Verisk Analytics Inc (VRSK) — Q1 2022 Earnings Call Transcript

Thank you, Justin, and good day, everyone. We appreciate you joining us today for a discussion of our first quarter 2022 financial results. On the call are Scott Stephenson, Verisk's Chairman, President and Chief Executive Officer; Lee Shavel, incoming CEO; Mark Anquillare, Chief Operating Officer and incoming President; and David Grover, Controller and Chief Accounting Officer. The earnings release referenced on this call as well as our traditional and 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. Finally, as set forth in more detail in today's earnings release, I will remind everyone that today's call may include forward-looking statements about our future performance. 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. I would also like to note that the financial results for recent dispositions of 3E and Verisk Financial Services are included in our consolidated and GAAP results are excluded from all organic constant currency growth figures. A reconciliation is provided in our 8-K. And now I'd like to turn the call over to Scott.

Thanks, Stacey. Good day, everyone. And thank you for joining us for our first quarter 2022 earnings conference call. The past 21 years at Verisk have been an incredible and rewarding journey. It's been my absolute privilege to serve as Chairman and CEO during such a transformative time for our company. I'm incredibly proud of the growth that we have delivered and the value that we have created for customers, employees, and shareholders. We always deliver this value by acting with the highest level of integrity. Our company's success has always been a team effort. To that end, I'm delighted we have such a deep bench of talent, including our incoming CEO, Lee Shavel, and incoming President, Mark Anquillare, who I know will drive continued growth for our company and Verisk towards becoming a global insurance-focused data analytics solution provider. I look forward to seeing the work that all Verisk teammates will do to drive innovation and growth for our long-term success. As this is my final earnings call, I also wanted to take a moment to thank all the shareholders and analysts that have covered Verisk for your effort and your support over the years. And with that, I'll turn the call over to Lee.

