Q4 2020 Verisk Analytics Inc Earnings Call
Good day, everyone and welcome to the fourth quarter 2020 earnings results Conference call.
Call is being recorded.
[music].
At this time all participants are in a listen only mode. That's true today's prepared remarks, we will conduct a question and answer, especially when we moved on it.
Participants to one question, we will have further instructions for you at that time free.
And the remarks that introduction I would like to turn the call over to you.
And that's the relationship and Stacy Podber, Inc.
Please go ahead.
Thank you Mary and good morning, everyone. We appreciate you joining us.
Our fourth quarter and full year, 'twenty and 'twenty financial results today's call will be led by Scott Stephenson, Chairman, President and Chief Executive Officer, who will provide an overview on harvest.
Lee.
Chief Financial Officer, President and will follow with the financials.
And you Mark and Lorie, Chief operating Officer, and group, President and Ken Thompson, and General Counsel will join the team for the Q&A session.
The earnings release referenced on this call as well as the associated 10-K can be found on the investors section of our website at <unk> Dot com and <unk>.
Earnings release has also been attached to an 8-K that we have furnished and he says a replay of this call will be available for 30 days on our website and by dial and finally as set forth in more detail in today's earnings release, I will remind everyone. On today's call may include forward looking statements about future performance, including but not limited to.
And the potential impact from the COVID-19 pandemic actual performance could differ materially from what is suggested by our comments today.
And 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 Hello, everyone. Thanks for joining us for our Q4, 'twenty and 'twenty earnings Conference call.
While 2020th year like no other for everyone and Paris. It was a year that demonstrated the resilience and stability of our business model the.
And the relevance and mission critical nature of our solution.
And our relentless focus on our customers and this was all powered by the strength and creativity of our over 9000, Paris teammates around the globe, who I want to thank for their dedication and commitment to deliver on our core mission to serve and value and innovate. During these challenging times. The net result in 'twenty and 'twenty was another strong year of financial performance.
Laurence marked by organic constant currency revenue growth of four 1% and organic constant currency adjusted EBITDA growth of 11, 6% after normalizing for the impact of the injunction related to roof measurement solutions.
More importantly in 'twenty and 'twenty, we delivered $6, 9% organic constant currency revenue growth and the 85% of our revenues that we identified as non COVID-19 sensitive essentially in line with our long term growth target and Conversely, our COVID-19 sensitive revenues declined 11% on and OCC basis, yes, those revenue streams.
To show resilience as the underlying causal factors improve and we have confidence and this relationship.
Throughout the year, we've been very deliberate and our cost actions and a protected profitability by matching head count growth with the trend and our revenue growth as such and the pace of our hiring and our overall head count growth has increased sequentially.
Following the moves that we took at the onset of the pandemic and early spring 'twenty and 'twenty as a result parents delivered strong organic adjusted EBITDA growth and solid margin expansion throughout the year, we will provide more details on our performance and his financial review.
2020 also exhibited the importance of our strong cash flow.
Disciplined capital allocation mindset, and our emphasis on creating long term durable shareholder value.
Despite the challenges of the operating environment during 'twenty and 'twenty, we were deliberate about our continued investment and our innovation agenda by inventing new solutions and enhancing existing ones and we also partnered with our customers to bring them solutions to help them be more automated and digitally connected during the pandemic we.
Funding and the continued transformation of our technical infrastructure through cloud migration Tokenism mission of key data assets and the development of cutting edge data fabric to underlie our analytics solutions. This is a journey, we embarked on and Ernest two years ago, and we have made significant progress moving our datasets and solutions.
And cloud.
And yet we still returned over $500 million and cash to shareholders through share repurchases and dividends and I'm pleased to announce that our board of directors has approved a 7% increase and our cash dividend and a 300 million dollar increase and our share repurchase authorization to support ongoing capital return.
On the innovation front and our insurance business continued to advance our existing solutions and introduced new innovations and.
And our commercial property business, we substantially enhanced and updated our database of commercial properties by building and advanced analytic model for over 8 million commercial properties that give insurers information for five key building attributes, including building use construction class building age number of stories and area. This.
Brings the database to a total of $12 2 million commercial properties and this data can be delivered to our insurance customers workflows, and and automated and easy to use format of debt.
Additionally, during the quarter, we continued to advance our analytics and offerings and the fast growing area of cyber risk with the addition of nationwide to the barest cyber data exchange and the cyber data exchanges, a contributory database of aggregated and Anonymised insurance data from participating cyber insurers globally.
