Q2 2022 Verisk Analytics Inc Earnings Call

Good day, everyone and welcome to the various <unk> second quarter 2022 earnings results Conference call. This call is being recorded currently all participants are in a listen only mode.

After today's prepared remarks, we will conduct a question answer session, where we will limit participants to one question. So that we can allow everyone to ask your question.

We will have further instructions for you at that time.

For opening remarks, and introductions I would like to turn the call over to <unk> head of Investor Relations Ms. Stacy Broadwater Miss Bradbury. Please go ahead.

Thank you, Chris and good day, everyone. We appreciate you joining us today for a discussion of our second quarter 2020 to financial results on the call. Today are these shambaugh <unk> Chief Executive Officer, Mark ancillary President and Chief operating Officer, and Nathan Kroeker Controller, and Chief Accounting Officer and interim Chief.

Yes.

The earnings release referenced on this call with our traditional quarterly earnings presentation and the associated 10-Q can be found in the investors section of our website <unk> Com. The earnings release has also been attached to an 8-K that we furnished to the SEC a replay of this call will be available for 30 days on our website by Thailand.

As set forth in more detail in today's earnings release, I will remind everyone. Today's call may include forward looking statements about <unk> future performance.

Actual performance could differ materially from what is suggested by our comments today information about the factors that could affect future performance is contained in our recent filings.

Finally, I'd also like to remind everyone.

Actual results for recent dispositions are included in our consolidated GAAP results are excluded from all organic constant currency growth figures. A reconciliation is provided in our 8-K and now I'd like to turn the call over to generic.

Thanks, Stacy and good day, everyone I'm pleased to share the various delivered solid second quarter results. As you review the financial results. Please be aware that due to the dispositions of three and various financial services certain year over year comparisons will be distorted by the impacts of these transactions for example, the decrease in our free.

Cash flow year over year was primarily the result of a significant tax on the realized gain from the sale of three.

Dave will provide more details in his financial review.

Second quarter organic constant currency revenue grew approximately 5% and organic constant currency adjusted EBITDA grew approximately 4%.

Adjusted for the impact of the suspension of commercial operations in Russia organic constant currency revenue grew approximately 6% and organic constant currency adjusted EBITDA grew approximately 6% adjusted.

EBITDA margins expanded 140 basis points to 51% to cost discipline and operational efficiencies the benefit of decisions affecting recent portfolio actions and some very early steps taken in our previously announced margin improvement initiatives.

This level of margin also includes headwinds from cloud transition and a partial normalization of travel and entertainment expenses as we continue to hold in person conferences and visits as we engage with our customers.

While overall organic constant currency revenue growth, excluding Russian revenues was below our long term targets. We saw solid performance in our subscription revenues offset by weakness in our transactional revenues due to the continued impact of the work from home environment uncertain businesses. As we will describe we did see sequential improvements in.

In the second quarter, reflecting some normalization in certain businesses, including international travel.

Subscription revenue organic constant currency growth, excluding Russian revenues of approximately 7% representing 81% of total revenue was solid and improved sequentially in both insurance and energy.

Insurance OCC subscription revenues were above our 7% long term target demonstrating the mission critical nature of our solutions energy subscription subscription growth improved sequentially as positive pricing momentum from our lens investment and strong annual contract value growth begins to convert.

The revenue growth.

We also delivered strong growth in our energy transition chemicals and metals and mining research.

Transactional organic constant currency revenue growth of approximately 2% representing 19% of total revenue improved slightly in the quarter with sequential improvement in insurance and a solid underwriting growth offset by weaker performance in claims due to ongoing declines in workers' compensation claims volumes across.

The industry of at least 25% and new regulations that went into effect in early 2022 that are slowing claims settlement.

In addition, we are also experiencing some softness in personal lines auto related to the market dislocation as Mark will describe in his section we have seemed normalization progress across our businesses and expect this to continue however, several of these impacts are having longer cycle recovery times than we originally expected.

