Q1 2020 Earnings Call

[music].

Good day, everyone and welcome to the very first quarter 2000, and Wendy earnings results Conference call. This call is being recorded I guess I'm all participants are in listen only mode. After today.

There'd be Mark we will conduct a question answer session for opening remarks, and introduction I would like to try to go over to Verisk head of Investor Relations CV Breitbart Sidebars. Please go ahead.

Thank you operator, and good morning, everyone. We appreciate you joining us today for a discussion of our first quarter Twentytwenty financial results today's call will be led by Scott Stephenson Verisk, Chairman, President and Chief Executive Officer, who will provide a brief overview of our business Mark and COLARIS.

Reading Officer will then provide an update on our insurance segment.

Lastly, Italy's Shavel Chief Financial Officer will highlight some key points about our financial performance. The earnings release referenced on this call as well as the associated 10-Q can be found in the Investor section of our website Verisk Dotcom. The earnings release has also been attached to an 8-K that we have furnished to the FCC a re.

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 verisk future performance, including but not limited to the potential impacts of the cobot 19 pandemic.

Actual 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 and good morning, everyone I'm very glad to be together today.

We're in the midst of the challenge that is impacting each one of us.

The outbreak of the Corona virus is above all that health crisis, and we hope that you and your families are doing what is necessary to stay safe.

Our thoughts and prayers go out to those who have been directly affected by the virus and to the health care community in a central personnel working heroically to help us all overcome it.

Today I'm pleased to discuss how Verisk has responded to the cobot 19 event and give you a view of our plans and priorities for the company.

It really been looking forward to this meeting.

Along with markedly we will describe for you three things first our actions in response to the Cobas 19 outbreak with a focus on protecting our employees and serving our customers second an update on our current operations and the role we're playing to help our customers in communities navigate cobot 19, and third our long term.

Priorities and plans for Verisk.

Given our presence in Beijing, Shanghai in Singapore, The Cobot 19 event began for us in January.

Our global crisis management team immediately began pandemic planning under our business continuity policy.

Under the strong leadership of our Asia Pacific team, we followed government guidance and moved into a remote work mode with zero interruption in delivery for customers.

When local guidance modified we moved to a hybrid mode with the teams making use of our facilities on an every other day basis in order to keep density down again movement into this work mode was seamless.

When a second wave of infection appeared in Singapore, We successfully returned to the remote mode.

All of this experience was invaluable as of January turned to February to March and it became clear that the Corona virus was not a regional but a global event.

Combining our experience in Asia Pacific with her long standing plans for ensuring business continuity, we engaged in large scale pressure testing of our remote work capabilities in North America Europe in India.

And we did this weeks in advance of any government restrictions on movement I.

I was pleased but not surprised that the result, we moved our roughly 9000 colleagues into a full remote mode with no interruption of operations for service to our customers we remain in that mode today.

Our primary goal was and continues to be the safety of our colleagues because of the essentially digital nature of what we do and our strong movement towards enabling technologies such as cloud computing, we knew that we could protect the wellbeing of our team without sacrificing service to our customers.

And interesting fact about Verisk is that only about 100 people or roughly 1% of the team have a specific in regular need to enter our facilities.

Despite the increase need to communicate digitally with one another and customers are computing and network capacity has consistently and comfortably exceeded what we require.

To highlight the relative ease of the transition one of the more custom responses to the cobot event has involved or software developers and data scientists in the office. They are accustomed to having to sometimes three large monitors running simultaneously at their workstations lacking these at home we arranged to have the equipment essentially.

Our residences to help these valuable colleagues remain productive.

While we look forward to all being together again in our offices, our business continuity planning and the nature of our operations enable us to continue to serve our customers and drive our innovation agenda forward in a work from home mode. While also flexibly following the lead of government officials about when it is safe to returns we have.

Also significantly increased communication with daily updates to our global workforce, which we called the daily dose we have held frequent worldwide town halls, and it provided the team access to our Cobot 19 resource center, which updates teammates with our leading research on the pandemic as well as helpful personal advice on staying health.

The unproductive.

Finally, we began by holding daily meetings of our global executive team and modify that rhythm as the stability of our operations has been clear.

We're now holding regular update calls with our executive team as well as with our board of directors.

That's the journey, we've been on up to this moment, so where do we stand.

First our teams remain highly active and productive sales calls are up versus prior years email traffic is greater than it was prior to remote work.

Use of collaborative digital platforms has increased substantially and from a pulse survey of just a week ago employee engagement is actually up at this moment relative to our customary high levels.

And our customers continue to engage with our analytics and insights as visits to our portals across our three segments have increased as well.

Second we have been acted in bringing new value to our customers in the cobot 19 moment.

In the insurance space, we have provided an innovative platform to claims department, allowing them to settle claims and direct collaboration with the insured without requiring physical presence.

We made this platform free of charge as a form of support and look for it to become another subscription offering with high acceptance across the industry overtime.

Our pandemic model a part of the IR suite has drawn intense interest and slices of the output from the model had been made available to customers again at no cost.

Financial services, we have created a cobot 19 dashboard for our banking customers to help them see precisely the real time changes in spending across industry categories, thereby helping them anticipate movement in the credit worthiness of their commercial customers.

And in the energy vertical three hurry up six week effort, our customers can now examine the vulnerability of their supply chains in light of a geographic analysis of where the virus has had its greatest impacts I'm very proud of the work of all my teammates.

