Q3 2019 Earnings Call
Good day, everyone and welcome to the Fairbreeze third quarter, 2019th earnings results Conference call. My name is gene I'll be your conference operator for today at this time all participants had been please UN mute to prevent they need background noise. After the speaker's remarks, there will be a question about recession, Jeff a question.
During this session you will need to press Star then the number one on your telephone keypad.
We ask that you limit yourself to one question.
I would tell back to turn the call little free to very had to investors relation if they see broad bar for opening remarks second production. He's brought bark you may begin your conference.
Thank you Jay and good day, everyone. We appreciate you joining us today for a discussion of our third quarter 2019 financial results.
Today's call will be led by Scott Stephenson, Chairman, President and Chief Executive Officer, who will provide a brief overview of the strategic direction of our business.
Mark I worry Chief operating Officer will then provide an update on our insurance segment.
Lastly, Lee Shavel, Chief Financial Officer will highlight some key points about our financial performance.
Earnings release reference on this call as well as the associated 10-Q can be found any investor section of our website <unk> Dot com.
Earnings release have also been attached to an 8-K there'll be a furnished to the FCC a replay of this call will be available for 30 days on our website and by dialing.
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 their future performance.
Well performance could differ materially from what as suggested by our comments today information about the factors that could affect future performance is contained in our recent SEC filings now I'll turn the call over to Scott.
Thanks, Stacy good morning, everyone.
I'm pleased to share the Verisk had another strong core growth.
Fueled by our market, leading innovation and continued focus on delivering exceptional customer experience.
Vericel reported organic constant currency revenue growth of 7.6% and organic constant currency adjusted EBITDA growth of 7.7%.
This growth was driven by strength in all insurance segment and solid improvement in energy and specialized markets.
On the innovation front, I'm, especially pleased to see strong revenue growth.
The investments we have made in platform to analytic environments such environments include our visualized claimsearch for fraud fighting and claims adjudication.
Our touched on platform for catastrophe modeling X one for global property estimating.
Lands for energy analytics, and our power advocate platform for adjusting and understanding supply chain cost in the energy space.
These platforms take the level of intimacy with our customers and their workflows to a whole new level and deliver enhanced growth and operating leverage.
Specifically at Wood Mackenzie. This month, we released the second module to lens called global upstream valuations.
Which expands screening and valuation capabilities across the whole world.
This solution enables our customers to analyze and interact with our comprehensive global upstream dataset to make faster data driven commercial decisions.
We continue to be encouraged by the early results of loans, but equally important is the fact that having a new and unique product in the marketplace has really energized our sales teams.
This is translated into improving sales of our core research as well as strong growth in our breakout solutions, including subsurface chemicals and the energy transition practice.
Our energy transition transition practice was previously known as power in renewables and this shift reflects our commitment to helping our clients cope with changes in the energy markets.
In our power advocates business, we are experiencing strong growth as we are helping our energy customers use data to more effectively spend their capital and save costs.
We see opportunities to leverage the C suite relationships from wood Mackenzie to introduce power advocate at an enterprise wide level and also to help bring or spend and cost solutions to new markets.
One of my leading indicators as the health of our business is how we're dealing with the new disruptive players in our verticals as well as the largest and most established players.
We are doing well on both fronts.
We continue to win new business within sure tax as they find value in our full suite of solutions.
And we continue to see progress and the cross selling of even more valuable solutions to the established leaders in all three of our verticals.
I spent several weeks in Asia recently, visiting with client leaders across our verticals from Saudi Arabia, India, Japan.
What struck me was how alert the Ceos of the leading companies around the globe bar data analytic innovation and their extreme interest in various solutions.
We see this driving an increasing level of inquiries and a growing pipeline of opportunities for products.
I'm also pleased with the progress we have made with respect to our infrastructure and analytic methods over the past 90 days.
We continue to make steady progress and moving or computing infrastructure to the cloud.
In the past you've heard me talk about how cloud capacity grows in a linear fashion, whereas on premise computing gets retired episodic Lee at what I call shells.
Because of the great work of our team we have now reach the first at those shelves and are seeing the expected efficiencies.
We will continue to pursue these infrastructure improvements in savings persistently business by business and product by product over the next few years.
The global expansion of our data science team is coming along nicely and we are delighted with the quality and capacity of our emerging data science team and Krakow.