The insights and analytics that virus derives from this data and help our insurance customers make intelligent strategic decisions about their portfolios and select risk and benchmark their performance against peers. The.
And the cyber exchanges and important part of <unk> Cyber solutions suite, which is an end to end ecosystem that helps insurers and reinsurers more quickly deliver new cyber programs or enhance existing ones.
I'd like to take a minute to observe on recent developments related to our ongoing patent dispute with Eagle view technologies. We continue to disagree with the current outcome of the case and are aggressively pursuing all are legal and operational options and September 20th 19, we reported a $125 million legal reserve related to this matter.
We filed our appeal of the original ruling at the end of the fourth quarter 'twenty and 'twenty on February 16th the trial Court granted <unk> motion for trouble damages as well as some interest and fees, we intend to appeal. This ruling as well as discussed in more detail on our 10-K, because our appeals pending we're unable to predict the ultimate outcome on this.
Matter and still we remain committed to providing our customers with superior aerial imagery solutions and remain very excited about our partnership with XL, which has not been impacted by this ruling.
At Wood Mackenzie, we continued to expand our lens energy analytics platform in the fourth quarter, we released lens subsurface discovery on time and on budget and rounding out our five upstream solutions within the lens platform.
This module enables faster more accurate decision, making for exploration and resource development team.
And as they have access to a comprehensive global dataset and can run custom analyses and perform benchmark marketing studies right in the workflows <unk>.
Despite the softness and the energy and market driving industry consolidation, we continue to see demand for lens across our different customer segments, which is reflected in increased adoption constructive pricing and longer contract terms and looking ahead. We are on track to launch a suite of modules related to the energy transition into the lens.
Platform, namely lens power, which will include global discovery and valuation as well as carbon emissions benchmarking solutions and.
Financial services, we launched small business attributes a new solution in partnership with Enigma technologies that provides greater insights into the financial health of small businesses, which have been the hardest hit part of the economy during the pandemic.
This solution offers our bank customers near real time information about sales trends that can be used by our banks risked underwriting and marketing teams. So they can better serve small business customers.
This partnership is a great example of how PFS is leveraging our unique data assets to extend and serve new segments of the financial services and market.
On the acquisition front and the fourth quarter <unk> closed on the acquisition of <unk>, a leading provider of consumer behavioral data and intelligence the acquisition will add Jordan I and proprietary view of consumer buying journeys to various growing set of marketing solutions for the insurance and financial service markets.
Delivering better experiences and improving customer acquisition and retention for our customers. In addition, we've made great strides throughout 'twenty and 'twenty with recently acquired companies. We are now on fast and Jen scape for a full year.
And I'm happy to share that we are having great success, extending and accelerating the adoption of your solutions across our customer set as well as improving profitability through cost synergies.
We're very pleased with these results as they are tracking ahead of our plans at the time of acquisition.
And are a great example of management's focus on delivering strong returns on the capital invested and acquisition.
'twenty also mark and other high point for our company's culture, and our commitment to investing and our people and their skills.
A spicy remote work environment the virus team increased productivity boosted connection and collaboration through internal communication tools and engaged and training and development courses through on many different platforms and across all levels and the organization. This year alone we trained more than 700 and teammates and our leadership and management and Bell.
Programs and and our lean six Sigma programs.
<unk> teammates earned 900, yellow belt certifications and 70 Green belt certifications and lean.
Lean six Sigma and embedded mindset across Vera and we continue to leverage this established methodology and set of tools to serve our customers better every day.
Some examples of important accomplishments. This year include first models of golfers worked to reduce the time spent collecting data and creating models and.
Proving time to market from noodle new models.
And field Representatives developed new Timesaving procedures for completing and updating property surveys increasing their productivity and third sales and support teams develop new processes to execute new contracts or them and current ones quicker with our customers.
The benefits are reflected in increased productivity high customer satisfaction and improved employee engagement and fact this year our employee engagement score.
Increased eight points to 78% and for the fifth consecutive year of parents received U S certification from the great place to work Institute for Outstanding Workplace Culture. We also received first time certification and the United Kingdom, India and Spain.
Finally, I'd like to share my enthusiasm and my views on the recently announced leadership changes and expanded responsibilities for our executive management team.
These changes reflect the thoughtful and strategic approach to our long term gross and planning for the global organization and are a testament to the deep bench of talented leaders, we havent ferrous and I'm pleased to share that both mark and Colori and leash able are taking on new leadership responsibilities with embarrassed and both of them and elevated to the position of group President and Mark.