Third we've analyzed all our solutions and services to assess the impact of cobot 19 on our revenue streams.

We have not identified any material impact of cobot 19 on approximately 85% of our revenues at this point.

As much of these revenues or subscription in nature and subject to long term contracts.

We've also identified that cobot 19 is impacting about 5% of our people who have seen their work curtailed to some degree in the following categories.

Our survey teams, which diligence the engineering features of commercial buildings for the purpose of supporting commercial property underwriting have not been able to enter most commercial buildings during the locked down and even with re purposing their time remain at the moment less than fully utilized.

Our consulting teams across the company and especially in the energy vertical has seen some reductions to their current and projected billable activities for the immediate term and our team focused on supporting auto claims adjusting in the UK has seen claims volumes dropped as fewer miles are driven in the locked down period.

Across these few places in the company, where the macro environment has reduced the workloads. We are working to reallocate. These resources to other growing areas of the business when necessary. We're using a combination of four day work weeks moderate trimming of team size and a small amount of furloughing to keep the work in team and balance.

And finally, we continue to make good sales progress as we have adjusted quickly to engaging digitally with our customers the rate of sales closure has slowed modestly.

Though pipelines remain strong implying that we could experience some timing effects measured in weeks to months for new sales.

Despite the distractions of Cobot 19, I want to note, our ongoing focus and progress with the integration of several weeks recent acquisitions, including Gen scape fast build facts and the three acquisitions FC piece content as a service business.

We're very pleased the integration moment, we're pleased with the integration momentum synergy realization and early business results. We've achieved that these entities consistent with our expectations and supporting solid returns on the capital we've invested.

For the balance of today's call, we will focus on our long term priorities and plans for Verisk markedly will take you through our view in detail, but let me paint the general picture for you.

Our priorities for investing in our business and our people are unchanged evidenced by our reiteration of our Capex budget for the year.

We're continuing to drive our innovation agenda and invest in our business, while also advancing on our move to the cloud.

With respect to performance, we expect to realize the benefits of four key features of our resilient business model.

First continued growth in datasets and demand for analytics from our clients that remains unchanged in the long term and continues to drive our performance.

Second a high proportion and broad diversification of subscription revenues that provide exceptional stability to our revenue.

Third operations that provides significant flexibility in managing our expenses and fourth strong free cash flow generation and access to capital, which enable us to continue to invest in our business and return capital to our shareholders.

On that topic I'm pleased to report that our board of directors has approved the 27 cents per share dividend for the second quarter to be paid in June.

Our business model has proven its resiliency in the past delivering stable performance through the financial crisis and the last oil price shocks, we realize that no. Two events are the same but we have confidence that we can deliver growth again through cobot 19, and while there may be some short term headwinds to growth we believe.

Our performance will reflect our long term goal of growing EBITDA faster than revenue.

Finally on a personal note I sympathize with a small businesses that are unable to operate during these challenging times and every one of our customers. In this situation can expect the full support of our company.

I also feel extremely fortunate to be a part of Verisk business model.

Now I will turn the call over to Mark to walk you through developments in our insurance vertical.

Thank you Scott I'm pleased to share with you that we had another strong quarter in insurance with all businesses contributing to growth. Despite some reduced volumes in March due to depend Dennis.

Organic constant currency revenue growth was 5.9%.

After normalizing for the continued impact the injunction on a roof measurement solution.

Again at constant currency growth was 6.9%.

Fueled by market leading innovation.

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Of course or insurance businesses, our retention rates from enjoys high and we have seen increased customer engagement during any times.

Our customers have effectively transition to working from home.

And are more available and open the calls and product demos.

Since March 15th we seen customer call reports grow significantly from 2019 levels you realize to surge in participants at or virtual industry events focused on business interruption coverage fraud during the pandemic.

Actual claims handling.

Virtual property underwriting.

You effectiveness of our team is essential in maintaining great service to our customers.

Our knowledge based solutions allow us to service customers remotely and with continuity.

Our cloud first approach has fostered a technical infrastructure that is available.

Scalable and resilient longs uninterrupted service to customers as well as employees.

As an example of our preparedness, we had a major customer pro forma review, that's verisk infrastructure to we're sure sure that are ongoing technical support from zero operations. During these times.

The feedback was extremely positive with the customer sharing the ferrous was well prepared head of their own internal infrastructure.

And fold several best practices that they plan to replicate.

Let me share in industry perspective, and its impact our business.

Insurance Congress coverage remains central to this been done.

Insurance can renewals continue.

No doubt any participants joining this call has thought about canceling their homeowners are automobile insurance policies.

However, driving is down significantly.

Telematics data exchange indicates the driving mileages down almost 50% year over year U.S. since dependent.

Leading to reduced auto claims.

Well, we've seen a rebound in mileage in recent weeks, leading us to believe it bottom occurred in late March in early April.

So matures had committed to premium refunds, which have contributed to reduction in shopping for lower premiums by policyholders.

Other areas of weakness in the industry include significant dropping traveling trends in more modest declines in commercial insurance.

Over the immediate term.

Total exposure values in commercial insurance maybe reduced.

Our insurance business benefits from subscriptions in long term contracts with a small portion of the raised revenue transaction.

Although modest.

We expect to see some adverse impacts and the pandemic in certain of our transaction revenues.

As I highlighted in my opening customer engagement has been very strong let me share a few examples.

