Okay, let's go ahead and get started. Good morning, and welcome. I'm George Tong. I'm the Business Services Analyst at Goldman, and I'm really pleased to be joined by Elizabeth Mann, CFO of Verisk. Elizabeth, thank you for being here with us today. Thanks so much for having me, and thanks everyone for joining and listening. Okay, so let's start with strategy. Over the past, recent number of quarters, Verisk has streamlined its portfolio by divesting financial services and energy from the portfolio, such that it's now a pure-play insurance company. Are you happy with where the portfolio is, or do you see additional opportunities to add to or subtract from the portfolio? Great question. We are really happy with the portfolio as it is today. We always are active in the market and, you know, thinking about potential acquisitions and investigating our own portfolio. But we're very happy with where we sit. We think that now is an exciting time. There's a secular opportunity where the insurance industry is at a moment of change. Insurance is a very gradual moving industry and may be one of the last industries to really dig into the technological revolution. Mm-hmm and the opportunities for them. What the insurance industry needs to do after several years of profitability challenges is to best use data and analytics to select the right risks and to price them appropriately, and then to manage their own workflows the most efficiently, to process claims efficiently, and to fight fraud. Those are exactly the reasons that Verisk was created as a consortium out of the industry. Mm-hmm, mm-hmm in the 1970s, but the way that we can help those do those things in 2024 is so much more exciting than it was then. Right. Now, you've historically focused on serving the P&C market, but recently you've expanded a little bit more into life. What has driven the historical focus on P&C, and why the recent interest in life? Yeah. So the historical focus on P&C really came from our founding in the '70s- Mm-hmm ... which was a function of the fact that the U.S. P&C industry is very fragmented, with no one player having significant market share, and with regulation taking place at the state level across each of the fifty states. The carriers, the P&C carriers realized that they needed to. In order to underwrite risks, they needed to understand not just their own loss historical experience, but those of others in the industry, to be able to better aggregate and get the best actuarial experience. Mm-hmm of losses across the country. So we started as that give-to-get data model- Right of the P&C industry, and so our strength in that industry. So those businesses are still with us today- Mm-hmm ... again, in a very different form than they were then. But those historical ISO businesses form about 40% of our revenues today. Mm-hmm. Off of that phenomenal base, deeply embedded in the industry, we've built on some other great businesses over time, so some of them by acquisition, some of them organically. Mm-hmm. They initially kind of centered around that, that heart of the data in the U.S. P&C industry. And so it's been more recently that we've looked at other data or analytics or, or technology opportunities that could be more adjacent. So some of the more, areas that we've gone into have been, we have a, software, a SaaS business in the that serves the life insurance industry. Mm-hmm. We've been moving internationally in a couple different areas. Right. Now that you're a pure play insurance data and analytics company, certainly insurance end market trends are a key driver of the business. How would you characterize the health of the insurance end market? What are some of the puts and takes? Yeah. The insurance industry, I would say there were a lot of challenges in 2022, and for parts of 2023. They have been undergoing profitability challenges with fairly high degrees of losses. I'd call out, in 2022, the auto insurance had significant losses. In 2023, the weather activity was fairly elevated and caused severe losses on the property side. Mm-hmm. You have seen carriers, the way they have to respond to those losses is by better pricing the risk that they are taking on, and so you have seen them increase premiums throughout 2023 and 2024. Mm-hmm. So and you may, some of you may have experienced that as a consumer on your, on your own policies. So I think the industry has been, they've been seeing that premium growth, it is what we would characterize as, quote, "a hard market" in the insurance industry, with premium growth increasing in the 8%-10% range on average, throughout 2022, 2023, and from what we can tell, on 2024. Yep. So that's that. I would say in 2024, as you listen to the insurers, they feel like they are starting to achieve rate adequacy, so they are feeling like they are achieving a better balance of pricing and the risk that they're taking on. Mm-hmm. But they continue to be concerned about trends. We talked a little bit about property trends. I think they are also very concerned about trends around what they call social inflation. Mm ... which is the rising cost of litigation, and settlements, in lawsuits against the insurance industry. Got it. Now, Elizabeth, you've been CFO of Verisk for now two years. Aside from the portfolio rationalization, what has been the biggest change you've observed with the company, and what are some of your top initiatives going forward? ... Yeah, great question. So yes, we one of the changes was to focus as a pure play insurance data and analytics player, and kind of laying out the strategic vision at our investor day in March of 2023. We continue to execute against that strategy. I think the other two changes that I would highlight, Lee, as CEO, who came in kind of just before I joined, has pushed the organization to be a much more client-focused organization as opposed to product focused. Mm. And we have significantly increased our engagement at the