Ankle or even currently serves as <unk> Chief operating officer is adding oversight of the company's enterprise risk management function to his current responsibilities of leading the company's insurance business and government facing businesses.
And our risk management operations will continue to be led by our very talented and seasoned team that worked diligently every day to make sure that our technical infrastructure remains secure and that we are always using the most advanced data protection techniques. This.
And this move also more closely closely pies, and our enterprise risk assessment and management with court the core operations of our business low.
And we shave old who currently serves as Paris, Chief Financial Officer will add oversight responsibility for the operations of our energy and specialized market segment, and our financial services segment, bringing and even more direct link between our capital allocation discipline and our business unit operations, we will continue to be supported by our deep and tenured.
Finance organization, including our Chief Accounting Officer, and controller, David Grover and our Treasurer, Brian and aired.
Finally, I'm pleased to publicly welcome Kathy card Beccles to virus, that's our new General Counsel and corporate Secretary and Cathy joins us from Chase consumer Bank, where she most recently served as general counsel Kathy brings with her extensive experience and intellectual property and technology and significant expertise partnering with.
And advising boards of directors and management teams.
I look forward to having cathie formally joined the team on April 5th and working with her to advance our long term strategy Kathy.
Kathy will replace Ken Thompson, who announced his retirement late last year to ensure a smooth transition Ken will continue with the company as executive Council.
Over the last 14 years, Ken has been an integral part of their success and a valued partner and a friend to many across the organization on behalf of the entire organization and want to personally thank him for his dedication to virus and his counsel through this transition, we wish and much health and happiness and his retirement.
And now I will turn the call over to Lee to cover our financial results. Thanks, Scott first I would like to bring to everyone's attention that we've posted a quarterly earnings presentation that is available on our web site moving to the financial results for the fourth quarter on a consolidated and GAAP basis revenue grew five 4% to 713 million.
Net income increased 33% to 176 million, while diluted GAAP earnings per share grew 33, 8% to $1 seven reflecting a 28 million acquisition related earn out expense and the prior year that did not reoccur moving to our organic constant currency results adjusted for non operating.
<unk> as defined and the non-GAAP financial measures section of our press release, we are very pleased with our operating results considering the impact from COVID-19 in the fourth quarter organic constant currency revenue grew three 5% led by continued strength and our insurance segment, our non COVID-19 sensitive revenues as we defined at the start of the pandemic.
<unk> grew approximately six 5% on an organic constant currency basis, this sustained growth and our non COVID-19 sensitive revenues, representing approximately 85% of our total revenues reflects the durability and resilience of our primarily subscription based business model.
We did continue to experience as we have since the onset of the pandemic and negative impact from COVID-19 on certain of our products and services largely transactional in nature, which represent the balance or approximately 15% of our consolidated revenues.
These COVID-19 sensitive revenues declined approximately 12, 5% on and OCC basis during the fourth quarter, though the performance across our three segments differ in our insurance segment. We continued to experience sequential improvement in these revenues as the underlying causal factors continue to abate so the pace of recovery.
It varies across the different solutions on the energy side, our consulting business remained under pressure from lower capex budgets at our customers, but trends appear to have stabilized and finally within financial services. Our COVID-19 sensitive revenues took a further step down as our bank customers reduce their spending levels.
In response to weakness across their lending portfolios.
Despite the impact on revenue and the fourth quarter and we're pleased to report that we delivered solid EBITDA growth and expanded margins as the result of effective expense management.
C C. Adjusted EBITDA growth was 4.9% and the fourth quarter.
Total adjusted EBITDA margin for the quarter, which includes both organic and inorganic revenue and adjusted EBITDA was 48, 2% in the quarter representing leverage across the business. This margin level includes roughly 220 basis points of benefit from lower travel expenses, but also reflects a return to more.
Normal pace of head count growth and an increase and the pace of investment and our technological transformation, including our cloud transition costs on that note, let's turn to our segment results on an organic constant currency basis.
In the fourth quarter insurance segment revenues increased seven 4%, reflecting healthy growth and our industry standard insurance programs catastrophe modeling solutions repair cost estimating solutions and insurance software solutions similar to the third quarter, we experienced a modest benefit from storm related revenues.
As a result of a more normal storm season in 'twenty and 'twenty as compared to the very slow season in 2019.
This was offset in part by a decline in certain transactional revenues that were negatively impacted by COVID-19.
Adjusted EBITDA grew 12, 2% and the fourth quarter, demonstrating strong margin expansion, despite certain revenue declines and investment in our breakout areas and our cloud transition.