Thanks, Scott, and good day, everyone. On behalf of the entire Verisk team, Scott, let me thank you for your dedication and service to Verisk. We wish you all the very best in your well-deserved retirement. It has been a privilege to work with you and learn from you over the past five years, and I'm fortunate to have your ongoing support and counsel. I'm pleased to share that Verisk delivered solid first quarter results. First quarter organic constant currency revenue grew 5.3% and organic constant currency adjusted EBITDA grew 4.1%. Adjusted for the impact of the suspension of our commercial operations in Russia and higher discrete professional fees, organic constant currency revenue grew 5.7% and organic constant currency adjusted EBITDA grew 6.9%. We delivered solid growth across the insurance segment with the fastest growth reported in Marketing Solutions, International Specialty Business Solutions, Life Insurance, Extreme Events Solutions, and Claims Analytics. We also had solid contributions from our industry standard solutions in underwriting. Within energy, we continued to see improving results across both subscriptions and consulting with the strongest growth in the energy transition, chemicals, and metals and mining. We have experienced softness in certain of our transactional businesses, including workers' compensation, which is experiencing continued weakness as carriers are adjusting to new regulation within the industry. In addition, our property estimating solutions had weaker transactional growth related to a slower storm season versus last year's ice storms in Texas. Finally, the auto underwriting business continues to deal with a lower level of shopping activity. Our results also included headwinds from the suspension of commercial operations in Russia, increased cloud costs, higher discrete professional fees in the quarter, and the partial normalization of travel and entertainment in the post-pandemic environment. We will provide more details on the financial review section of the call. In preparation for officially stepping into the role as CEO over the last 75 days, we have visited our offices in London, Boston, Lehi, Utah, and of course, Jersey City, to meet with the employees and leadership teams of all our business units. Many of these individuals are longtime colleagues, and I'm excited to build on these relationships going forward. In addition, I've had the opportunity to meet with more than a dozen of our most significant customers, some of whom I've interacted with throughout my tenure here. I've long known the valued role we play as a technology partner to our customers, and I'm more energized than ever about the extraordinary opportunity we have to expand the breadth and depth of those relationships. Our value proposition is very clear. Verisk strategically invests in data and technology at scale in order to deliver economic value to our customers through operational efficiencies and better decision-making across the industries we serve. In insurance, our customers look to us to help them better select risk and facilitate the automation of legacy processes to improve efficiencies in underwriting and claims. They also turn to Verisk for support with the digitization of their customer experience and to enable the use of new datasets and platforms for expanded product lines. The development of our Touchstone platform and Extreme Events Solutions, the Lightspeed product suite, and underwriting, and the development of our life business are tangible examples of what we have delivered to clients. In energy, understanding the complex impacts of the energy transition and the geopolitical events continuing to unfold in Ukraine on the global energy economy remains a primary customer focus. There is strong demand for improved data delivery and analytics, and we continue to deliver on that demand for our customers through our Lens platform. In fact, the first quarter was our fourth consecutive quarter of mid-to-high single-digit ACB growth helped by new multiyear contracts with material upsells for customers that are adopting Lens as they recognize the value of this new platform delivers. In both insurance and energy, we benefit from the growing demand for data analytics from our customers, along with their increased ability to ingest and utilize our rapidly growing datasets and technologies to make better decisions and drive operational efficiency. We create lift from these growth engines through the industry scale at which we can deliver greater value per dollar invested than our clients will be able to individually. Growth and returns on invested capital have been and will continue to be the primary driver of value creation for our shareholders over the long term, and my highest priority as CEO will be to continue to deliver on both. We are well positioned in industries with massive opportunities that will require investment in focus in areas where we can maximize value for our customers. It also requires delivering value for our employees and when we rely on their talent, commitment, and effort. We operate in a highly competitive market for talent and must be sure that Verisk remains a very attractive destination for the best and brightest. Moving from our long-term value creation strategy to our near-term focus on the activities we described to drive enhanced shareholder value. I wanted to provide an update on both our progress towards being an insurance-focused data analytics solutions provider and our commitment to achieving margin expansion. We are making steady progress on the separation of the energy business. We are actively engaged in a detailed planning and modeling exercise of the financial, legal, tax, and operational costs associated with separating the business. This analysis will inform the valuation and the transaction structure that we intend to pursue subject to market conditions and shareholder value considerations. Our timing expectations remain unchanged. On our EBITDA improvement objectives, as Mark will describe in greater detail, those still early, we have identified several areas of organic cost efficiencies at the operating and corporate level to drive margin expansion. These opportunities include the consolidation of certain real estate locations, as leases come due, or to the extent sudden lease opportunities are available. The increased usage of our global talent optimization locations for new hires and more efficient technology investments, including the closure of our on-premise data centers. We will also reduce corporate overhead after we complete the transition services agreements associated with the sale of 3E and Verisk Financial Services. As we previously announced in mid-March, the company continues moving towards the goal of being a global insurance-focused data analytics solutions provider. We expect to deliver 300 to 500 basis points of EBITDA margin expansion in the consolidated remaining insurance-focused business by 2024 against a baseline of 50% to 51%, normalized adjusted EBITDA margins, now the 55% adjusted EBITDA margin that our insurance segment delivered in 2021. Indeed, 55% does not represent a normalized run rate for the insurance business as it does not account for a number of offsets, including first corporate overhead costs allocated to other businesses of approximately 200 basis points. Second, the impact of three strategic insurance-related acquisitions made over the last two quarters, approximately 80 basis points. And finally, the normalization for incremental cloud transition and post-pandemic travel and entertainment expenses, for a combined approximately 170 basis points. In addition, investments in new financial and human capital systems will provide greater efficiency opportunities when fully implemented but will pressure margins in the near term, as well inflationary and competitive compensation pressures, but these effects are all embedded in the 300 to 500 basis point target. We should note, the 2022 is likely to be quite noisy due to the impact of portfolio changes and implementation costs, as well as the impact of other environmental issues. As such, we expect the margin expansion to be most visible beginning in 2023 as we move past the timing impacts of the portfolio changes in implementation. Based on our work to date, we are very confident in our ability to achieve our stated target for EBITDA expansion by 2024 as we originally disclosed. Before turning it over to Mark, let me provide a quick update on the CFO search. We continue to make progress and are prioritizing public companies CFOs with operational efficiency experience. In the meantime, David Grover, Verisk’s Controller and Chief Accounting Officer has been acting as Interim Chief Financial Officer and is well suited for this job. I'll now turn it over to Mark for some more color on the insurance business.