Energy transactional revenue declined modestly on an organic constant currency basis, due primarily to resource constraints in our consulting business as a result of strong demand from our professionals, particularly in the Americas region as well as tough compares versus last year's rebound level growth rates you can find more.

Sales about our subscription and transactional growth rates by segment in our quarterly earnings deck, which can be found in the investors section of our website.

Since taking over the CEO role at the end of May I've been meeting with the leadership teams of many of our key customers and stakeholders and these valuable conversations where I'm learning, how we can improve I hear repeatedly the virus as a critical partner with a unique seat to analyze performance and technology across the industries, we serve and most.

Orderly implement technology change for the benefit of all of our clients as one of our clients put it not only do we need <unk> help on this issue the industry nature L. R.

Our value proposition is clear.

<unk> strategically invest in data and technology at scale to deliver economic value to our customers through operational efficiencies and better decision making.

In both the insurance and energy industries, we benefit from the growing demand for data analytics from our customers along with their increased ability to ingest and use our rapidly growing datasets.

We deliver greater value per dollar invested and our clients to be able to individually and we are in an advantaged position as few companies enjoyed closer ties to and a greater understanding of their clients' business has been bearish.

This is a responsibility that we do not take lightly as it is this unique proposition that will power our growth and drive long term value creation for shareholders customers and employees.

As we focus and defined the strategic orientation over 2022 we expect to lay out our plans in greater detail at an investor day in the first quarter of 2023, following the reporting of our fourth quarter 2022 results.

During the second quarter, we made a series of new leadership announcements as we build out the team that will lead various forward of importance to many of you on this call.

We recently announced that Elizabeth man will be joining <unk> as our chief financial Officer.

Elizabeth joins us from S&P Global where she was the chief financial officer of their ratings and mobility divisions and before that she was senior Vice President of capital management, which included oversight of the Treasury Department.

Elizabeth will bring very relevant experience and a fresh perspective that I know will improve our organization financially and operationally.

He will be joining us on September 15th and we look forward to introducing her to you and she will welcome your perspectives as she comes up the curve on various.

In addition, we recently announced that Maroon broad has been named President of claim solutions Maroon has been a key leader in our underwriting and rating business since 2015, serving as president of ISO commercial lines, President Global underwriting and most recently president life in growth markets.

Maroon brings deep industry expertise from his many leadership roles at January AIG arch and Zurich across underwriting operations and General management. He also brings a great entrepreneurial spirit and a true customer centric approach to the business and is the right leader to help drive our vision of revolutionizing claims.

When the industry through automation and technology and advanced analytics.

Arun takes the reins for rich double rocker, who has retired after 27 years with various we thank rich for all of his many contributions to <unk> and wish him very well in his retirement.

We also announced that Tim Rainer has been named President of various specialty business solutions, our U K based business centered around our sequel suite of insurance software.

The specialty business solutions team is a linchpin in our strategy to create an automated in interconnected ecosystem for the insurance industry in the U K EU and beyond and Tim is the right leader to drive that strategy.

Jim joined <unk> in 2018, after a long and successful career in the insurance industry holding various leadership roles at Miller insurance service.

Now, let me provide an update on both our progress towards being an insurance focused data analytics solutions provider and our commitment to furthering margin expansion.

We're making steady progress on our evaluation of the separation of the energy business. The preparation of the internal separation analysis and Standalone financials are ongoing and we have hired a team of outside advisors, who are engaged in the next phase of our process of developing all the alternatives available to us.

Timing expectations remain unchanged and as we have stated previously our decisions will continue to be guided by shareholder feedback value considerations and market conditions. As many of you know we've also undertaken a broad shareholder survey for the benefit of your perspectives not only on the energy separation, but how we can improve and meeting investor expectations.

Mutations generally.

And our EBITDA margin expansion objective, we continue to be very confident in our ability to achieve our stated target to deliver 300 to 500 basis points of margin expansion by 2024, often insurance only baseline of 50% to 51% normalized adjusted EBITDA margins we.

We have taken some early steps, including the restructuring of our marketing function office space consolidation and a greater emphasis on our global talent optimization hiring.