We are now out in the market with industry standard insurance solutions that incorporate machine learning methodologies.
When you take the world of regulatory ready methods to a whole new level.
On the strategic acquisition front, our focus continues to be on adding valuable data sets within our existing verticals that can be leveraged across our enterprise to drive high returns on capital Gen skate and build facts represent opportunities to both extend their businesses and enhance our existing products and relationship.
Yes.
Jumps cases, a market leader in sensitive data for the power oil and gas and maritime end markets Jets Gate uses a network of sensors together for price proprietary data that is real or near real time.
We believe we can create value by combining gen skates real time short term dataset with woodmac longer term asset valuation datasets, we plan to develop new analytics Sushi solutions based on these combined datasets and ultimately see the dataset incorporated into the lens platform. So that it can be seamlessly.
Integrated into customers workflows.
We also see opportunities to cross sell and expand into new client segments. As there is limited customer overlap ultimately we believe that gen scale as a part of woodmac will bolster our journey as the energy mix shifts toward more of a balance between molecule base and Elektron base.
Built acts as a leading provider of proprietary condition and history data with a blue chip customer base that is now part of our eyes sell underwriting business.
We're excited to incorporate build faxes data to enhance our existing properties data and analytic solutions and see opportunities to develop new solutions as we partner with our insurance customers to help them drive their underwriting process to become quicker and more precise.
We also see real opportunity to expand distribution and cross sell build faxes core products across our customer base.
Finally, I'd like to take a minute to clarify developments in the emerging space.
In connection with the jury verdict and associated injunction related to the Gianni roof report business, we have recorded a $125 million legal reserve.
We were disappointed in the verdict and plan to appeal once we receive final judgment.
With respect to current operations the ruling pertains to only some of what we do NRG Army unit and our roof report business represents about 1% of our annual revenues.
We are energetically working to develop a non infringing alternatives method to the current tough technology.
We're also working toward adjusting the cost structure over the next few quarters in light of the injunction to that end, we are taking aggressive steps to minimize the negative impact on profitability and cash flow of the roughly $7 million in last quarterly revenue and should see sequential progress over the next several quarters.
Perhaps the most important thing thing to note about her imagery business is the asset we have built in our image library and our image capture program. We now have a distinctive data asad on a national scale.
We continue to believe strongly that the combination of automated measurement through remote imagery and automated estimation can create great value for our insurance customers for Verisk and for our shareholders and remain committed to and as excited about these technologies has ever.
Having gone through a number of specifics let me give you my overall assessment of where we stand.
Our verticals are in great shape with a notable achievement of energy and specialized markets exceeding insurances organic growth rate for the first time.
Thus expanding our sticky recurring subscription revenues.
Our technical infrastructure is becoming more efficient in real time, and the technical talent of our team has grown through tapping new talent sources.
We've supplemented our datasets with two acquisitions that we can leverage across our enterprise.
While we have lost the contribution to revenue growth provided by 1% of our revenue.
We exited the quarter stronger than we entered it.
And now I'll turn the call over to Mark to provide some insights on our insurance segment.
Thank you Scott Im pleased to share with you that we had another strong quarter and insurance with all businesses contributing to growth.
Organic constant currency revenue growth of 7.7% was fueled by market, leading innovation and enhanced customer engagement.
Our retention rates remain very high as we continue to focus on getting close to our customers.
Delivering a best in class customer service experience.
During the quarter underwriting and rating delivered strong organic constant currency revenue growth across both personal and commercial lines underwriting extreme event modeling and industry standard insurance programs.
We continue see great success in market share gains in personal lines.
Due to strong sales of our light speed point zero suite of products.
We're excited about the new sales growing pipeline for gather forward lightspeed product platform extended into small commercial and personal property.
In the industry standard insurance programs, we're experiencing growth in customer counts as we've had success when engagements with new startups and ensure text.
In extreme of in modeling, we are experiencing solid demand for a detailed models driven by signings with new clients as well as expanding relationships with existing clients.
We're also seeing increased interest in some of our newer solutions, including our global resilience practice, which works with governments in Ngls.
During the quarter, we hosted several successful seminars for catastrophe modeling business in Auckland.
Sydney, London, and Zurich touch more than 350 clients and prospects.