Thanks, Lee. Before I begin, I also want to take a moment to thank Scott for all that he has contributed to Verisk. The legacy that you're leaving is rooted in the way our teams innovate and always deliver for our customers. I wish you the very best in your retirement. It has been a pleasure to partner with you for all these years, and I'm excited to build on the strong foundation of success as we move to the next chapter of Verisk's story. I'm pleased to share that the insurance segment delivered another solid quarter. Across insurance, we're seeing strong results from both commercial and personal lines and seeing contributions to growth from our newly acquired businesses like Marketing and Life Insurance Solutions. Within our core, underwriting and Claims Solutions, growth is being driven by strong renewal cycles with existing customers, as well as from the addition of new customers and expanded use cases for Claim Solutions. Within marketing, we're seeing strong growth driven by continued adoption from T&C carriers using our solutions to optimize lead acquisition programs, build more intelligent marketing, segmentation and monitor portfolios for right timed outreach, and for improved customer retention. We're excited about the opportunity ahead as we combine Jornaya with our newly acquired in future business to further enhance these capabilities by synergizing products and offerings. Our Life Insurance Solutions continue to help our life and annuity customers along with their digital transformation, all the while delivering very strong growth for Verisk with the addition of new customers as well as expansion of relationships with existing customers. Life insurance recognizes the benefits of a modular and flexible software solution and is standardizing on fast platform. Within extreme events, we are seeing strong growth in our core Touchdown platform with the signing of new customers as well as the extension of multiyear deals with existing customers. In addition, the catastrophe bond market continued to be strong, with Verisk participating in more than half of the deals placed in the quarter. Our sustainability business also had a very strong quarter as demand for ESG and resilience global risk indices in both the corporate and financial sector showed strong double digits. In the quarter, we launched sovereign ESG ratings targeting the right financial sector, and early interest is encouraging as our focus on the risk is an unmet need in the marketplace. During the quarter, we experienced recovery in many of our transactional businesses that were negatively impacted by the pandemic, including travel, international auto, and claims. This was offset in part by continued weakness in our workers' compensation business, as carriers are adjusting to new regulation within the industry as well as tougher compares on storm-related revenue versus last year's ice storms in Texas. In our many discussions with our customers, we continually hear the same message: the insurance industry is healthy and focused on becoming more digital, more efficient, and more automated. While insurers are experiencing increasing costs related to inflation, rates are hardening reflecting these inflationary factors. This should lead to faster premium growth. In addition, rising interest rates are helping the investment portfolios of our customers driving better profitability. All that said, cost efficiency continues to be a big focus of our customers as they work to be quicker, more automated, and drive savings. The growth of our datasets has been a strategic focus as we work to further advance our mission to help our customers better select risk. To that end, we've been expanding the data encouraging our commercial property database and now have over 15.4 million properties, up from 12.2 just a year ago, thanks to a combination of onsite surveys, virtual technologies, third-party data sources, and our ability to accurately model key characteristics using the data we have to expand and update our databases more frequently. Separately, we've added 10 new data contributors into our core statistical databases for ratemaking in the first quarter. This quarter has been wonderful. We successfully hosted hybrid customer events, with many in-person sessions. In February, we held our signature Elevate Conference, and in March, we held our Insurance Fraud Management Conference, both of which were successful. Across the two events, we had almost 600 attendees in person and another 900 plus through virtual sessions. It was great to be in person with customers again. During the quarter, we acquired Opta, Canada's leading provider of property intelligence and innovative technology solutions; the acquisition further expands our footprint in the Canadian market and supports optic in reshaping risk management with valuable business intelligence. As the only organization in Canada that regularly gathers and validates data through ongoing research, Opta is often widely considered the industry standard for valuations, property risk intelligence, and loss control services. This transaction offers Verisk immediate expansion into Canada with the leading provider of underwriting data and analytics to carriers and provides opportunity for product harmonization across the Opta and Verisk portfolio. We're excited to welcome the Opta team to the Verisk family. Finally, I want to take a minute to add to the comments that we made around operational efficiency. Within the insurance segment, we have engaged in a detailed study across all our costs throughout our business units. We have identified areas of expenses to be eliminated without impacting future growth opportunities. Such opportunities exist in real estate, technology infrastructure, increased use of our low-cost talent locations for open positions, improved sourcing and procurement, product optimization, and we work diligently to realize these cost savings in a timely and efficient manner. Now, let me turn the call over to interim CFO, David Grover, for the financial review.

