Q2 2020 Verisk Analytics Inc Earnings Call
The school is being recorded.
At this time, all participants are in listen only mode.
Today's prepared remarks, we'll conduct a question answer session.
For opening remarks, and introduction I would like to turn the call over to risks head of Investor Relations Stacy blogs as Robert Please go ahead.
Thank you J.P. and good morning, everyone.
We appreciate you joining us today for a discussion of our second quarter Twentytwenty financial results today's call will be led by Scott Stephenson bearings, Chairman, President and Chief Executive Officer, who will provide an overview of our business, we Shavel Chief Financial Officer will follow with the financial review Mark on calorie Chief operating.
Officer, Nektar Fom, Chief Information Officer, Neale Anderson, President Wood, Mackenzie and Elisa finale, Hannon, President Verisk financial will join the team for the acuity session.
The earnings release referenced on this call as well as the associated 10-Q can be found any 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 replay of this call will be available for three days on our website and by dialing finally as set forth in more.
Retail 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 corporate 19 pandemic.
Actual performance could differ materially from what has suggested by our comments today information about the factors that could affect future performance is contained in our recent AFDC filings now I'll turn the call over to Scott.
Thanks, Stacy good day, everyone and I'm glad to be with you today.
The second quarter was unique as we dealt with the macro effects of the cobot 19 event.
And I Hope you and your families continue to stay wellness moment.
At Verisk, our priorities are unchanged as we remain committed to delivering for our customers protecting the health and wellbeing over 9000, plus teammates and continuing to drive our innovation agenda.
I'm pleased but not surprised that our second quarter results.
Reflect the strength and stability of our business model. The mission critical nature of our solutions and the hard work and resilience of our teammates who quickly adapted to the work from home environment and have remained focus on customer needs in innovation I'm proud of our team and want to thank each teammates for their dedication and focus during a fluid moment.
Before we discuss the corner I want to make two related points about where verisk stands.
First we believed that the net effect of the cobot 19 moment should benefit verisk in the long run given that our customers will persevere and make it through to the other side with even more focus on becoming the better digital versions of themselves.
It should make our customers more capable and desirous of using our many solutions and second the consistent performance you see from US now and into the future is a function of our structure and position and not any cyclical or a momentary effects. Our results are a function of the study an ongoing accumulation of ended.
Nation and success with customers.
Our business performed as we had expected in the second quarter. We previously communicated to you our analysis that approximately 85% of our revenues or subscription base and subject to long term contracts and therefore, we did not see any material impact on these revenues from the cobot 19 environment in the second core.
Order those revenues grew approximately 6.5% on an organic constant currency basis, when normalized for the onetime impact of the injunction related to root measurement solutions of the remaining 15% of revenues that are more transactional in nature and the subject to covert 19 impacts those revenues declined a proxy.
Probably 20% on an organic constant currency basis in the second quarter inline with our expectations.
We experienced sequential improvement throughout the quarter and into July.
The underlying causal factors began to diminish and we expect to see continued progress on that front.
During March as the extensive the pandemic became clear we quickly moved to action and deliberately protected profitability without and this is important cutting investment in our business. We did this by moderating head count growth, but without resorting to large scale for loads are layoffs by focusing on operational.
Discipline and by benefiting from the natural responsiveness of our compensation structure.
Together these actions delivered strong organic constant currency adjusted EBITDA growth.
Even while delivering strong profitability, we continue to fund investments in our innovation agenda and continued monetizing our technical infrastructure through cloud migration Tokenization of key datasets and leading edge data fabric supporting great analytics as we have done for the last several years.
We will provide more details on our performance in his financial review.
During the second quarter Verisk operated predominantly in a work from home environment and our teams across the organization have remained highly effective.
Operationally, our computing and network capacity has consistently and comfortably exceeded our daily requirements, even as demand for our solutions and platforms have increased meaningfully in this remote environment. For example in our insurance segment usage of our digital claims settlement tool increased over 50.
In the second quarter, and we are successfully converting free trials into paid subscriptions as customers realize the benefit of this new innovative platform to help them on their journey to becoming more digitally engage and in the energy vertical we saw visits to our portal grow by over 40% as customers value.
You are content, particularly in moments of uncertainty.
We moved our innovation agenda forward evidenced by our continued investment across the enterprise and the use of the digital collaboration tools. That's helped our teams stay connected to develop new an updated solutions for customers. A few examples in insurance, we launched a new micro business insurance program within.
It's reforms rules and loss costs, specifically for the small businesses. This program is designed to health insurers cover the unique risks of micro businesses that are often part of the gig economy, often operated out of home or shirt, Sharon spaces, and having fewer than for employees.
We also released an updated cyber risk modeling platform and launched life risk navigator, our cloud based stochastic risk modeling platform that offers in depth portfolio <unk> portfolio analytics, which can enhance risk selection quantify changes in mortality rates improve hedging strategies at.
And drive better financial decision, making.
Our life insurance customers.
In our catastrophe modeling business. We have released version eight of our touched on platform, which includes timely updates for many of our models in the U.S., Australia and the Caribbean and continues to fulfill our innovation promise.
In energy and specialized markets, we continue to push forward with our differentiated analytic platform called lens and are on track for further releases in the back half of the year related to upstream portfolio optimization renewables and carbon emissions.
Despite the softness in the energy market, we continue to see demand from our customers for lens, which is reflected in both adoption and constructive pricing.