And in October we hosted Verisk velocity, our signature event for underwriting rating you've been focused on the future of the insurance industry with an eye towards Digitization in automation of insurance process. The conference attendance increased 46% versus last year as retracted attendees from 130 inch.
Once companies from around the world.
Feedback was were positive from participants excited about the direction of our new solutions, and our thought leadership and the property and casualty insurance industry.
Agenda feature presentations and panel discussions by industry thought leaders and a lot various to showcase our latest pipeline I mean sure tech solution.
In fact, our customers are telling us that they looked at verisk to drive forward innovation agenda, because we not only develop leading solutions, but we can back them up with financial strength and along and stable operating history.
The claims business also delivered solid growth contributions from claims analytics repair cost estimating remote imagery in our international businesses as Scott mentioned, we're seeing nice success with our visualize claimsearch platform, which is delivering significant growth usage you positive sentiment from our customers.
The platform offers customers improvements like real time analytics improve security privacy protection SAS delivery.
Honestly integrated into workflows and claim systems.
On the international side, we're seeing solid growth from recent acquisitions like Validus arc claims subrogation solution and Eni our claims automation in front detection solution. There now part of our organic base.
Steady stream of first to market innovations is one of the four distinct is at Verisk.
Also a key driver our growth.
In the quarter, we announced several exciting new initiatives.
Including the launch of our sequel product suite in the U.S. The early feedback from the market is positive in the pipeline of interest from on our specialty commercial customers is robust.
We also announced solutions and you partnerships within the life insurance market.
These solutions utilize the most advanced getting on with methods, including advanced voice analytics artificial intelligence natural language processing.
We will enable various develop new benchmarking risk, scoring solutions that can help life insurers are direct policies and managed portfolio risk with increased speed in Peru precision.
With that let me now I'll turn it over to lead to cover the financial results. Thanks, Mark first I would like to bring to everyone's attention that we posted a quarterly earnings presentation that is available on our website. The presentation provides background data trends and analysis to support our conversation today.
Moving to the financial results for the quarter on a consolidated and GAAP basis revenue grew 9% to 653 million.
In the current quarter, we incurred some significant non operating expenses, including firstly, the 125 billion litigation reserve related to our remote imagery business Secondly, 29 million in acquisition related earn out expenses as many of our acquisitions are on target to achieve payments for exceptional performance.
And thirdly, a 6 million loss generated from the sale of our retail analytic solutions business, which was previously part of our financial services segment.
In light of these expenses net income and diluted GAAP EPS decreased approximately 80% to 33 million and 20 cents per share respectively.
Moving to our organic constant currency results adjusted for non operating items, including currency fluctuations acquisitions for which we don't have full year over year comparisons acquisition related costs, including Earnouts dispositions and nonrecurring items, including the litigation Reserve, we believe our operating performance remains solid.
On an organic constant currency basis, Verisk delivered revenue growth of 7.6% in the third quarter of 2019, reflecting organic growth across all three segments and delivering on our long term target of 7% growth.
Of our three segments energy and specialized markets recorded the fastest growth well insurer insurance also delivered solid results. This was offset in part by softer growth within financial services.
Organic constant currency adjusted EBITDA growth was 7.7% demonstrating organic constant currency margin expansion, while also continuing to invest in future growth opportunities within our business.
Total adjusted EBITDA margin for the quarter was 47.4% flat with the prior year period. This total adjusted EBITDA margin includes both organic and inorganic revenue and EBITDA acquisitions decreased total adjusted EBITDA margin by approximately 30 basis points in the period.
Organic basis, and particularly on the pre investment organic basis that we've discussed before we saw a margin expansion demonstrating the exceptional operating leverage at the core of our businesses.
On that note, let's turn to our segment results on an organic constant currency basis.
As you see the press release insurance reported 7.7% revenue growth well adjusted EBITDA increased 7.9% within our underwriting and rating business growth was very broad across our solution sets in personal lines and commercial lines. We saw healthy growth in our industry standard insurance programs light speed auto suite of products property specific under.
We're writing in catastrophe modeling solutions revenue. We also had positive contributions from our international business.
Within claims the strong growth was driven by solid performance in claims analytics repair cost estimating solutions remote imagery solutions and in our international markets.
Total adjusted EBITDA margin declined 25 basis points to 53.1% from 53.3% in the prior year period, reflecting leverage in our core business more than offset by investment in future growth opportunities in acquisitions.
