Verisk Analytics Inc (VRSK) — Q2 2022 Earnings Call Transcript

Thank you, Chris, and good day, everyone. We appreciate you joining us today for a discussion of our second quarter 2022 financial results. On the call today are Lee Shavel, Verisk's Chief Executive Officer; Mark Anquillare, President and Chief Operating Officer; and David Grover, Controller and Chief Accounting Officer and Interim Chief Financial Officer. The earnings release referenced on this call as well as our traditional 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. As set forth in more detail in today's earnings release, I will remind everyone, today's call may include forward-looking statements about Verisk's 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. Finally, I'd also like to remind everyone that the financial results for recent dispositions included in our consolidated and GAAP results, but 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 Verisk's CEO, Lee Shavel.

Thanks, Stacey, and good day, everyone. I'm pleased to share that Verisk delivered solid second quarter results. As you review the financial results, please be aware that due to the dispositions of 3E and Verisk Financial Services, certain year-over-year comparisons will be distorted by the impacts of these transactions. For example, the decrease in our free cash flow year-over-year was primarily the result of a significant tax on the realized gain from the sale of 3E. Dave will provide more details in his financial review. Second quarter organic constant currency revenue grew approximately 5% and organic constant currency adjusted EBITDA grew approximately 4%. Adjusted for the impact of the suspension of commercial operations in Russia, organic constant currency revenue grew approximately 6% and organic constant currency adjusted EBITDA grew approximately 6%. Adjusted EBITDA margins expanded 140 basis points to 51% through cost discipline, operational efficiencies, the benefit of decisions affecting recent portfolio actions, and some very early steps taken in our previously announced margin improvement initiative. This level of margin also includes headwinds from cloud transition and a partial normalization of travel and entertainment expenses as we continue to hold more in-person conferences and visits as we engage with our customers. While overall organic constant currency revenue growth, excluding Russian revenues was below our long-term targets, we saw solid performance in our subscription revenues offset by weakness in our transactional revenues due to the continued impact of the work from home environment on certain businesses as we'll describe. We did see sequential improvements in the second quarter, reflecting some normalization in certain businesses including international travel. Subscription revenue organic constant currency growth excluding Russian revenues of approximately 7%, representing 81% of total revenue was solid and improved sequentially in both insurance and energy. Insurance OCC subscription revenues were above our 7% long-term target, demonstrating the mission critical nature of our solutions. Energy subscription growth improved sequentially as positive pricing momentum from our Lens investment and strong annual contract value growth begins to convert into revenue growth. We also had strong growth in our energy transition, chemicals and metals, and mining research. Transactional organic constant currency revenue growth of approximately 2%, representing 19% of total revenue, improved slightly in the quarter with sequential improvement in insurance due to solid underwriting growth offset by weaker performance in claims due to ongoing declines in workers' compensation claims volumes across the industry of at least 25%. Additionally, new regulations that went into effect in early 2022 are slowing claims settlement. In addition, we are also experiencing some softness in personal lines auto related to market dislocation as Mark will describe in his section. We have seen normalization progress across our businesses and expect this to continue. However, several of these impacts are having longer cycle recovery times than we originally expected. Energy transactional revenue declined modestly on an organic constant currency basis, due primarily to resource constraints in our consulting business, as a result of strong demand from our professionals, particularly in the technical region as well as tough compares versus last year's rebound level growth rates. You can find more details about our subscription and transactional growth rates by segment in our quarterly earnings deck, which can be found in the Investors section of our website. Since taking over the CEO role at the end of May, I've been meeting with the leadership teams of many of our key customers and stakeholders. In these valuable conversations where I'm learning how we can improve, I hear repeatedly that Verisk is a critical partner with a unique seat to analyze performance and technology across the industries we serve and most importantly, implement technology change for the benefit of all of our clients. As one of our clients put it not only do we need to Verisk help on this issue, the industry needs your help. Our value proposition is clear. Verisk strategically invests in data and technology at scale to deliver economic value to our customers through operational efficiencies and better decision making. In both the insurance and energy industries, we benefit from the growing demand for data analytics from our customers, along with their increased ability to ingest and use our rapidly growing datasets. We deliver greater value per dollar invested than our clients would be able to individually and we are in an advantaged position as few companies enjoy closer ties to and a greater understanding of their clients' businesses than Verisk. This is a responsibility that we do not take lightly, as it is this unique proposition that will power our growth and drive long-term value creation for shareholders, customers, and employees. As we focus and define the strategic orientation over 2022, we expect to lay out our plans in greater detail at an Investor Day in the first quarter of 2023, following the reporting of our fourth quarter 2022 results. During the second quarter, we made a series of new leadership announcements as we build out the team that will lead Verisk forward. Of importance to many of you on this call, we recently announced that Elizabeth Mann will be joining Verisk as our Chief Financial Officer. Elizabeth joins us from S&P Global, where she was the Chief Financial Officer of Ratings and Mobility divisions. Before that, she was Senior Vice President of Capital Management, which included oversight of the Treasury department. Elizabeth will bring very relevant experience and a fresh perspective that I know will improve our organization financially and operationally. She will be joining us on September 15, and we look forward to introducing her to you. She will welcome your perspectives as she comes up to speed on Verisk. In addition, we recently announced that Maroun Mourad has been named President of Claims Solutions. Maroun has been a key leader in our Underwriting and Rating business since 2015, serving as President of ISO, Commercial Lines, President of Global Underwriting, and most recently President of Life & Growth markets. Maroun brings deep industry expertise from many leadership roles at Gen Re, AIG, Arch, and Zurich across underwriting, operations, and general management. He also brings a great entrepreneurial spirit and a true customer-centric approach to the business and is the right leader to help drive our vision of revolutionizing claims for the industry through automation, technology, and advanced analytics. Maroun takes the reins from Rich Della Rocca who has retired after 27 years with Verisk. We thank Rich for all of his many contributions to Verisk and wish him very well in his retirement. We also announced that Tim Rayner has been named President of Verisk Specialty Business Solutions. Our U.K.-based business centered around our Sequel suite of insurance software. The Specialty Business Solutions team is a linchpin in our strategy to create an automated and interconnected ecosystem for the insurance industry in the U.K., EU, and beyond. Tim is the right leader to drive that strategy. Tim joined Verisk in 2018, after a long and successful career in the insurance industry holding various leadership roles at Miller Insurance Services. Now, let me provide an update on both our progress towards being an insurance-focused data analytic solutions provider and our commitment to furthering margin expansion. We're making steady progress on our evaluation of the separation of the energy business. The preparation of the internal separation analysis and standalone financials are ongoing, and we have hired a team of outside advisors who are engaged in the next phase of our process of developing alternatives available to us. Our timing expectations remain unchanged. As we have stated previously, our decisions will continue to be guided by shareholder feedback, value considerations, and market conditions. As many of you know, we have also undertaken a broad shareholder survey for the benefit of your perspectives, not only on the energy separation but how we can improve in meeting investor expectations generally. On our EBITDA margin expansion objective, we continue to be very confident in our ability to achieve our stated target to deliver 300 to 500 basis points of margin expansion by 2024 off an insurance-only baseline of 50% to 51% normalized adjusted EBITDA margins. We have taken some early steps, including the restructuring of our marketing function, office space consolidation, and a greater emphasis on our global talent optimization hiring. Additionally, we have embarked on a span of control analysis to guide further operational efficiencies. We continue to experience the impact of the stranded corporate allocations from the businesses we have sold in our reported segment margins. It is important to remember that 2022 is likely to remain quite noisy due to the impact of portfolio changes and implementation costs. As such, we continue to expect the margin expansion to be increasingly visible over 2023 as we move past the timing impacts of the portfolio changes in implementations and work toward our previously stated 2024 target. Now I will turn the call over to Mark for some more color on the insurance business performance.