Additionally, we have embarked on a span of control analysis to guide further operational efficiencies.

We continue to experience the impact of the stranded corporate allocations from the businesses. We have sold in our reported segment margins.

It is important to remember that 2022 is likely to remain quite noisy due to the impact of portfolio changes and implementation costs as such we continue to expect the margin expansion to be increasingly visible over 2023, as we move past the timing impacts of the portfolio changes in implementations and work toward our previously.

<unk> state of 'twenty 'twenty four targets.

Now I will turn the call over to Mark for some more color on the insurance business performance.

Thanks, Lee I am pleased to share that the insurance segment delivered another solid quarter Cross insurance, we're experiencing strong growth in subscription revenues across both underwriting and claims.

<unk> and OCC subscription growth of seven 3% segment overall.

And demonstrating the stability and consistency of our business model and the must have nature of our solutions with.

With an underwriting we had strong results from core underwriting exchange and solutions and our international software business.

We also had healthy contribution certain newer acquired businesses include life insurance and marketing solutions.

Within life insurance, we had delivered strong sales growth from the addition of new customers and expansion of existing relationships.

Insurers are embarking on our modernization digital transformation of our core systems and that software offers flexibility and speed of implementation helps insurers achieve their goals in a timely.

Cost efficient manner.

Extreme event solution had a strong quarter driven by the addition of new customers added to our core touchdown platform.

Well as expansion of multiyear deals with existing customers.

In addition to catastrophe bond market continues to be strong and <unk> is growing its share of the market, our sustainability and country risk business also had a strong quarter as demand for our risk indices, corporate and investor segments continued to drive strong double digit growth.

Claims, we're experiencing strong growth in our fraud fighting analytics, driven by the additional customers and expanded use cases more.

More specifically, our new claims essentials bundle designed for self insured and third party administrators provide intake claims solution <unk>.

Driving conversion to subscriptions from customers critical thing you start solutions in a more limited on transactional.

We have also recently announced our exclusive partnership with lumber and lumber industry research organization to help life and annuity insurance.

Great fight in couch takeoff flood situation.

Insurance transaction revenues grew a more modest two 7%.

Seems strong rebound in our international travel business has been offset by headwinds from both our workers' compensation claims solutions and softer results from our personal auto underwriting.

In addition in the first half of the year has seen a lower level of storm activity versus the prior year and historic averages.

More specifically our workers compensation solutions are dealing with two headwinds, including volume levels are down at least 25% across the industry.

As well as new regulations, there are slowing the pace settlement.

That said, we're not sitting still we have recently implemented process improvements to help drive greater throughput.

New customer outreach to drive volumes to Paris.

Huish insurance industry is generally healthy.

Over the shorter term insurers are dealing with the impact of interest rate volatility inflation and rising loss ratios.

This is having a disproportionate impact on personal lines.

Sure Tech players in certain geographic markets.

While insurance are increasing rates to help cover inflation costs.

Each time fully take effect across the entire book of business.

Specifically in personal auto, we're seeing lower levels of underwriting activity, which is resulting in lower transaction volumes and revenue.

The industry is dealing with higher inflation and supply chain shortages, which are pushing up physical damage claims costs.

Result, the industry's raising rates of temporary pulling back on your visits to improve profitability.

Notably, we're also watching carefully the developments in Florida homeowners insurance market.

It's a market that is dominated by small local companies has widespread exposure to climate related risks and its dealing with elevated levels of litigation fraud.

This combination is leading to a pullback underwriting and.

An increase in ensure liquidations.

Exits for the market.

As a result, these risks are moving to the state run insurer of last resort.

The state of Florida recently created a reinsurance facility to bring more stability to the homeowners market.

To address these issues and help our customers on the underwriting side, we are facilitating new market participants and it expands our relationship with the state learning shirt kept price at select risk on.

On the claims side, we're helping customers, including state government agencies with the same score and analytics to improve their ability to investigate and identify fraud.

This is a developing situation on staying close to our customers and regulators.