Our fastest growing segment was energy and specialized markets, which delivered revenue growth of 8.7% for the quarter representing record growth for that segment.
Strong growth in market and cost intelligence solutions as well as noted improvement in our core research and consulting revenues drove the growth despite volatility in the oil price and recent geopolitical events in the quarter. We continue to see is stable macro environment and our capitalizing on that with new and innovative platforms that help our cut.
Drummers more efficiently drive revenue growth and deliver cost savings.
Adjusted EBITDA increased 10.9%, reflecting leverage on solid sales balanced with ongoing investments in breakout opportunities like lens, and our chemicals subsurface and energy transition practice.
Total adjusted EBITDA margin grew to 33.3% from 31.7%.
Financial services revenue increased 2.7% in the quarter led by solid growth in enterprise data management and fraud and credit risk management solutions. This was offset in part by decreases in portfolio management from nonrecurring consulting revenues as well as some push outs of certain projects.
Hi, good EBITDA decreased 3.5% and total adjusted EBITDA margin decreased to 32.8% from 35.5%.
We have discussed previously the journey, we are on to transition this business from a top down orientation to a bottoms up approach with an emphasis on steady growth.
Change it scale is never linear as we work through this process. We will continue to see quarterly fluctuations on revenue and growth, which are higher than in our other business segments that said, we're confident in the long term potential financial services as we set the business up on a stronger foundation.
In the third quarter of 2019, the company completed an additional 200 million issuance of our four underneath percentage senior notes due 2029 at an issuance price of 110.9% for an effective yield of 2.78%. The company also entered into a fourth amendment to our revolver and.
City, which reduced the borrowing capacity to 1 billion from one and a half billion extended the maturity dates to August 15th 2024, and amended the pricing grid with lower rates and improved economics.
Reported interest expense was 31 million in the quarter down 3.2% from the prior year quarter due to the net repayments of our revolving credit facility total reported debt was 2.7 billion at September Thirtyth unchanged from the year end of 2018, our leverage at the ended the quarter two of the third quarter 2019.
Was 2.4 times.
Our consolidated cash and cash equivalents were 312 million at September Thirtyth 2019.
Our reported effective tax rate was 15.5% for the quarter compared to 13.9% in the prior year quarter, primarily due to the impact of a lower level of option exercises and nondeductible earn out expenses in the current port period, we maintain our estimate of our effective tax rate in the full year 2019 to.
To be between 19 and 21%.
Adjusted net income was 186 million and diluted adjusted EPS was $1.12 for the third quarter up 2.6, and 3.7% respectively.
This increase reflects organic growth in the business contributions from acquisitions and a decrease in interest expense and lower share count the benefits were partially offset by an increase in depreciation and amortization expense and a higher effective tax rate.
Net cash provided by operating activities was 214 million for the quarter down 5.7% from the prior year net cash provided by operating activities was 780 million year to date up 2.5% from the prior year.
Capital expenditures were 61 million for the quarter up 10.1% from the prior year and Capex represented 9.3% of total revenue in the quarter. We now expect capital expenditures to come in at the low end of the 220 to 240 million range, we provided for 2019.
Free cash flow was 153 million for the quarter, a decrease of 10.8% from the prior year, primarily due to higher income tax payments associated with a lower level of option exercises and timing differences related to the payment of certain expenses.
Free cash flow was 627 million year to date, an increase of 3.4% from the prior year.
During the third quarter, we returned 116 million in capital to shareholders through share repurchases and dividends, we repurchased approximately 491000 shares at a weighted average price of $152.84 for a total cost of 75 million.
At September Thirtyth, we had 228 million remaining under our share repurchase authorization.
In addition, we initiated a new 50 million accelerated share repurchase to be executed in the fourth quarter.
And on September Thirtyth, we paid a cash dividend of 25 cents per share a common stock.
And on October 20, Threerd of this year, our board of directors approved a cash dividend of 25 cents per share a common stock payable on December 30, Onest 2019 for shareholders of record on December 13th 2019.
We are excited about the opportunities to invest in our business and continue to manage capital prudently through internal investment strategic acquisitions, and the return of capital to shareholders through dividends and share repurchases. We remain confident that we have the financial strength and capital structure to support investment for the long term. We continue to appreciate all the support and into.
