Q1 2021 Verisk Analytics Inc Earnings Call

Excuse me everyone. This is the operator today's conference is scheduled to begin momentarily until that time your lines will again be placed on hold.

Once again today's country is scheduled to begin momentarily until that time your lines will again be placed in the old. Thank you for your patience.

[music].

Okay.

Good day, everyone and welcome to the various first quarter 2021 earnings results conference call.

This call is being recorded.

At this time all participants are in a listen only mode.

After today's prepared remarks, we will conduct a question and answer session, where the little then the participants to one question and one follow up.

We will have further instructions for you at that time.

For opening remarks, and introductions I would like to turn the call over to Barry <unk> head of Investor Relations Ms. Stacey Bajaj Mis Robby. Please go ahead.

Thank you Myra and good day, everyone. We appreciate you joining us today for a discussion of our first quarter 2021 financial results today's call will be led by Scott Stephenson <unk>, Chairman, President and Chief Executive Officer, who will provide an overview of our business reshape all chief financial Officer.

Group President will follow with the financial review of.

Mark ancillary Chief operating Officer and group President will join the team for the Q&A section the earnings release referenced on this call as well as the associated 10-Q can be found from the investors section of our website various dot com. The earnings release has also been attached to an 8-K that we have furnished to the SEC a replay of this call will be available.

The bulk for 30 days on our website and by dialing finally as set forth in more detail in today's earnings release, I will remind everyone that today's call may include forward looking statements about <unk> future performance, including but not limited to the potential impacts of the COVID-19 pandemic.

Actual performance could differ materially from what is suggested by our comments today infer.

The information about the factors that could affect future performance is contained in our recent SEC filings and now I will turn the call over to Scott. Thanks, Stacy Hello, everyone and thank you for joining us for our first quarter of 2021 earnings conference call two.

<unk> 2021 of the special year here at <unk> as it marks our fifth year anniversary as a company for.

For 50 years, our mission and purpose has been the same we worked nonstop in partnership with our customers using data and insights to make a difference by helping protect people economies society and our planet on this journey, we've used our unique data and combined it with advanced technologies and new ways to unlock.

The full insights about risk, becoming a global leader in cutting edge analytics and while we are very proud of our accomplishments over the last 50 years. It inspires us to look ahead to all of the difference we can make over the next 50 years I.

I am pleased to share that this year is off to a solid start marked by continued growth in our subscription businesses. We delivered solid growth in insurance of modest sequential improvement in our energy segment, Yes, we had a challenging quarter within financial services, while certain of our businesses continue to be impacted by the pandemic those revenue streams showed resilience.

As the underlying causal factors improve and we have confidence in this relationship we will provide more detail in his financial review for.

For 2021, we remain focused on building long term shareholder value delivering for our customers through innovation and service, while also protecting the health and wellbeing of our teammates around the globe. Currently most of our offices are operating in a phase one format and are available for those employees, who volunteered to work from the office, we do have search.

Officers that have advanced the phase two and even phase III as conditions in their local markets allow and employees are energized to be back in the office.

For our global protection services team closely monitors directors from local governments and public health officials around the world as well as incorporate learnings from our local market experiences to make real time decisions to maintain the safety of our people to the.

That ends our teams are closely monitoring of the current situation in India in the face of the severe second wave of COVID-19, and we are providing relief and assistance to our India colleagues, including vaccination coverage virtual medical services emergency relief funds and other essential programs to date, we've experienced minimal or no disruption to.

Our business for the services we provide.

Over the duration of the pandemic our teams of proven they can transition of efficiently into the different workloads with minimal interruption in service to our customers. So while there remains some uncertainty around return to office timing across our many different markets I have complete confidence that our 9000 plus teammates at ferrous will continue to navigate through these.

Times of effectively and deliver the highest value to our customers.

The pandemic has maintained a high level of engagement with our customers CEO of its across all three of our segments.

Despite the virtual setting the frequency of these meetings has increased and the level of engagement of mutual respect as deepens and these conversations we are discussing our customers' highest strategic priorities in all circumstances, we are receiving feedback that Paris, because they trusted and differentiated partner and that our solutions and <unk>.

<unk> play a large and increasing role in our customers' journeys to becoming more digitally engaged more automated and more efficient. These.

Of these type of constructive meetings are happening across all levels of our organization. Most recently within our underwriting and claims counsels, which include representatives from our top 25 customers in the insurance vertical.

With regard to digital engagement, we continue to see very strong adoption of our virtual claims processing platform claims experience as insurers continue to find additional use cases for remote claims handling outside of the pandemic, our virtual claims tools enable our customers to conduct business at a time when in Paris.

From processes were not possible, but it also has the added benefit of settling claims with greater speed. In fact virtual claims are paid on average 30% faster than the traditional process.

We've recently added new features to enhance the solution, including remote measurement object recognition and an automated damage assessment tool. We also are having success converting customers from transactional usage for long term contracts with committed volumes as they build comfort with the tool and realize the value of the remote claim.

The processing can bring to their organization.

One of the strongest signals of the deep and expanding relationships with other customers and our view is the fact that the entrust us with their data I am pleased to share that in the most recent year twenty-nine insurers have decided to newly contribute data to our ISO statistical database. This is the highest number of new participants in a single year or.

For the last 10 years and represents a range of different customers from insure tech startups for multistate carriers.

On the sales front were having great success, selling and virtual mode and remain committed to advancing our techniques with ongoing training across the many new virtual selling tools we employ.

Our pipelines of new opportunities or some of the strongest in our history and they continue to build our customers are more engaged with ferrous because of partner as evidenced by increased numbers of meetings better attendance at our virtual conferences and contract renewals and signings of new deals that are longer in duration.

On the innovation front, we continue to make advances with our solutions to drive digital engagement automate processes and create a seamless interconnected ecosystem, what we had various referred to as the platform to analytic environments. While this is a journey we've been on for some time for the pandemic has catalyzed our customers to move forward with greater.

Urgency and speed.

Of these platform for analytic environments offer our customers deep integration into their workflows and allow a massive amount of information to be rendered so the decisions can be made quickly and accurately often these environments are more software intensive as we are utilizing the software to gather more data automate more processes and become even more.