Also within our energy segment, we launched the solution in April which analyze this pandemic related supply chain risk and allows our energy customers to anticipate potential disruptions in their business operation.
We are currently enhancing the existing solution by adding datasets from across ferrous that address should address an additional elements of supply chain risk such as vulnerability of suppliers to extreme events, the environmental social and governance risk factors, the suppliers may close and movements and commodity markets impacting supplier cost.
And in financial services, our loan loss forecasting model called look ahead is gaining momentum with customers as it helps them understand the changes to their anticipated loan loss curves related to government stimulus programs trends in unemployment and covert 19 generally.
This solution is unique to the marketplace given that it is founded on the total customer wallet view datasets, which is proprietary to various financial services.
On the sales front, our teams have adjusted nicely to a fully digital sales model to help our salesforce adjust to the virtual environment. We developed a series of trainings for best practices to use virtual tools, including Skype zoom teams and pricey.
These sessions were very effective and making our sales teams comfortable with the new format.
Outreach to our customers is robust and with customers in their home offices. We have found they are often more reachable than ever.
As a result calls with customers increased over 50% in the second quarter versus the prior year.
In addition, we successfully converted most of our scheduled in person customer events to virtual events.
Virtual events have enabled us to increase reach and attendance, including at our signature London based ensure tech events in June called Verisk vision.
Which saw a 63% increase in attendance this year versus the prior years in person gathering.
Additionally, we hosted 48 webinars across our <unk> insurance segment in quarter, two and had over 8000 customers in attendance, which has more than a doubling versus last year in energy. We hosted a number of virtual events throughout the second quarter delivering thought leadership in content to more than 3000 clients and prospects.
We continue to invest in the virtual space and make enhancements to our platform.
We've decided that all events for the remainder of the year will be virtual and we're making plans accordingly.
Virtual engagement with customers extends to the executive level.
It's clear from these discussions that the pandemic has heightened the recognition among our customers that they need to become more digital and more automated and to do so at pace.
At the CEO level I've also been pleased to maintain a steady and high degree of contact with our customers Ceos in the virtual moment like me our customer Ceos are highly focused on the wellbeing and productivity of their teams and consider the further digitization of their companies to be a highest priority.
I continue to receive feedback along two lines. One verisk is a unique and differentiated part partner and to our customers look to us for a steady stream of innovation to help them on the journey to becoming more digital and more automated.
Even with a video screen between us the depth of alignment and degree of mutual respect is as high as ever.
The net result of all this activity across all levels is that sales opportunities and our pipelines continue to grow as we capitalized on the structural growth trends.
We are experiencing a modest lengthening of our sales cycles across our businesses as compared to historic norms. We are managing this closely and view this more as a timing issue and a function of the complexity of bringing stakeholders together and closing deals in a remote environment.
While we have been successful successfully executing in a work from home format I'm pleased to share that we've begun to open some of our global offices pretty safe and phased returned to office for those employees, who would like to work from the office. In fact, we have opened more than 50 of our global locations in a phase one format over the past few weeks.
Including our headquarters in Jersey City.
I'm hosting this call from our offices and it feels great to be back in the office.
Additionally, as to stay at home restrictions have been lifted across the U.S.. We have seen our field force returned to a five day a week schedule.
So that they can begin to work on the backlog that built up when entering commercial buildings was restricted.
I also want to note how pleased we are with the integration and sales momentum of our recent acquisitions, including fast build facts and Gen scale, while still early we are realizing both revenue and cost synergies consistent with our expectations at the time of those deals were monitoring these acquisitions carefully and.
Supporting the management teams to ensure that we are generating a solid return on invested capital.
With that let me turn the call over to lead to cover our financial results.
Thank you Scott first I would like to bring to everyone's attention that we have posted a quarterly earnings presentation that is available on our website moving to the financial results for the quarter on a consolidated and GAAP basis revenue grew 4% to 679 million well net income increased 19% to 179 million.
Diluted GAAP earnings per share increased 20% to a dollar eight for the second quarter 2020, the year over year increase in GAAP net income and EPS is primarily the result of organic growth in the business cost discipline the impact of the timing shift of a 10 million expense related to annual long term.
Equity incentive grants and a decrease in acquisition related costs.
Moving to our organic constant currency results adjusted for non operating items as defined in the non-GAAP financial measure section of our press release, we're pleased with our operating results, particularly in light of the impact from covert 19.
On an organic constant currency basis, Verisk delivered revenue growth of 1.1% for the second quarter of 2020. This growth was driven by positive results in our insurance segment offset in part by modest declines in energy and specialized markets and financial services.
Normalizing for the 8 million revenue impact of the injunction on roof measurement solutions revenue grew 2.4%.
As we detailed last quarter and Scott mentioned in his prepared remarks, we completed a careful review of our solutions and services to evaluate their potential exposure to cope with 19 impacts.
Through that exercise, we noted that we did not expect to see any material impact from cobot 19 on approximately 85% of our consolidated revenues because they were generally subscriptions were subject to long term contracts.
As such in the second quarter those revenues grew approximately 6.5% on an organic constant currency basis when normalized for the injunction.
This speaks to the stability of our subscription business model. Moreover, as we expected we did experience a negative impact from cobot 19 on certain of our products and services largely transactional in nature, which represent the balance or 15% of our consolidated revenues.
These revenues declined approximately 20% on an organic constant currency basis during the second quarter, owing to weakness in the underlying 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 spending and project based work from the banks.