Just in Verisk in order to make time for questions from the large number of analysts we ask that you. Please limit yourself to one question I'll ask the operator to open the line for questions.
At this time, if you back half a question. Please press star didn't the number one on where telephone keypad again depth bar one on your telephone keypad. If you would like to withdraw your question. Please press fountain.
Our first question comes from the line Manav.
Thanks for your line is stupid.
Thank you. Good morning, gentlemen, My first question is just broadly around innovation and I guess the existing contribution from this products. You know you mentioned a lot on the call today and I think recently launched.
Type of data exchange quoted et cetera, et cetera is there any way to pie sad like how much of the last.
Several years of innovation is contributing to revenue growth today.
It's kind of hard to separate the effects mild and the reason is that some of the innovation shows us as an entirely unique product with a very discrete revenue stream, but it also shows up as.
Increased penetration of an existing product or price realization related to an existing products. So it actually shows up in several places and.
You know an example of that would be the lens platform, which is supportive of the whole suite of Woodmac solutions, but also represents a discrete revenue stream in of itself.
Thank you next question comes from the line told you kept pan her line he soup.
Thank you.
Got you discussed the impact to the litigation with regard to GE omni, but could you give us a sense of if you feel the future opportunity is reduced or I know you mentioned, you're trying to find non infringing ways to address the roofing opportunity.
But are you shifting some focus to the non roofing opportunities or you know just I guess, how should we think about the future.
So we've always been interested in remote imagery for a whole variety of reasons and actually those reasons relate to use cases, which are even beyond the insurance vertical.
And we're we're energetically pursuing those as well so.
First of all by way of context, what we do us a lot more than just roof reporting.
And we remain very interested in the category, we think that.
Imaging remotely and then being able to in a very automated way translate what you've seen with the sensor.
It's just that's that's an important technology for the world going forward and we're intending to participate in it we have participated in it and there are number of ways to monetize the imagery itself and so.
So no I don't think that our opportunity is we don't see at any differently than we did.
Thank you.
You're welcome thanks.
Thank you next question comes from the line of Ashish Sabadra. Your line is open.
Thanks for taking my question can you just hope sized annualized revenues for two acquisitions jets, keeping bent facts and then also.
Talk about their historic growth and margin profile for each two acquisitions sex.
Yes, yes, she's thanks for the.
Thanks for the question.
We havent.
Broken out the revenues for those for those acquisitions.
Separately it will.
Become.
Organic.
We're still closing Gen skate.
And expect that within the next over the next couple of weeks.
But.
I would expect for that the organic components to become the.
Become incorporated in the.
And the fourth quarter results from you begin to get some sense of the of the scale of that.
That's helpful. Thanks.
Thank you next question comes from the line of Andrew Nicholas Your line is who could.
Hi, good morning.
Just wanted to stick with the 10th Cape acquisition as you guys gave some color in your remarks and I appreciate that I was wondering if you could.
Talk a little bit more about the products that out complimentary to your existing business potentially with an example, and then any any synergies we can think about.
In the hearing that with the various business as it stands today. Thanks sure. So first of all just want to make sure everybody understands the breadth of what we do in the energy space. So we work with oil and gas companies on a global basis.
We work with those who are producing the.
Alternatives in terms of the renewable and we also work with electric utility. So I wanted to sell that to say that the way that the chance cases, and Scott build was by creating sensors, which actually talked about real time flows in those ecosystem. So for example, there sensors that are literally.
Measuring the amounts of current running through the transmission line there are sensors, which are literally metering.
The flow of liquefied natural gas for example, and these real time data sets.
We think are very complimentary to the data sets we've already got so in what we do with wood Mackenzie we have really good.
Granular operating data for example from.
The wellhead, but.
It's not as real time as these other datasets that we're talking about so now what will be able to do is to pull those two data sets together and provide even more of a perspective about what's happening commodity by commodity location by location and we just know that that's going to be valuable for our customers.
Thank you next question comes from the line of Gary Bisbee. Your line is open.
Yeah. Thanks, good morning, So that Scott you you've been talking for a while now probably a couple of years about just the.
Work, you're doing with your technology infrastructure, moving where appropriate to the cloud.
Also alluded to some efficiencies there and obviously a lot of discussion of innovation. So can you just take a step back for us and talk about how you see how you see that cloud.
