percentage of customers that are data contributors, but we do have, you know, very wide contribution across the industry. One thing, the data point that we have given is that we've gotten 100 new data contributors over the past couple years. I was pretty impressed to learn that, because it can be tempting to think about the core products as very mature and established. But this, to me, is the data point that says that they continue to expand, that customers continue to see the value of contributing and partnering with that data set, that they're opting in more and more rather than leaning back. Got it. So we've got 100 new contributors on the forms, rules, and loss cost sort of core data set. You guys have also put the forms, rules, and loss cost business, the whole business, I should say, in the public cloud, and we are now taking those two efforts together, a third of the way through what you call Core Lines Reimagined—sort of a, an effort to enhance this whole business. So while a lot of back-end work's been done, can you give investors a sense for plans to update your client platforms as well, ISOnet or parallel platform? Any sort of other things they should be mindful of? Yeah, yeah. Core Lines Reimagined is sort of an umbrella name for a series of actually 20 different initiatives working on that, that, you know, the heart of our forms, rules, and loss cost business. Some of it is on the data side that I referenced. Some of it actually shifting that contributory database to the cloud was almost a precursor to that, to that five-year program. I think we said we spent five years kind of moving that database to the cloud, and we've just finished that part. Yes, there is a new customer platform that is built. It is sort of in beta and trial mode, so you know, select customers are testing it out, are giving feedback, are starting to shift their workflows to the new platform. And then it's gonna be sort of modular, so you'll start to see more and more features shifting to that. You know, and another element of that is we're bringing kind of more thought leadership making that more accessible on the platform. And one of the things we're doing is creating some industry reports with the aggregated data that we have. Despite sort of having that data, we haven't necessarily focused as much on kind of reporting it, highlighting it. And for select customers now, we can do individual benchmarking reports and assessing how do they compare against the industry-wide data, which has been incredibly valuable for them and really enriched the dialogue with Verisk. Those benchmarking reports, correct me if I'm wrong, the way you get those is by being part of the contributory database. Yes, exactly right. By being a data contributor. Yes. Yeah. Got it. So that's, that's sort of, you know, a nice little flywheel. So, just staying on that point, maybe with ISOnet, you know, a lot of clients are built on top of that. Whole insurance carriers, household names built on top of ISOnet. Will you be running a parallel structure and in parallel, be maintaining ISOnet as sort of as exists? For some time, yes. That's very helpful. I want to turn to the NPS score. One of the great ways that sort of Verisk—you know, we talked about the environmental factors that are helping revenues in 2023, but I think you'd agree that it's not just an environmental case, it's—there is a, you know, sort of consistent value growth you aim to deliver to your customers. Verisk last disclosed in the first quarter that their Net Promoter Score was 47. How has that score tracked over the subsequent six months, and maybe where is the ceiling, if there is one? No ceiling that I know. We'll keep growing it as much as we can. We disclose it annually, I think, in our CSR report, so we'll, you'll get next year's number then. We certainly are working on it being robust. What I can say anecdotally is, you know, the engagement with the industry, with the environment, we've talked on our calls about a number of conferences and industry events that we've had. You know, I was at the Verisk Insurance Conference in London. We've done, we, you know, we did a dinner then. I was just at a dinner last night with a bunch of insurance industry CFOs. And I think there is... You know, again, this is anecdotal, but I think there's a welcome, you know, that engagement is welcomed. We're getting really positive feedback on the conferences. We had to kick people out of the happy hour at the London conference. So, we think the engagement with our customers is positive. Okay, and I presume they were kicked out of happy hour for overcapacity reasons- Yes. - not for anything else. Time, time was up, but they wanted to keep talking to us. Great. That's all. So on your last earnings call, your CEO, Lee Shavel, for anybody who's newer to the story, cited opportunities to leverage Generative AI within underwriting products and solutions. You have a new solution at Discovery Navigator that has some Generative AI elements actually built into it. So stepping back, should Verisk be seen as a major Gen AI beneficiary? And how should we think about the timeline for future deployments? Yeah. Good question. A beneficiary of Gen AI, I mean, nothing's gonna, nothing's gonna fall in our lap by any means. But, so, you know, we can't just sit there and wait for some magic to happen. But, but opportunity coming from it, definitely, and it's, it's opportunity that kind of falls at the heart of, again, what, what Verisk was created to do, which is to sort of invest on behalf of the industry. You know, I talked about our industry engagement, and our, our CIO has done a number of, insurance industry CIO conversations, and he remarked the other day that six months ago, people were aware of gen AI, but a little cautious and unsure