Well, we did experience revenue declines in this group of products and services in each month of the quarter as the underlying causal impacts began to diminish we did see some of the pressure on our revenues abate.
Example, we have seen trends improved sequentially in our auto insurance lines as driving my which has recovered and are also experiencing improvement in our commercial surveys as our field staff is now allowed to enter buildings.
On the energy side, the macro backdrop continues to pressure consulting but trends seem to have stabilized and we are starting to have early discussions with the strongest operators about future engagements.
The net result is that we have experienced continued progress in sequential revenue improvement throughout the second quarter and into July.
Despite the impact on revenue in the second quarter. We are pleased to report that we maintained a strong EBITDA growth and expanded margins as the result of effective expense and head count management organic constant currency adjusted EBITDA growth was 12.4% in the second quarter and normalizing for the impact of.
The injunction and the LTI timing shift organic constant currency adjusted EBITDA increased 11.6%.
Total adjusted EBITDA margin for the quarter, which includes both organic and inorganic revenue and adjusted EBITDA was 51.3% in the quarter.
This margin included a one time benefit of approximately 150 basis points from the previously communicated timing shift of annual LTI grants.
Despite the expense control driving EBITDA growth and margin improvement, we continue to invest substantially in our business and infrastructure, including our crop cloud transition and those costs are reflected in this margin as well.
On that note, let's return, let's turn to our segment results on an organic constant currency basis.
As you see in the press release insurance reported 2.5% growth well or adjusted EBITDA increased 13.8% for the quarter, we saw healthy growth in our industry standard insurance programs catastrophe modeling solutions and repair cost estimating solutions offset by the impact of the injunction on Ruth measurement solutions.
And a decline in certain transactional revenue.
It was negatively impacted by cobot 19.
Normalizing for the impact of the injunction and LTI timing insurance would have achieved 4.3% organic constant currency revenue growth and 13.8% organic constant currency adjusted EBITDA growth demonstrating strong margin expansion, despite certain revenue declines and investment in our breakout areas.
Energy and specialized markets revenue decreased 2.8% in the second quarter due to declines in consulting and implementation projects and lower events revenues across the energy segment.
We were very pleased to see continued growth in our subscription based core research and data analytic platforms, environmental health and safety service solutions, and whether analytic solutions, resulting in outperformance relative to the end market.
We believe our strong performance is a function of the must have nature of our solutions. The diversification of our revenue streams into breakout areas like the energy transition practice and the strength of our relationships in the industry.
Despite the revenue declines and normalized for the LTI timing adjusted EBITDA grew 2.4% in the second quarter, driven by strong operational controls and modest actions taken to reduce headcount to be more balanced with the current level of consulting work.
Financial services revenue declined 2.7% owing to weakness in project based retained analytics and spend informed analytics as our bank customers reduced spending due to the pandemic.
Despite decreased spending across the banking industry, we experienced growth in our subscription businesses an area that has been a strategic focus for us over the last six quarters.
Normalizing for the LTI timing organic constant currency adjusted EBITDA remained flat for the quarter, while margins declined owing to portfolio actions, we closed earlier in the year.
Our reported effective tax rate was 20.4% for the quarter compared to 19.7% in the prior year quarter.
Looking forward, we now believe that our full year tax rate for 2020 will be between 21, and 23% up from the 19% to 21% range. We had previously provided.
This is primarily the result of UK legislation was enacted in July but retroactive back to April 1st of 2020 that increases the UK corporate tax rate from 17% to 19%.
As a result, we will take a onetime catch up charge in the third quarter of this year related to the valuation of a deferred tax liability, which will likely drive the quarterly rate above the full year range provided but we do not anticipate a material long term impact from this increase.
Adjusted net income was 213 million and diluted adjusted EPS was $1.29 for the second quarter up 15.8, and 17.3% from the prior year, respectively. These increase reflects the cost discipline in the business lower travel and entertainment expenses contributions.
From acquisitions, the above mentioned timing shift in expense related to annual long term equity incentive grants and lower average share count.
Net cash provided by operating activities was 250 million for the quarter up 24.6% from the prior year period capital expenditures were 57 million for the quarter up 20.9% from the prior year period in Capex represented 8.4% of total revenues in the quarter.
We now believe that Capex in 2020 will likely be toward the higher end of our previously provided range of 250 to 270 million as investing in our business and our people continues to be among our highest priorities.
Related to Capex, we now expect fixed asset depreciation and amortization to be within the range of 185 million to $195 million higher than the prior provided range of $170 million to $180 million.
This increase is related to the timing of implementation of certain internally developed software projects as we continue to push forward on introducing innovation to the marketplace.
We continue to expect intangible amortization to be approximately 165 million in 2020.
Free cash flow was 193 million for the quarter, an increase of 25.7% from the prior year, primarily due to an increase in customer collections and operating profit a reduction in travel and entertainment expense as a result of cobot 19, as well as the deferral of federal income taxes in certain employer payroll taxes, resulting from the care.
There is act, partially offset by earn out payments of 65 million.
During the second quarter, we returned 119 million in capital to shareholders through share repurchases and dividends and I'm pleased to report that our board of directors has approved a 27 cents per share dividend for the third quarter to be paid in September.
As we detailed last quarter, we continue to believe that the collective causal factors from cobot 19 represent pressure on achieving our 7% long term growth objective in 2020.