Through our customer engagement, we know that the insurance industry is focused on becoming automated more digitally engaged and more connected and they're directing spending toward these projects. They turned to <unk> with a key partner to drive these initiatives forward, which has been a key driver of our growth.

We can use to help our customers select and price risk and Rudolph fraud with our advanced data analysis and believe that we are well positioned to continue to grow as we advance our mission to become a trusted partner.

Technology analyst perspective for each day now.

Let me turn the call over to interim CFO David grower.

Our financial year.

Thanks, Mark before I begin I want to remind everyone that all consolidated in GAAP numbers are negatively impacted by the recent dispositions of three he inherits financial services. This effect will continue through the first quarter of 2023, when we will anniversary those transactions for the second quarter of 2022 on a consolidated and GAAP basis.

Revenues were $746 billion, a modest decline from the prior year, reflecting the impact of recent dispositions and headwinds from FX rate changes, which were most pronounced in our energy segment offset in part by acquisition.

Net income attributable to <unk> increased 28% to $198 million, while diluted GAAP EPS attributable to Darris increased 32% to $1 20 for.

The increase was primarily due to a lower tax provision this year versus the prior year period, which included a noncash revaluation charge related to an increase in U K tax rates that became effective last year.

Moving to our OCC results adjusted for nonoperating items as defined in the non-GAAP financial measures section of our press release, we are pleased with our operating results led by continued and consistent growth in our subscription revenues.

In the second quarter OTC revenues grew five 3% driven by continued strength in our insurance segment.

Our subscription revenues increased six 2%, while our transactional revenues increased a more modest one 7%.

Adjusting for $3 5 million in prior year revenues associated with our energy business in Russia, OCC revenues would have grown five 9% and subscription revenues would have grown six 9%.

Consolidated OCC adjusted EBITDA growth was four 4% in the second quarter normalizing for the prior year revenue associated with our energy business in Russia, and the incremental expenses associated with exiting that business OCC adjusted EBITDA growth was five 7%.

Total adjusted EBITDA margin, which includes both organic and inorganic results was 51.0% up a 140 basis points from the prior year, reflecting strong cost and operational discipline as well as the benefits from recent dispositions.

This level of margin includes approximately 80 basis points of headwind from recent acquisitions.

60 basis points of headwind from our ongoing technological transformation, including cloud expenses, which we absorbed into our cost structure at 60 basis points from higher year over year G&A expenses. Finally, this margin also reflects about 60 basis points of headwind from the timing shift related to executive compensation, which we told.

You about last quarter and will have no impact on full year results.

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

In the second quarter insurance segment revenues increased six 4%, we saw healthy growth in our industry standard insurance programs claims analytics extreme events life insurance and international specialty business solutions subscription revenues increased seven 3%, while transactional revenues were up.

Two 7%, we continue to experience strong recovery growth in certain of our transactional businesses, including international travel insurance solution, but this continues to be pressured by weakness in workers' compensation as well as softness in personal auto underwriting as the market is dealing with some dislocation as mark described earlier.

Adjusted EBITDA grew six 1% in the second quarter, while margins declined 180 basis points to 54, 7%. These margins reflect heavier burden from the corporate costs that were previously allocated to businesses that have been disposed the impact of recently acquired businesses higher cloud expense.

And the partial normalization of travel back into the business. This level of margin also includes continued investment in our high growth areas like life insurance and marketing solutions.

Energy and specialized market revenues increased <unk>, 8% in the second quarter normalizing for the impact of suspended operations in Russia energy revenue growth was three 6%.

The end market continues to be volatile and impacted by geopolitical developments, but we're seeing sequential improvements in our subscription revenue growth rates as our customers are turning to witness testing data and analytics, our subscription revenues increased one 7% and was affected by our decision to suspend all commercial operations and <unk>.

Asia.

Normalizing for Russia subscription revenue growth was five 2% led by double digit growth in energy transitions chemicals, and metals and mining research coupled with modest growth in our core research subscriptions. Additionally, we continued to experience strong adoption and contract expansion from our lens renewals.