Deeply embedded with our customers. These platforms are also driving healthy and profitable growth for virus across our verticals. Let me give you a few recent examples.

Within life insurance, we are driving strong growth and profitability as we bundle the industry, leading module software offerings. It fast.

With the data analytics, we have developed across the areas to create a full suite of life insurance solutions in one singular platform.

We're having great success, extending and accelerating the adoption of SaaS solutions across our broad customer base and have a strong pipeline of future deals in.

In addition, we recently launched new analytics, including EHR Triage engine and life risk navigator.

A lot of electronic health record Triage engine uses advanced data analytics and natural language processing. The distilled thousands of pages of electronic medical records into a short summary.

And provides an automated underwriting store, both of which reduce underwriting costs and speed up the process and that leads to an improved mining experience for the end consumer.

The <unk> navigator is a cloud based modeling platform that offers in depth portfolio of analytics to enhance risk selection quantify changes in mortality rates and drive overall better decision making.

Further in March we enhanced our capabilities in life insurance through the acquisition of for C solutions of <unk>.

<unk> advisory firm with expertise in group life insurance. The addition of foresee enables us to extend our expertise into the group life market and help address the needs for group life insurers and institutional annuity providers.

While each solution is strong on its own we believe we deliver even more value for our customers. As these solutions are integrated into one holistic interconnected ecosystem.

We are also delivering very strong growth of the sequel, as we help our customers in the specialty markets digitize and modernize the <unk>.

Sequel solutions create a truly integrated ecosystem across carriers brokers and managing general agents throughout the specialty market and we are bringing in new customers and expanding our suite of products across existing customers. We.

We are also thinking at the beginning to see traction in our global expansion of sequel, with new clients signed in the U S and Asia Pacific.

To further enhance the value and capability of the sequel Eco ecosystem. We recently acquired a majority stake in white space software the.

The powerful combination of white spaces digital placing platform with sequels pricing distribution and policy administration applications enables the seamless real time quote to bind solution with straight through submissions for our existing and prospective customers.

In our energy business, we continue to make advances on the development of new modules and sales of new subscriptions for our lens platform <unk>.

Despite the softness in the energy end market customers are recognizing the value and uniqueness of the platform and this is reflected of new customer subscriptions and constructive pricing for customers that adopt lens of.

Additionally, we have lots of interest in future releases for lens and already have a group of development partners in place to support lens power.

Backed by the proprietary data assets of wood Mackenzie and Jen scape lens power enables customers to maximize the investment opportunities in clean energy and be on the forefront of the energy transition and further advances our market leading position in the energy transition.

We are well positioned to capitalize on the growing trend of countries and companies around the world increasing investment towards renewables and Green energy and our solutions will help inform these critical decisions at the highest levels.

Lens power as part of the broader suite of solutions that we have within our energy segment to help our customers navigate the changing ESG landscape.

We are seeing a positive market response to our energy customer solutions for improved management of supply chain risk and ESG priorities like emissions benchmarking of supplier diversity programs.

Not only are we helping our customers with their ESG initiatives. We have also moved forward on our own ESG agenda.

In early April we released our annual CSR report, which you can find in the corporate social responsibility section of our website.

This year's report is notable for three reasons first the environmental section features of our climate to sculpt the disclosure report, which speaks to the four pillars of Tcf, the governance risk and opportunities risk management and metrics and targets.

Our board and senior management team are very engaged on these subjects.

Including climate change and climate transition both on the risks, we face, but equally important on the opportunities. They present for our business, we've been helping customers understand measure and manage risk associated with climate and weather for decades, Windstorms wildfire and flood risk among others and are building on a base of knowledge.

The <unk> data predictive models analytic expertise industry, leading standards and investments that are already in play and serving our insurance and energy customers scaling.

We used the CSR report as of the vehicle to deliver our first ever disclosure in accordance with SaaS. These recommendations for professional and commercial services companies. The disclosure includes baseline metrics around workforce composition diversity engagement and turnover, we intend to update those metrics and Rcs.

Our reported each year.

And finally, the CSR report called out various approach of cyber security a comprehensive document that describes our commitment and investments to strengthen data security and privacy.

The commitment doesn't just exists on paper, but has reinforced through the mandatory training we conduct annually for all of our employees. We are very proud of the progress. We made throughout 2020, our board and senior management team are very much engaged and our entire organization is committed to continue to move forward, our ESG agenda over the <unk>.

Coming years.

I am confident we have the right strategy and team in place to meet our long term growth objectives, our deep domain expertise and relationships with our customers help inform our innovation agenda and we are treating the year of 2021 as one that provides a unique set of signals on the resilience of the different parts of our company, which we are.

Pulling into are always active capital process.

Ensure that our capital is deployed into the highest return opportunities.

Now I will turn the call over to Lee to cover our financial results.

Thank you Scott first I would like to bring to everyone's attention that we've posted a quarterly earnings presentation that is available on our website. Additionally, you may notice that we have a slightly new presentation of our financial statements as Scott mentioned earlier during the quarter. We closed on the majority investment in White space software as a result, we now report net income.

And earnings per share attributable to virus.

Moving to the financial results for the first quarter on a consolidated and GAAP basis revenue grew five 3% to $726 million net income attributable to various decreased one 8% to 169 million, while diluted GAAP earnings per share attributable to various declined 1% to $1 three.

Reflecting a $19 million gain on dispositions in the prior year that did not reoccur.

Moving to our organic constant currency results adjusted for non operating items as defined in the non-GAAP financial measures section of our press release, we are very pleased with our operating results considering the continued impact from COVID-19 in the first quarter organic constant currency revenue grew three 4% led by continued strength in our <unk>.

Insurance segment and modest sequential improvement in our energy segment. This quarter's performance fundamentally reflected of year over year comparison to of largely pre pandemic quarter. Although we began to see progress in our COVID-19 sensitive revenues, which improved sequentially.

Our non COVID-19 sensitive revenues as we defined at the start of the pandemic grew approximately four 9% on an organic constant currency basis down from six 5% rate in the fourth quarter, reflecting a lower level of catastrophe bond securitization activity at AOR and of higher level of impact from consolidation in the insurance.