However, we do not think represent a structural change in our fundamental growth drivers and believe that as the underlying causal factors debate, we will show strong resilience in recovery.
Each of these causal factors has its own recovery curve, making it difficult to predict the duration of the impacts to our revenue growth.
We continue to have confidence in our ability to manage the cost structure effectively and deliver operating leverage while also continuing to invest in our innovation agenda.
While we have restricted head count growth in the shorter term, we will pace new hiring as we see a return to a more normalized operating environment, taking this altogether. We continue to believe that the stability of our subscription revenues along with our core operating leverage driven by the responsiveness of our compensation structure and cost discipline will continue to support.
Revenue and EBITDA growth in 2020.
We hope this 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.
We ask for the Q in a session on that you limit yourself to one question and one follow up and with that I will ask the operator to the open the line for questions.
Thank you.
I would like to remind everyone in order to ask a question. Please.
Number one on the telephone keypad.
Our one for questions.
Again, we will limit one question and one follow up.
Your first question comes from the line.
Thanks, Mike of Barclays. Your line open.
Thank you all good morning, guys. All I just wanted to focus firstly, just on the energy and specialized market segment last quarter you gave us.
Im anecdotal commentary on the different mix between upstream renewable so on and so forth I was just wondering if you could just give us some color on how each of those are doing within that business.
Neil would you like to speak to that.
Yes sure is certainly Scott first thing is we're very pleased some terms over subscription business.
Total Boston businesses beyond its gone we mentioned the groups through the second quarter.
Once we had to as we predicted on the transaction with the consulting in the event side that was more of a more of a challenge.
When we look at the weekend in energy specialized business. This a fundamentally different business was four five years ago at the time of the acquisition.
Downtime the majority over revenue was more exposed to the upstream side.
Today, the dump part of the business is less than 50% number business just as Scott mentioned, we're much more focused on them as you transition.
Another key growth areas, which will drive the business longer term.
Got it.
And Scott just.
The other question.
We've been talking a lot.
Wed being increased.
Focusing you guys at various can I was just wondering.
Is there are we to quantify like how much as a percentage of your business, while it's today and if thats, just winning Jones denominated across energy and financial as well. Thank you.
It's definitely a committed part of our strategy amount of in all parts of our business and it is a growing part of the mix.
What we talk about all the time at Verisk is the best expression of what we can do for our customers is to provide them platform to analytic environments.
And great what we call analytic objects.
And the the the mix of both of those things inside of all of what we do is increasing and it is and it is a strong focal point.
You gets kind of an interesting thing if you're if you're trying to parse your revenue streams.
Taking energy as an example, so lenses our platform moving through that platform is content that customers.
Some of what moves to that platform is content that customers have made use of through time and so if we talk about sort of where the whereas where the revenue stream is headed in growing.
It's a little bit artificial to parse.
How much of that you're attributing to the software that you generated versus the sort of the total platform and the value that the customers find in it but definitely.
Software as a growing part of our mix and it's meaningful and all of the verticals.
Thank you.
You bet.
Your next question comes from the line.
Morgan Stanley.
Hello.
Thanks very much.
Just started out.
Really strong quarter, they're expanding EBITDA margins, expanding 470 basis points.
Attributed to that 115, LTI shift, but wanted to ask if it's fair to say that the remainder it's coming from.
Lower variable comp.
You know that come back once this period to over or is there some level of permanent savings that we should be expecting.
To remain.
We would you would you start with that question. Please.
Sure absolutely. Thank you Tony So, yes, I think your observation.
Agree with Tony I would say once you eliminate the LTL impact as we've indicated of about 150 basis points.
And then look at as I typically described.
At the businesses on a pre investment basis, we are are still seeing.
Strong margin improvement across the three businesses and to give you some kind of some sense of the overall contribution in the in the margin the reduction in teeny.
It is approximately 150 basis points.
And the short term kind of compensation impact with about 100 basis points. So naturally that's a function of the growth impact.
That it relates to.
The the overall improvements so we are having kind of the.
What you might describe as the cobot 19 impact on our cost structure that is benefiting us in that in that period.
But there are efficiencies that we are have identified on that I think will enhance our operating leverage ahead. Some of that relates to the nature of our of our sales function in the sales productivity, we don't expect to be in this completely remote format for.
[music].
For an extended period of time, but we have found potential efficiencies that may improve the the margin on a longer term basis. So I think there are some structural elements that we've identified that will persist, but clearly a significant part of this margin improvement is a function of the risk.
Most of NIS of our cost structure and the actions that we've taken to manage manage head count. So it's as as always a blend of a lot of different factors that are influencing margin.
I would just add Tony one item that you didnt have in the in the ones that you the the factors, which you highlighted.
Is the increasing efficiency of our technical infrastructure. So we have been over the last couple of years as many no.
Working to rotate to the cloud.
Well as upgrading the the data fabric inside of our analytics.
And.
That continues and as as we as we move forward the unit cost economics associated with our technical infrastructure do improve and that's happening now and we'll continue to happen.
That's great and wanted to ask about.
15% of the business, that's non subscription that you said.
20% in the quarter.
It sounds like your business overall is improving.
Just wanted to find out if you know where that 20% would be sort of in.
July timeframe.
What that looks like and you know which segments.
Great.
In the non subside. Thank you.
So we.
At our call in May we actually parsed for you the relative.
Impact we allocated the 20% across the three reporting verticals I mean, generally I would say that the.
Sort of the the recovery is being felt relatively.