Transactional revenues decreased two 8% as growth was constrained by consulting resources as we are seeing an elevated level of employee attrition due to a competitive market for expertise in energy and technology. We are working to offset this trend and have demonstrated success, attracting talent to our energy business as well.

Adjusted EBITDA decreased six 4% in the second quarter and margins contracted 90 basis points to 34, 6%.

Adjusted EBITDA and adjusted EBITDA margin includes $1 1 million in incremental expense related to the suspension of operations in Russia normalizing for the Russian impact adjusted EBITDA growth would have been three 6%. In addition to the incremental Russian expense. This margin also reflects the partial <unk>.

Amortization of travel expense back into the business and higher cloud expenses. It also reflects continued investments in lens as we further build out capabilities to garner maximum value from the platform includes <unk> power energy transitions chemicals and metals and mining.

Looking to the remainder of 2022, the loss of Russian revenues, and adjusted EBITDA will negatively impact each quarter by approximately $4 million per quarter.

Various financial services results are included in our reported numbers, but not in the OCC figures, we sold bureaus financial services to Trans Union on April eight.

Our reported effective tax rate was 18, 3% compared to 35, 6% in the prior year quarter. The prior year's tax rate was elevated due to a dot in cash revaluation charge related to a UK tax law change. We also benefited in the quarter from higher level of stock option exercise activity as compared to last year.

Looking ahead to the remainder of 2022, we expect the tax rate to be between 21 and 23% in the third and fourth quarters of 2022, though there could likely be some quarterly variability related to employee stock option exercise activity.

Adjusted net income increased 28% to $244 million and diluted adjusted EPS increased 31% to $1 53 for the second quarter of 2022. These increases reflect organic growth in the business contributions from acquisitions, a lower effective tax rate and a lower average share count.

Net cash provided by operating activities was $130 million for the quarter down 44% from the prior year period due to a tax payment of $122 million primarily related to the gain on sale of <unk> as well as the loss of operating cash flows related to the dispositions.

Adjusting for these unique items operating cash flow would have increased by a double digit rate year over year.

Capital expenditures were $69 million for the quarter up 11% versus last year, reflecting increases in capitalized software development offset in part by savings on third party hardware and software as we move to the cloud we continue to expect our capital expenditures to be within the range of $280 to 310 million.

Yeah.

This range supports our plans to increase our software investment through the acceleration of our pace of development lens and extending software development into core underwriting where we believe there are similar opportunity for platform enhancement.

Related to Capex, we now expect fixed asset depreciation and amortization to be within the range of $210 million to $130 million and intangible amortization to be approximately $170 million, both depreciation and amortization elements are subject to FX variability the timing of purchases that completion of.

Projects and future M&A activity.

During the second quarter, we returned $374 million in capital to shareholders through share repurchases and dividends as our strong cash flow allows us to invest behind our highest growth and highest return initiatives. While also consistently returning capital to shareholders. Additionally.

Additionally in June we entered into a new $300 million accelerated share repurchase agreement to be completed in the third quarter.

And now I'll turn the call back over to Lee for some closing comments.

Thanks, Dave in summary, our businesses are strong and we are making important progress executing on our strategic and operational initiatives, including the evaluation of the separation of the energy business and our margin expansion targets as we evaluate options for the energy business. We will continue to focus on pursuing the most value creating path for our shareholders.

And we will also consider market conditions and timing.

We are confident that with the recent transformation of our portfolio and active cost management over time, we can deliver growth in line with our long term objectives with organic constant currency adjusted EBITDA growth ahead of revenue growth, reflecting our strong operating leverage finally I wanted to remind you that we are planning an investor day for the first quarter of 2023.

To be held at our offices in Jersey City, we will provide more details as it gets closer and we certainly hope you will join US we continue to appreciate the support and interest in <unk> 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.

Yeah.

Thank you if you'd like to ask a question. Please press Star then one on your telephone keypad.

First question is from Heather <unk> with Bank of America. Your line is open.

Hi, Thank you for taking my question.