strategic and C-suite level of the insurance industry. I think that has driven both, better dialogues with our customers, and that is benefiting us both on the product development and innovation side, for us to be very well in tune with our customers. Mm-hmm -and what the industry needs. And I think it is also benefiting us on the sales side and on the pricing. Mm-hmm. Got it. Let's talk a little bit about revenue trends, starting with the subscription side. So subscription revenue growth in the second quarter was around 8.3%, accelerated fractionally from, I think, 7.8 in the prior quarter. The drivers appear pretty broad-based, with respect to subscription. Do you see room for subscription revenue growth to accelerate further, or are there certain considerations that might limit further acceleration? Yeah. So our long-term revenue, you know, revenue guidance range is in the 6%-8% organic. That is very consistently what we have delivered in the 15 years since our IPO. And what we... You know, that's kind of our view for the future. We are excited about the opportunity in front of us. And some of the drivers of strength, as you asked on the subscription growth, have been in our core business, our forms, rules, and loss costs business, which goes back to that ISO consortium model. There's a lot of exciting opportunities in there to deliver that data in a quicker way, to deliver more actionable insights, and to increase the ease of use of that for- Mm -for ourselves and for our customers, which will significantly increase the efficiency at the customer side. So there's a huge value proposition to be had there. We've been investing for two years in the program to do that, which we call our Core Lines Reimagine program. Mm. We're sort of two years into the five-year investment cycle, and that is starting to bear fruit. Starting to bear fruit both in launches of a new platform and new products for customers that are bringing more real-time insights out of the data, and starting to bear fruit, we think, in the pricing that it's being able to deliver. We are proving out the value proposition to our customers, who are excited about what we're gonna continue to deliver. Got it. Now, a portion of subscription revenue growth is driven by net written premium growth. So the subscription revenue growth in 2025 would be influenced by 2023 net written premium growth. So how did net written premium growth perform in 2023? Should this be a headwind or a tailwind? We expect that it will be a tailwind. I referenced it in talking about the industry, that these are years of a hard market from an insurance perspective. So premium growth, I think for 2023, was about 10%, according to AM Best. Mm-hmm. That is, that is a benefit to us because some of our contracts have a linkage to net written premium growth. That's because the expectation was set that we grow as our customers grow, and that they're using our data and analytics to support their own growth in the business. But we are not sitting back and just kind of waiting for premium growth to flow in to drive our revenue growth. It is very much on us during a hard market and potentially even in softer markets to be engaging with the customer mainly about the value proposition that they're getting from our products. Mm-hmm. So that's how we continue to drive growth and will continue to drive growth even in markets that aren't quite as hard as they are today. Right. Can you describe the relationship of net written premium growth and the subscription revenues? How much of it is contractual, the proportion of contractual, and how much of it's more indirect? Yeah. So there is a portion of it that is contractual, but even contractual, it is not formulaic- Mm ... it is an input. So for historical reasons that George can explain as a follow-up, there is. Some of our contracts have a linkage to the net written premium growth of that particular customer two years prior. Mm. and we say that's about 20%-25% of our revenue. Right ... has some linkage there. Mm-hmm. Again, I would comment, that is an input into the discussion. There's other discussions that then go into that price negotiation- Right ... including, particularly other products, cross-sell and upsell, the data contribution from our customers to us. So it is a significant negotiation that comes out of it. Got it. Let's talk a little bit about transaction revenues. Very, very topical, of late. So transaction revenue performance inflected to a 3% year-over-year decline in the second quarter from 3% growth in the prior quarter. How much of this inflection was driven simply by tough comps related to the auto sector and weather versus a fundamental shift in the business? Yeah. So a couple different things. First, while, yes, there was that change in the growth percentage, the actual dollar numbers increased from the first quarter to the second quarter. So you can't say it's a deterioration of the business, given that the dollars are stable to slightly up from the prior quarter. So it really is a function of the year-over-year comp. Mm. Now, throughout really the first three quarters of 2023, and in the second quarter in particular, we talked about some of the unique trends that were driving the strength in our transactional revenue, which was double digit. You know, it was low teens growth for the first three quarters of 2023. We called that out at the time as unusually strong, and it was driven really by two key environmental factors. One was the very high weather activity that was taking place throughout 2023, in terms of severe convective storms. Mm-hmm. Tornadoes, hailstorms, sort of localized weather patterns that drove a significant amount of insured losses. The second factor that drove transactional revenue strength in 2023, and therefore headwinds this year, was on the trends in the auto insurance sector, where consumer insurance shopping was very high. Starting in the first