And where you are in the process number one number to what you see the long term opportunity I'm sure you're aware a number of your information services competitors have have planned for or have actually proven out meaningful cost saves, but also have seen the ability to accelerate their innovation efforts by getting more there.
Data into the cloud and and hooking customers into that's or are you on that same path you see those same opportunities where exactly are you today. Thank you.
Yes, so yes, I mean, so you really had there Gary the two.
Categories of benefit that arise from rotating our infrastructure into the cloud. So one of them has to do with agility.
And that has to do with we can compute.
Anywhere around the world literally by going to our say ADW us dashboard and turning onto servers is that easy enough that fast.
So the ability to spin up new products I would also say that our customers are increasingly interested in being able to interact with what we provide in a whole variety of ways to the extent that what they're interested in.
Is the sort of apiay on demand kind of approach.
Then being already platforms in the cloud just makes it even that easy for them to attached to us. So you've got all those benefits and then you've got cost benefits.
And.
And so we're very much in pursuit of both of those with respect to where we are on the journey. So you're right. We've been talking about it for a couple of years.
It's a lot of heavy lifting and it does play out over time, so what I said in my remarks earlier is weve reached the first shelf. So we've seen the first.
Return of efficiency on the investments we've been meeting we've we've we've been making and moving to the cloud there will be several more shelves over the course of the next couple of years.
And so we feel very good about where we are you now I'll just say that we have a very close relationship with one of the cloud providers. We've just founded logical and convenience as sort of dig in especially with one of them and they give us a lot of feedback that says that we're actually in advanced implementation.
A cloud computing at the scale the that we're doing it. So there is so we still have a good distance to go actually I look forward to the next shelves.
But in the meantime, I'm very pleased with the work that our team has done it yes.
Gary This is Lee just to supplement that a bit in one thing.
I want to mix.
Certain that everyone understands is that this is a a disciplined in a process. It's not it's not a monolithic project, where you do everything at once you literally have.
Hundreds of individual products that need to be the data sets the applications I need to be moved to the cloud the code needs to be optimized for the cloud and so it is an ongoing process. What I can assure you is that the economics are very good both from an from an opex standpoint, and from a capex standpoint.
We are taking this with some had a key projects that we've demonstrated what we can accomplish and that's guiding us in the future projects ahead. So we think this will be a very clear uplift for us from a capital efficiency and from a margin perspective.
We will factor into our ability to to further enhance our operating leverage across the business, but I wouldn't want to make sure that everyone has an appreciation. This is something that you literally have to go product by product in order to make sure that you're you're fully realizing the potential.
Thank you next question comes from the line, Jeff Mueller Your line is open.
Yes. Thank you wanted to ask about energy and specialized markets and just make sure about missing anything but it feels like the phrase solid improvement is under selling how good the numbers looked to me and when you describe it.
I hear a lot of positive sectors axon were occurring with I guess power advocate cross selling group and then in research and consulting in the one.
Benefits so is there any.
You know significant onetime revenue from consulting or I don't know theres power advocates success fees or anything like that and the quarter or.
Just curious on kind of the way you're characterizing the performance of that business. Thanks.
Yes, Thank you Jeff.
We're obviously pleased with the results I think I would try to break it down a bit by saying we saw solid improvement in those wood Mac in both the subscription.
And the consulting revenues at Woodmac, So there was progress there.
And power advocate is clearly contributing and I would say had is having an exceptional 2019.
As a result from him so very good pipeline build at the end of 2018, it into 2019, and so part of that exceptional performance is driving through.
We are seeing that reflected both in some of the implementation revenue as well as the subscription revenue, but overtime, we will expect to see a higher percentage of that kind of course subscription and recurring revenue within it again, it's still primarily recurring revenue.
We are at the front end of some of their success early in the year in bringing new clients onto their solutions platform.
Thank you next question comes from the line Andrew Jefferies. Your line is soup.
Hi, Good morning appreciate you taking the question.
I wonder.
Mark or are we.
You could just remind us about to the macro exposure in insurance and I'm thinking about two factors one generally a hardening PNC market to the extent, we go into that kind of environment, how that might affect.
The insurance business and then to figure just give us an update on on cat modeling, we heard from one of your competitors, perhaps the reinsurance market continues to soften doesn't seem to pair in your results, but I'm. Just wondering if you could weigh in sort of at a high level on on those items.