Thanks, Lee. I'm pleased to share that the Insurance segment delivered another solid quarter. Across insurance, we're experiencing strong growth in subscription revenues across both underwriting and claims, resulting in OCC subscription growth of 7.3% segment overall and demonstrate stability and consistency of our business model and the must-have nature of our solutions. Within underwriting, we had strong results from core underwriting, extreme event solutions, and our international software business. We also had a healthy contribution from certain of our newer acquired businesses including life insurance and marketing solutions. Within life insurance, we delivered strong sales growth from the addition of new customers and expansion of existing relationships. Life insurers are embarking on the modernization and digital transformation of the core systems and FAST software offers flexibility and speed of implementation which helps insurers achieve their goals in a timely and cost-efficient manner. Extreme event solutions had a strong quarter, driven by the addition of new customers added to our core touchdown platform as well as expansion of multi-year deals with existing customers. In addition, the catastrophe bond market continues to be strong and Verisk is growing its share in that market. Our sustainability and country risk business also had a strong quarter as demand for our risk indices in both corporate and investor segments continue to drive strong double-digit growth. Within claims, we're experiencing strong growth in our fraud-fighting analytics, driven by the addition of new customers and expanded use cases. More specifically, our new claims essentials bundle designed for self-insured and third-party administrators provides an end-to-end claims solution. It is deriving conversion to subscriptions from customers approval to use our solutions on a more limited and transactional basis. We also recently announced an exclusive partnership with LIMRA and LOMA, an industry research organization serving the life and annuity insurance industry, to fight the account takeover flood situation. Insurance transaction revenues grew a more modest 2.7%. We have seen a strong rebound in our international travel business that has been offset by headwinds for both our workers' compensation claims solutions and softer results from our personal auto underwriting. In addition, the first half of the year has seen a lower level of storm activity versus the prior year and historic averages. More specifically, our workers' compensation solutions are dealing with two headwinds, including volume levels that are down at least 25% across the industry, as well as new regulations that are slowing the claims settlement. That said, we are not sitting still. We have recently implemented process improvements to help drive greater throughput and new customer outreach to drive volumes to Verisk. The U.S. insurance industry is generally healthy, but shorter-term insurers are dealing with the impact of interest rate volatility, inflation, and rising loss ratios. This is having a disproportionate impact on personal lines and InsurTech players in certain geographic markets. While insurers are increasing rates to help cover inflation and repair costs, it takes time to fully take effect across the entire book of business. Specifically in personal auto, we're seeing lower levels of underwriting activity, which is resulting in lower transaction volumes and revenue. The industry is dealing with higher inflation and supply chain shortages, which are pushing up physical damage claims costs. As a result, the industry is raising rates and temporarily pulling back on new business to improve profitability. Notably, we're also watching carefully the developments in the Florida homeowners insurance market. This is a market that is dominated by small local companies with widespread exposure to climate-related risks and is dealing with elevated levels of litigation and fraud. This combination is leading to pullback underwriting and an increase in insurer liquidations and exits from the market. As a result, these risks are moving to the state-run insurer of last resort. The state of Florida recently created a reinsurance facility to bring more stability to the homeowners market to address these issues and help our customers. On the underwriting side, we are facilitating new market participants and have expanded our relationship with the statewide insurer to help price and select risk. On the claims side, we're helping customers, including state government agencies with score and analytics to improve their ability to investigate and identify fraud. This is a developing situation and we are staying close to our customers and regulators. Through our customer engagement, we know that the insurance industry is focused on becoming more automated, more digitally engaged, and more connected, and they're directing their spending towards these projects. They turn to Verisk as a key partner to drive these initiatives, which has been a key driver of our growth. We will continue to help our customers select and price risk and root out fraud with our advanced data analytics and believe that we are well positioned to continue to grow as we advance our mission to become a trusted partner from the technology and analyst perspective for the industry. I will now turn the call over to Interim CFO, David Grover, for financial review.