We continue to continue see great success in market share gains in extreme event modeling as customers are moving toward a ours suite of solutions.

To support our customers, we've made or pin deneke forecasting tool available for free to the insurance industry as well as a general public to assist in planning indecency.

As Scott mentioned in his opening we made our virtual claims adjudication and virtual inspection platforms available for free to customers to stay in business and to facilitate the timely payment of insurance claims over.

Over 30000 adjusters inspectors.

Now have access to the platform.

Since rolling out the program in mid March four is in a 100 customers with many more users have enrolled we have received very positive feedback from insurers thanking us for a contribution to the industry.

And last but certainly not lease we received strong interest in our life insurance analytic solutions.

The staffed technology in strong leadership team in combination with Verisk advanced analytics and reputation in the insurance industry is creating has created significant opportunities. We have signed noteworthy contracts with Mika we can heritage Pacific lies in financial.

Partnering score on her life analytics platform.

I'm pleased with the strong early results as evidence synergies and strategic benefits.

The period and heightened security data analytics are more important than ever in further.

Substantially increased remote operations the connectivity, we provider client is critically valuable to our industry supporting and turn the value of Derisked business.

With that let me turn it over to lead to cover our financial results.

Thank you Mark a first I would like to bring to everyone's attention. We've a posted a quarterly earnings presentation that is available on our web site.

Moving to the financial results for the quarter on a consolidated in GAAP basis revenue grew 10% to 690 million well net income increased 28% to 172 million.

Diluted GAAP earnings per share increased 28% to one dollar for for the first quarter 2020.

The year over year increase in GAAP net income in E. P. S is primarily the result of organic growth in the business gains from dispositions and a decrease in acquisition related costs. These increases were offset in part by the previously communicated timing shift of a 10 million expense related to annual long term equity incentive grants.

That was recognized in the first quarter of 2020 as compared to the second quarter in the prior year.

Moving to our organic constant currency results adjusted for non operating items as defined in the non-GAAP financial measures section of our press release, we believe our operating performance remains solid.

On an organic constant currency basis, Verisk delivered revenue growth of 5% for the first quarter of 2020, all three segments delivered growth with insurance posting the strongest growth rates, we did experienced a decline in certain of our transactional revenues. During the last two weeks of March related to covert 19, though the impact on the first quarter.

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Organic constant currency adjusted EBITDA growth was 7.4%, reflecting operating leverage despite a headwind from the timing shift of annual L. T I grants.

Normalizing for the 4 million revenue impact of the injunction revenue grew 5.8% and adjusted EBITDA increased 9% on an organic constant currency basis total adjusted EBITDA margin for the quarter was 46.1% down 59 basis points from the prior year.

Normalizing for the impact of the timing shift of annual L. T. I grants. However, total adjusted EBITDA margin would have expanded to 47.5% demonstrating solid adjusted EBITDA margin expansion inclusive of continued investment in our breakout opportunities.

This total adjusted EBITDA margin includes both organic and inorganic revenues and adjusted EBITDA.

On that note, let's turn to our segment results on an organic constant currency basis.

As you've seen the press release insurance reported 5.9% revenue growth, while adjusted EBITDA increased 8% for the quarter, we saw healthy growth in our industry standard insurance programs catastrophe modeling solutions claims analytics and repair cost estimating solutions offset by the impact of the injunction.

Measurement solutions normalizing for the impact of the injunction insurance would have achieved 6.9% organic constant currency revenue growth and 9.9% organic constant currency adjusted EBITDA growth demonstrating margin expansion, while also investing for future growth.

Energy and specialized markets delivered revenue growth of 2.6% and adjusted EBITDA growth of 1.8% for the quarter driven by increases in core research and the breakout areas like the energy transition practice and chemicals. We also saw increases in our environmental health and safety service revenue.

And whether analytics revenues. These increases were partially offset by declines in core consulting related to lower capital expenditures across the energy sector as well as the completion of implementation projects in marketing cost intelligence solutions, resulting from an exceptionally strong 2019 that.

Reduced related transactional revenue.

Financial services grew 3% and adjusted EBITDA increased 15.9% in the quarter driven by growth in management information and regulatory reporting as well as fraud and credit risk and offset in part by declines in portfolio management and spend informed analytics revenues.

Our reported effective tax rate was 20.8% for the quarter compared to 21% in the prior year quarter. We continue to believe that our tax rate for 2020 will be between 19% and 21%.

The likely at the higher end of the range.

There will likely be some quarterly variability related to the impact of employee stock option exercises, which depends in part on the Verisk stock price and employee personal decisions.

In addition, we're closely monitoring potential tax legislation in the UK, which could impact our future tax rates.

Adjusted net income was 194 million and diluted adjusted EPS was $1.17 for the first quarter 2020 up 13.6% from the prior year.

This increase reflects organic growth in the business contributions from acquisitions and lower average share count.

Net cash provided by operating activities was 363 million for the quarter down 1% from the prior period.

Capital expenditures were 53 million for the quarter up 17% from the prior year period.

Capex represented 7.7% of total revenues in the quarter.

We continue to believe that Capex will be in the range of 250 to 270 million for 2020 as investing in our business and our people continues to be our highest priority.

That said certain expenditures related to real estate projects could be further delayed because of covert 19 stay at home restrictions, but it's too early to quantify the impact if any.

Free cash flow was 310 million for the quarter, a decrease of 3.5% from the prior year period, primarily due to an increase in interest payments and the timing of certain customer collections and operating expense payments.