Evenly across the three the three verticals.
We we have noted in July even.
Some positives in each of the three verticals.
The one that.
Personally im going to watch the closest as the recovery and.
Sort of AD spending.
And how that relates to.
Our revenues on the spend inform analytic side in various financial but as I say.
All three verticals or are showing that same upward.
Movement.
Okay. Thank you.
Your next question comes from the line.
Hi.
With Jefferies. Your line is.
Hey, good morning, Thank you.
My first question is just on on the insurance segment.
As it relates to covert 19.
I know, it's a fluid situation, but if PNC insurance companies are on the hook for corporate claims.
Maybe you could walk us through what you're hearing there how it impacts your business.
A couple a years ago custom work on a consolidation was a headwind.
I am starting to be good for you.
And so so I'm just trying to parse out.
How do you think about that just the puts and takes there.
Yeah, you actually had several points in there let me let me begin and then mark if you'd like to add anything specific to the to the idea of.
Claims as they relate to the business interruption line of insurance.
[music].
Our our view is and we and we come from a very informed place because we actually.
Author the contract language that goes into the policy is that it's really pretty clear that unless otherwise explicitly stated and generally it's not explicitly explicitly stated that business interruption insurance does not cover.
Losses related to Pandemics and Thats not to say that there won't be some court cases, maybe.
You know.
Businesses, which.
Have taken out business interruption insurance.
Naturally would like to we'd like to be covered but in reality, if you read that language.
Carefully our reading is that it's.
It's pretty clear so we don't think that there is some substantial.
Discontinuous event, that's going to happen for our customers.
As a function of Coca 19, and claims related to business interruption.
It is true that that activity inside the insurance industry is a is a is a positive for us insurance companies remained quite active in the second quarter will remain quite active our customer to demography actually doesnt change very much.
With the exception that as the ensure tax.
Come into being we actually do very well with them.
But the existing insurance companies there really has the pace of consolidation really is not all that great.
And we and we don't see anything in the in this moment that would stimulate that to higher higher rates Mark anything you want to add to that.
I think I'd just highlight directly a couple of things you said I think the language that we use in our programs have pretty clear.
Clearly states that.
The effort around pandemic part of the situation around pandemic will not affect the property and the property is really what's the key to coverage. There are other programs out there, especially on the and the reinsurance side, where some of this business interruption and defects of pandemic will be involved so I think some programs.
Sure as we'll have some payments to make it is quite sizeable to give the thing that kind of factors into the insurance.
Economics is the commercial lines premium I think what we're going to see probably in Twentytwenty is a combination of exposures in premiums down 5% to 6%. We do believe from a forecast perspective said.
Those rates you know the actual premium rate itself as well as exposures will rebound in 2021.
So that may affect some insurers.
I think overall, we don't see that is something that is systematically problematic.
I think during these times insurers look to focus on underwriting discipline.
And a lot of the actuarial and underwriting solutions, we provide provide them what I'll refer to is that grounding. So.
Hopefully that provides color yes, yes, that's a very helpful. Thank you my follow up question is.
Just just around your commercial sales organization.
We've talked about investing in software we've been in elevated investment spending cycle as it relates to capex on new products et cetera, you know financial services have been some changes in restructuring have you changed sort of the commercial sales organization structure. It.
All right as it relates to you know either compensation or how it structure from a vertical standpoint or has it been just pretty consistent over the last several years.
The go to market teams are specific to the to the three verticals and even within that we have multi tier approach, where we have account representation.
As well as product specialists.
The way that we take our products to market has not changed what we sell is complex our products need to be explained they need to be demonstrated very.
Very frequently there have to be proofs of concept followed by trials before we get too.
Enterprise wide agreement. So it's a it's a it's a process that takes time.
We're good at it we've done it for a long time and we continue to do it the way that we have.
Done it in the past we're always we're always open to an actually even interested to add teammates who.
As as the solution set expands.
Ken can take them to market and help customers find the value.
But in terms of the sort of the general approach no.
We've done it successfully for a long time, and we're not going to fiddle with our successful.
Model.
Wonderful. Thank you so much.
Your next question comes from a lot of Alex Kramm, a few bill your line is open.
Yes, good morning, everyone.
First one is a follow up to Tonys question. When you asked about kind of what you. What you saw during the quarter and can you can you be a little bit more specific maybe on that 20% how how it trended in April may June and maybe even into July.
So we can just see that trajectory and if there's any incremental color you can give what areas do you think will improve over the course of the year I guess trying to get to the trajectory a little bit any help you can give us would be helpful.
Lee anything you want to add to your comments in the in the upfront part of the meeting.
Sure, Yes, thanks, Alex so.
We're not going to get into kind of monthly monthly results, but what I will will reinforce.
Is that within the segments, we saw the underlying causal impacts improve and so.
Perhaps this is helpful. For instance in insurance as we saw that driving activity begin to kick in.
That that clearly had a positive impact and so across the quarter for the Cove insensitive revenues that 15 that 15%, we saw sequential improvement across the quarter and that improvement continued into July.
Obviously, we're continuing to deal with a lot of uncertainty in terms of the impact across the country and how that impacts overall driving activity, but at least through July we saw continuing a continued trend of improvement on that front within.
Energy and specialized markets. We also saw.
A an improvement through the through the quarter and we are beginning to see.
Some signs of Reengagement around the consulting side of the equation I do think that with that component. There is going to be a longer term I should say a longer period in which that recovers as the.