Thanks, Mark. Before I begin, I want to remind everyone that all consolidating GAAP results are negatively impacted by the recent dispositions of 3E and Verisk Financial Services. That will continue through the first quarter of 2023 when we will anniversary those transactions. For the second quarter of 2022, on a consolidated basis, revenues were $746 million, a modest decline from the prior year, reflecting the impact of recent dispositions and headwinds from FX rate changes, which were most pronounced in our Energy segment, offset in part by acquisitions. Net income attributable to Verisk increased 28% to $198 million, while diluted GAAP EPS attributable to Verisk increased 32% to $1.24. The increase was primarily due to a lower tax provision this year versus the prior-year period, which included a non-cash revaluation charge related to an increase in U.K. tax rates that became effective last year. Moving to our OCC 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 second quarter, OCC revenues grew 5.3% driven by continued strength in our insurance segment. Our subscription revenues increased 6.2%, while our transactional revenues increased a more modest 1.7%. Adjusting for $3.5 million in prior year revenues associated with our energy business in Russia, OCC revenues would have grown 5.9% and subscription revenues would have grown 6.9%. Consolidated OCC adjusted EBITDA growth was 4.4% in the second quarter, normalizing for the prior year revenue associated with our energy business in Russia and the incremental expenses associated with exiting that business. OCC adjusted EBITDA growth was 5.7%. Total adjusted EBITDA margin, which includes both organic and inorganic results, was 51.0%, up 140 basis points from the prior year, reflecting strong cost and operational discipline as well as the benefits from recent dispositions. This level of margin includes approximately 80 basis points of headwind from recent acquisitions, 60 basis points of headwind from our ongoing technological transformation, including cloud expenses, which we absorbed into our cost structure and 60 basis points from higher year-over-year G&A expenses. Finally, this margin also reflects about 60 basis points of headwind from the timing shifts related to executive compensation, which we told you about last quarter, and will have no impact on full-year results. On that note, let's turn to our segment results on an OCC basis. In the second quarter, Insurance segment revenues increased 6.4%. We saw healthy growth in our industry-standard insurance programs, claims analytics, extreme events, life insurance, and international specialty business solutions, subscription revenues increased 7.3% while transactional revenues were up 2.7%. We continue to experience strong recovery growth in certain of our transactional businesses, including international travel insurance solution, but continue to be pressured by weakness in workers' compensation, as well as softness in personal auto underwriting as Mark described earlier. Adjusted EBITDA grew 6.1% in the second quarter, while margins declined 180 basis points to 54.7%. These margins reflect heavier burden from the corporate costs that were previously allocated to businesses that have been disposed of, the impact of recently acquired businesses, higher cloud expenses, and the partial normalization of travel back into the business. This level of margin also includes continued investment in our high growth areas like life insurance and marketing solutions. Energy and specialized market revenues increased 0.8% in the second quarter. Normalizing for the impact of suspended operations in Russia, energy revenue growth was 3.6%. The end market continues to be volatile and impacted by geopolitical developments, but we are seeing sequential improvements in our subscription revenue growth rates as our customers seek to witness some of the data and analytics. Our subscription revenues increased 1.7% and were affected by our decision to suspend all commercial operations in Russia. Normalizing for Russia, subscription revenue growth was 5.2%, led by double-digit growth in energy transitions, chemicals, and metals and mining research, coupled with modest growth in our core research subscriptions. Additionally, we continue to experience strong adoption and expansion from our Lens renewals. Transactional revenues decreased 2.8% as growth was constrained by consulting resources as we are seeing an elevated level of employee attrition due to a competitive market for expertise in energy and technology. We are working to offset this trend and have demonstrated success in attracting talent to our energy business as well. Adjusted EBITDA decreased 6.4% in the second quarter and margins contracted 90 basis points to 34.6%. Adjusted EBITDA and adjusted EBITDA margin includes $1.1 million in incremental expense related to the suspension of operations in Russia. Normalizing for the Russian impact, adjusted EBITDA growth would have been 3.6%. In addition to the incremental Russian expense, this margin also reflects the partial normalization of travel expense back into the business and higher cloud expenses. It also reflects continued investment in Lens as we further build our capability to garner maximum value from the platform including Lens power, energy transitions, chemicals, and metals and mining. Looking to the remainder of 2022, loss of Russian revenues and adjusted EBITDA will negatively impact each quarter by approximately $4 million. Verisk Financial Services results are included in our reported numbers, but not in the OCC figures. We sold Verisk Financial Services to TransUnion on April 8. Our reported effective tax rate was 18.3% compared to 35.6% in the prior year quarter. The prior year's tax rate was elevated due to a non-cash revaluation charge with a U.K. tax law change. We also benefited in the quarter from higher levels of stock option exercise activity compared to last year. Looking ahead to the remainder of 2022, we expect the tax rate to be between 20% and 23% in the third and fourth quarters of 2022, though, there could likely be some quarterly variability related to employee stock option exercise activity. Adjusted net income increased 28% to $244 million, and diluted adjusted EPS increased 31% to $1.53 for the second quarter of 2022. These increases reflect 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 $130 million for the quarter, down 44% from the prior year period due to a tax payment of $122 million primarily related to the gain on sale of 3E as well as the loss of operating cash flows related to the dispositions. Adjusting for these unique items, operating cash flow would have increased by a double-digit rate year-over-year. Capital expenditures were $69 million for the quarter, up 11% 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 within the range of $280 million to $310 million. This range supports our plans to increase our software investment through the acceleration of our pace of development in Lens and extending software development into core underwriting that we believe there is similar opportunity for platform enhancement. Related to CapEx, we now expect fixed asset depreciation and amortization to 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 FX variability, the timing of purchases, the completion of projects, and future M&A activity. During the second quarter, we returned $374 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 consistently returning capital to shareholders. Additionally, in June, we entered into a new $300 million accelerated share repurchase agreement to be completed in the third quarter. 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 evaluation of the separation of the energy business and our margin expansion targets. As we evaluate options for the energy business, we will continue to focus on pursuing the most value-creating path for our shareholders, and we'll also consider market conditions and timing. We are confident that with the recent transformation of our portfolio and active cost management, we can deliver growth in line with our long-term objectives with organic constant currency adjusted EBITDA growth ahead of revenue growth, reflecting our strong operating leverage. Finally, I wanted to remind you that we are planning an Investor Day for the first quarter of 2023 to be held at our offices in Jersey City. We will provide more details as it gets closer and we certainly hope you will join us. 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. With that, I'll ask the operator to open the line for questions.