And energy segments, we did continue to experience as we have since the onset of the pandemic a negative impact from COVID-19 on certain of our products and services largely transactional in nature, which represents the balance or approximately 15% of our revenues. However, we saw an improvement of certain of these products and services returned to growth.

On a year over year basis, COVID-19 sensitive revenues declined approximately five 9% on an organic constant currency basis during the first quarter compared to the 12, 5% decline in the fourth quarter, primarily as the result of improved consulting activity in our energy sector.

But also reflecting a return to growth of several products and services, particularly in the U S.

Despite the impact on revenue in the first quarter. We are pleased to report that we delivered solid EBITDA growth and expanded margins as the result of effective expense management and lower travel expenses organic constant currency adjusted EBITDA growth was five 2% in the first quarter up from four 9% growth in the fourth quarter.

Total adjusted EBITA margin for the quarter, which includes both organic and inorganic revenue and adjusted EBITDA was 47, 6% in the quarter, representing leverage across our insurance and energy verticals offset in part by weakness in financial services.

This margin level includes roughly 150 basis points of benefit from lower travel expenses, but also reflects a return to a more normal pace of head count growth and an increase in the pace of investment in our technological transformation, including our cloud transition costs on.

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

In the first quarter insurance segment revenues increased 6%, reflecting healthy growth in our industry standard insurance programs catastrophe modeling solutions repair cost estimating solutions and insurance software solutions, we experienced a modest benefit from storm related revenues as a result of the ice storms in Texas and the southeast.

However, this was more than offset by a lower level of securitization revenues in our catastrophe modeling business as issuance was lower year over year.

In addition, we experienced declines in certain transactional revenues that were negatively impacted by COVID-19, as we had very minimal COVID-19 impact in the first quarter of 2020.

Adjusted EBITDA grew eight 3% in the first quarter, while margins expanded 196 basis points, demonstrating strong margin expansion, despite certain revenue declines and investment in our breakout areas and increased costs associated with our crowd of cloud transition.

Energy and specialized markets revenue decreased <unk>, 6% in the first quarter due to declines in consulting and implementation projects and some modest headwinds related to consolidation in the end market.

Growth in core research and environmental Health and safety service revenues was offset by declines in transactional and consulting revenues, we attribute our performance for the diversification of our revenue streams into higher growth breakout areas like the energy transition and chemicals. The broad range of end markets that we serve and the strength of our relationships in the <unk>.

<unk>.

Adjusted EBITDA grew six 6% in the first quarter, while margins expanded 237 basis points, reflecting continued cost discipline and the benefit of lower travel expenses.

As a key partner to our energy customers, we are deeply engaged with them and part of their most strategic and important decisions. We have a track record of managing through volatile times effectively and believe we are well positioned with our energy transition solutions as well as our lens platform to continue to outperform the end market and help our customers navigate this broad energy <unk>.

<unk>.

Financial services revenue declined 12, 8% in the quarter, reflecting the continued impact of contract transitions that we undertook in 2020 and which will continue for the next two quarters as well as lower levels of project spending from our bank customers stemming from the COVID-19, pandemic and fewer bankruptcies as the result of.

Support and forbearance programs.

Adjusted EBITDA declined 74%, reflecting the negative impact of lower sales and a larger impact of corporate expense allocations on the segment's smaller base. We continue to make progress on our journey to transition <unk> financial services to a more sustainable subscription based business. We are achieving the goals, we have set for the business and of <unk>.

Taken actions that we believe benefits of business in the long run but are likely to continue to negatively impact our growth over the next few quarters.

To that end given the continued impacts from COVID-19, and the contract transitions, we expect to see a similar level of revenue and profit performance in the second quarter of 2021, however, as the impact of the contract transitions of eight and our COVID-19 sensitive revenues improve we anticipate a stronger back half of the year performance.

Our reported the effective tax rate was 22 five per cent compared to 28% in the prior year quarter, mostly owing to lower stock option exercises in the current period as we have discussed there will likely continue to be some quarterly variability related to the impact of employee stock option exercises, which day.

Pension part on the <unk> stock price and employee personal decisions.

As a result of the tax law change in the U K, we now believe that our full year tax rate for 2021 will be between 23, and 25% up from the 20% to 22% we had previously provided.

This U K legislation was passed in March and will increase the UK corporate tax rate to 25% from 19% previously this.

<unk> U K tax rate increase is likely to create variability in our quarterly rates as we expect we will be subject to a onetime noncash revaluation charge in the third quarter related to of deferred tax liability. When the bill was expected to become law. Our best estimate at this time is that our quarterly rate in the third quarter will be in the range.

<unk> of 33% to 35%, but we expect this to be primarily onetime in nature and do not anticipate a material long term impact from this increase.

Adjusted net income was 203 million and diluted adjusted EPS was $1 23 for the first quarter 2021 up for 6% and five 1% from the prior year, respectively. These increases reflect solid top line growth cost discipline in the business and a reduction in travel expenses as a result of COVID-19.

<unk> and a lower average share count this was offset in part by a higher effective tax rate.

Net cash provided by operating activities was 449 million for the quarter up 24% from the prior year period, primarily due to increased customer collections and a reduction in travel payments as a result of COVID-19 capital expenditures were $59 million for the quarter up 12%. We continue to believe the capex will be in the <unk>.

Range of 250 to 200, and the $80 million, reflecting our continued investment in our innovation agenda, our technological transformation as well as the carryover of certain expenditures that were delayed in 2020 as a result of the pandemic.

Related to capital expenditure, we expect fixed asset depreciation and amortization will be within the range of $200 million to $215 million. However, we now forecast intangible amortization to be approximately $180 million, reflecting the impact of recent acquisitions and changes in foreign currency rates both of them.

Depreciation and amortization of elements are subject to foreign exchange variability the timing of purchases and the completion of projects and future M&A activity during.

During the first quarter, we returned 147 million of capital to shareholders through share repurchases and dividends. In addition in May we repaid our five 8% senior notes in the amount of $450 million through a combination of cash from operations and proceeds from our credit facility.