The timing of the of the response from our energy clients is going to follow the capex trend a little bit more closely in comparison to the driving activity, where we're seeing that rebound more quickly. So I think if you think about the timing.
Of that recover recovery, we are expecting that that will take a little bit longer.
But yes into July we were beginning to see improvements.
And then finally in our financial services business a lot of this relates to its kind of a blend of two dimensions. One is the advertising component, which is down but is showing showing recovery and so that's more like the auto activity, but we also have the project analytics and the retained analytics from.
The banks that probably have a somewhat slower recovery result, as a.
In in response to the Cobot 19, so those are some of the factors, but within each of those categories. There are multiple products with differing degrees of severity, but across them. All we did see improvement through the second quarter and have seen a continuation of that into July and that's probably as much texture as I can.
Give you Alex.
Now, let's go to extra thank you at similar question maybe on the other subscription side you mentioned the sales cycles, a lengthening not surprising any kind of dimensions, you can put around that and maybe related to that how's the pipeline looking today versus maybe maybe a quarter ago.
Yes.
Oh go ahead. Please go ahead, sorry, sorry, yeah, so Alex.
Yes, you have.
I would just describe it generally as early as a lengthening and so that can vary depending upon the project again factoring in that we have a lot of different projects with different lead times.
It's.
It's probably not useful to generalize across that.
But.
We are seeing what has been described by the Salesforce as getting all of the stakeholders together with it with the disruptions is taking a little a little longer.
To get that done so thats, what I would call kind of the the the backend of the of the pipeline closest to contract. However at the front end of the pipeline.
As indicated by the increase in the sales calls our engagement with clients, we're actually seeing fairly healthy level of engagement on that front.
Think because of the accessibility and the demand for our product. So we feel very good about what we've been able to generate from a pipeline perspective.
Despite the disruptions and I think that feeds into a longer term perspective, meaning.
As Scott indicated we believe that in in many ways.
The pressure is the operating pressures that cobot 19 has put on our client sets within all of the verticals recommends and encourages more utilization more utilization of our product sets and analytic platforms to support what they do there was more pressure on them to digitize more.
Aspects of their operations, and we think thats very constructive for the long term opportunity within Verisk and why we feel confident our growth drivers.
Remain.
Certainly not diminish the but probably enhanced as a result of what people of what our clients have to react too.
Hi, good thank you.
Your next question comes from the line of Gary Bisbee of Bank of America. Your line is now.
This is David Super Gary.
Just wondering is there a lag effect to the 85% that is subscription. So just wondering if net sale. This.
6.5% or.
Sure.
Well the.
The nature of the thus this subscription business that we have.
First of all a lot of that is multi year and multi year agreements.
Feature price escalators year over year, a good fraction of it also is perpetually renewing.
Particularly as it relates to sort of the traditional rules forms and loss costs that we provide in the insurance vertical so theres actually.
There's a great deal of not just stability, but actually momentum associated with.
The 85% because of the way that we contract with our customers.
And so when we talk about sales cycles.
We're really talking about.
The cross selling of a solution, which hasn't been used by a customer in the past or a brand new solution into the marketplace and you know I think Lee was was.
Really taking pains to try to describe that.
We're going to move with our with our customers and at the rate that.
That they want to move.
And I think he put his finger on exactly the right issue, which has just.
It's a big decision when customers decide to subscribe to one or more of our solutions. These are high ticket items.
And it's not as if it's not as if.
The consideration has fundamentally changed from we're thinking about it in the year 2022 like don't even talked me about it until the year 2021, it's much more.
Just them.
Having you know found their feet underneath them in the cobot moment and now as they try to organize to make.
As a material decision to buy one of our solutions. They just have to pull themselves together basically, but it's not as if the fundamental decision matrix for them has changed the value the value proposition is the same and this relates.
Emergent or the cross sell than it does to the thing, which is which is already established and again, there's momentum inside of that exists most existing.
A subscription contracts because they are multiyear and they do have price escalators.
Okay, that's helpful and just.
Hi, this implementation of new products and been an issue in this work from home environment.
Not at all.
Okay, great. Thank you so much.
You bet.
Your next question comes from the line.
Your line is open.
Yes. Thank you good morning, Scott when you in your prepared remarks, when you talked about long term benefits to their risk of digital transformation of your customers talk not only thoughts there than being more desirous to use your solutions, but also their capabilities to consume once you provide I guess just that on that.
Ability point, how much of about area or is that today and maybe if you could illustrate the point with Hollywood, how it's different business with one of the in circuits that you do well with or without a traditional carrier. That's further along with their digital transformation.
Yeah, So actually I like the way you framed the question Jeff because.
I'm going to generalize a point here and that is that.
As I observe some of the ensure tax which is kind of born from whole cloth and essentially platforms.
Into more and more a more modern infrastructure. They are born with a more modern infrastructure I find their rate of adoption to be really high.
And so it actually is a demonstration of what we're talking about here.
Those who are those who are more.
Naturally able to connect to to integrate too.
To consume from inside of the <unk>.
To to render.
Content from the outside into their own environment.
Quickly or even more importantly to actually plant a platform to analytic environment right in the middle of their their workflows a company, which is in that condition is able to consume the next thing from us just that much more easily and add it really I think there really is there really is an observation there about.
The relative ease with which some of the ensure tax are able to begin to work with what we provide them and what it comes down to fundamentally is that.