Hi, thank you for taking my question. I'd love to get an update on your cost savings program. And just kind of hear how big, I mean, you talked about it earlier in the call, but just how things are tracking. You talked about really seeing an impact in 2023 kind of what the phasing might be next year. And also I think there are some concerns about the macro. Your business has proven to be pretty stable in a downturn. But how, I guess, how to think about the margin improvement and how sales may play into that or not. Thank you.

Thank you, Heather. I'll start off and then ask Mark to provide additional color as the Chief Operating Officer. He has been leading that initiative and really driving it today. At a high level, as I indicated in the call, we are very confident that we will be in a position to deliver on the expected range of margin improvement of 300 to 500 basis points off that 50% to 51% baseline for an insurance-only business. I described the elements that we are considering. We've taken a look at all alternatives that have been identified to us internally and externally and are working against those directly, some of those have already been underway. I'll let Mark describe, but some of the things that we have been doing. In terms of phasing, we are at this point to give specific direction potentially as we kind of look towards the Investor Day and we have a clear picture of 2023 and specifically the macroeconomic environment that we're looking at. We might be in a position to provide some greater clarity around that. But at this point, there are too many moving pieces for us to estimate. But as I indicated, we'll expect to see clear progress across 2023. And with that, I just offer Mark an opportunity to add any color.

So first of all, I think I can tell you we are on plan. I think all of our businesses and support centers have stepped up to the challenge of trying to be more effective and more efficient. As a result of just our overall cost structure, a lot of the focus has been on people and trying to make sure that we are thoughtful about where we need to replace and where we need positions, and we've tried to maintain a rigor around that both when we're hiring new and where that position could be. So a part of the thought is not only to be more effective and more efficient inside of our operations. It's also about where those people could and should be hired. So we have some operations in Hyderabad, we have some operations in Malaga, we have some operations in Costa Rica, which are in place, and we try to become a little bit more international with where we place those positions and try to make sure that we have the right talent and maybe at lower costs. Facilities are key to that, I think we're making some progress there. We've limited smaller offices. We made some progress with a couple of our major ones. The real estate market, particularly commercial real estate, is a little bit slow. So we are probably a little behind on one of those and probably a little ahead on one of those major offices. And then I think I just want to talk more broadly about where we want to invest. I think the teams are doing a great job of really focusing on where we can get the best ROIC. So there are instances where we're going to reallocate dollars into higher opportunities and we're sunsetting some opportunities where we say, maybe that return is not so great. And we probably have come up with the notion of a little more fast sale on some of the smaller products. And I think you'll see, as we said, good benefits from that program as we transition into 2023.