quarter of 2023, that has persisted throughout, but we have a product called LightSpeed that helps carriers deliver a bindable quote in real time to a consumer who is shopping for auto insurance. What happened in early 2023, and again, many of you probably experienced this as consumers, because of the profitability challenges and the high losses in 2022, auto insurance carriers throughout the country had to significantly raise rates and raise premiums. What happened there is that that drove consumers to start shopping online for more, more auto insurance. There ended up not that many of those consumers shopping actually ended up switching, because unfortunately, they couldn't find a better deal, in most cases, they couldn't find a better deal anywhere else. This is a nationwide problem. Mm-hmm. That trend in the auto insurance, as well as a product that we had, a one-time annual project that we did for a customer, called a non-rate action deal with our RiskCheck product. Mm-hmm. That was a one-time contract in 2023 that was listed as transactional, which did not repeat this year. Got it. So would you say that the inflection in transaction revenue performance in the second quarter was a surprise internally to management, or was it completely as expected? So any good CFO and any good management team is thinking about a lot of scenarios. So there's a lot of things that you could say that happened that were, you know, not unexpected. Yeah, I think we called out at the time the headwinds on transactional growth. We called it out after the first quarter and tried to remind people that it was a tough comp. Mm-hmm. So no, I don't think it was a surprise, and I will further say that you know the headwind transactional growth was also strong in the third quarter of 2023. And so the headwinds that existed in the second quarter also exist in the third quarter. Right. Yep, makes sense. Well, on that note, how long would you expect transaction revenue headwinds to persist? Is it simply a function of the comps, like you say, and when would you expect the transaction revenue performance to inflect back into positive growth territory? Of course, transactional revenue inherently is the one that is more hard to predict. Mm-hmm. It's why we, you know, we don't give forecasts on a subscription versus transactional basis. Our annual guidance is based, and our long-term guidance is based on revenue growth overall. Mm-hmm. So, so I won't give a specific answer to that, but the trends that we are seeing. Look, the auto shopping, it is a headwind to last year, but actually the activity remains quite high. So, that would tell, you know, the headwinds to last year will persist on a one-year basis, and the headwinds will get harder if the shopping actually normalizes to more normalized levels, which we expect to happen sooner or later. So the auto activity will be a headwind for the next year. Mm. The piece that obviously is much harder to forecast, and we do not try to forecast or predict for it, is weather activity. Right. You know, 2023, again, was a very high year in terms of weather and insured losses that's associated with weather. Our revenue probably correlates with the insured losses on the weather activity, not just weather activity itself, because we are earning revenue when we help carriers and contractors process claims and do the workflow associated with property repair after weather. Right. Let's switch gears and talk a little bit about your approach with GenAI. Verisk has been investing lately a lot into introducing GenAI features into its products. Can you explain your overall approach with GenAI, and also whether the regulated nature of the industry impacts how you deploy GenAI? Yeah. GenAI is a really exciting opportunity for the insurance industry. It will take some time to play out. Let me start with this framework for you, which I found very helpful. I heard one framework, which is when you think about GenAI, and when you think about how it's impacting any company that you're looking at, there's three questions you should ask yourself: What's the impact on revenue? Or rather, is it a revenue opportunity for you? Is it a cost and margin opportunity for you? And what are the disruption or disintermediation threats to you? And so for us, the simple answers on that framework, yes, we think it's a revenue opportunity, but it'll take a little time to play out. Is it a cost opportunity?... Sure, there's always opportunities for folks, but it is, that is not a major, that's not a transformational change for us. Mm. We already have 54% margins, and we have no real pockets of heavy people-intensive workflow, so it'll help our software developers get more efficient, but not looking for a big step change there, and then is it a disruption and disintermediation concern or threat? It's something we think about a lot, but we do not think it is a major disruption threat. The reason for that gets in, in one case, to your regulatory concerns around GenAI. Insurance is a highly regulated space, regulated in each of the 50 states. They are beginning to think through their GenAI framework, but there is tremendous concern on the part of the carriers themselves and the regulators on auditability, traceability of data, data use and data protection, data sources, and equity and ensuring that there's no discriminatory outcomes. Mm In insurance algorithms. All of those things, because they're such a high concern, require trusted parties at the table. And obviously, we have a fifty-year relationship with the regulators and with the industry, that is going to come into play in whatever innovations take place on the GenAI side. And we have the internal... And as many people have commented, GenAI favors the models rely on having large amounts of data. Right. We are the one that has the data. So that's not that we see immediately on disruption risk, only slightly on cost opportunity. Revenue opportunities, very