They have their own backlog of.
Technology oriented projects that they have that they have to work through and sometimes.
One of those technology oriented projects might be them doing whatever it is that they need to do in their environment in order to adopt one of our solutions, we've seen as many many times over in much of what we do actually.
And to the extent that they're actually.
Able they're more they're more naturally digital.
There will be able to work through these kinds of implementations that much faster and.
And so.
I don't think it I don't think that it it.
The the when they do their own ROI calculation on making use of one of our solutions their cost of implementation.
In most cases is there something there.
But it really isn't going to make the difference in terms of whether or not to make use of our solutions, maybe with some of our thickest platforms that might be there a little bit more.
But so my point here is that the the fundamental interest in in making more use of what it is that we do.
The ease of implementation is a part of that but also as they become more analytic and the way that they make their own decision making.
The value of the content that we bring just stands up that much taller and so.
Theres also something about.
Their own analytic environment, and the and the quality of their own analytic environment and so at the at the intersection of I can get you implemented faster and I can make more use of this unique perspective that you've got ferrous the value proposition just stands stands up even higher.
Okay. Thank you.
Your next question comes from the line the after Nicholas William Blair. Your line is now open.
Hi, good morning.
Looks like at a geographic level growth in the U.S. as a bit stronger than international in the quarter I'm, assuming that's primarily a function of business mix.
Secondarily exposure to the transactional revenue, but I was wondering if theres anything else to call out in terms of regional growth differences in the period.
No I mean, I think you really caught it inside of your question.
As as many folks know.
We're excited about the growth of our international business and we have.
We have a variety of ways that we try to grow our international business.
And.
In the early stages of developing.
Market one of the things that kind of a natural.
Each of our businesses that some of it may be more transactional in the early going.
Customers when they are getting used to a new solution often want to start out and in the transactional mode and or it's just that much faster in terms of getting established with the customer.
With time, what we've generally found as customers would prefer to move towards a subscription model, where they have certainty about what they're going to be paying for what they get but that's not always the case when they get started so international being a newer part of our mix overall, it's not surprising that.
In this unique moment.
There might have been a little bit of the difference.
There don't expect that to relate to the long term growth picture.
Got it that's helpful. And then I was hoping you could provide an update on your relationship with respect style, how that partnership performed this year relative to your expectations and.
Can't today.
If you could just evaluate or speak to your evaluation of how those capability that functionality is replacing.
Geology.
Sure Mark is one of our two board members at BEC sell so Mark would you take that on please.
Absolutely so.
What we attempted to do and I think pretty successfully is separate what is image capture where we thought there was about opportunity to scale and provide what I'll refer to is greater coverage by combining the two companies. So if I was to think about that is job one.
The combination of what I'll refer to is the Gianni image capture index L. image capture has.
Quite considerably increased the coverage in the United States that is a combination of all of North American us in Canada, but it also has two different types of copper channel kind of that high up.
Across the landscape and then that more higher resolution.
Five north South East West views of thanks, what we're also being able to do start to extend geographically. So now we have accessed imagery across Europe and in certain parts of Asia Pacific So.
There, we have opportunities to leverage that analytic and I think we've been quite successful on the Gianni front, where we continue to be focused on advanced analytics, Hey, we have more data to work with so our algorithms are machine learning is better and improved and of course, because we have more coverage we can provide.
Morning analytics across various places so let me give you an example.
We now have the ability to take some of the weather analytics we have.
Put it on top of all this imagery and provide kind of a tree arash tool for AML analytic purposes, and thats not just in the United States, but we can go throughout the world, where we have that coverage. So.
I hope that provides you a little bit of color.
The combination of leveraging getting access to all those images, we still have that from a gianni perspective, and I think at exact sale because they're doing it once instead of twice Theres a lot of scale and leverage there. So they are doing a cheaper.
That's helpful. Thank you.
Your next question comes from the line of Andrews Herman from JP Morgan. Your line is now open.
Hi, there Lee I was wondering if you'd be willing to comment if theres expect company EBITDA margins to be up.
Year over year, just directionally up year over year Directionally in the second half the year and what puts and takes you might want to be willing to qualify out in terms of things that would affect EBITDA margin in the second half from this year.
Hi, Andrew Thanks for the question as you know we don't provide forward looking statements on the on the results were constantly looking to make certain that the operating leverage that we have in the business is expressed and we certainly think that this quarter demonstrates the underlying operating leverage in our.
Ability to him to manage that so certainly in this case, it's I think a very important differentiation on period for us as we are dealing with some of the on the revenue impacts, but it shows one kind of the responsiveness of the cost structure.
Our ability to manage head count growth in order to control growth in expenses as well as achieve operating leverage through each of the businesses. So our focus is on managing the operations and expense business to deliver that operating leverage and we're constantly working to achieve improvement of that over on a year.
Over year basis.
And some of the expenses that were held back in the second quarter will they naturally come back in the second half of the year like could you just highlight what you expect in terms of what types of expenses to come back.
All right so.
I've talked about this earlier Andrew So we have there are two primary elements.
That I think are influencing the the margin excluding the LTI impact.
But t. any is down.
Materially as a result of cobot 19, so as the impact of that abates as we begin to.
Engage in a more normalized environment youre going to expect that some of that will come back I referred earlier.
Earlier to the fact that we will probably tried to hold onto some of the efficiencies in part, but there is no substitute to being in front of the clients in person, but we're going to follow the clients in that in that regard.