And Heather, the only thing I would add is that of course, as I think all companies are these days are aware of the impact of inflation across the business, and particularly the competitive environment from a compensation standpoint. And so we have factored that in at this point, we believe that we can absorb those costs make some steps and improving our retention and still deliver on that. So to your macroeconomic comment, we do recognize that there have been some pressures that may influence the results in 2023 and 2024, but reiterate our confidence in the original target that we set out.

Great. Thank you so much for the answer.

Hi, this is John filling in for Ashish. Congratulations on the strong results. Could you just help us understand the return of transactional revenue specifically around workers' compensation, as well as personal auto underwriting, as well as some of the property estimating solutions as well? Thanks.

Thank you, John. Mark, do you want to take that?

Sure. So let me provide a little color as to what I say, I don't remember exactly, your auto, let me start with workers' comp and I'll segue through it. So on the claims side, what we've seen is two things really. Overall, the industry today relative to pre-pandemic, there's just fewer workers' compensation claims. I think in large part, that's a function of people working at home. There's not a lot of slip and falls when you're sitting in your living room, as a result, there's just an overall downturn in the number of claims and that business is transactional. Two, there has been regulation. This is kind of inside of the world of how the government interacts with insurers as to who pays to set aside and what that change has done. This has caused some of the insurers to change their processes, probably moving towards a more rigorous process by which they submit those claims as opposed to some of the maybe shortcuts that were starting to happen, so that has also slowed down the buying. That is just a timing thing. The first one is more systemic at least for the time being, which relates to work from home. Two, on the claims side, I think you were talking a little bit about volumes in our repair cost estimating and how weather - personal auto was the third one okay. So I'll go to personal next. From a personal auto perspective, I think the other item that we're seeing is because of the challenges in the industry, meaning the world of inflation and cost repairing cars, profitability is starting to be hurt by that loss ratios are up. So when you bring on new business, usually there is a short-term loss, so the cost of bringing on that new business. And it takes time to get insurance rate increases. So you have to file those. So there is a general pullback in some of the underwriting of new business, there is less shopping online and because there's less shopping, there is less transactions and people pulling our data around those auto transactions like loss histories, who is the prior coverage with, and motor vehicle reports. That's the type of information we typically provide. Hopefully, that color is there. If I heard correctly, I think the last thing was just generally from a recurrent cost estimate perspective, it's been a very quiet storm season. Most of our business is subscription-based; there is some transactional element to when storms happen, there is typically some adjusters that why software transactions kind of fluctuate up and down with storms.

And so, John, at a high level, as Mark is describing, there are a lot of individual effects on the transactional businesses, some of which are shorter-term timing related, and there may be some systemic or secular elements on workers comp. But generally, I think across those transactional businesses, we did see sequential improvement from the first quarter to the second quarter, and I think the kind of the stronger trend will be continued normalization. So certainly, there are a lot of factors and individual elements, but we feel as though we should see continued normalization on those growth rates.

Very helpful. Thanks for the color.

Yes, good morning, everyone. I wanted to focus my question on the energy transition and any potential changes in that business. Could you remind us about the ongoing evaluation and the timelines you've previously outlined? If I recall correctly, you mentioned that a decision was expected in the third quarter, and possibly a spin-out in the first quarter of next year if necessary. Has anything changed regarding those timelines? As you consider the spin-out, are you still evaluating it, or could market conditions lead you to decide to keep the business? I'd appreciate a quick update. Thank you.

Yes. Thank you for the question, Alex. So in terms of overall timing that remains the same. We are on track to have a decision on energy by the end of the third quarter in conjunction with our third-quarter earnings release, with execution of that alternative to actually follow given the various timing of executing on that. And with that timing, I would describe this as being exactly where we anticipated completing the separation of the accounting work and analysis. As I indicated, we have advisors that are engaged in this project; they along with our team are actively evaluating all of the alternatives. And so everything from a private sale to a separately capitalized spin-out as well as retention are still alternatives that we are weighing. We're being guided by what we think is in the best interest of our shareholders from a value perspective and factoring risk in timing. I’ve seen the markets are different almost by definition from where we were when we originally announced this. And so the financing market as a function of changes in interest rates is more challenging than it was previously. Naturally, the equity markets are also down. Those are all factors that we will consider as we think about the value of the business and the value to our shareholders.

Great. Thanks for the reminder.

Thank you.

Thanks so much. Wanted to ask also about energy, ex-Russia grew about 3.6% organically in the quarter, very slight deceleration sequentially. I maybe would have thought that just given how strong energy prices have been year-to-date. I would think it's a really conducive environment for selling more information just given all the uncertainty, you also of the Lens platform that you launched in the last couple of years. So just what's holding back growth in this segment? Why isn't this growing 5% or more? Just what's holding it back? Thanks.