Energy and specialized markets revenue decreased three 9% and the fourth quarter due to declines and consulting and implementation projects and some modest headwinds related to consolidation and the end market.
We were very pleased to see continued growth and our subscription based core research and data analytics platforms, and environmental health and safety service solutions, resulting in outperformance relative to the end market.
We believe our strong performance is a function of the criticality of our solutions the diversification of our revenue streams into breakout areas like the energy transition and the strength of our relationships in the industry.
Adjusted EBITDA declined 19, 5% in the fourth quarter, reflecting a catch up of certain compensation expenses associated with furloughed employees that are onetime in nature.
As a key partner to our energy customers. We continue to closely monitor the operating environment with a focus on consolidation and the upstream space and the potential impact of a broader more climate focused political agenda in the United States.
We have a track record of managing through volatile times effectively and believe we are well positioned with our energy transition practice to capitalize on the global growth and spending across zero carbon technologies like solar wind and energy storage.
Financial services revenue declined, 13% and the quarter, reflecting the impact of certain contract transitions as well as lower levels of project spending from our bank customers stemming from the COVID-19, pandemic and fewer bankruptcies versus 2019 as a result of government support and forbearance programs.
Adjusted EBITDA declined 21%, reflecting the negative impact of lower sales, while margins were impacted by certain portfolio transactions. We took earlier in the year.
We continue on the journey to transition V F S to a more sustainable subscription based business and have taken actions that we believe benefit the business and the long run but are likely to negatively impact our growth over the next few quarters.
Our reported effective tax rate was 18, 4% for the quarter compared to 23, 2% in the prior year quarter. The quarterly rate came in lower than our expectations, owing to increased levels of stock option exercises, which depends on personal employee decision and the virus and stock price.
Looking forward to 'twenty 'twenty, one we expect that our full year tax rate will be between 20% and 22%, though there will likely be some quarterly variability related to the pace of employee stock option exercise.
Adjusted net income was $209 million and adjusted diluted but I'm, sorry, and a diluted adjusted EPS was $1 27 for the fourth quarter 2020 up 10, 8% and 12, 4% from the prior year respectively.
These increases reflect solid top line growth cost discipline, and the business a reduction and travel expenses as a result of COVID-19, and a lower average share count.
Net cash provided by operating activities was 249 million for the quarter up 41% from the prior year period, primarily due to increased customer collections and a reduction in income tax payments, owing to higher levels of stock option exercise the deferral of certain employer payroll taxes, resulting from the cares Act.
And a reduction in travel payments as a result of COVID-19.
Capital expenditures were 72 million for the quarter and 247 million for 'twenty and 'twenty, including some one time expenses associated with our office consolidations in Boston and London.
Capex came in at the lower end of our initial range and certain expenditures were delayed on to the pandemic.
For the full year, 'twenty and 'twenty Capex represented eight 9% of total revenues as we look to 'twenty 'twenty, one we expect capex to be and the range of 250 to 280 million, reflecting our continued investment in our innovation agenda, our technological transformation and our people.
As well as the carryover of certain expenditures that were delayed in 'twenty and 'twenty as a result of the pandemic.
Related to Capex, we expect fixed asset depreciation and amortization to be within the range of 200 to 215 million and intangible amortization to be approximately 165 million in 'twenty and 'twenty one.
Both depreciation and amortization elements are subject to FX variability the timing of purchases and the completion of projects and future M&A activity.
During the fourth quarter, we returned 94 million and capital to shareholders through share repurchases and dividends.
Got mentioned I'm pleased to report that our board of directors has approved a 7% increase and our cash dividend to <unk> 29 cents per share this quarter and has authorized an additional 300 million for share repurchases, bringing our total available authorization to more than $500 million.
For the full year, 'twenty and 'twenty, we generated $1 1 billion and cash flow from operating activities and increase of 11, 7% over 2019 are strong results considering the challenging operating environment. We invested this cash flow back into our business through $247 million and capital expenditures.
And funded 285 million in acquisitions, and we also returned 176 million and capital to shareholders and dividends and an additional $349 million through share repurchases.
As we look to 'twenty 'twenty, one and our strategy to deliver long term sustainable growth remains unchanged and we believe the stability and predictability of our subscription revenues will will persist. However, we do expect certain COVID-19 related pressures on top line growth to continue but we expect the impact to be less and it was in 'twenty and 'twenty.