Thanks, Mark. For the first quarter of 2022, on a consolidated and GAAP basis, revenues grew 6.8% to $776 million. Net income attributable to Verisk increased 200% to $506 million, while diluted GAAP earnings per share attributable to Verisk increased 204% to $3.13. Our GAAP results include the impact of a $380 million after-tax gain on the sale of our environmental health and safety business. Moving to our organic constant currency results adjusted for non-operating items as defined in the non-GAAP financial measures section of our press release. We are pleased with our operating results led by continued and consistent growth in our subscription revenues. In the first quarter, organic constant currency revenues grew 5.3% driven by continued strength in our insurance segment and sequential improvement within our energy segment. Our subscription revenues increased 6.2%, while transactional revenues increased a more modest 1.3%. Adjusting for $3 million in prior year revenues associated with our energy business in Russia, organic constant currency revenues would have grown 5.7%. Consolidated OCC adjusted EBITDA was 4.1% in the first quarter, adjusting for expenses related to the suspension of commercial operations in Russia, as well as higher professional fees. Consolidated OCC adjusted EBITDA growth was 6.9%. Total adjusted EBITDA margin, which includes both organic and inorganic revenues and adjusted EBITDA was 46.3%. This level of margin includes the impact of the suspension of Russian operations, approximately 70 basis points of headwind from strategic recent acquisitions, a higher level of professional fees and the return of certain COVID-related costs back into the business. It also includes approximately 90 basis points of headwind from our ongoing technological transformation, including our cloud transition costs, which we absorbed into our cost structure. Finally, this margin also reflected a beneficial timing difference related to executive compensation, which will reverse over the remainder of 2022. On that note, let's turn to our segment results on an organic constant currency basis. In the first quarter, insurance segment revenues increased 6.1%. We saw healthy growth in our industry-standard insurance programs, Claims Analytics Solutions, Extreme Event Solutions, Life Insurance Solutions, and International Specialty Business Solutions. Subscription revenues increased 7.2%, while transactional revenues were up 1.3%. Certain of our transactional businesses experienced recovery in the quarter, including international travel insurance solutions and international auto claim solutions. But this was offset by a slower storm season versus last year's Texas ice storms and continued softness in workers' compensation. Adjusted EBITDA grew 5.5% in the first quarter, while margins declined 240 basis points to 51.5%. These margins reflect a heavier burden from our corporate costs that were previously allocated to businesses that have been disposed. The impact of recently acquired businesses, higher cloud expenses, and the return of travel expense back into the business. This level of margin also includes continued investments in our high-growth areas like Life Insurance and Marketing Solutions. Energy and specialized markets revenues grew 1.9% in the first quarter, normalizing for the impact of suspended operations in Russia, energy revenue growth was 4.3%, a solid acceleration from the fourth quarter. The end market continues to be volatile but has benefited from higher commodity prices. Our customers are in a much stronger financial position than they were just two years ago. Our subscription revenues increased 4.8% when adjusted for the Russian impact as we are capitalizing on the increased appetite for advanced analytics. During the quarter, we delivered double-digit growth in energy transition and chemicals research coupled with modest growth in our core research subscriptions. We continue to benefit from strong adoption of our Lens platforms through upsell of existing customers and the adoption of new logos as customers are seeing the value of the integrated cloud-based data analytic environment. This is evidenced by material increases in contract size for multi-year contracts that include Lens. We also had another successful renewal cycle in the first quarter of 2022, resulting in our fourth consecutive quarter of mid-to-high single-digit ACV growth. Transactional revenues increased 1.5% but growth was constrained by resources as we actively are managing to take on only the highest value consulting work. Adjusted EBITDA decreased 4.9% in the first quarter and margins contracted to 130 basis points to 33.1%. This margin includes $1.4 million in incremental expense related to the suspension of operations in Russia. Normalizing for the Russian expense, adjusted EBITDA growth would have been 5.3%. In addition to the Russia expense, this margin level reflects higher cloud expenses and the return of travel expenses back into the business. It also reflected continued investment in Lens as we further build out capabilities to garner maximum value for the platform, including Lens power, energy transition, chemicals, and metals and mining. Looking to the remainder of 2022, the loss of Russian revenues and the adjusted EBITDA will impact each quarter by approximately $4 million per quarter. Financial services were included in our reported numbers but not within our organic constant currency figures. We closed the sale of VFS to TransUnion on April 8. Our reported effective tax rate was 17.2% compared to 22.5% in the prior year quarter; the quarterly tax rate benefited by over 500 basis points from certain non-recurring adjustments relating to the sale of 3E. Looking ahead to the remainder of 2022, we still expect the tax rates to be between 20% and 22% in each of the next three quarters, though there will likely be some quarterly variability related to the face of employee stock option exercises. Adjusted net income increased 7% to $217 million and diluted adjusted EPS increased 9% to $1.34 for the first quarter of 2022. These increases reflected organic growth in the business contributions from acquisitions, a lower effective tax rate, and a lower average share count. Net cash provided by operating activities was $400 million in the quarter, down 11% from the prior year period, reflecting timing differences for certain of our collections, and the impact of the 3E disposition which closed in the middle of March. Capital expenditures were $60 million for the quarter up 1.4% versus last year, reflecting increases in capitalized software development, offset in part by savings on third-party hardware and software as we move to the cloud. We continue to expect our capital expenditures to be approximately $280 million to $310 million. This supports our plans to increase our software investments through the acceleration of our pace of development in Lens and extending software development into core underwriting where we believe there's a similar opportunity for platform enhancement. Related to CapEx, we now expect fixed asset depreciation and amortization should be within the range of $210 million to $230 million and intangible amortization to be approximately $170 million. Both depreciation and amortization elements are subject to variability, the timing of purchases, the completion of projects, and future M&A activity. During the first quarter, we returned $621 million in capital to shareholders through share repurchases and dividends, as our strong cash flow allows us to invest behind our highest growth and highest return initiatives while also returning capital to shareholders consistently. We continue to expect to deploy after-tax proceeds from the sale of our 3E and various financial businesses for share repurchases in addition to our normal pace of quarterly repurchases, which are generally executed through an ASR program. And now I'll turn the call back over to Lee for some closing comments.