Sure. So let me I try to take those in the order you asked them. So first of all I.
I think the general macro environment has has been needs to be positive.
There is a hardening the market, especially around some of the commercial lines.
Over the years Weve distance our pricing from.
The actual premium side, if you had this history.
I will tell you we are much more thoughtful about long term contracts and.
But there is a little bit of a pole associated with more premium and there's more utility of the suit solutions. So there's one more value oriented pricing that we would gain.
I think the bigger macro trend is the market's hard in.
Everyone is kind of focused on the topline and growing it profitably. So do you sort of our solutions I think continues to expand people look to go into different lines and grow and purchase is more easily more easy it's easier to get through procurement in an environment where growth is happening so.
Those are kind of the general trends that affect us inside the market I would also tell you from macro perspective. The industry is very much focused on big data analytics. So we're right in the wheel house. There. They are focused on automation to try to become more efficient there's a lot of technology projects in search of automation.
That works to it to our advantage as well and finally, where we're trying to play more is inside the world. The digitization, they're trying to make sure that their digital engagement with their policy holders continues to grow and we have some solutions that help them.
I don't want to make this too long on the I'll refer to reinsurance side, we do see.
A opportunity or at least.
More consolidation among reinsurers when that happens.
Does cause a little bit of.
Challenges, we kind of to renegotiate renegotiate with a combined entity.
But generally.
We have seen increased engagement with insurers and reinsurers on the extreme event modeling side of things.
Has been kind of a little bit of a turn where people are coming in moving towards our a our models.
And that is a broad.
Kind of industry trend that we are very happy with and I think they recognize the power of the touched on.
Platform that Scott was referring to earlier.
Hope that response to your question.
Thank you.
Thank you next question comes from the line George Tong Your line is open.
Hi, Thanks, Good morning, Scott with respect to the Eagleview rule wouldn't you've indicated that you're working to adjust the cost structure of GE Army. My understanding is that she omni is running at a loss just to confirm or are you planning that paper your break out investment spend in Germany or are you planning to stay the course, but redirect your investments elsewhere in aerial imagery.
So George Thanks for the question I'm. So the as we described recognizing that we have.
Impact on the roof report revenue our objective is to look for efficiencies that we can achieve in reducing the costs related to that dimension of the business and again, that's just a part of the business.
In order to minimize the impact of that revenue the revenue wise.
At the same time as Scott describe our commitment to the technology our investment in the broader application of that of that business will continue. So we're trying to accomplish both of those maintaining that commitment exploring the other applications and developing those dimensions well with the same time offsetting.
As much as possible that loss of revenue.
Very helpful. Thank you.
Thank you next question comes from the line of Krish the per capital. Your line is open.
Yes, hi, good morning, I'm, just kind of a follow up question on the GE omni.
Question before.
Is there.
I'm, assuming that the margins are lower in the GE Omni. Ruth then then your legacy PMT business. So what's the what do like kind of the Rightsizing of this business would that be accretive for insurance segment margins.
Well, we're not making a forward statement about where the where the margins are going but what I will say is it has been a category of heavy investment on our part and one of the things I was trying to emphasize in my comments upfront as Weve Cline well up that mountain because we made a lot of investment and image capture we now have a national.
Image capture capability.
And I would I would confirm your your assumption that on some of the the non report legacy businesses that those were positive margin businesses and that the.
In development on the roof support given the scaling up of those of those expenses.
We're as we've indicated before had a negative impact overall to our to our margins as we were in investment phase. So I think that observation is accurate.
Okay. Thanks.
Again, if you would like to ask a question. Please press Star then the number one on your telephone Keypad next question comes from the line of Kids have for you see your line is open.
Hi, I was wondering if you could provide a little bit more color what the second shelf that you're referring to looks like either from a margin or cash flow perspective, and what are the puts and takes.
On the margin side as we head into 2020.
Yes so.
Maybe the you'd like to conclude in responding to that but I'll just opened by saying that there are really sort of too.
Discrete things that go on as we hit the shelves. So one of them is and I I'm pretty sure. We've talked about this before there's been a mainframe intensity to the way that we compute at verisk that because of our.
Our long legacy as a as an extremely data rich company and when this company first got going the mainframe configuration was very definitely the logical way to try to manage large datasets.