We remain confident these COVID-19 impacts did not represent a structural change and our fundamental growth drivers and believe that as the underlying causal factors abate, we will show strong resilience and recovery.
We also have confidence and our ability to manage the cost structure effectively to protect profitability, but we would remind you that cost comparisons will be more challenging as we begin to anniversary the onset of the pandemic and the second quarter taking.
Taking this all together, we believe that as the Covid impacts abate, we can return to our long term growth model of 7% organic constant currency revenue growth with core operating leverage alone EBITDA to grow faster than revenue, although it is difficult to predict that timing.
We hope this provides some useful context for you and we look forward to addressing your questions and we continue to appreciate all the support and interest in various 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.
Thank you at this time I would like to take any questions you might have for us today and as a reminder to ask a question you will need to press Star then the number one and you tell us all and keep on to enjoy a request you may press, the pound or hash key well phosphate and moment to compile the Q&A.
We have our first question comes from the line of Manav Patnaik from Barclays. Your line is open. Please go ahead.
Thank you good morning.
I just had a broader question on how you guys and looking at the either the company portfolio today because.
I guess has over the last five year and I think decline and.
And then the energy business has been flat to slight growth and I'm, just curious like how long before.
Major changes needs, we need to try and spur that growth to match and know, what's obviously, a phenomenal insurance asset.
Yeah. So.
We spend a lot of time thinking about.
The way that were deploying capital around the company.
And and that thought process really occurs at a couple levels. So we do think about the shape of our business overall, and it's and it's very evident to everybody that we have a very very strong insurance.
Franchise, we believe that we know what are the elements of a great data analytic business and.
And our primary focus has been trying to bring those qualities to bear across everything that we do.
And we have definitely.
Given a lot of attention and energy to to trying to make those investments and make them on.
And productive across all parts of the portfolio and so we're constantly reviewing what were doing kind of at the segment level and at the individual solution level and we won't.
And we won't stop doing that and you know if and and those who are familiar with the history of the company know that if we ever get to the point, where we concluded that's something that we are doing is unlikely to be productive and to the future than we are we are not.
Reluctant to respond to that kind of a conclusion. So this is an ongoing thought processes consistently a part of of what we think about at the company.
Operator next question.
And you have our next question comes from the line of Greg Peters from Raymond James Your line is open. Please go ahead.
Good morning.
You know I was interested.
There's been a lot of activity and the insurance industry around insurance Tech Ipos and rhetoric around cyber, let's just focus on my question on your telematics business.
Can you give us.
Some detail how big that business is for you and what your key differentiation in.
And in terms of the products and services, you're offering relative to some of these recent ipos and think that they have.
<unk> solved the matrix for telematics in auto insurance.
Mark would you take that please sure.
Thanks for the question. So first of all let me kind of describe what we've done and what we think is rather unique.
We have moved primarily to the OEM side of the equation, So think of GM Honda Hyundai and four and we have aggregate information from those vehicles and remember access to those loans.
Vehicles those data on it.
He is being harvested alpha newer cars right because the history yet to go back to allow harvesting. So every day, we have more cars more miles and we are now tapped in to the largest insurers many of the largest personal auto writers.
To which they allowed to or using that day attitude to do their own modeling and often serviced by the way.
Or more likely theyre, using our score to assess the dry and behavior.
Our offer discounts market or actually price insurance.
You think about kind of the future of insurance, which I think is where you're going.
And the historic.
Rating, all grid and it's driven by.
Sex.
And driving behavior from the standpoint of moving violations.
Accidents age those type of things clearly understanding the driving behavior from what's happening behind the wheel is probably more accurate and more relevant. So we think we're very well positioned we think it'll nicely integrate and does integrate with all the underwriting work, we do when we talk about moving the data forward and up.
Underwriting and insurance policy, picking fluffing and risk and pricing it on.
To kind.
Kind of answer your question generally.
And is still a small part of our business.
Specialty around personal auto line of business, but we do believe it will grow it will become the approach for rating going forward.
Now I think your second question was a little bit about competitive advantage we have.
And some very unique and exclusive relent range and that's with.
A the Oems, but more importantly, we feel that our data being at the center of those Oems and all the insurers that we know so well and we are integrated with <unk> creates a unique relationship where they come to us once as opposed to integrate many times.
We are trying to extend that out and that information out beyond what I'll refer to as just the.
Car manufacturers.
But I think that hopefully describe to you a little bit about.
What we do and how we do it really more focused on insurance and some of these other telematic solutions that are and extends beyond insurance and try and provide.
And to marketing and other markets.