Our strategy to deliver long term sustainable growth remains unchanged and we believe the stability and predictability of our subscription revenues will persist as we approach the anniversary of the onset of the pandemic. We plan to continue to provide updates on our non COVID-19 and COVID-19 sensitive revenues to offer transparency on the recovery of our business we remain.

I'm confident the COVID-19 impacts do not represent a structural change in our fundamental growth drivers and believe that as the underlying causal factors abate with the rollout of vaccinations and the opening of global economies, We will show strong resilience in the recovery.

We also have confidence in our ability to manage the cost structure effectively to protect profitability, but we would remind you the cost comparisons will be more challenging beginning in the second quarter, taking this altogether, we believe that as the COVID-19 impacts of bet. We can return to our long term growth model of 7% organic constant currency revenue growth with core operating leverage of.

Wowing 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. We continue to appreciate all of 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 and one follow up with that I'll ask the operator to open the line for questions.

Thank you as a reminder to ask the question via the ideal simply press Star then the number one on your telephone keypad can we can all of your request you may press the pound or cash please.

We have our first question comes from the line of Toni Kaplan from Morgan Stanley. Your line is open. Please go ahead.

Thanks, a lot.

I was hoping Scott that you could give us an update on the renewables business I know you touched on it in the prepared remarks, but I guess, how big is it now what are the fastest growing areas within it and what what's proprietary within the renewables and energy transition.

Right. So what we do on the renewables area, telling us across the very broad front.

So it is.

Everything from solar to wind to biomass.

What differentiates us is.

Couple of things one is we believe that we actually have.

Unique data about really the.

The supply side of those industries. In addition to that we're able to relate the developments in that part of the energy ecosystem for the rest of the energy ecosystem.

And that's really critical because.

That's what.

All of the players in the in the energy states want to do including the traditional.

Hydrocarbon based.

Players. They are they are all very very interested in how they modify who they are.

In order to move into the future.

And then on top of all of that we believe that we have the best platform for analytics environment going.

And lens, which which permits us to put all of this wonderful content into our customers' decisioning workflows.

Really easy to consume and.

We believe differentiated way.

Thank you.

Youre welcome. Our next question comes from the line of the NAV Goodnight from Barclays. Your line is open. Please go ahead.

Thank you.

I was just wondering of as things are.

Opening up here and you guys get a little bit more visibility just longer term I guess I wanted to just understand how you guys think about that 7% growth target for your entire company I was just curious.

If anything has changed if you need to kind of revisit that at the targets.

Yes, nothing has changed in our perspective on that Manav, one of the things that and sort.

I referenced this in my comments upfront, but we are watching very carefully the results. We're producing in 2021 both of the what we deemed the COVID-19 sensitive revenues, but also of the non COVID-19.

Sensitive revenue and those would relate more to the <unk>.

Subscription products that we have and actually we see good good progress and the performance of those and actually the they really have been the.

Most of the steady part of our performance over the last several quarters.

And.

We also reference our pipelines.

Both renewals as well as.

New product new sales opportunities.

And as I mentioned in my comments upfront, we have some of the strongest pipelines we've ever had and our focus is so very definitely on.

The subscription based solutions. So the context for my answer to your question is that's where we're focused those are in good shape. They have been in good shape through the pandemic.

We think that.

They will they will remain on that track going forward.

And one of its Lee if I could just add to that and the one thing that I think gave us confidence on the resilience of the of the growth rates with the was the the overall performance of our non COVID-19 sensitive revenues through this period that we maintained stability stability there.

And the lot of cases, given some of the the value of our of our data and workflow oriented products in this more remote environment in some ways I think as we come out of this it has accelerated some opportunities for us for the deployment of our of our data and analytics into into these new environments.

Okay understood and then just on the you know the breakout of area of investment.

The I think you've talked about kind of of the auto IC of metrics and so for the full but I was just curious from a.

What time parameters do you put when you make those decisions.

How much of the.

In the long term investment or do you have certain criteria that it has to get done within a couple of years etcetera. I was just curious if you could talk a little bit about that.

Yes, thats kind of into our work of our work papers on how we look at the many investment opportunities. Your guidance. So maybe you want to talk about the amount of thanks for the question and I think as you can appreciate that we when we look at that investment portfolio. We think of it in that regard, where we have a wide range of products with.

Different time horizons.

And different levels of.

Of kind of risk associated with them. Some earlier stage business opportunity. Some later stage, we do try to manage those naturally.

In the current.

Overall to deliver on return clearly in excess of our cost of capital.

And for higher risk smaller projects at a level well above that at some premium reflecting that higher risk and I would say that on average. This of course is going to vary from project to project, but we're generally looking to achieve those types of returns on a three to for your timeframe in order to get to an acceptable.

The return with upside on beyond that but that's the the general parameters of the portfolio and I think we also want to make it clear that that is not just internal investment for our external investment and M&A. We are evaluating the utilization of capital against both of those investment opportunities.

Certainly on the internal investment the opportunities to leverage our existing assets and our position in infrastructure are substantially.

And able us to deliver.

Higher returns, we expect but on lower investments on the M&A front. They are larger investments from a scale standpoint, but we are clearly focusing on how we are adding value to those and the success that we've had of with the life the fast acquisition.

Position with the Gen Scape acquisition with the acquisition in our in our three area are all evidence of our ability to deliver value either through reduce costs or improve functionality of those businesses. So hopefully that gives you some context in how we look at both the internal and the external investment in some of the benchmarks that we use.

Okay. Thank you.

We have our next question comes from the line of David <unk> from Evercore ISI. Your line is open. Please go ahead.

Thank you good morning bridging to my next question what are your current capital allocation priorities among acquisitions and share repurchase when you evaluate those two at current prices and valuations and then.

The third would be dividend growth.

Yes, so I'm glad you added that last bit David because.

We have multiple forms for returning capital to shareholders, but even before that I would really emphasized the investment into the business to build these engines of growth.

You hear us talking all the time about platform of analytic environments. They are really the source of so many.

Forms of goodness in terms of value for customers at the end of the bulk of them is that we have much stickier.

The relationships, which are which are just that much more recurrent so some of the highest.