I'd Love an.

An update on your cost savings program and.

And just kind of hear how thing.

We talked about it earlier in the call, but just how things are tracking.

You talked about really seeing an impact in 2023.

Kind of what the phasing might be next year.

And also you know I think there are some concerns about about the macro your basis and has proven to be pretty stable in a downturn, but and you know how I guess how to think about the margin improvement and how sales may may play into that or or not thank you.

Thank you Heather I'll start off and then ask offer a market opportunity to provide additional color as the chief operating officer. He has been leading that initiative and really driving it.

Its its progress to date.

At a high level as I indicated in the call. We are very confident that we will be in a position to deliver on.

The expected range of margin improvement of 300 to 500 basis points off of that 50% to 51% baseline for an insurance only only business described.

The elements.

That we are considering we've taken.

We'll look at all alternatives that have been identified to us internally and externally.

Our working against those directly some of those have already been under underway.

I'll, let mark kind of describe some of the things that we have been doing in terms of in terms of phasing.

We arent in a position at this point to give specific direction potential.

Potentially as we kind of look towards the Investor day, and we have a clearer picture of 2023, and specifically the macroeconomic environment that we're looking at and we might be in a position to provide some greater clarity around that but at this at this point there are too many moving pieces for us to estimate, but as I indicated we will expect to see.

Clear progress across 2020 across 2023, and with that I'll, just offer a market opportunity to add any color.

First of all I think I can tell you. We are on plan I think all of our businesses and support centers.

<unk> up to the challenge of trying to be more effective and more efficient.

Yeah.

As a result of just our overall cost structure a lot of the focus has been on.

People are trying to make sure that we are.

Thoughtful about where we need to replace.

Physicians.

Tried to maintain the rigor around that both of them were <unk>.

We knew where acquisition could be so a part of the thought is not only to be more effective and more efficient inside of our operations also about where those people couldn't should be higher and so we have some of our operations.

Hydro bad have some operations that art.

Oligophagous Operation Center.

Crack alley, and we have some operations in Costa Rica, which is the new place and we're trying to become a little bit more.

Internationally, where we placed those positions and tried to make sure that we have the right talent and maybe at a lower cost.

Facilities is key to that.

I think we're making some progress there we've eliminated some smaller offices, we've made some progress with a couple of our major ones. The real estate market commercial real estate market in particular is a little bit slow. So we are probably up a little behind on one on one of those is probably a little head up one of those major offices and then I think I just kind of talk more broadly.

About where we want to invest and I think the teams are doing a great job of really focusing on where can we get the best ROIC.

So there is instances, where we're going to reallocate dollars into higher opportunities and we're sunsetting some opportunities where we say to you that maybe that return is not so great.

And we probably thats kind of come up with the notion of a little bit of a more fast fail on some of the smaller products and I think we are around <unk>.

On track and I think Youll see as Lee said good benefits from that program as we transition into 'twenty three.

And how did the only thing I would add is that of course as I think all companies are these days are aware of the impact of inflation across the business and particularly the competitive environment from a compensation standpoint, and so we have factored that in at this at this point, we believe that we can absorb those costs make some steps in improving our retention.

And still deliver on that so to your macroeconomic comment we do recognize that there have been some pressures that may influence the results in 2023, and 2024, but reiterate our confidence in the original targets that we set out.

Great. Thank you so much for the answer.

The next question is from Ashish <unk> with RBC capital markets. Your line is open.

Hi, This is John filling in for Ashish Congratulations on the strong results could you just help us understand the return of transactional revenues, specifically around workers' compensation as well as personal auto underwriting as well as some of the property estimating solutions as well thanks.

Thank you John Mark do you want to take that.

Sure.

So let me let me provide a little color as to what I would say I don't remember exactly your order open at least start with workers comp.

From a segment through it so on the claim side.

What we've seen is two things really overall the industry today relative to pre pandemic. There's just fewer workers compensation claims I think in large part that's a function of you working at home, there's not a lot of slip and falls when youre sitting in your living room and as a result.