Thank you for the answer.
Your next question is from Andrew Jeffrey from True Securities. Your line is open.
Hi, Good morning, and appreciate you taking the question.
Scott or Mark.
And I wonder if I could.
As for an update on a couple of newer lines of business and I didn't hear called out specifically one would be life.
And the other is lightspeed I know, we've touched on auto both seem like big tabs with potential pricing.
Leverage so I wonder if you could just comment on sort of contribution to growth and any changes in and that contribution prospectively.
Yeah. So two topics about which we're very excited mark those are both and your column and you want to speak to those from you can't see me, but I have a smile on my face on me or share a little bit about that first of all what we're doing and life is led by the acquisition of fast which is this.
Call it.
Low code no code solution.
And for life insurers, what we've added is a bit of relationship and some analytics to the underwriting approach so things like understanding from your voice, whether you're a smoker. Those are the type of things that we've added and.
And the life business and whole has done exceptionally well, we probably are not talking about it quite as much is because we typically focus a little bit on organic revenue growth. So I look forward to having some conversations property and first quarter of next year when we become.
And it becomes and organic part of our our math.
Separately and distinctly again, when we talk about the resurgence and the great growth that we're all for it is ISO or our underwriting business.
Had a very stable and strong business as it relates to our historic loss costs rules and forms but the growth that you're seeing in large part is driven by disliked speed conscious that it is taking a lot of data not just our own proprietary data, but that in combination with other third parties, scoring it so that we have a confidence level.
So that as opposed to doing first to quote.
Providing that right to a potential policyholder they like it and then you do other underwriting to understand if there is any other.
Accidents and moving violations traffic.
Typically 33% of the time that rate changes, that's very very much.
Much on and that's very attractive to the policyholder not the digital engaged people looking for so a binder quote is really the heart of what has group has driven a lot of our.
Underwriting and <unk>.
Rating gross over the last year, and we are doing more and we are extending kind of I'll call from an investment perspective, doubling down as we speak.
Thank you very much.
Your next question is from Andrew.
Your line is open.
Lee I remember you talked about the normalization of G&A on the third quarter call. So I just thought I'd revisit the subject.
Given that 'twenty, one does appear to be a year of rebound to organic revenue growth. That's just the assumption around the COVID-19 drags abating.
Do you still think that the normalization of DNA will be more of a drag to margin that core operating leverage and could you just mentioned right G&A expense level was and the fourth quarter and how you envision kind of normalization of TNA post COVID-19.
Yeah. Thank you Andrew and it's certainly something that we're watching very carefully and and expect us to manage very actively in 'twenty and 'twenty one.
I think you characterized it accurately in terms of the we are expecting on that as a as and if the pandemic impacts continue to abate over time, the revenue impact relative to our targeted growth rate.
Should be more modest so were certainly hoping for and improvement and that.
In that regard.
However.
As you saw and our expense management in 'twenty, and 'twenty and not just including the T and E expense, which as we mentioned represent represented about a 220 basis point benefit to our margin, but also our management of head count levels and incentive compensation.
<unk> in.
In the fourth quarter and over the course of 'twenty and 'twenty reflected and ability to manage that on that expense impact now naturally as we move into a what is hopefully a more constructive environment and we will want to normalize the the earnings level on a normal.
Is the head count of level for the business to pursue.
The very attractive opportunities that we have with our clients we have control both over the level of certainly head count that we were taking on and TNT and our objective will be to manage that in a way where we hold onto as much of the benefit that we experienced in 'twenty.
And 'twenty as we can but we are expecting debt on year over year, particularly as we anniversary the onset of the pandemic that we will see and uptake, but we overall, we will try to manage that in a way, where we preserve our operating leverage and that becomes.
That becomes clearer as we talk about it through the course of the year. Okay. Thanks Lee.
Thank you.
Your next question is from Angie and Nicole.
Your line is open.
Hi, good morning.
Lee you added group President of the energy and financial services businesses to your list of responsibilities. Obviously at the CFO you had plenty of involvement previously but is there anything specific you'd call out for us that you are particularly focused on and that role.
Any changes you'd like to make or strategic priorities, you've identified that you're willing to share.
Well, thank you very much.
Say, we'll get at this stage on it's very early I do know and respect those teams and what they've accomplished I'm looking forward to working with them more closely on our.
And our overall objective as it has been at a corporate level has been focusing on how we can invest in those businesses generate good returns and support the strong position that they operate in and really extend the growth that they are that they represent.