exciting- Mm. and that's where we're working, that's where we are investing and spending time with our customers. We have a couple of products that are already in the market that include some GenAI tools in them. Those are just the ones that were first and the most immediate opportunities. Long term, we think there's a lot of opportunity for the insurance industry to change its workflows to be more efficient, and we think we can be a part of that, and helping them through using that GenAI. Right. On that, on that point, what are some examples of recent products that have incorporated GenAI capabilities? Yeah. There's a couple. One that we're really excited about is our Discovery Navigator tool, which helps carriers process workers' comp claims. In the casualty space, when there is a workers' comp claim, what the insurance carrier needs to do is review the medical file associated with the injured party. That is a, you know, can be a 400-page document with unstructured data, scanned doctor's notes. It also, by the way, can include the medical history of the injured party, which may or may not have to do with the actual incident. Mm ... being, for which the claim is associated. So, we have a Gen AI tool. Actually, even before large language models became a thing, we had an AI and machine learning-based tool that would extract from that large medical file, where are the diagnosis codes? The carrier, the way the workflow would work at the carrier is they would have a medical professional and/or a legal professional review that 400-page document. We can identify for them which are the medical codes, the diagnosis one, so that they can hop to the places that are most relevant. Mm-hmm. Now, with GenAI, we can build better summaries, executive summaries. So we can speed up the processing of that file from several hours to, you know, minutes, and that is significantly improving the efficiency for our customers and for ourselves. Right. You mentioned there's an exciting revenue opportunity from GenAI. How do you expect to monetize these new GenAI capabilities, and over what time frame would you expect GenAI-related revenues to be material? Yeah. So that, you know, this product, as I said, is in the market. It's included in our guidance today. You know, it's you know, this product is just starting off, so it's the numbers are still small. I think as I said, because of. So there are bigger and more transformational opportunities for the industry, but given all the concerns I highlighted and the fact that the industry is just starting to focus on the governance regime and the use of GenAI products, and some state insurance commissions are just putting out frameworks for the usage of GenAI in insurance. So I think it is early days. We haven't quantified it yet. Got it. What do you envision the monetization to be consumption-based, seat-based? What are your thoughts around the framework for how you earn money from GenAI? Great question. That'll depend on the products and how the products actually evolve. Mm. We have today very little that is seat-based. Mm So I think that would be not necessarily the most natural development for us. Right. But we'll see how the products evolve. Okay. How much annually are you investing in GenAI? Yeah. We've talked about it as one component of the investments that we were making this year. But it is... For us, again, the heavy expenses on GenAI, we're not actually- we're not trying to create our own large language model. Right. That's not our expertise. We have licenses, and we use all of the major models, you know, so we've been experimenting with all of them. But the cost associated with it is really based on, you know, will come when there is higher usage, and right now, we are in POC, product development, business development phases. So the cost is primarily our own internal workforce, and the use of time of our technologists, which to some extent, we've added to our teams, but in many cases, it's been reprioritizing our existing- Mm - innovation and business development, technologists. ... Got it. Let's switch gears and talk a little bit about margins. You, your EBITDA margin guidance for 2024 is 54%-55%, slightly below your earlier Investor Day target of 54%-56%. Can you remind us what changed over the ensuing period to result in this updated outlook, and how to think about the framework for margin expansion going forward? Yeah. So we are very fortunate to have pretty strong margins as it is. You're right, actually. You quantified for me, going back to the GenAI question, when the original two years out Investor Day guidance on margins had been 54%-56%- Mm-hmm. The 2024 guidance is 54%-55%. Mm-hmm. So to quantify more specifically, if the midpoint of those two ranges is 50 basis points below where it had been a year prior, the investment in those 50 basis points we called out as being related to investments in GenAI. Mm. investments in our sales force and go-to-market, and investments in our international expansion, which is in, specifically, really headwinds coming from recent M&A in Europe. Right. So that kind of quantifies more specifically the GenAI- Right as one of the components of that fifty basis points of investment. More broadly, as we expand, we think the business can continue to deliver strong operating leverage. Some of that operating leverage, we will use to reinvest in GenAI and other opportunities. But we think we can continue to have margin expansion, with a business, you know, steady revenue growth as ours. Mm-hmm. At Investor Day, we gave our 2025 margin expectations as being 25-75 basis points increase from 2024, and you can think of that, broadly speaking, as a proxy for where we might go from here. Right. Now, your EBITDA margins are already quite high, in the mid-fifties. Like you said earlier, there's not much additional room for headcount optimization. Is there a natural ceiling or plateau for where you