Thanks, Dave. In summary, our businesses are strong, and we are making important progress executing on our strategic and operational initiatives, including the separation of the energy business and our improvement in margins. As we evaluate options for the energy business, we will continue to focus on pursuing the most value-creating path for our shareholders and all the various stakeholders. We are confident that with the transformation of our portfolio and active cost management, we can return to growth in line with our long-term objectives and deliver OCC adjusted EBITDA growth ahead of revenue growth in 2022 and beyond. We continue to appreciate the support and interest in Verisk given the large number of analysts we have covering us. We ask that you limit yourself to one question. And with that, I'll ask the operator to open the line for questions.

Good morning, everyone. Thank you for clarifying the basis for the margin improvement. There seems to be some confusion, and I may have missed some details. Could you please explain the timeline for achieving that 300 to 500 basis point improvement? You mentioned that there might be some benefits in 2023. For 2024, will we see the full 300 to 500 basis points realized that year, or will it be achieved by the end of the year, with realization more in 2025? A clearer timeline would be appreciated. Thank you.

Thank you, Alex. I believe you captured the comments correctly regarding the base rate. As we've mentioned, 2022 is expected to be challenging with various factors at play. However, we remain confident that by 2023, we will demonstrate progress in our expenses on a full-year basis. Looking ahead to 2024, we expect to achieve improvements of 300 to 500 basis points for the full year. Regarding your question, we are focusing on meeting our overall goals for 2024, and we remain confident in that.

Hey, it’s Greg Parrish on for Tony, thanks for taking our question. And all the best to Scott. Want to stick with the margin, that 300 to 500 basis points of expansion, you talked today about doing a deep dive with a review of the cost structure to come up with that number. Does this incorporate all the opportunities you found? I think some of them, like closing down a data centers probably would have happened anyway. And I mean, the backdrop of why I'm asking is a shareholder thinks there's potentially a lot more out there. So I don't know if there's a way you can frame the delta here. Thanks.

Sure, Greg. Thank you. And let me start off, I will ask Mark to supplement my comments. But we have looked comprehensively at all of the suggestions that we have received from shareholders. We have examined those. We have drilled into them. And we've had conversations with the business. And there is naturally supporting this a substantial amount of opportunity that we are going to be pursuing over the next several years. And I think it's important to understand that that 300 to 500 basis points reflects not just the quantum of the cost savings, but also the opportunities for investment within the business that we think drives stronger growth rates, good returns on those types of investments from an internal and from an external perspective. And so I think to answer your question, we do see opportunities from a cost savings standpoint that go beyond that. But we are also making certain that we are utilizing, as I've described before, the opportunity for investments and near-term in projects that may have a lower margin but represent good growth, good return, and operating leverage over time. So hopefully that gives you a sense of both the scope, the quantum that we are looking at, and how it relates to our overall management of the business for growth and return objectives. Mark, is there anything that you would want to add to that?

No, Lee. I think it was well said. I just will highlight that we have gone across every account, every division. And we've gotten very deep into this. And I think the theme here is, how can we be more effective? How can we be more efficient? And that's across a lot of different categories, as well as what products may need to be rethought. But I will emphasize, we want to make sure that we continue to invest in the future because we're looking to grow and continue to grow as we have an organic growth is key to all this. So it’s a delicate balancing act. But I think we've been making very good progress here, and we're confident.

Thanks for taking my question. I just wanted to focus on the insurance OCC growth of 6%. So the industry background is pretty robust. We talked about strength in several businesses. Obviously, there are some one-time headwinds as well. But I was just wondering like the organic growth of six continues to stay behind or underperform the longer-term expectation despite a pretty strong demand environment. So how should we think about this growth going forward, as some of these one-off items come off? Can we get back to 7% plus growth in '22? And then just maybe mid to long-term as you streamline the business and as you highlight it focusing on more efficient growth. Can you see an improvement to that growth profile over the midterm? Thanks.