Prioritize our use of capital I would actually start with Intel.

Internal investment, which is which is.

A genuine focal point of we're very happy to return capital to shareholders. We have a long track record of doing that.

We feel very good about that.

And with respect to M&A leave the starting talking about kind of how we look at it I mean, it's not as if we've earmarked some number of dollars or percentage of total capital available to go into M&A.

More of a question with the third leg of whether or not the opportunity is compelling and meets our return hurdles.

And we are definitely emphasizing that which in combination with what we already are the whole becomes greater than the sum of the parts.

David it's interesting that the.

And it's not uncommon for folks to make a comparison between the share repurchases and M&A I will tell you that we think of it differently in that.

We view M&A is more akin and evaluate it relative to our internal investment because both of them of our capital investments that we're making to generate return for shareholders and both of those are subject to our return thresholds that we think are necessary to create value and then if we are unable to find.

<unk> of return opportunities in either of those and I want it to.

The emphasize the Scotts point, we think they're one of the strength of <unk> is the breadth and the depth of opportunity for us to invest internally in new products at very high incremental returns on the across a broad range of of client driven opportunities in our industry sectors, but similarly, we see.

Other opportunities on the M&A front, if we don't see it.

Acceptable returns in either of those ventures than we view share repurchases as with dividends and opportunity to return capital that we can't create value from in terms of higher in terms of higher returns and then finally with regard to dividends. The as you have seen we have established the pattern.

Of increasing that dividend that becomes that remains subject to the board's view on the dividend increase but there is a recognition that companies that have demonstrated an ability to deliver consistent growth in the dividend over time are rewarded for that discipline. We believe that it has.

<unk> introduced a valuable additional component to our investor base as more yield oriented investors that are looking for both growth and yield have been very additive to our to our shareholder base and so we think that that is a useful additional component in our capital return strategy.

Thanks, very much I appreciate it Scott.

You bet, we have our net.

Question comes from the line of George Tong from Goldman Sachs. Your line is open. Please go ahead.

Hi, Thanks, Good morning, the financial services revenues are continuing to see the impact of contract transitions, which you noted will continue for the next two quarters is it possible the parse out how much impact is coming from contract transitions and how much is due to core reduced spending from banks and fewer bankruptcies.

Yes, George Thanks for the question.

We estimate that the impact of the contract transitions in the first quarter was approximately two thirds of the of the revenue decline that we saw on a year over year basis and as you. Note. This is something that will cycle through we believe that those contract transitions I would just remind folks represented in part.

A rebalancing of our relationship with several of the some of those contracts.

Shifting in our general strategy to move from less upfront revenues to more revenues extended over the relationship. So it reflects that there is some of the upside in future periods that for the balance of that impact, but the short answer is in the in the quarter. It was about two thirds of the impact and as you mentioned we expect.

That that impact to be to fall of for the next two quarters.

Got it very helpful and just the follow up on the cost side, you mentioned the cost comparisons will be tougher in two Q how much of expenses do you expect to come back in the coming quarters.

So George Thanks for the question I have I appreciate.

What youre looking for.

It's.

Hard to quantify I guess I wouldn't I would approach. It this way one way to think of it as clearly we had a.

The benefit from TD of.

The reduction of the.

The elimination of travel and we have described but what the impact is from a margin standpoint of that for instance of 150 basis points.

In the in this quarter and we would expect that we would continue to see that benefit.

And so we will see an increase in G&A expenses, but I think that's going to be a gradual increase over time. The other element is going to be compensation and our incentive compensation in particular, where we're going to see a more normalized level as we saw in 2020 the responsiveness of.

Of our compensation, particularly incentive compensation flex down we are expecting a more normalized returns. So we will see some increase in that plus we are also beginning to normalize head count as we see demand from the businesses to support their overall the overall growth. So there are a lot of a lot of facts.

<unk>, but as we as we move through 2021, one way to think about it is in is in reference to 2000 22020, we saw the revenue impact, but we saw expenses declined more than the revenue impact driving EBITDA growth of nearly 10%.

Over that period in 2021, I think we're going to see a recovery in revenue, but as we look at those comparisons we will see higher expense growth, we still expect to.

To be able to deliver EBITDA growth, but it will it will be driven by the piece of expense growth, Fortunately, which remains within our control. So our hope is that we will be able to manage that expense growth on the TD on the compensation front in terms of head count growth in order.

For to continue to deliver the growth.

Although not naturally at the same level that we were able to achieve in 2020, another way to think of it is that we do.

Expect that that debt that dynamic.

<unk> will drive some reduction in margin, but we still are expecting to be able to retain as we've said in the past some from.

Some meaningful level of the efficiencies that we achieved in 2020 I hope that gives you some some direction towards your question Georgia.

Yes very helpful. Thank you Lee.

We have our next question comes from the line of Alex Kramm from UBS. Your line is open. Please go ahead.

Hey, good morning, everyone, maybe just starting on the energy business I'm not sure if I missed it but clearly trends have gotten better you sound pretty optimistic about it and that's the transition and pipelines here.

Does that basically mean, you think the business has bottomed or are you still cautious in terms of the next few quarters.

Maybe the broader cyclical impact.

Still the negative.

I'll just come back of something that we've said for a long period of time, which is for our business.

Business in the energy sector in general to perform we just need of normal environment. We don't need we don't need a roaring commodity price, we just need a normal kind of environment and our view is that that's more or less where the where the the.

The system has gone too.

And I would say Alex that I think we're we're encouraged by what we are experiencing both in the sales pipeline and in the consulting pipeline. We're also encouraged by the receptivity of our clients to the Lynch platform as they are interacting with it and as they're using it they are clearly seeing.

The value that we are adding to the the.

The data and the research products that we've provided before so clearly there is a lot of risk.

Ahead, as we manage through the pandemic.

We are seeing we think very constructive signs based upon the the level of engagement we have so far.

Okay, That's fair and then secondarily, a little bit more holistic question, but the.

Lee obviously, the energy and the financials business started reporting to you I think it's been now three months not a long time, but three months, Nonetheless, and I think last quarter when asked about the business mix Scott sounded a little bit more open to Holistically review of the portfolio. So just wondering Lee and maybe Scott to ex U.