At this stage no no clear determinations, and I'm really just looking forward to spending more time with them on the operating side and and determining how we can make them more effective enhance the growth story and continue to find good opportunities to invest.
Understood. Thank you.
Your next question is from David targets with Evercore ISI. Your line is open.
Thank you good morning.
And bridging to an earlier question on the financial services business.
Thank you have the right mix of services for.
Bank card issuers and that business, we've seen a big change and demand trends.
At least.
And what visa and Mastercard have called out in there similar businesses.
During COVID-19, a big shift towards cyber could you maybe comment on the services that you're offering and that business currently.
And whether you're intending any let's say shift and services mix and offerings as a result of COVID-19.
Yeah, we feel good about the range of solutions that we're able to issue.
<unk> able to offer to our.
On a credit card issuer and fact that that has been explicitly apart of the way that we have built the portfolio of solutions that we offer and.
On to the point you just made.
David that we we do believe that working on issues of risk.
Our risk and fraud are really important issues and we feel that we have some unique intellectual property to help our customers work on that so and there are a variety of other things debt that any one customer can also look to us for and in fact, we have we have a fairly broad portfolio of solutions and so we.
Feel as if we are positioned well in terms of.
Being able to to be a.
Our partner that a customer could look to four.
Health and support across a variety of dimensions, we're not even though it would be very easy for folks to kind of look at us and say, okay. Well you know that phenomenal dataset, which is transactional in nature and so kind of building around that what we have built around that but we've extended.
Around that as well, we I don't know if there's anything you want to add to that the only thing I would add is that you'll be asked with all of the businesses within financial services, and we are leveraging and exceptional dataset in.
In that core business that allows us to triangulate in on issues like fraud in ways that other players and the in the industry can and so we're looking for angles, where we can utilize that that insight to create a differentiated product.
Understood. Thank you very much.
Thanks, David.
And.
Your next question is from.
And Jeff.
Your line is open.
Yes. Thank you. So my question is on energy and specialized and I understand what's up and what's down but it's less clear to me I guess, what stable, what's better what's worse from a trending perspective from one quarter into the next I think you said consulting fairly stable but.
If I look at the overall worsening year over year trend is it that the core subs revenue is still growing but decelerating was the issue the tougher power advocate implementation comp or the consolidation that you called out just any help on the Q4 year over year trend relative to what it was the last quarter or two thanks.
Yes. Thank you Jeff This is Lee and so I would I would break it down into a couple of Influencers within wood Mackenzie and the things that we would point out is that we saw modest but positive growth in the subscription side of the of the business and.
And so that I think is a reflection of the durability and the value of those products on even in this more challenging environment and and.
So and also I think is reflective of the value of the investment that we've made in lens because on that that that subscription component and particularly the pricing on renewals and that has benefited from our client's receptivity to what lens provides them. So I think that's the key.
Positive and and of particular note in a challenging environment for the industry.
Were you the end market I think has had a.
A different experience on the consulting side, that's where on a year over year basis.
And reported revenues, we are still seeing that 30% year over year decline within that business.
However, our sense is that our clients are engaging more actively on the consulting dialogue and we feel better about where the pipeline is headed in and in that area. So that is and not been demonstrated the financial impact yet, but we feel a little bit better.
About the level of engagement with clients and then within power advocate, we are experiencing some pressure, particularly on the implementation side of the equation for our client clients. We've had some of our clients that is.
Experiencing the pressure of this environment.
Have a have pulled back or reduced but we still see strong demand.
Over the near term for the cost management supply chain dimensions of that product set as a whole and I don't want to overlook also are our health and safety business, which continues to contribute strong revenue growth within this segment as a whole as well as strong EBITDA growth and operating leverage within <unk>.
That business. So that gives you I think the three primary areas within that segment and some of the elements of the of the gross on for that.
Okay. Thank you Mike.
Your next question is from Gary.
And with Bank of America.
Okay.
Hi, This is David Chu for Gary.
So so on margins and costs rose 33 million sequentially or about 10% versus the revenue up 11 million or a percent and a half. This is despite lower TNT. So how much is cost that were deferred earlier and that the year building back versus like other investments or other factors.
And so and I.
I guess the way I will let will address it and happy to spend time later in talking through your build back analysis, but when we think about what would we took about think about the expenses, we want to kind of remove the inorganic components. So that we understand that the trends and I think.
Simplistically, while our overall revenue.
Our revenue growth rate was and kind of the 3.5% level, we were able to reduce overall expenses on a year over year basis.
As a function of head count control and T and E and so are.