So Ashish, thank you for the question. I'm going to start off by making a high-level comment with regard to our subscription revenue versus non-subscription revenue and insurance and then turn it over to Mark to give some compositional color around that. But to your question, in Dave's comments, we highlighted that for insurance in the first quarter, we achieved 7.2%, organic constant currency revenue growth in our subscription revenue. And the weaker part of the business was in our non-subscription revenue. And that was a function of within our Medicare set aside some caution with regard to regulatory changes, hangover from the pandemic, pressured some of that transactional revenue. In addition, we continue to see lower auto purchasing activity. And then, finally, we had a tougher compare due to the Texas ice storms in the prior year period. So I think not stepping away from the fact that the 6% was below that overall target, in the most important component of the largest component, the subscription revenue growth, we think was very solid, and we have some near-term transactional revenue that was really the primary driver of that lower growth rate. But Mark, press within the businesses, you can give some context around the strength on the subscription side and any of the other transactional elements.

Yes, Lee. In 2021, we were just under 7% from an insurance perspective. Looking ahead, I believe the 7.2% is a good sign of the business's strength. I can explain some fluctuations in revenue, particularly from non-subscription sources. First, the storms in Texas last year created challenges in 2021, which will impact comparisons in 2022. Secondly, there seems to be a decrease in volume, likely due to the pandemic. People are not shopping for auto insurance as often as they used to, possibly content with their current rates. As inflation rises and rates increase, we anticipate that people will start shopping again. Additionally, workers' comp claims have generally decreased by about 20%, and there have been regulatory changes affecting how insurers handle those claims. These specifics relate to non-subscription revenue. However, I want to highlight the strength in our subscription services, including our core underwriting services and claims analytics business, which has performed well, especially in relation to extreme events. Overall, I was pleased with the first quarter, and typically, we see growth and strength in our insurance segment as the year progresses. Thank you.

And Ashish, thanks for that mark. And Ashish, I want to also come back and address your question on the longer term growth trajectory. And certainly, within our existing businesses, we see a constructive environment and good demand. But one area that I'll be focused on, and this comes out, I think some of my past experience, as well as conversations with customers, is that the insurance industry as a whole continues to look for opportunities to improve their efficiency to take substantial costs out of their operations, to improve the digital experience with their customers. And I think our ability from where we sit to act as their technology partner in more of a utility role, where we can find solutions for the industry is a tremendous opportunity for us to think more broadly about what we can do, because if we are creating value for the industry, we're creating value for our clients. And I think that will naturally drive value for our shareholders.

Hi. I just wanted to talk about that margin expansion. So you're saying the base now is 50 to 51? Going up 300 to 500 basis points that's 53 to 56 by '24. Does that include energy, or does that kind of 53% to 56% margin assume energy is not part of the business? And then if you can make a comment on if the tax rate for the various businesses, meaning x energy, will be much different than the businesses today.

Yes. Thank you, Andrew. So let me first confirm that that 300 to 500 basis points half of the 50% to 51% assumes that we have separated energy. And so what we are trying to do is provide and reference, as we did in the original statement, what the consolidated insurance-focused business looks like from a margin standpoint. So it explicitly assumes that we have separated energy within that context. And with regard to the tax rate, I think we are still sorting through that as we look at the complexity of the legal entities that we utilize on a global basis. And we have tried to utilize some of the legal efficiencies within those tax jurisdictions. I don't think at this point, we're anticipating a dramatic change in the tax, but I just want to maintain the fact that we are as part of our exercise, trying to get a more precise read on what the tax implications are.

Good morning. So I'm going to focus on Slide 16, of your investor presentation, which is the capital expenditures slide. And I noted the comments regarding guidance around CapEx. So just trying to understand the pieces here in what you're showing us on Slide 16. And specifically, how much of the CapEx expense, over this history, relates to non-insurance-related businesses? And when you set this target of getting to mid-single-digit level over time, I'm trying to flip that with the guidance that you have and CapEx for this year, because it certainly doesn't seem to match. So any additional perspective on CapEx would be helpful. Thank you.

Yes. Thank you, Greg. I appreciate the question. I know this has been a focus for investors. And so the way I would describe it, and on page 16, it's important to understand for 2021, that does include VFS, 3E, and Wood Mackenzie. And I would note that if we were looking at this on a segment basis, the various financial services and Wood Mackenzie particularly as a function of the Lens investment that we have made, as well as product enhancements that we were making at Verisk Financial Services, we're operating at a higher CapEx as a percentage of revenue relative to our average. And so if we are looking at insurance-focused entity, while there will continue to be investment opportunities, probably most notably with what we're describing as our four lines reimagine that we believe will deliver similar types of benefits to the Lens platform that we did with Wood Mackenzie, those areas of investment will continue to be important. But overall across the insurance, that would have been and we expect would be below the average rate that we have been operating at over the past three to five years.

I guess just want to revisit the structural revenue growth answer. And let me present it this way. You've invested a lot in several new areas, non-U.S., marketing-wise there's been more CapEx you're talking about the underwriting software platform and tech opportunities in general, not sure to what extent as you do the deep dive on the business. There's incremental pricing or go-to-market opportunities. That sounds like a lot of growth drivers to me. I guess, are those back selling for maturing growth drivers? Are they incremental? I don't know if you're just not wanting to commit to a new target or if you want to show us the growth first? But if you just help me understand if there's offsets to what sounds like a lot of growth drivers? Thank you.