Thank you for the question, Toni. The simple answer is the differentiated performance between our subscription-oriented business, where we are capturing the strength of the value of that Lens platform as well as the strong demand for our energy transition, chemicals, metals, and mining business. Excluding the Russian impact, the overall growth in that business is solidly in that mid-single digits level at 5.2%. The weak part of it has been in the consulting side. I think there are two factors. We had a very strong 2021 rebound in that, and it has been challenged by resource constraints frankly, regarding the level of demand for the businesses there. Given the demand for our professionals with energy and energy transition expertise, it has been more challenging for us to have the resources against those consulting projects. I think the combination of those two factors and the decline in revenues in that business while a very strong environment as you indicated has obscured what we think is the fundamentals we're seeing re-achieving again and positive momentum in the subscription revenues. We continue to see very solid growth in our ACV from Lens and research as a function of everything that you described. But that's the short answer, right? I think that addresses your question, Toni.

Thank you so much.

Thank you. Good morning. I was hoping you could talk about the life insurance business, specifically its current size and the strategic vision for its growth.

Thank you for the question, Manav. I'll turn it over for Mark for his perspective.

Yes, thank you for the question. Life has been a wonderful story. What we've seen is, inside of those insurers that are really looking to upgrade probably decades-old technology. Our fast solution has been winning the day, and that is a combination of traditional life insurers and a lot of the secondary market or a lot of M&A, where private equities are getting involved and buying books of business. Because we're able to implement quickly and at a very low cost in this no-code, low-code environment, we have been the kind of gender and strategic partner of choice. The beauty of these contracts at the beginning is a little bit implementation, but everyone is going to be moving onto the platform. What you see is not only do they put their business on, but they start adding lines and they start extending across legal entities. We have a combination of new logos, but also more business coming onto the platform. As you think about the way we look at that, obviously, the subscription revenue associated with those are going to continue to grow nicely. What we are doing is uniquely positioning our solution with a combination of great modular software and analytics, so you can better understand and underwrite business which parallels a lot of the things we did in P&C. We've kind of taken a little bit about the P&C playbook and augmented it with some great technology, and I think we're starting to really make a difference in the life insurance space. So we're very happy with the progress there. I don't know if we've given the size of that business, but it is certainly growing quite quickly with high double digits.

And Manav, I would add. I was recently out on the West Coast and had an opportunity to meet a number of our clients in the InsurTech space that are out there. Several of them are specifically focused on life applications. I will tell you the two things that are really compelling. One is how they are availing themselves of broader datasets that formally really weren't as relevant in the life space. There is an appetite for data and a utilization of data, and there is a real focus on the availability of instantaneous data so that they can make underwriting decisions. I mention that because I think they represent the leading edge of where we see life insurance going, and that speaks to the broader opportunity that we face or the broader opportunity that we have in front of us to be gathering those datasets of scale, developing those applications, and then deploying them against our relationships on the insurance side; we've done incredibly successfully with the FAST acquisition. While still, I'm not saying it is a material contributor to our overall business, it is one that clearly we believe has tremendous penetration potential and growth potential.

Just to tie it all together, we referenced that as an example of us bringing in industry datasets and industry organizations to fight fraud, things that we do well in the P&C side. So it's kind of a good example of these comments.

I'm getting a lot of e-mails from some of your investors regarding exactly how you calculated the EBITDA in terms of maybe transferring some of the costs from the disposed businesses, and I'm sorry to waste my question on this. Could you just give a high-level overview because a number of investors are just asking that? Thanks.

So Jeff, I'll start and then I'll ask Stacey to describe it. Essentially, we have the allocated corporate costs that exist, but we still have to be allocated on a variety of bases, but generally kind of proportionate to the scale of the business. And so that impact, we have to allocate those costs somewhere and they are being allocated to the insurance and the energy business. Stacey, you could feel free to embellish.

Jeff, so just to be clear, the two dispositions that we did do not hit the materiality threshold for discontinued operations. So that's why the accounting is a little bit confusing. On an organic constant currency basis, we have adjusted and taken out Verisk Financial and 3E. Thus, all organic constant currency growth figures are adjusted for the impact of those transactions. However, our total adjusted EBITDA dollars and margin include the impact of all of those businesses. There is a reconciliation at the end of the press release, which will show you all the moving pieces and parts. But it does take, and as Lee said, we did take allocations that were previously associated with 3E and associated with Verisk Financial, and put them into just the energy segment and the insurance segment overall. The allocations to insurance basically hurt insurance margin by 80 basis points year-over-year. So that will give you a sense of what the impact is. Hopefully, that's clear. And we can talk later offline.

Yes, I'll definitely follow up. Thanks so much. Appreciate it.

Yes, hi. Thank you. So, I was hoping to get a little bit more color on the international business, and you mentioned some management changes in the U.K. Just wanted to get clear in terms of how you see that business trending, how it trended in the quarter, and how you see it trending going forward?

So Faiza, thanks for the question. When we talk about our international business, naturally, our energy business is substantially an international business. In that regard, we've commented on two, in response to Toni's question, the strength that we've seen in subscription growth on a basis for us and function of our successful wins as well as on the consulting side. On the international business from an insurance perspective, there are various businesses, the most significant of which is our specialty business solutions business. It is a business that has generated very strong revenue growth rates. It's been a double-digit grower within the business, and we have successfully integrated other bolt-on acquisitions such as a ratings engine within that business. We're very happy with the performance of that business and our ability to expand off of that. That is one piece of a larger portfolio of insurance businesses that we have developed, which have generally been additive to our overall growth rate. I'll ask Mark, maybe to describe a couple of the other components of the businesses and generally the performance and their contributions to our international businesses. But I just want to make that distinction between energy and insurance.