Maybe dug deeper into those businesses and the early findings any areas for improvement of any things, where you're saying Hey, you know this is maybe not as good other the fit then we thought historically so any updates would be helpful on that front. Thank you.

Why don't I start the <unk>.

I think the question is kind of directed for you and your oversight.

Just say debt.

There is a playbook at various which when it is in place works very very well and that playbook is really centered on creating what we call platform, the analytic environments and analytic objects, which become industry standard analyzed output.

The more that we see each of those in the mix of what we do in any part of the virus the business becomes very.

Sticky very resilient grows well represents a lot of value for customers and I will just say that.

I'm going to pick financial services in particular the.

The focus here at the moment is first of all to make sure that the capture all of the revenue all of the COVID-19 sensitive revenues as the environment changes to make sure that we capture all of those revenue back into the mix one and two.

Is the continued development of the platforms inside of various financial debt will represent that same kind of.

<unk> way of the various model really for joining business and Thats really what were focused on in the near term and.

We're we're expected about both of those things as it relates to the business of that with respect to the BFS and particularly I don't know if you want to add anything of that yes, Alex. Thanks for the question and I would I would say just.

Briefly it is still early I'm spending a lot of time with both the the financial services and the energy business and really drilling into to complement the kind of the top down view from them from our financials. The bottoms up focus on on products on clients on people.

Understand the underlying economics of the business and.

One I think observation that it's worth pointing out is that of <unk>.

Course, whats happening at those businesses is not wholly represented in what you see within the quarter, we've talked about the contract transitions that while clearly a negative impact of in this quarter represent.

Very strong progress in the objective that we have the management team. There has been moving very concertedly towards improving that base and I continue to work for them to evaluate what that broader opportunity is and what the sustainable growth rate for profitability and value is for <unk>.

Over the long term as I do with the with the energy business. So we're actively engaged in it I would just ask for everyone's patience as we work through that and evaluate the business as a whole rather than focusing on the on the specific quarter was quarters results, but that's what we've been doing.

Very good thanks for the color.

We have our next question comes from the line of Greg Peters from Raymond James Your line is open. Please go ahead.

Good morning, I was wondering if you could provide some updated views on the changing competitive dynamics in the insurance space.

Especially when we hear about or.

Hearing more about the success of the software of companies like Duck Creek and Guidewire. It.

It seems like these companies are selling.

Competitive.

Competing services.

We hear them talking about their claims management platform their underwriting platforms of reinsurance capabilities and it seems to be gathering some momentum in the insurance for our calls so maybe maybe you can provide.

Some color around market share for bear risk versus these other companies sort of how how you're working with these companies.

Well you want to take that one sure well first of all thanks for the question.

I think what our customers are looking for these our insurance customers. They are looking for an interconnected ecosystem of way to pull information away to Paul and process and it seamless way. So we are very tightly aligned with a duck Creek and of Guidewire. As an example, all of our ISO loss.

Cost of the rules.

We quantify.

This is inside of Duck Creek, and Guidewire, we poll customers favorable underwriting information.

From us through those two platforms claims.

Claims fraud same thing we are integrated in a way that we are partners. So there is a way that we partner very effectively but at the same time the world is heading towards the analytics. So Duck Creek Guidewire. As an example are doing more analytics, probably more focused on the individual insurance information has the profit.

The claim what's it look like over the last quarter.

The rates.

For that insurer of last quarter, where.

Where we tend to focus as we have the aggregated view of the industry. So our analytics as more benchmark, it's relative to the other peers.

Industry view, let.

Let me also remind you that as we think about software the we're becoming more software and tech so sequel software.

And moving into the United States, becoming certainly more a global player beyond the London market. So I think there is some more overlap with the channel, but we continue to work together to satisfy customers.

So hopefully that's responsive to the software play.

And I'll just highlight because of the nature of our industry standard programs. We're integrated with almost every policy of many vendor we are kind of across the board. So we will continue to do that to share our content with any share of reinsure that needs. It.

Got it and then my follow up question would just be pivot back to some comments I think Lee made earlier regarding just sort of the long term targets around organic revenue growth and then.

EBITDA, 7% and then EBITDA growing a little bit faster I was wondering.

If you have a similar viewpoint or the board has a similar viewpoint around free cash flow.

Yeah.

I don't see.

Over the long term a significant GAAP.

Between the.

The the EBITA of the revenue and EBITDA growth rates and the <unk>.

And our cash flow the two should be fairly fairly consistent obviously, there were a lot of variables that from a timing standpoint may influence that but as kind of core core growth rates I don't see a substantial difference there.

Got it thanks for the answers.

We have our next question comes from the line of Andrew Jeffrey from Trust Securities. Your line is open. Please go ahead.

Hi, Good morning appreciate you taking the question.

As we see the the.

The greater Digitization of insurance and more life cycle solutions I wonder if various season opportunity.

In payments.

As far as supporting disbursements.

From the from the carriers to the insured.

So thank you for the question and thank you for the look forward.

We have recently introduced various pay.

And we do believe that in this kind of world of Interconnectivity and automation all of it.

On the payments are going to factor into that.

Where we started.

The places where we thought we can most.

And easily integrate.

Into our solutions. So think of are exactly solution, which is representative of the repair cost estimates and payment of the property damage.

And also in the world of real estate, where we do some similar work and.

And we feel that those electronic payments could facilitate things for our customers. We're working with a big partner Pfizer and we hope to extend the use cases beyond claims and into some premium and other places like subrogation, where we think that orange from the customers.

We benefit.

Yeah.

Great I look forward of anymore.

We have our next question comes from the line of Jeff Mueller from Baird. Your line is open. Please go ahead. Thank you good morning.

I wanted to ask about insurance and I know the growth rates kind of in the typical pretty tight range, but it decelerated.

So I heard of callout on Cat bond issuance I think I also heard something about some end market consolidation to me the cat bond issuances, just more naturally variable quarter to quarter. The consolidation will be something that would take longer to recover from so just any any.

Any help parsing out between those factors and then on the growth driver side is ISO pricing. This calendar year similar to prior calendar years and I heard you on pipeline Scott.