Yes. Thanks, Jeff. Look, I appreciate the perspective, and I think that we would agree there are a lot of growth opportunities within the business as we are sorting out the separation of the two businesses. Part of that exercise is looking at the overall insurance business and evaluating where there are growth, where there are opportunities to invest, where there are opportunities to de-invest. At this point, given that, I think it's early stage in making that assessment, and we're not prepared to change the guidance that we have. I think we've demonstrated on the subscription revenue that we have been able to achieve within insurance that 7% growth, there are transactional revenues that we still expect to show recovery. But as we proceed through the separation, my objective would be to give a more thoughtful and fulsome description of how we think about growth going forward as we are thinking about this as an insurance-focused entity. I take the point; there are a lot of growth opportunities, we're going to be making investments. But at this stage, we haven't reached the point where we're ready to make a change in that long-term guidance. We believe 7% organic constant currency or higher growth for the insurance business is a very solid respectable target with operating leverage that should drive EBITDA ahead of that. We've made our point in terms of our EBITDA expectations. And hopefully, we'll continue to refine that as we think about where we want to focus where we want to invest, and what we think the growth opportunities are.

Hi. Thank you for taking my question. Just two things. On the margin outlook, I'd love additional color. The first is in terms of the 300 to 500 basis points, I guess what gets you to the low end versus the high end of the range? I'd love to better understand that. And second part is, are there any, I guess, one-time costs? Or how should we think about one-time costs as you execute on this plan? Thank you.

Thank you, Heather. I appreciate your question regarding the low versus high end of the margin outlook. There are two main factors that will influence this. First, it involves the amount of opportunities we identify, as we aim to maximize these without jeopardizing overall business growth. We're committed to achieving as much margin improvement as possible. The second factor concerns the level of investment we consider necessary to support or boost overall growth while ensuring good returns. This creates a balancing act; margin is dynamic and needs to be understood in terms of what margin expansion is generated before investing, and what resources we must allocate to support and enhance growth and returns. Especially in an environment with rising inflation and intense competition for talent, we're assessing these environmental impacts, which could affect where we land within that range. Ultimately, the key business factor will be how much cost savings we can achieve without impacting growth, alongside our strategic investment decisions and their effect on operating expenses and overall margins. The main goal, as I stated earlier, is that growth and returns are the core elements driving value creation for our shareholders.

Thank you. Good morning. I just wanted to focus on all the recent tuck-in acquisitions that you've made. It looks like you spent over 600 million or so on acquiring a bunch of these assets. I was just hoping you would help us identify some of the key areas, and perhaps what the total M&A contribution for the year should be. You gave us some help on kind of the margin impact, but just from a revenue perspective, what does that add.

Manav, thank you for the question. Since as you observed those have been predominantly not exclusively in the insurance sector. I'm going to ask Mark to talk about the nature of those tuck-in acquisitions, what we expect to achieve from a business standpoint. And then, Stacey will either now or in our follow up calls provide context around the acquisition impact. Mark, can I turn it over to you to talk through some of the recent insurance acquisitions?

Sure. Let me highlight two key themes. First, we continue to focus on global growth. We have a strong franchise in the United States and are working to expand that into other areas. For instance, Opta provides us with a foundation in Canada, helping us understand property values, insurance amounts, and characteristics, aligning well with our operations in the U.S. Additionally, while we have a strong claims presence for repair cost estimates in Canada, we have limited underwriting capabilities there, making this a strategic move. The second international aspect involves our acquisition of ACTINEO, a claims business focused on auto in Germany. As we look to expand, we've seen great growth and synergies in the U.K. market, and this acquisition opens doors in Germany as well as providing opportunities through a prior acquisition, Validus, to explore Spain and further penetrate the U.K. market in this area. So, international expansion remains a priority. Another theme revolves around marketing. We've noticed a significant interest from customers to understand and engage with their target segments. We have developed excellent tools that assist them in quoting and selecting risks, similar to how individuals shop for homeowners or auto insurance. Our solution provides visibility into potential customers actively searching for insurance. It includes an identification system that indicates whether someone has been browsing relevant websites. With this information, we can shift our underwriting focus from just the assets, like homes or cars, to include insights about the individuals seeking insurance. We believe this personal approach to underwriting and marketing presents a substantial market opportunity that we are well-positioned to capitalize on. I hope this gives you some strategic insight.