Yes, that's great. I think we highlighted that what you would probably recognize is that the Sequel suite of insurance software has been the bigger element and big grower over the U.K. and beyond. We also have an underwriting business that relates to understanding risks and exposures. But we go beyond there and talk about insurance as it relates to travel and even pet insurance. Those have both come back and started to grow nicely. We think our international businesses are contributing to and accelerating our overall organic growth. The other two things that I'll quickly highlight is we continue to extend selectively. We do a lot of the things that we do here in the United States; we are doing in Canada, and that is a new acquisition that has been a good contributor and is kind of new to the Verisk family, as well as ACTINEO, which takes us into Germany again inside the claims space, primarily around auto. Our approach broadly has been based more around software and a little bit on the claims side around services augmented with solutions. We are trying to export them with a local footprint, and all of that has been successful with our international growth.

I expect that to continue to be additive. We also view it as the broader opportunity and recognizing that in the U.S., we have the advantage of having been a utility to the P&C insurance industry, and that doesn't exist to the same extent internationally. Software provides an ability for us to connect and create ecosystems where we achieve a similar dynamic. That's specifically what we have observed with our specialty business solutions element. We're particularly interested in businesses where we are connecting the industry and facilitating industry efficiencies and improved performance. The international market, in many respects, is not as developed as what we have here in the U.S., and that's what we're excited about continuing to pursue.

Hi, good morning. Appreciate you taking the question and all the color on the business. Mark, I wanted to ask you about another relatively new area for you, which is marketing. I wonder if you could give us a sense of what the long-term roadmap for that business looks like. Also, I'm wondering if there are any cyclical considerations, discretionary spend considerations? You mentioned some pressures that underwriters are facing today. Is that a business you think grows through the cycle? How do we think about that?

Great, so Andrew, thanks again. Our theme that runs across all insurers is this digital engagement, trying to make sure they really satisfy the customer. What we've attempted to do from a P&C perspective, especially on the personal line side, is due to this ultimate pre-fill. I mean, that's kind of the way sometimes you hear described. If you call and you give us your name and number, we can fill in all the information, everything about you, and give you a quote. That is you being an insurer, and we support to facilitate that. We wanted to go one step further. We wanted to go even further to the front-end and as you're providing that quote, what if we found the right group of people to share that quote? Our team at Jornaya and some of the marketing solution SaaS is; we are the industry standard as that we know sitting on a website who's shopping. We know who's actually shopping for insurance. This is a wide and very real opportunity to drive this pipeline and funnel, and it provides that. Marketing solutions have been a nice extension to both our P&C, as well as our life insurance opportunities. It's that front end that gives us the opportunity. There probably is some cyclicality of that; if it's a difficult time and people are trying to cut costs, there's probably more or less marketing spend that happens. But because of the unique situation that our marketing solution offers, we sit on these websites. No one else really has the ability to do what we do; it's not like we're competing directly against Google, we have these relationships that we understand who the real candidates are. To the extent that someone's buying a house, they're a prime candidate for P&C insurance, but it's also a prime candidate for someone who needs a mortgage. So there is an extension and big opportunity even inside of other vertical markets where we're selectively looking. So I hope that gives you the color you're looking for.

Yes, thanks. Part of this is a related question, but it's related to the personal auto underwriting. I guess, it seems like the insurers are taking rate actions now. So if you can run this forward, because I would think there is also some countercyclical demand in terms of consumer rate shopping to save money for going into a recession. Are there any historical parallels in terms of like what's the lag between those rate actions and when you see the increased churn that has a positive impact on your business? To be clear on the last answer, since you said there is probably some cyclicality, are you seeing delayed uptake because of the cyclical headwinds of LightSpeed in the marketing capabilities? It sounds like the market's talking a lot about a need for more sophisticated segmentation. Thank you.

Yes, so, great question. Now I'm going to piece it back together and respond maybe a little out of order. From the end to beginning, we are continuing to see uptake in LightSpeed; people love the concept and people continue to buy the solution. What we're seeing though is the volumes coming through the solution are depressed a little bit. The short answer is, there's less shopping. I'll give you the example that I think you're looking for. Some of the InsurTechs that had been our early adopters who had a lot of volume coming through all of a sudden now start to focus on profitability. As they start to focus on profitability, that causes them to pull back on writing new business. There is a direct correlation. The second item is to rate and taking rate. I've seen some rate increases as high as 40% by some filings as it relates to certain states. They are coming, but people will start to write again when they get the rate increases they want. How long does that take? It really depends, sometimes on the inner workings of some insurers especially in personal auto; they use this as a guide. They don't use our direct filings. So that could take six months to nine months to get in place before things start to ramp up again, because they have to price their business to become profitable. I hope that was responsive to most of your questions.