In light of the current environment, we are monitoring our cash flow closely and in that regard year to date through the end of April we have seen year over year growth in both cash receipts and cash flow after operational expenditures, including Capex.

During the quarter, we returned 218 million in capital to shareholders through share repurchases and dividends.

And the various board of directors has approved the cash dividend of 27 cents per share payable on June Thirtyth 2020.

Moving from the results of the quarter to a broader exposure to covert 19 I wanted to address a few key elements related to our financial performance.

With regard to revenues as Scott described we've completed the careful review of our solutions and services to evaluate their potential exposure to covert 19 impacts through that exercise, we have identified specific products and services largely transactional in nature that are being impacted by coven 19th.

Collectively these solutions represent approximately approximately 15% of our consolidated revenues and at the segment Levin segment level. The 15% consist of approximately 8% in insurance, 4% in energy and specialized markets and 3% in financial services.

On the 15% we've identified specific solutions and services.

That are being impacted to various degrees by primary causal factors, including lower auto and travel insurance activity. The inability to enter commercial buildings to perform engineering analysis decreased capital expenditures in the energy sector and reduced levels of advertising by financial institutions and marketers.

A portion of the revenue attributable to these solutions could be negatively impacted by coven 19.

The impact on many of these solutions is expected to be modest with the deepest impacts felt in the categories of travel insurance analytics auto underwriting and claims analytics consulting services to the energy industry and spend informed analytic solutions in financial services.

Although we experienced a decline in revenue attributable to these specific solutions in the last two weeks of March 2020, the impact on the first quarter was modest.

We do not anticipate lasting impacts of a material nature to our long term growth profile.

And that's the global outbreak of Cobot 19 is still rapidly evolving we will continue to monitor its impact on our business.

It's important to understand that the aggregate, 15% is not what we expect the impact on our revenues to be but rather it is the portion of revenue that we believe could be affected by the causal factor is generated by cope at 19.

Two observations the should not be surprising.

It is primarily a subset of our total transactional revenues, which represent about 20% of our total revenues.

Of the transactional revenues included in the identified 15%. It should be noted that they are diverse in the nature of their exposure and generally are expected to show strong resilience and recovery.

In addition, it reinforces the stability of our subscription revenues that make up the bulk of the 85% of revenues for which we were unable to identify and exposure at this time.

Of course, depending upon the duration of covert 19, we may see new contract signing or renewable delays, but we view these as primarily timing issues.

With regard to energy and specialized markets, while its natural to draw comparisons to wood Mackenzie his experience during the significant oil price declines in 2016. It is important to understand both that one wood Mackenzie has reduced its exposure to the more oil price sensitive upstream wheel company.

He's through the growth of its energy transition practice chemicals and other sub segments and its limited revenue contribution from the lower 48, U.S. operators Secondly, wood Mackenzie represents a smaller percentage of our energy and specialized market segment, primarily as the result of our acquisition of power advocate, which prime.

Currently serves the utility sub segment, and our environmental health and safety business, which has limited commodity exposure.

The collective causal factors from coven 19 represent pressure on achieving our 7% long term growth objectives in 2020, but we don't believe they represent any structural changes in our fundamental growth drivers are operating leverage that would limit our ability to return to delivering on the long term growth expectations for the business.

Moving to expenses I want to emphasize our ability to manage the cost structure first our short term incentive compensation is directly tied to revenue and adjusted EBITDA growth and will automatically reduce our expenses at lower growth rates.

Second we have already slowed our rate of head count growth and we'll continue to manage head count growth carefully through the covert 19 event with compensation, representing approximately 70% of our cost base and head count growth, representing a meaningful component of expense growth. This disciplined provides significant flexibility.

Finally, we are reducing noncompensation expenses, including travel and entertainment events and other non essential expenses.

What we are not cutting is investment in the business. We will continue our target of 250 to 270 million for capital expenditure in 2020, and we will continue to invest in our breakout solutions as they are fundamental to our growth and value creation opportunity.

We also remain pleased as Scott as described with our integration progress on recent acquisitions, where our focus on realizing synergies and generating attractive returns remains undiminished.

Factoring all of the above on revenues and expenses, we recognize the challenges this environment presents but we believe the stability of our subscription revenues our core operating leverage and expense actions. We're taking we'll continue to support our revenue and EBITDA growth in 2020.

Well the impact of Cobot 19 on first quarter results was modest the second quarter will bear a larger impact from the causal factor is reflecting the more significant duration and effective coop at 19 for the period as and when the causal factors diminish we expect the impact to abate.

From a capital and liquidity perspective, we continue to anticipate solid operating cash flow and capital generation from our business, we maintain access to our committed revolving credit line with approximately 595 million in currently available capacity as well as access to the investment grade debt markets and we have staggered maturities with no debt maturing.

Until may 2021.

We expect to continue to manage our leverage within our typical two to three times range. We hope is provide some useful context for you and we look forward to addressing your questions.

We continue to appreciate all 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.

At this time, if you would like to ask a question Press Star then the number of wanting a telephone keypad again its star wondering a telephone keypad well pause for just a moment people by the company roster and again, we'll be limiting be question to one for participant.

Your first question comes from the line up Toni Kaplan from Morgan Stanley. Your line is open. Please ask your question.

Thanks, very much I'm glad you guys are are safe and well wanted to ask about the energy business I know in the past, yes, when the price of oil gets below a certain level and and now it's in the twenties I guess, how much of an impact should we be expecting on the business. I know you mentioned you have less.