Our frame of mind is as we're looking at the organic growth of the of the business that we were able to make that adjustment and expenses downward which allowed us to deliver the strong EBITDA growth performance, even despite that decline and the and the revenue growth as we look ahead to 'twenty and 'twenty, we are expecting a higher level.
Gross if these trends continue with regard to the pandemic.
And as a consequence from and from an expense standpoint, we are expecting a higher growth rate, we're not expecting expenses to decline and so the year over year comparisons are higher but we're going to try to manage those in a way, where we preserve that operating leverage and hold onto as much of that benefit.
And as much of that benefit and as we practically can while still pursuing our client events I know that doesn't put that in the context that you're asking but it's kind of a I think the best way to think about the overall performance and trends absent the the naturally the impact from an M&A standpoint, but we'll be happy to spend more time.
And with you later on on the way you're thinking about it.
Okay. Thank you.
Your next question is from her.
Jeffrey Your line is open.
Yes, Hi, Good morning. My question is just on the on non on the transactional side of the business.
I guess, it was down and qualify and a half.
Q3, it was downturn.
Could you maybe talk about you know what.
What has to happen for that business to come back is there a vaccine.
Is there anything structural going on.
And that side of the business that it may just take a lot longer to recover maybe just if you could parse the transactional side out of that business.
Yeah on Hamzah. This is Lee so it is a and and and while you were referring to it's kind of in aggregate as a transactional business, we're really talking about.
Probably a dozen to 20 individual products that have various transactional elements everything from the consulting business at wood Mackenzie and some of the consulting and the analytics on projects in financial services on the.
Claims business with auto claims that are driven by it. So you have a lot of different different factors and so if you can think about it over and over time and if I describe it in 'twenty and 'twenty, we had some businesses on that.
Demonstrated as the as the year progressed, a pickup and driving activity and so when we talked about the improved performance within insurance on our Covid sensitive revenues, it was reflecting and earlier impact and benefit from the uptick and driving and driving activity.
And and those that portion of that of that transactional business.
While the consulting revenue on the energy side, which is not going to be tied as directly to our costs will impact is going to improve over a longer over a longer period and and financial services, we were seeing a dynamic where the weakness and the in the fourth quarter reflected in increasing what we.
Interpreted as increasing concern over potential credit losses, which caused them to pull back on some of their on project analytics in the fourth quarter, where we typically see stronger elements. So to try to get to your and two to give you an answer is that as we look across all of these products as we proceed through 'twenty and 'twenty one.
And as things improve we will see we should see gradual improvements, but at different rates within each of those businesses. So there's no no simple answer because it involves multiple products with different levels of impact across that so hopefully that gives you some context, but I cant kind of define it more price precisely for you.
Right no that's very clear thank you so much.
Again, if you would like to ask the question simple press star one on your telephone.
Your next question and.
From George Tong.
Goldman Sachs. Your line is open.
Hi, Thanks, good morning.
Financial services segment had revenue declines of about 13% organic constant currency and the quarter that reflected from contract transitions as you noted as well as some COVID-19 impact from lower project spend is it possible to perhaps break out the two impact.
And how much of the decline is structural in nature and how much of the decline you expect to recover as COVID-19.
It becomes more and the rearview mirror.
Okay.
George Thanks for the question and.
It's Lee.
It's a great a great question and when we look at that in the in the fourth quarter and recognizing that is that it is fourth fourth quarter.
Would say that there was.
More of an impact on that on the transactional on the contract transitions.
And some of that involved kind of restructuring our contracts to better reflect on the annuity nature of our of our business and we also had some contract transitions that were a result of some strategic exits from a portion of our businesses.
But that probably had a more significant impact in the fourth quarter relative to on some of the environmental impacts and.
And.
Of which we're as I as I described in the recent.
Another question recently was that we saw.
And some weakness in the banks pulling back on some of their project of the project analytics, which had a had and overall impact.
A negative impact and so.
Those that gives you kind of a rough a rough proportion on probably a little bit more on that contract transition, but there was also a meaningful impact from the from what we were seeing and the and the project analytics front.
Got it very helpful. Thank you.
There are no further questions at this time I'll turn.
On the call back over to Ms Bradbury.
Okay, well, thanks to everybody for joining us appreciate your interest as always and as always we will be following up with you on some of these more specific points and.
So we will be in touch with many of you and the near future.
Until then thanks.
Ladies and gentlemen that concludes today's conference call. Thank you everyone for joining you may now disconnect.
Okay.
And then.
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And so.
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