I guess I'll ask pipeline conversion in bookings, especially for those strategically important platforms.

Analytics environments and analytic objects.

Yes.

Yes, so maybe I can start at the top of Mark you should come in real quick on on the.

Especially the first part of Jeff's question. Thanks for the questions, Jeff, Yes, I mean the.

Most of it most of the selling effort.

Goes where we have the priority and the priority is on the <unk> just as you said the <unk>.

Platform the analytic environments of the analytic objects. So that is the majority of the pipeline and so all of those comments about.

The contract length of stretching out of the and the depth of the pipeline that applies fully for that part of the product suite. So there's no real differentiation there.

When you look quarter when you look year over year on Cat bond issuance Q1, 'twenty was a strong quarter.

Two $1 21 was a lot of strong quarter, we pay a lot of attention to that the cat bond issuance has picked up.

Since the first quarter.

So we don't see anything different in the environment. It was just really kind of moment of time.

Mark anything you want to add to all of the only thing I'll go curious for some of our of traditional ISO.

Information and guidance is again.

<unk> solid with customers.

If you were to look at the way we kind of.

Think about it is remember we're thinking we're taking a long term view we would for.

Refer to gather new.

Sales from new solutions.

<unk> as opposed to kind of the past artificially high price increase and so I think we remain pretty modest in kind of all of the way the handled pricing for ISO Inc.

You are correct, we did highlight some of industry consolidation, which doesn't necessarily one plus one doesn't equal one sometimes equals about one eight in the way some of our pricing all the items work so that was.

A headwind for the year, yes, and no change to the pricing algorithm. This channel in 2021 got it and then a question on the expense management approach in financial services. It seems like revenue is kind of re basing lower for a period of time and I think you said the Q2.

The ability should be similar to Q1, which was fairly depressed I guess of my eyes. So.

Are you taking expenses out of the.

The business or does it need to start growing again to start getting margins back up.

Yeah. Thanks, Thanks, Jeff.

And the.

Certainly understand the understand the questions so on the.

On the revenue front.

We naturally have that impact of the contract transitions of part of that.

Sure.

Our contracts that of.

Are not there going forward, but as I indicated there also is a component.

<unk> revenue has shifted into future periods. So it's not a I wouldn't describe it as a complete.

Basing or elimination of that but the other factor or some of the COVID-19 sensitive revenues that we have seen the impact we've talked about bankruptcy, we've talked about the spend informed analytics, we're actually seeing some stronger improvement on the spend informed analytics as things open up.

Hopefully if that continues we'll see strength in that in that regard and.

And of course, we're also watching the bankruptcy very carefully in the in the overall performance of the banks, which are doing well and hopefully that translates into greater opportunities on the on the analytics from the consulting front on the expense front, yes in the quarter, we had probably a heavier load of expense then.

We typically have and so youre looking ahead.

We would anticipate and not as heavy and expense impact.

And we are looking at.

Making adjustments from a from.

From an expense management standpoint that will help us.

Avoid or offset of the margin impact that we experienced in the in the first quarter.

Got it thank you all.

We have our next question comes from the line of Andrew the Salmon from Joy J P. Morgan. Your line is open. Please go ahead, okay, great lead to questions beyond the cap bond volatility of the industry consolidation that you. Just recently mentioned could you with any other drivers of why various organic revenue growth.

The non COVID-19 business, that's the 85% of revenues decelerated to four 9% in the first quarter versus $6 five.

In the fourth quarter, and let me just kind of put out by my other question too.

The question about 'twenty, one EBITDA margins late in the last two quarters, you mentioned the comment about 'twenty, one EBITDA margins.

Relative to 'twenty of 19, just could you.

Tate your comment.

Yeah that the margins are likely to be closer to this year.

Yes, and thank you Andrew I just wanted to clarify.

You were addressing the question.

Of both out.

The consolidated level is that consolidate that correct.

Yeah. So I think we did describe the primary impacts as you've as you've indicated in terms of the.

Of the catastrophe bond.

The impact in some of the consolidation impacts naturally you can look at the other of the performance of the other business units from a revenue standpoint.

In financial services in particular with the contract transitions in the COVID-19 sensitive I think from an energy and specialized markets. It was kind of a relatively relatively flat flat quarter.

So.

I would probably just point out that financial services, Inc.

Clearly had a contribution to the overall the overall growth rate.

In that in that regard.

<unk>.

As to.

For your question on margin.

I'm going to kind of the go back to the way.

I answered a previous question, which was that clearly we saw the margin benefit in 2020 <unk>.

The resulting from the reduction of expenses to a greater degree than the from the decline in revenues and looking ahead to 2021, where we will be coming out of this we are expecting some revenue growth improvement, but that probably will be exceeded by the normalization of.

Fences. However, if you think about the the responsiveness of the growth rates of those two lines. We are expecting that the the the rate of recovery from an expense standpoint will be slower, meaning that we will hope to hold on to some of that margin benefits that we can.

<unk> in 2020, but not all of it so that.

I think the outcome of our expectations at this point.

Looking at the kind of reiterating that we are expecting that our margins still will be above where they were pre pandemic, but we'll probably.

Come down as as those as the expenses normalized okay. Thank you.

We have our next question comes from the line of.

Missouri from Jefferies. Your line is open. Please go ahead.

Yes, Hi, good morning, My question is.

Round.

The <unk>.

International business, where the within insurance I think of couple of years ago. You guys had flagged that you expected that business I guess it was growing high single digits and you expected it to do.

Double organically in five years, I think that was a.

Couple of analyst days ago, and maybe I think you guys had flagged the UK, Ireland, Canada, Germany, France, India Southeast Asia as future growth. So maybe just update us how big is the international today as part of the total offering in insurance, and then which countries of U.

Sort of under versus over penetrated and Where's the opportunity.

Thank you for the question. This is mark So let me kind of give you a quick summary, so first of all good recollection of the overview that we provided.

Now grade ourselves on where we are of that I would say from the UK perspective in Ireland.

We are well ahead of that plan I think we are doing extremely well.