Exposure to upstream now parishes in 2015, 16, I think it was about 80% and if you could give us the the updated percent upstream now, but just I guess, how how can I like where it can you see the impacts from from this lower oil price and customers change.

Our contracts during the subscription term or are in need to wait for renewal, there's any sort of color on on the energy business would be helpful. Thank you.

Tony Thanks for the question and thanks for your well wishes and the same to you and to a everybody who's with US on this call today I hope everybody is safe and well so first of all to your your your factual question the percentage of Woodmac business that was upstream was it roughly in the in the neighbor.

But of the number you just cited and now it's below 50%.

The other thing that I would say is that.

We mentioned, we have we have really diversified the revenues associated with a with the energy vertical we do much more now with utilities, which are proving to be relatively stable indefinitely relatively more stable than oil and gas companies or at the moment.

The whole the whole wing of our business, which is aimed at helping.

Helping with the transition to the renewables a isn't isn't very good shape, a one part of the world that benefits from a low petroleum price is the petrochemicals business and that is also a material part of what we do so so <unk>.

As you started <unk> our business is actually different than it was the last time, we went through an oil price shock.

Your next question comes from the line up Alex Kramm from you'd be ask your line is open. Please ask your question.

Hey, Good morning, everyone. You mentioned, the very modest impact in the last two weeks of March can you be a little bit more specific what you've seen so far in April I think Mark mentioned something about the little auto claims, which is pretty obvious, but I think that may have bottomed as you said, but any other things you can highlights.

Maybe a little bit more specifically, how big the impact was in April so far. Thank you for <unk>, Let me characterize generally and then Lee let me come come to you. So everything that we've said in our call today as a product of having examines very carefully.

What happened in April so so all of the the statements that we've made here about our view of 2020 and what it is that we've done by way of preparation <unk> April is fully in mind. When we made every one of those every one of those statements. We anything you want to add to that.

Yeah, Alex Thanks for the question. It. It certainly is something that that we're watching carefully and I think a couple a couple of comments one I think it's important to understand that in the 15% of the of the impacted products. There's a lot of diversity in that and so you have different products that are having different effects.

Across that and that can provide some some stability within that the second is that while we're looking at April. We also have to take into account kind of the temporal dynamic of the duration of cobot 19, and its impact overtime and so we want to be certainly our expectation is that that impact is going to isn't a modern.

Great over some period of time, so with all that being said.

On the 15% that we identified we did see the expected decline a partial decline in those revenues on a year over year basis in April.

And with a you know fairly good degree of predictability.

But in the non cobot 19 revenues, we saw our more typical growth rates and overall as we indicated we still saw growth in revenues across the business as a whole factoring those two elements in so beyond that we're not we're not in a position to predict given the complexity given the impact of the.

Duration, but I think within within April with that full impact we saw that partial decline, but overall, we still maintained growth in the in the revenue so far.

Your next question comes from the lineup Hamzah Mazari from Jefferies. Your line is open. Please ask your question.

Good morning, Hook, you guys are safe and healthy as well.

My question is on the international inside of the insurance segment, a it feels like.

You know you've been doing some M&A, there and essentially been utilizing software platforms.

The target customers could you maybe talk a little bit more about that strategy and you know how much of your business today is already software and any margin implications with regard to that.

Mark would you take that question. Please.

Yeah. Thank you very much so.

What we've been able to do in the United States is overtime aggregate a huge amount of data to build out some unique proprietary analytic objects analytic solutions on inside our international strategy. Obviously, we have this ambition as they always do to aggregate Simpson unique data.

But to do that we had to kind of look towards solutions that can help us aggregate today. So in some cases, we have some oh I'll call. It natural catastrophe or hazard type information that we can use and pull across that we've done replicated from what we've been.

Good success like the United States.

At the same time, we found the best way to aggregates and information is really from a software angle so with a goal towards.

Driving towards and analytic outcome and providing solutions that are analytic at the foundation. We have done two things we started to aggregate data where we can.

And we've also taken a software approach to things that help us for the most part aggregate that same data I think what we have found to be honest is inside the UK. There is more of a thirst for it solutions that that is.

Ecosystem interconnected across a lot of solutions I think that drives automation that drives digital engagement. So our focus has been to try to.

Take some software componentry.

Great this ecosystem to help customers and along the way aggregates and data.

And with that data you know build out and analytic outcome, it's kind of where you start out and that's how we've gotten to the markets and I think we've been very happy with the success and progress you've made particularly in the UK as you referenced we have a little bit more of a beachhead. There we have certainly some more assets.

Those assets had been working very closely together to any great things that are related to data.

Underwriting.

Workflow.

And cat modeling.

Welcome to both reinsurers and insurers. So thanks for the question and I think your observation was accurate so that gets a little color.

Yes.

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Sure.

Hi, I'm Scott in your prepared remarks, you indicated various because confident that we'll continue to deliver revenue growth. During this covert carry it then your next sentence highlighted that the company's targeting <unk> EBITDA growth faster than revenue and I wondered my question. It I wondered if we're supposed to link those two comments together.

Or specifically is the company targeting EBITDA growth faster than revenue growth. During this covert period and if that dynamic is on a reported basis or just an organic EBITDA basis.