But that's not true anymore. There has been changed there. So one of the shelf, creating development is when we retire mainframe capacity and that is that is an ongoing activity. So that's one and then the second is when we close data centers.
And that also will contribute shelves at moments in time as we go forward.
There are really no tradeoffs actually I mean, and as I've said before obviously, we've built in a linear way the costs associated with.
Cloud computing when I say there are no tradeoffs I'm really saying two things one is the unit economics of computing in the cloud or just superior period.
But the second thing is actually and Lee mentioned, thus when he took on the topic before we actually.
Our taking this opportunity to think about the very nature.
Our our platforms literally how does the calculations work and as we move things up into the cloud, we're actually sort appealing open the the applications at reconsidering you do this you do. This then you do that are there ways to be more efficient with respect to using compute capacity and so it's actually a.
Very constructive exercise, we just we just have to we have to continue to be very in touch with the way that the the algorithm school and the way that.
The.
The very nature of our data and how we put together our data sets. So there are no tradeoffs actually is constructive micro economically it's constructive in terms of responsiveness to customers and actually were just treating it as a journey to tighten up.
A lot of things about the way that we we operate.
And the only thing to maybe I'll add is that as we as you think about those tears store shelves.
There's a lot of investment thats required to do it right right you need to make sure you tune the application to you use the cloud properly. So you don't.
Reuse processing time and effort and as you transition besides kind of this cold rewrite you're also taking advantage of cheaper database management systems and things like that so there's a.
Ramp up of cost before you see the benefit in some of those are kind of trading off inside of our PNM and Capex and I just wanted to share that perspective with you about the timing and the shelves.
Got it but any anything numerical from a quantitative perspective on what the margins you know what this means for margins.
Going forward, I would assume and Germany kind of continuing to be more and more profitable and datacenters.
You know shifts going on and we moving towards the second shelf.
The margins would.
Naturally start to improve.
But I just wanted to get ahead of myself for modeling perspective. Thanks.
Yes, So let me, let me try to to get to give some context around that so I think what.
You heard in Scott and marks comments are that yes. There certainly is a cost savings in terms of achieving the shells and taking that out but there also is going to the net effect of taking on the cloud costs.
And then also optimizing the business and so there is a complicated.
Dimension to this I want to underscore one thing there clearly is a margin opportunity for us but it consists both of greater opex efficiency, but also overall improvement in the operating leverage of the business itself in terms of what the applications can do their ability to integrate other other data and expand that and again at.
Adding another layer of complexity we have.
A large number of products and businesses that we are moving to the cloud each with different dimensions.
How applicable cloud is to what they do and with different timelines and so it is impossible to extract.
The quantum of that margin improvement is we're learning as we go with each individual project talk tackling the biggest ones first but we will see that positive margin improvement that we manage as part of our overall core objective of increasing margin overtime and then also investing.
That margin expansion to some level, where we are investing in future growth. So there are a lot of contributing influences to that but it is clearly a very strong component of what will allow us to grow our core operating leverage further and I know you would be if.
Great. If we could provide some quantification, but it's just two larger project and too complex for us to pin that to a specific number.
Thank you again, if you will die cast a question. Please press Star then the number one on your telephone Keypad next question comes from the line to Bill Warmington. Your line is open.
Good morning, everyone.
So.
Question for you on financial services. The just wanted to ask about the the product pushouts, whether those go into Q4 or whether they're going to 2020 or is it indefinite and then sort of along those lines on the ATM transition to a more of a subscription model what inning are we in there.
So.
Bill on the on the push outs I think we had some of the the third quarter.
Revenues some of them or.
You longer development products that got pushed out into the into the fourth quarter.
There were some that I think they pushed out into 2000 2020, I'm. So I think a combination there and with regard to EM I think it is a it is it is still a development project for US we continue to see a very strong response from customers.
And you were dealing with really substantiating this as a broader opportunity within the business on a client by client bases. So very early stage, but everything that we have seen continues to keep us enthusiastic about this as a core service that is additive to our most important and largest client.
Yes.
Well, thank you very much.
Thanks Bill.
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There are no further questions at this time.
And as you May proceed.
Yes. Thank you. So thanks, everybody for joining us appreciate the questions and the dialogue will be following up with several view and.
Talk he said.
Every day.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect have a great day.