of what it meant for them. When he talks to them now and this month, there's very much a sense of the, you know, "This is real. We got to be doing something. I'm not sure how I'm gonna do that. I'm not sure with my profitability challenges exactly what I can do. But boy, if you bring me a product, I'd be pretty interested in learning about it." So, it's very much an area where the appetite is there for us. In terms of what we're doing about it, you know, we started first with the focus on, sort of integrity of data, privacy, fairness. So we started very much with our general counsel, deeply involved in how we were going to engage in trial, even trials on the products. We are not using public versions that we—you know, we don't have employees sitting there going into ChatGPT. We've now licensed fully private versions of all of the top tools. We then kind of focused on inventories of use cases and coming up with ideas. Where did people see, you know, products, ideas? I think the Discovery Navigator example sort of came out of that. And so we're now in a place, and Lee highlighted that, where we have some examples of that we really think have interesting opportunities across some in underwriting, some in life. You know, the Discovery Navigator one is in claims. And we're sort of at the stage of, okay, now let's try to map out some POCs, let's get some customers involved, let's trial some stuff. So it's very early experimentation days. I think it's, you know, not ready to kind of, we don't know yet the timelines of products, let alone, monetization of those, but we're pretty excited about it. Got it. So on monetization, you know, key question for us for all, yeah, the info services firms here today is thinking about will Gen AI products be sold separately with their own separate pricing or bundled and sort of, you know, maintain that and expand that price to value gap? I presume we're not gonna know more today. Is that fair? That is fair. Yeah, no specific announcement. I think it's probably fair to say that may differ, you know, again, in our diversified business, and we have a couple different products. So there may be areas where it's a separate module or an upsell. There may be areas where it ends up baked into the core product. Got it. So yeah, that's very helpful. Second question on Gen AI, which is, or third, I guess, which is the P&C insurance industry is often pretty slow to modernize. Will Gen AI be different, or do you expect this to sort of be, be similar? My guess is that you're, you're right, it will probably be similar. You know, I joke, many of them are still, are still focused on migrating to the cloud. And we also, we also need to be in a place where, you know, readiness to use the Gen AI, we need to be in a place where data and data structures are, are structured, are accessible, are online, are, are organized. And so that, that may be some work on the part of our, of our customers. I think, though. And then the, the other area of concern with them, obviously, as carriers, they have a lot of, of PII data. They have a, a tremendous focus on reliability. So I think the, the obligation of proof, if you have a solution that's based on Gen AI, that it is auditable, that it is fair, that is, it is, you know, not producing any hallucinations, is gonna be tremendously important, for them. I think if, if within those constraints, if you can innovate and, and develop a product that is- that can kind of prove out those proof points, then, I mean, in some ways, in some ways, maybe it can help them leapfrog some, some legacy tech. Got it. So we've talked about one specific area of prospective investment, but maybe thinking about Verisk's investment plan, organic investment plans overall, how do you plan to balance making investments in areas like Gen AI, but not exclusively Gen AI, with meeting Wall Street's margins expectations for 2024 and beyond? Yeah. Good question. Look, when I came onto this job, we already had some publicly stated margin targets out there, and so it was clear that we were signing up onto those. Those are an important, I think, proof point and credibility for us to the street, that we can set some efficiency targets, that we can operate efficiently. And so we are, you know, fully committed to delivering within the range that we've talked about. You know, having said that, you know, the margin expansion targets, you know, we've been tracking at a pace of about 150 basis points margin expansion per year from 2021- 2024, as part of those targets. You know, that, that may not be the trajectory that you should or should want to expect from us going forward from there. So there are, you know, there are investment opportunities, and so what is absolutely an obligation for us is to continue to operate efficiently and drive operating leverage in our core business, and then operate efficiently and scale well in our growth businesses. There's gonna be a mix shift as we invest and as our higher growth but lower margin businesses become a bigger part of the portfolio. So that's gonna be one of the things that we'll continue to do. Assuming we are continuing to operate efficiently and deliver, again, within the range and context of the margin targets that we've put out there, we think, in general, in the industry, there's more focus and there will be more value created for shareholders if we continue to focus on the long-term growth and sustainability from a revenue perspective. If I were to distill those comments into sort of, like, the core point you just made, which is: We're gonna get to 2024, our aim is to hit our margin targets, and from there, you're gonna sort of see a healthy balance of operating leverage with organic reinvestment into high, high growth parts of the business, consistent with, with what you've