And then the second.
Element as compensation in two pieces of that one which is our incentive compensation, which is tied to growth and so that is going to be impacted by our revenue growth and our earnings growth impacts.
But the second element is our head count growth and there we are managing that to be appropriate and add and consistent with the revenue growth impacts. So that we can maintain that that operating leverage those are the primary expense elements that I think our influx.
In a in the second quarter and we.
You can certainly expect will continue to be influenced by covert 19 in our active management of that have that cost structure in the second half of the year.
Okay. Thanks.
Thank you Andrew.
Your next question comes from the line Bill Warmington of Wells Fargo. Your line is now open.
Good morning, everyone.
So.
Going Marshall slip in box.
Competes with exact residential properties city.
MSP the more weighted to the underwriting exactly.
Reclaimed.
A couple of weeks ago.
A lot to come out from a lot fanfare the competitive take away its with the.
How big.
Corelogics new property insurance solutions.
Is it a change in the competitive landscape.
Mark you want to start with that one.
Sure. So let me just remind you marshals effect is a tool used to understand the replacement costs costs value.
To understand the cost you have on your home so what's the replacement value.
What.
Corelogic also has its a tool called stability.
Which they acquired a couple of years ago. These tools have been in the market for.
Decades.
I don't see are we haven't seen any material investments to clearly because some buildings now part of Corelogic they've talked about the two combined.
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I would tell you that we continue to continue to closely monitor.
You know all of our.
Wins and losses, we are on it every single month, we understand we're where the incumbent and there's a bake off we understand where there is an incumbent reduce beyond corelogics I will not be overly specific here.
But what I will tell you as we continue to win much more frequently than we lose and that's the story that we have been.
Kind of on or probably five years now I think we've been trying to share that various.
Yesterday, and I think the message and the direction remains very similar so I think we're pleased with their competitive advantages I think we're very pleased with where we are in the market.
And I don't want to address a specific customer but.
I'm not aware of that particular situation now.
And then.
Following up on.
Unlike speed I wanted to ask whether Colgate 19 has impacted the usage and the adoption of the product.
Okay.
On I'm, sorry, Lightspeed was your question Bill light speed.
System.
Sorry, Scott if you like figure yes, yes. Please continue.
Yes, So let me let me remind to read Lightspeed is our tool by which were taking a lot of information and data and moving it forward in the underwriting process hopefully overtime, eliminating the separation between what is the CLO and then separately binding later on we want to make that one process upfront season quote in buying with confidence and we're bringing in both our data through.
Part of data in scoring and its such whether you have confidence in that information.
And that has been quite a bit as we've seen quite a bit to success, both on personal lines and now moving into the commercial line side of thanks.
So the one point I'll make is back to lease comments earlier.
During the middle Cobot, there was less driving.
At the same time I think many.
Personal auto policyholders will kind of waiting for maybe their refunds from insurers. So there was less shopping there was less people going online. It seems if they can get better quote. So we did see some decreased volumes, but as we described we've seen that slowly return has driving has increased so hopefully that's responsive.
A question.
Yes, thank you very much.
Your next question comes over the line of George Tong with Goldman Sachs. Your line is probably.
Hi, Thanks, Good morning, after normalizing for the LPI shift your EBITDA margins expanded much more materially in your insurance segment than your energy in financial services segment can you elaborate on what drove that relative outperformance. If it was related to the amount of investment spending in the other segments or other onetime cost actions.
Impacting be insurance segment more.
Lee would you please.
Yes, George one element that I think is a significant contributor to the insurance margin specifically on that is probably the largest factor is that as a result of the the vessel transaction, we have been able as we've talked about in the past of reducing the.
The expenses associated with that activity and so that is.
All of that margin improvement or a large part of that margin improvement not solely related to it.
Is a is a function of of that expense reduction specific to insurance that being said, we still saw very solid margin expansion, even absent that effect within the business, but that probably is the the significant element of the of the differentiation.
George you still there.
Yes. Thank you know I'm turning to the financial services segment, when you divested the Argus data warehousing business the underlying growth rate for this segment improved pretty meaningfully to the 5% to 7% range before cobot, I guess I'm surprised to see organic constant currency growth down as much as as it is can you help on pack.
Financial services revenue decline as much as it did especially given how you indicated that of the 20%.
Non sub revenues impacted by cold with only 3% comes from financial services.
Yes, so George let me so keeping in mind put that 3%.
In the context of financial services as a percentage of our total total overall revenue and so on a proportional basis. It's a that transactional element is a larger element relative to the other businesses and so if you if you take that and you recognize that we've had consulting.
Impacts.
With regard to the retained analytics and the project analytics that have impacted that's kind of a similar effect to what we've seen in energy on the consulting the consulting business. That's one dimension and then we also have the pullback in advertising and so when our spend informed analytics business on the lower level of advertising.
Is having a primary causal impact from cobot 19, so both of those.
Our influencing the revenue growth and there is a higher concentration.
Of that could 19 sensitivity to overall revenues that is resulting in a in a bigger revenue impact in comparison to the others.
Got it that's helpful. Thank you.
No further questions from the whole life presenters unit continues.
Okay, well, thank you everybody for joining us today as always we appreciate.
Your interest your questions will be following up with many of you and so appreciate your time today have a great rest of the day.
Hi for now.
Thank you.
The subject of and this concludes todays conference call. Thank you for participating you may now disconnect.
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