And Manav, just for your awareness, we break out the contributions from acquisition-related revenue versus disposition in the footnote tables; there are non-GAAP reconciliations in our press release. During the quarter, it was about 20 million on an annualized basis. I think the best way to think about the recent tuck-in acquisitions you're referring to are roughly $100 million in incremental annualized revenue, but you'll just have to phase in the timing for when we close those acquisitions. Next question?

Thanks so much. I'm apologizing for going back to a margin question and I just want to focus on the insurance segment. I know you said this year is going to be noisy, I completely understand it. But if we look at the first quarter, your insurance segment margins went down by about 240 basis points. I know there were a number of items in there. Is that the kind of run rate we should use for the rest of the year in terms of the year-over-year decline which should be expected in this segment?

Yes. So Jeff, thanks for that. A couple of things. One, I think that what's important to understand on that decline is that the primary contributor to that is the reallocation of expenses to the insurance and the energy sector. And so if we achieve that separation with energy, that will be a further allocation. That's what gets you to that 50% to 51% level. Now, there are going to be effects within that quarter that influence if, for instance, we have the discrete professional costs. And we mentioned in that quarter, there was a benefit from some compensation elements that will reverse. But I think that primary impact of the reallocation of the expenses is a good starting point for understanding kind of what our normal run rate expenses will be over the course of the year.

Hi, thanks. Good morning. Going back to your margin expansion target. Can you elaborate on your strategies for balancing cost takeout with growth investments was not the star of the business of growth capital? And related to that, what are your targets for the amount of growth investment spend over this time horizon through 2024, and which areas will future growth investments focus on?

Thank you, George, for the question. To begin, from a process perspective, our business operates in real-time and we are making investments. We are maintaining what we believe is the appropriate investment strategy as we entered 2022, aligned with our budget. We will assess in 2023 the trade-offs between growth and cost savings. This is a typical year-end discussion among Scott, Mark, and myself as we evaluate the advisable level of investment in the business for sustaining and expanding growth opportunities. We consider the margin impact and returns on these investments across all divisions to determine the best approach. Currently, our immediate focus is on achieving cost savings and implementing these efforts throughout 2022. As we look ahead, we will analyze where to allocate our investments. It’s important to note that there isn’t a one-size-fits-all approach to growth investments; it requires project-specific and business-specific evaluations through our budgeting and long-range planning processes. Ultimately, we aim to prioritize growth and returns while achieving our margin expansion goals.

Hi, good morning. Appreciate being here. I wanted to ask a question about the cloud investment and the cloud transition. Lee, it seems like there will be some longer-term expenses associated with that that you contemplate in your sort of steady state insurance margins. I assume there are some go-to-market product development NPI benefits, though. Two, can you just talk about the specific ROI that you expect from your cloud transition efforts?

Sure. The first point that I want to make is that as we detailed in our last call, from an economic standpoint, we are achieving a benefit from our transition to cloud, meaning that our investments in that cloud migration have generated OpEx savings and CapEx savings across the portfolio that we have made. And it's important to understand that you have to look at both dimensions of that to see the economic value. But it does entail naturally an effective transition of what were formerly CapEx expenses into OpEx expenses in terms of our cloud-based expenses. And so, firstly, that investment is generating an economic value and is generating a high double-digit plus return on the capital that we invested within that. And I say that on the basis of having looked at the projects of where we've made those investments and then what we've achieved from an OpEx and CapEx savings standpoint. So we do believe that it is contributing both economic value and returns. Your broader question, as I understand it, is to understand the benefits from a business standpoint. And we do believe that the migration of those datasets into the cloud, of the applications into the cloud, facilitate more coordination and integration of the analytics that are able to draw from that consolidated dataset. And in a way, the Lens experience that we've had is a demonstration of that. First and probably most immediately, in terms of the ease with which our customers can access data, utilize data, integrate into their processes, improve their efficiency because we are sourcing from multiple systems or from legacy systems. And much of what we want to accomplish in our core lines reimagined moves in that direction as well: process efficiency first, but we're also improving the environment where we can associate datasets more and more effectively. But that is, I think, a more of a second-stage achievement, we're focused first on the economic value that we can achieve, the process improvements for our clients, and then ultimately, the improved analytical opportunity. There's certainly may be overlap. But generally, that's the process. And to date, I would say on that data benefit, that is still largely unrealized. In certain areas, I think we've achieved it. But in terms of the broader opportunity, I think there's still much more for us to do. And it ties into I think, this broader infrastructure or utility opportunity that we see for the industry as a whole as that data becomes consolidated in a more consistent architecture. It facilitates broader industry process improvements.

Yes. Hi. Thank you and good morning. Lee, I wanted to ask a few follow up. Maybe follow up to George's question. Are you able to break down ...