Yeah. So thank you Andrew good your voice. So first of all you are correct that those two statements are intended to stand together. They are part of a full thought in terms of our bottom line performance and we have been addressing ourselves in this call.

Two.

Two cobot 19 effects, which.

More or less also correlates with statements about 2020, but the but the ambition in terms of the the long term also remains the same a and that is that that are that we would have very healthy rates of organic revenue growth and we would have.

Rates of organic EBITDA growth that exceed rates of organic revenue gross or worse were stating once again, what our long term.

Plan is so much. So my comments were specific to a 2020 the general point remains for our business over the long term.

And then lastly to your question, we are talking about both organic and reported.

Your next question.

Andrew.

Sure.

Hi, good morning.

In hearing from some of the ensure tech players over the past couple of months. It certainly seems like they've seen increased demand and the new environment I'm. Just wondering if your conversations with with those partners have evolved at all of late and whether your view of the group's long term trajectory is change as a consequence of recent activity.

Yeah.

Mark would you please take that question.

Oh, absolutely. So once again I think we differentiate two types of ensure checks there's uninsured check.

That definition really relates to those that want to be insurers or managing general agents, it's about distribution.

And I think what we've seen there is hot.

Those continue to prosper at the same time many of those those early startups, who have decided to actually be underwriters are actually carry risk sometimes those.

Oh <unk> loss ratios have been a little higher the combined ratio. It has not been is profitable. So we think they will continue what we have seen some pressure because all the suddenly becomes a focus on liquidity.

And maybe a turning to profitability a little bit sooner. So oh, we're watching our.

Sure check customers and we are trying to help them out with everything we can and I think it's a little bit of a mixed answer it depends upon where they are on their own lifecycle as they evolve to a more profitable Oh, you know kind of.

Entity.

The other type of can sure check is really the service provider in some cases that those service providers partners with US sometimes say you know compete in part with us and again I think it really relates to.

What they're doing a there's a definite need in the industry to help.

Bridge the gap between the insurer and the policyholder, because I can't be necessarily face to face I can't be out the home I can't be at the property.

So like we referenced in some of the working with our virtual property adjudication process enough underwriting platforms are those who had been.

Widespread use indeed, so I think those players says.

[music].

Reacted and certainly done well during this this pandemic.

In other cases, I think probably there's a little bit of hesitancy.

Around or what can I actually implemented during these times, what do I want to buy and then like any ensure Jack the smaller once it becomes a little bit liquidity issue as to how much cash I haven't what state I am all along the evolution towards profitability, So I'm kind of a mixed message there.

And obviously, we've grown nicely through a lot as I suppose ensure insurer to have a insurers or and G.H. bass and you know where we're trying to support them. During these times.

Next question.

Yes.

Yes. Thank you good morning, I, just under pinning trying to better understand what underpins. The the response to Andrew's question about the expected organic margin expansion this year and trying to understand but the trend that you go into covered with the margin expansion in Q.

Juan looked quite good, especially in the insurance segment, but really across the business can you just give us a bit more detail on on what drove that and so we can understand the baseline you're going to covered with thanks sure. So let me start and we perhaps you'd like to add some detail but fundamentally.

Jeff and Jeff Good to hear your voice and hope your hope we're doing well my question. Thank you so.

Very substantial fraction of our of our cost structure is is the cost of or people are team.

It runs at about 70% of of our total.

As Lee mentioned, one dimension of our compensation stack is our incentive compensation and <unk>. Those of you who have you know observed what we have in the proxy we have set the sort of the baseline expectation for performance in that at the low.

Level of our long term targets for organic revenue and EBITDA growth in other words I you know I would say that we have set the bar to pretty high level and to the extent that this moment for the reasons that we talked about put some pressure I would say, particularly on the topline at this moment one of the natural.

Adjustments, which occurs inside of our compensation is that the amount of a annual incentive that we'll get paid out logically would come down somewhat then that's automatic that's just in the design of what we do.

The other the other thing that matters greatly here is our total head count and there's two there's two ideas that that are paired one with the other so one is as Lee mentioned our rate of investment in innovation for the future is unabated our expectations are that we will spend as much.

Writing and capitalizing software.

In 2020, as we originally intended and lease spoke to that.

But the other part of it is what is happening with respect to the rate of head count growth and let me put that alongside of the comment that I made I made earlier, they're very it is a it is an extremely small fraction of our team where in this moment their ability to get their work done is is low.

Emitted I mentioned, five roughly 5% and even in those cases weve I would describe what we've done as a very modest amount of you know sort of trimming and and realigning <unk>. So these are these are relatively small effects. The larger effect is that as you've seen our company do.

Over time entering into 2020, we're also planning on you know pretty substantial increase in head count in order to provide even more acceleration.

Our developments into the future anis and as we got the sense that the that the covert 19 effect was going to be global not just a regional we basically moved very aggressively to not not to let people go but simply to slow down in this moment the rate of hiring and it actually has a material effect.

On the rate at which our expenses move and so essentially we have already done.

What I think of as the most substantially important thing that we need to do in order to be in position to see our rate of EBITDA growth exceed our rate of revenue growth.

We anything you'd like to add to that.

I'm very little Scott because I think you described the mechanics in terms of the steps that we're taking in this environment and how that's affecting our ability to manage EBITDA and maybe just to kind of give some context as I have in the past around the the components in there and their impact. So you know in this quarter I'm, Jeff as I think you.