I think we've highlighted some of the benefits of the sequel acquisition and just the progress that's been made there along with some of the work that we've done on the claims and underwriting front.

As we think about other regions, we did highlight France, and Germany, and I would say, it's been a tougher sledding.

We're looking for a combination of organic access.

<unk>.

The into maybe some businesses that provide services there from the M&A perspective.

I think we've done well from a cat bond perspective cat modeling perspective, so they're strong great just probably less progress.

For some of the other underwriting and claims and that net France, and Germany feel I think we kind of had talked about Asia Pacific is more long term I'm not sure I can comment on that that's probably still on the <unk>.

Horizon. So thank you for the question.

We'd give ourselves the overall strong grades.

Great Great and just my follow up question and you touched on it.

A little bit on on the timeframe and evaluating.

The the non insurance segments.

Do you sort of have any high level color of that financial services business has changed structurally I know a while back and Lee I know you werent there at the time, but Oh.

But the health care business has structurally changed.

And in.

The government had gotten more involved the business was one of those are global.

There were some other items.

As you look at this business with new competition or other stuff, maybe diversifying away from banking customers has been slower do you have a sense of you know.

Timeframe wise.

Is that sort of.

Youre still looking into that or do you guys have a pretty good view there already.

So hence I think thank you for the question and I think there are there is an external perspective, Andy and an internal perspective, if you're asking about the structural nor has the business changed structurally.

And I think your primary question is from an external standpoint, and I would say that the the presence of other players that serve that banking the banking industry, particularly as it relates to cards.

<unk> has remained.

Relatively consistent the large players whether the the credit bureaus or the.

For the the.

Network companies.

Are there the serve that industry and.

The ferrous financial services entity has for a long time competed very successfully within that environment of given the very unique nature of the dataset and the unique relationships that they have with the industry and they provide a service by integrating that dataset and delivering it in a way that the others.

Arent able to do and so I don't I don't believe that there has been a material change, but we are mindful of the competitive environment that they operate in.

From the other perspective from a structural change I can say unequivocally that we have.

Changed and improved the business and shifting it to more of the sustainable focus on growth within the in the business with the steps that the management team has made some of those have had obviously a.

A challenging financial impact in the short term, but we believe that the business is better positioned for the long term given the structural changes. So I wanted to address both parts of those questions.

That's great very helpful. Thank you.

And our next question comes from the line of Gary Bisbee from Bank of America. Your line is open. Please go ahead.

Hi, Good morning, I just wanted to go back to some earlier commentary on the energy business, Scott I think you said it.

You just need sort of a normal market environment not necessarily of robust one to deliver.

To your goals in the business I guess I wanted to ask.

What is it you would expect to deliver in a normal environment in the five years of on the business has grown 7% once and not grown a couple of those years and so it's just not clear to me that this business is positioned particularly given.

The volatility inherent in the end market to deliver to the long term revenue growth targets, you've set for the company in.

A number of occasions actually said this business should outperform those over the long term of growth faster than some of your other assets. So what is it you are playing for in a normal energy market if were moving back into that today. Thank you.

Yes, the best Gary Thank you for the question.

When you sit and actually related to the way the.

Lee was responding to the prior question about financial services. So if you kind of get to the top of of.

Sort of our business.

The ecosystem of whats Youre looking at is.

The global customers that.

Our large that are facing.

The challenging issues in terms of how they're going to run their businesses in the future.

Our colleague increasingly upon data analytics to try to help them make these these very very important decisions.

And have.

Only a few places that they can turn to outside of their own four walls in order to find support with respect of the kind of data analytics that they want to make the commercial decisions that they need to make and then I would add to that one other point, which is.

The range of topics in the ecosystem the debt.

That can be covered and those have really expanded in light of the energy transition.

There was an earlier question about what do we do with respect to renewables.

Point out also of that in the.

In the energy space. There is a there is a great sensitivity to.

The topics of climate change and so.

Our ability to also observe on things like emissions.

It is an important capability and of distinct capability and so the summation of all of that for me Gary would be the.

Youre right about the track record I would point out is over the course of the last five years there have been too.

Relatively unprecedented shocks to the pricing of the commodity and I'm not here to predict that there can't be any more of those but they were pretty unusual and in a relatively compressed period of time against that I would put a very large global market with increasing appetite for data analytics of the.

And that we provide and so by my summary of all of that would be that.

I look for this business too.

To contribute.

At or above the.

The the targets we got it.

As the company overall, we're going to hold it for that standard.

So that's really it.

And then just one quick follow up for Lee.

For the years ago, you had the company had discussed sort of a glide path lower in capital intensity now of course, I think that was in large part on the <unk> business at the time.

And since then you've stepped up technology investment considerably I guess I'm just wondering for if you get level set for US today, how are you thinking about capital intensity over the next few years as you get through more of the cloud projects should we the goal is still that that moderates a couple of points lower over time.

For where you're at now thank you, yes, the thank you Gary.

So the short answer is yes. It is a function as you've described.

Of our of our migration to the to the cloud, which is reducing the level of capex that we would have typically spend.

On hardware in infrastructure now offsetting that but we still think of it not completely offsetting that benefit.

Is an increasing level of internal software development intensity.

<unk> is a function of some of the trends that mark was talking about in terms of utilizing software opportunity as a way to activate and deliver our datasets and provide solutions for our clients and so that is clearly an element that we think is added to our business that is generating good returns we never want.

The capex intensity metric too.

The two obscure our fundamental return objectives.

We do expect to.

To see that improvement over time, it has probably been obscured by some of the real estate renovations that we have done recently that are included in that but we are realizing real benefits in terms of reduction redux reductions in capex, and even opex and expenses related to infrastructure.

As a result of that and some of those are being reinvested in some of the software development elements as we develop that component of our of the delivery of our datasets.

Thank you it's helpful.

And there are no further questions I'll turn the call over to you Mr. <unk>.

Okay, well. Thank you everybody for for joining us I appreciate all the questions and the dialogue and we will certainly as always be following up with many of the.

Following this call. So thank you for the continued interest and support will speak with you soon.

Bye for today.

This concludes today's conference call. Thank you all for participating and you may now disconnect have a great day.

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