laid out in the past. Is that a fair framing? Yes, that's a good framing. Got it. So I do want to cite maybe since you one of the ways you're getting to these higher margins are through explicit cost actions. You have a savings program out that's largely gonna be done this year. But there's an aspect that's sort of a bit of a tail here, which is, you know, and cited on the last earnings call, which is moving the global talent outsourcing program. You know, what share of employees are presently in low-cost jurisdictions? And, you know, if I just think about it organically, like, where could that number go as you grow and the incremental person is maybe located outside the U.S., and you know, also there's natural employee churn. So just thinking organically, where could that number sort of. Where is it, and where could it go? Yeah, I think, I think we talk about it. You know, we've done, we've done a significant amount of global talent outsourcing, and that's been part of how we have delivered the margin expansion that we've gotten to so far. I think we do continue to see opportunity. I think there's good traction. We have some offices in India, Krakow, Nepal, Malaga, Costa Rica, are our main sites. Different businesses work with different teams, but I think it's been really positive for the business. You know, very strong, and strong, positive employee engagement scores in those regions, and the teams are working well together. So I think we can continue to do some of that. There will be some constraints on how much, how much we can do based on data rules and data usage rules for our customers. There's certain cases and parts of the business where the data needs to reside in the U.S. or in certain jurisdictions. So that is somewhat of a constraint for us, but we're not close yet to hitting that cap. Got it. That's very helpful. Didn't know you guys had an office in Nepal. Yeah. So, let's maybe shift gears, with five minutes left, to capital allocation. Verisk's Pro Forma insurance-only ROIC, ROIC, was 27% last year. I think we can agree that's a pretty high figure. But how do you sort of, how many opportunities to deploy incremental capital are actually accretive to that number? And how do you sort of figure out what is actually accretive to such a high bar? Yeah. So one important philosophical point is that in order to be creating value, we will be making value-accretive investments as long as their incremental ROIC is higher than our cost of capital. Ah. It doesn't need to be higher than the 27% overall. Which, if that was our target, then you're right, we might not be able to do anything at all. So we're targeting the cost of capital, Fair .. to exceed that, and that over that will create value. Fair. Fair. But you are, you are benchmarked on the incremental return on invested capital? Yes, that's right. I presume it's not, which is, I presume, a percentage figure, not versus the cost of capital, but just sort of an absolute percentage figure. How do you ensure alignment between you and Lee and the other named executive officers who have that unique incremental ROIC target and the rest of the organization? It just seems it's a little hard to go out there and be like: "Hey, you know, employee X, I gotta get the three-year incremental return on invested capital up. Like, let's do this action that's, you know, gonna be a lot of work." How do you sort of motivate people down the right? Yeah. Well, one important thing to note is, you know, that those ROIC targets being at the NEO level, you know, those are probably the folks in the group of people that is deciding, you know, M&A or not, should we buy this business or not? So that's an important kind of focus for them. But for the businesses. For the whole business, as you say, for the rank and file employees, first of all, they're, you know. I think everybody's excited to be in a business that is working well, and I think people are responding to sort of the high energy in the business. You know, everyone does have financial targets based on, you know, based on revenue and, and EBITDA, and so those financial targets are, you know, will naturally flow into the ROIC, even if, even if those people aren't necessarily controlling the M&A decisions or capital allocation decisions. Got it. And do you feel that, you know, you're going this whole discussion, but do you feel that employee morale is quite strong and that everybody's well aligned with the new Verisk and. You know, there's been a lot of change. Yeah, there's been a lot of change. We're pretty happy. You know, employee engagement scores this year were up, you know, slightly versus last year. You know, they were already fairly high, but it was definitely a positive direction in a year that has had a tremendous amount of change. With, you know, over 7,000 people, you're never gonna get unanimous agreement on anything, but we're pretty excited that there's a lot of energy. Elizabeth, this has been year two of us having you here at this conference, so we're all looking forward to year three, but when Verisk and J.P. Morgan have this fireside chat again next year, what is something that isn't fully on investors' radar that will be highly impactful to the firm at the- Yeah. Good, great question. Part of it - I think part of it is the continued trajectory and opportunity of sort of digitization and better use of technology among the insurers. I think another one, and a trend that came up with a bunch of insurance CFOs last night is, you know, the trend and pressure on social inflation, and high degrees of litigation around insurance has been a source of pressure for them, and one that they are wondering if there can be, you know, any regulatory impact on. Thank you so much for your time today. Thank you, everybody, for joining us.