You identified and I kind of presuming urinalysis, you're eliminating that impact of the of the LPI shift, but within that we're seeing it before the impact of of M&A and even before the impact of the geometry of XL transaction I'm solid EBITDA margin expansion.

Within each of the three verticals individually and so that's generating a strong base of margin expansion. The Gianni impact the reduction of expenses I'm from that transaction. It is very helpful. And then we have the impact of LPI that LTR shipped an M&A, but within the business we do.

You have that that ongoing core operating leverage and everything that Scottish describing is describing our ability to continue to manage and deliver on that core operating leverage which serves to to achieve and support both that organic and all in margin objective that Andy.

You asked about originally.

Your next question.

Comes from the lineup mine up that's night from Barclays. Your line is open. Please ask your question.

Thank you good morning, Scott, maybe just a follow up on your comments you just need 'em plans to accelerate in 2020 I was just wondering if you know maybe it's early but in terms of Tina conversations with your clients. You know these pieces that you know maybe everyone realizes they need to be accelerate that digital plans and so forth.

So in the context that you know opportunity once the dust settled you know how do you think about you know whether that lens on insurance and telematics or whatever like we could make it teams really pick up after the speakers with what's happened.

Yeah. Thank you might have nice to hear your voice and I hope you're doing well.

Yeah, I, you've really put your finger on one of the most fundamental things are about the context in which verisk does its business and that is fundamentally as our customers become what I refer to as the better digital versions of themselves. That's good for us that means that they are more able to consume.

The data and analytics that we put out there and they are able to actually realize and and acknowledge the the value that they get not that there's any lack of acknowledgement today, but as their own processes become more data aware and data sensitive and fast.

The precision that our analytics spring and the speed with which we do what we do just becomes that much more active inside of their own environment and and I believe that one of the most fundamental consequences of the code that 19 moment is that it's going to accelerate companies becoming.

The better digital versions of themselves now there's still a long distance to go I mean for all the discussion that is out there in terms of digital business digital migration et cetera, I would say that many companies are still at relatively early stages, but I do believe that there's going to be an acceleration effect based upon what's going on.

On here, what does that mean, specifically I think what that means specifically is that customers will will across a variety of different attachment points find even more interest in what it is we do so analytic objects that we put out will be more consumable and.

Therefore, when our customers right their own a business cases for making use of the next thing from Verus that they haven't made use of yet one of the one of the.

Factors that will be at work there is when they think about their own returns they will be able to generate returns faster because they will actually get to implementation of what we do more quickly same relates to if they want to a attached to an API that we put out there in order to access some of our some of our content the more than they do business that.

The more they will be able to go from the concept to the actual use of our of our solutions more quickly and you know I would not localized these effects to anyone part of our business <unk> all three of the verticals virtually everything that we do will respond to this this trend.

Your next question comes from the line of Bill Warmington from Wells Fargo. Your line is open. Please ask your question.

Good morning, everyone.

So a question for you on a on Woodmac, you could talk little bit about whether there's seasonality of renewals for Jim and maybe you can give us some sense for what you're seeing and on renewals and early read.

Thanks.

Bill good to good to hear voice hope you're doing well.

There, there's a degree of seasonality a and it and most of the.

<unk> in many cases, the heaviest season for renewals is Q4 in Q1. So obviously, we just had her Q1.

And you know the team is the team is.

In the marketplace I mean, one of the one of the wonderful things about what we do not only there but actually across the whole company is the degree of intimacy, we have with our customers. So you know a sales call is not only a sales call a sales call is a relationship.

And it is and it and particularly at this time the the exchange with our customers is obviously the very fundamental level. You know, we're we're very interested in how they're doing we're very interested in what can we do to be a support to them and and I and I I believe that our customers.

Really get out about Verisk right now they really get that and and I believe that that in addition to the acceleration of business, becoming more digital I believe both of those will be resonant for long periods of time into the future that customers will remember this moment.

And they will remember what Verus did you know we were cited several things where I'm not only did we developed things in a very hurry up fashion in order to respond to their their interest, but we also in some cases made me things available to them for free and I believe that all of that is going to is going to.

You remembered and will be will hopefully be you know yet more.

Ah Foundation inside of the relationships, we have with our customers. That's true if that's true Woodmac also one of the things about woodmac being out in the marketplace at this moment seeking renewals.

Is that we are quipped in a way that we weren't a in the past you know certainly.

It's very different than when the oil price shock of 15 and 16 occurred because we now have the lens platform, which is a very nice platform to analytic environment that customers the value of it is obvious to customers and so and so it's an amplification of the value that they've always.

Has gotten out of our content and so there's a there's a.

We're able to lean into a the discussion even while we are listening very carefully to where the customers are we're able to lean into the discussion with respect to affirming the value of what we bring and affirming the increase in the value of what we bring relative to say that the past renewal. If it was three years ago or two years ago.

Whenever it happens to be and so there's oh.

I would describe it as a as a kind of a quiet confidence when aren't when our team goes out into the market now they know that they've got the goods ER and their determent to.

Represent that value even at the same time that we're trying to be very sensitive to where the customers are.

Your next question comes from the line up Jeff Silber from BMO Capital. Your line is open. Please ask your question.

Thanks, So much wanted to go back here insurance vertical.

No it's about 85% subscription I think that's what we said who.

You've got long term contracts, but I'm just curious if you think you might be seeing any pressure on any of those clients, whether it's you know lower returns from their own investment portfolios.