And Jeff, I would just add kind of a broader overlay which is as Mark is describing, we are seeing some of that near-term pressure on the business, but longer term, we believe that the fundamental driver is the demand for this marketing technology, that demand for kind of delivering that data in that underwriting decision increasingly at the point of sale is what we continue to drive the growth in that business as the industry moves to deliver on that digital experience that Mark described.

Clear and comprehensive, thank you both.

Hi, good morning, thanks for taking my question. I just wanted to circle back on your answer to an earlier question about transaction revenue. It sounds like, the vast majority of transaction revenue you would expect to kind of normalize to a higher rate over time. But there are some secular structural challenges in workers' comp and maybe some of the other pieces of that business. My question is, is the expectation for transaction revenue within insurance to ultimately arrive at the 7% plus kind of growth target that you have for the full business over time? Or should we think of achievement of that objective being driven more by the subscription revenue piece and transaction at some level below that? Thank you.

Yes, Andrew, thank you for the question and the opportunity to address that. I want to be very clear. We believe that the transaction revenue over time, at least at the 7%, and actually historically has contributed a higher level of growth and reflects, in a lot of ways, the applications of new data and new technology that is expressed at the initial stage in transaction related activity that generates revenue for us. So I think what we are experiencing right now are the impacts of the overhang of the pandemic, more people working from home, as Mark described, workers comp impact on auto in the macroeconomic environment. But we maintain complete confidence that the transactional driven businesses over time and on a normalized basis will be additive to our overall growth rate and can certainly exceed our 7% long-term target.

And maybe summarizing that, we are taking share across all this. So when volumes return, we have taken share, and that will be reflected in transactions.

Hi, I just wanted to ask if directionally you expect your energy and specialized markets business to accelerate in the second half of the year. Lee, you did point out like you see on Slide 6 that the non-subs business and energy and specialized was down because of consulting constraints. Do you expect those constraints to resolve themselves? Or is that going to be with us near-term? You mentioned solid growth in ACV. I would think the solid growth in ACV would translate into stronger growth for energy and specialized.

Andrew, thank you for the very clear question. I'll deal with it in two parts. I think the conclusion that you drew or the logic that you described is consistent, considering that we see with the ACV growth and the layering on additional contracts where we've been able to up price the research product as a function of the value our clients see in Lens. That should continue to have a positive impact on the overall growth rate. So we do anticipate momentum on that front over the balance of the year. The more difficult element estimate is the consulting side. I think that is one where in this competitive market, we face a challenge in getting the level of resources that we think fully address the demand. So I would say, I think we believe that's the case for the research business. On the consulting side, it's a little more difficult. We probably wouldn't anticipate at this point a material change on the consulting front.

Thank you.

Hi, this is Hans Hoffman filling in for Hamzah. Thanks for taking my question. Could you just walk us through how you're thinking about further M&A and where the focus is there and then sort of what the pipeline looks like?

Certainly. So thanks for the question. As you can imagine, our primary focus at this stage is on the near-term objective of the energy separation analysis and project. Secondly, as we are, we have the opportunity to evaluate where the business is where we want to take it, what other opportunities we have in front of it, and how we want to think about internal versus external investment that is occupying the next largest part of our time. And as we define that, certainly M&A will be a part of how we think about deploying capital and creating value. We have demonstrated in areas, particularly on the insurance side, where we have a new dataset or a new technology as with FAST and with Sequel and with Jornaya, we have the ability to materially accelerate revenue growth within those businesses and integrating those with our dataset. I want to say that we will continue to look for opportunities where we can materially improve the business and create value through strong returns on the invested capital. That will be our primary focus. It will be at the scale level, but I think you've seen, for the near-term, we don't expect this high level of activity. One thing that I want to emphasize is that we are not looking at any new verticals outside of insurance and I think until we come to a resolution on the energy business we will be looking at anything in the energy space. So that would be the direction that I would provide you.

Thanks.

Hi, thanks. Good morning. You committed to expand margins 300 to 500 bps off 50% to 51% baseline for an insurance-only business. I wanted to confirm that you can achieve those margin targets regardless of the outcome of your energy strategic review. Since you've taken a close look at costs and the insurance business as part of the strategic process, how likely are you able to also take out medium-term organic revenue growth for insurance beyond the historical 7% range?

Thank you for the question, George. I may ask you to repeat the rather extended second part of the question. Let me remind you George, as we said explicitly when we provided the guidance that the margin improvement of 300 to 500 basis points was specifically associated with an insurance-focused entity. I'm sorry just ask you to review that I think there is the answer to your question. The determination of what we do with energy, we'll have to evaluate. So if that business is retained, then there will be a different margin profile. We will still seek to achieve those cost savings related to the insurance business overall and look for margin expansion, but those savings were clearly defined as specific to an insurance-focused entity. I ask you to reiterate the second part of your question, George.

Sure. The second part is since you've already taken a look at the insurance business from a cost perspective. Have you also taken it in line to the business from a growth perspective in insurance, and how likely are you able to take up the medium-term organic revenue growth for insurance beyond 7%?

George, we continue to maintain our long-term targets for the overall business. We've said repeatedly in the past that 7% organic growth is our target. I maintain that we are not at the stage where we're changing our long-term guidance for the business, obviously we have an ongoing objective to exceed that growth rate and our compensation systems are tied to overachieving against that goal.