think margins can get to, over the longer term? I don't think that there is a ceiling on margins. I think that as I said, I believe that a business like ours, that most businesses really can and should deliver operating leverage over time. What you can imagine about our portfolio as a mix of different businesses in the insurance industry, again, our most core businesses that have been around the longest probably have higher margins on average. Mm-hmm. And some of the new areas of investment, more software-like businesses, more SaaS businesses, and international expansion, those are coming in at lower margins that average into the 54%. In either case, the businesses are scaling margins. Mm-hmm. The higher margin businesses, you're right, it does get incrementally harder to continue expanding, so they. But they are expanding, just at a slower rate. The more growthy areas, as they scale, are expanding margins more rapidly. Mm. So in the aggregate, I think we can continue to expand. Got it. I'll pause there and see if there are any questions from the audience, and we have one there. Let's wait for the mic. Hi. Verisk was, of course, founded on sharing data in the insurance industry. But today, how are you able to keep data proprietary, and so that the newcomers cannot sort of use AI models on the same data? Yeah. So the data that we have, it is submitted. Well, the contributory data in the forms, rules, and loss costs, and the anti-fraud is very detailed and granular data around individual claims, losses, individual policy experience that is submitted from our customers directly to us. So it is not available anywhere else. It's not published or on the web. And there's quite a bit of actuarial in-house work that we do with that data to produce our loss costs. So, it's not something that somebody else could invent or web scrape. In order to get the same aggregate data, they would need to have the same relationships across the P&C industry. Any other questions? Okay. Now, Verisk recently completed an accelerated share buyback program and has over $1 billion of authorization remaining. Can you talk about how much in buybacks you hope to complete in any given year? Yeah. So we'll look at our use of capital, based on our capital allocation framework, and we'll be looking to drive returns. I think our priority. Well, first of all, we need to make sure that we have a strong balance sheet. We do. We are. Our target leverage is two to three times. We are, in fact, below that range today, so that's a benefit. We will prioritize investment in the business, probably organic investment first, because we have been driving such strong returns on the organic investments, like our Core Lines Reimagine program that we talked about. You know, the CapEx for this year, our guidance is $240 million-$260 million. Really, most of that is internally developed software. Mm-hmm. So very little physical CapEx in that. And we'll continue to track the returns on that. We will look at M&A. Again, our filter is businesses that are related solely to the insurance industry. Mm-hmm. We will look at great businesses, data or technology businesses in the insurance industry, particularly ones that have a unique reason for connection with Verisk, where they can bring some value to us in terms of a data set, or we can bring a value to them in terms of customer relationships and exposure, and we've had some good success in those areas, as well as kind of building out some platforms internationally. So those are our M&A priorities, and with those two things, we look to drive returns above our cost of capital, ideally in the double digits range, and then beyond that, we will return capital to shareholders, as we have it, as we don't need it. We've increased our dividend fairly significantly this year, and we'll look to continue to grow our dividend as our earnings grow, and beyond that, we will return via share repurchase or other ways. Got it. And any targets for buyback activity? Any in any given year, do you have an internal target for returning an X% of your free cash flow to shareholders? Yeah, we don't have a metric like that. We will look tactically at the opportunities in any given year. Got it. You talked about interest in insurance M&A involving unique data and technologies. Are there specific areas within insurance that are exciting that Verisk has considered or is considering? Yeah, good question. I think we've had great success. Our life insurance business is a SaaS platform, a policy administration platform in the life insurance space that has had phenomenal success since we, since we bought it. It was growing kind of in the mid-single digits when we acquired it, and that really speaks to the value that Verisk can bring because a small start-up, you know, Insurtech, if you, if you like, can have very difficult sales cycles in being proven out by very large and legacy insurance carriers. When we acquired it, we were able to accelerate that growth rate to being very strong double digits, you know, since then, and that's largely because of the customer validation points that we were able to bring to it. So that's, that's one example. You know, life has been a great opportunity. And then internationally, we've been playing some of that playbook- Mm ... both in the U.K., and centered around Germany, where we have a number of claims technology-based workflow solutions that help carriers process claims. We've made a platform acquisition in 2021 with Actineo. We've been following on with some other tuck-ins that address other insurance products and building it together into a claims workflow platform. So combination of M&A plus, you know, platform M&A, follow-on tuck-ins, organic build, creating a, like, 1+1=3. Got it. Well, looks like we're just about out of time. Elizabeth, thanks for the great insights. Please join me in thanking Elizabeth. Thank you so much. Thanks for coming. Thank you very much.