Hi, or business interruption insurance claims and then also can you talk about the percentage of contracts that come up for renewal each year and roughly what the seasonality there as well thanks.

So I'll start with that in Mark and then I'll turn it over to you. Just you know a couple of your points I mean insurers are not aren't affected by what is what is happening at the moment for sure and Mark described.

Some of the dynamics, particularly the fact that are probably the single most.

Observable in the moments effects are related to reduced use of automobiles and therefore reduced damaged automobile florent claims and mark pointed out earlier.

Earlier that a good number of our customers have chosen to reflect this in a premium rebates to some of their customers that doesn't mean that they're they're necessarily or that our customers the insurers.

Are going to make less money on the line I mean their claims experience as you know half of the combined ratio has just caught on you know quite a bit in the moment, so I think they're being very realistic.

Reflecting that in how they deal with their own customers, but you know that that that aside there will there will definitely be a discussion about what does business interruption insurance.

Insurance cover and not cover and specifically our pandemic effects excluded.

Are reading of the the policy language is that you know, it's relatively clear that pandemic effects are excluded.

That doesn't mean that there will be.

Less than maybe a spirited dialogue in front of judges and juries, a with with folks wanting to claim will yeah, but no. The policy really should cover that and of course, we also have to sort of wait and see where public policymaking comes out on all of this but you know the.

Industry, we'll certainly make its case in terms of the what is what is included in what is excluded in the policy language. You know Mark also talked about some of the smaller companies and Ah I would just add to what Mark said earlier that.

Things that we did as a hallmark actually of how we work with our customers is we tried to be very flexible to to meet them, where they are and so you know we're open for example, if the two if they're feeling extreme and this is not most cases in fact this is very few cases.

But if they're under you know a relatively greater level of pressure at the moment, we might offer a sort of you know a little relief in the moment for an extended contract with a better terms in the out years, we don't find ourselves needing to do that very much but we know we were trying to be flexible.

In those few cases, where that makes sense you know a lot of our business is on multi year.

Subscription some of it is one year, but actually automatically renewing.

And so Lee mentioned multiple times.

The extreme stability of our subscription based revenues and you know that's where it is basically found its either multi year or it is automatically renewing and all of that is so basic to what our customers are doing that it really it really does fall into the category of must have so mark anything you want to add to that.

I think you covered well Scott the contracts we have are typically like three years in nature. So.

There's no necessary necessarily Uh huh.

Concentration, maybe just a little bit more fourth quarter. When those are signed but that's over three years.

Thanks.

Your next question comes from the line up actually Sabedra from Deutsche Bank. Your line is open. Please ask your question.

Thanks for taking my question just a question on M&A Youve done seven reduction acquisition system divestitures over the last year few years [laughter], given so youre solid balance sheet, Oh, you think about taking advantage of someone to monitor dislocation and then.

And doing more of these tuck ins going forward.

Any other excellent. Thanks, yeah, so as I mentioned way back at the start of the call. We are talking within our leadership team on a.

Extremely frequent basis.

We always do but even more so in this moment there are two messages that I have for our leaders above all and I'm almost a broken record on these points as we as we speak with one another council with one another one is that we need to be extraordinarily alert.

To a cyber risk in this moment. This is a great moment for bad guys.

Because companies potentially could be distracted.

As there as they're dealing with the effects at this moment, we always look very strongly to our defenses that verus.

And you, but you know I am just asking for extraordinarily extraordinary alertness.

To to that particular dimension of doing work and by the way the all the monitoring a that we two of our of our network. You know are definitely definitely shows us that we remain.

Secure but but we have to we just have to lean into it. That's one of my message is for our leadership team and the other one is you worked for a company that is very strong very stable has a very substantial and solid balance sheet, a and that is not true of all companies.

In the world today. So please keep your radars on a you know maximum frequency and reach in terms of observing companies that are around us.

That maybe are logical relative to something that we're doing inside of verisk and that perhaps bar or even more specifically, we're making a difference for our customers because it is possible.

That some of them may find themselves in a situation where they need to think about different a different way of proceeding into the future and if it's you know and therefore.

If if both there's strategic logic and there are a terms which might be available we should really be leaning into it at this moment. The message again as you know to our leadership. This is me to our leaders you work for a company that is unlike a lot of other companies and this can be a moment.

So all of that said a you know if a company happens to be.

Let's say in private equity hands, you know a [laughter] <unk> private equity has in quite a few cases become the reference.

After a inside of our world So I'm not.

It remains to be seen or just how much a valuation expectations me modified downward we'll see.

[noise].

Mm.

Debater next question.

Do you see maybe we'll give it one more moment to see if the operator comes back online operator next question.

Do we have <unk> <unk> I think we may have well.

Why don't we Ah why do we tie it off there then thank you all very much for.

Joining us today and my apologies if there any of you that we're looking to.

To ask a question, but you didn't get a chance to to get the question in a due to this technical technical glitch, we don't have the ability to open and close the line. That's only the operator. So apologies. If you had a question and you didn't get a chance to to ask it but in any event as always we will be following up with many many of you.

You are and I hope that you will you will take your additional questions.

And and review them with with Lee and Stacy.

So otherwise thank you very much for having been with US today I want to wish you great Great health.

And strength in this moment to you and your loved ones and Youre.

Your firms and we really really appreciate.

Your interest in Verisk, and we have really been looking forward to having this conversation with you. So thanks very much for being with us today.

Talk to you soon goodbye.

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