The overall downturn in the number of claims and that business is transactional to there has been regulation.

Kind of inside of that.

World of how the government interacts with insurers as to who pays or set aside and.

What that change has done is it has caused some of the insurers to kind of changed it processes, probably moving towards a more rigorous.

Process by which they submit those claims as opposed to <unk>.

Some of the maybe shortcuts that were starting to happen.

So that has also slowed down the volume is just a timing thing the first one is more.

Static at least at that time being list relate to work from home to on the claim side I think you were talking a little bit about volumes in.

The world of <unk>.

Our repair cost estimating and cold weather personal auto personal auto was the third one.

So I'll go to personal attacks from a personal auto perspective, I think the other item that we're seeing is.

Because of the challenges in the industry, meaning the world.

Inflation in the cost to repair cars.

Profitability is starting to be purchased by that loss ratios are up so when you bring on new business right. Usually there is a short term loss because of the cost of bringing on a new business and it takes time to get insurance rate increases. So you have to file those so there is a gem.

<unk> pulled back and some of the underwriting of new business.

Less shopping online.

Because there's less shopping there is less transactions and people pulling our data around those auto transactions things like.

Well histories, who is the prior coverage with things.

Things around motor vehicle reports, that's the type of information we typically provide.

So hopefully that color.

Is there.

If I heard correctly I think the last thing was just generally from a repair cost estimate perspective.

It's been a very quiet storm season.

Most of our business is subscription base. There is some transaction element too when storms happen.

There is typically some gestures that buy software transactions kind of fluctuate up and down with storms.

And so John at a high level I think as Mark describing there are a lot of individual effects on the transactional businesses some of which are shorter term timing timing related.

There may be some some systemic or secular elements on the on the workers' comp, but generally I think across those transactional businesses. We did see sequential improvement from the first quarter, the second quarter and I think the kind of a stronger trend will be kind of a continued normalization. So certainly there are a lot of factors in individual elements, but.

We feel as though we should see kind of continued normalization on those on those growth rates.

Very helpful. Thanks for the color.

The next question is from Alex Kramm with UBS. Your line is open.

Yes, Hey, good morning, everyone.

Hate to spend my question on the.

On the energy trends transition here.

Rather.

Central changes in that business for you, but maybe you can just remind US you mentioned that.

Your.

Evaluation is ongoing at the timelines are what you've outlined before so maybe remind us if I if I remember correctly I think you are committed to.

Making a decision in the third quarter and maybe the transaction of last resort would be a spin out in the first quarter of next year. So just wondering if anything has changed those timelines are still the same and you know as you think about that spin out is that is that still something that you're evaluating or could there still be a future given market condition.

Where do you actually think you it makes sense to keep the business. So maybe just a quick update here. Thanks.

Thank you for the question Alex So in terms of overall timing of that remains the same.

Are on track to have a a decision on an energy.

By the end of the third quarter in conjunction with our third quarter earnings release.

With.

Execution of that alternative to internationally follow given.

Given the various kind of timing of executing on that and with that timing I would describe us as being exactly where we anticipated.

Completing the separation and the accounting work and analysis as I indicated we have advisors that are engaged in this project.

Along with our team are actively evaluating all of the alternatives and so everything from a private sale to a separately capitalized spin out as well as retention are still alternatives that we are when we're being guided by what we think is in the best interest of our shareholders from a value perspective.

And factoring risk and timing obviously the markets are are different.

Almost by definition from where we were when we originally announced this and so the financing market is a function of changes in interest rates.

Is more challenging than it was previously and actually obviously equity markets are also down those are all factors that we will consider as we think about the value of the business and the value to our shareholders.

Alright, Thanks for the reminder.

Okay. Thank you.

The next question is from Toni Kaplan with Morgan Stanley . Your line is open.

Thanks, so much.

I wanted to ask also about energy ex Russia. It grew about three 6% organically in the quarter very slight deceleration sequentially.

Maybe I would've thought that just given how strong energy prices have been year to date and I would think it's a really conducive environment for selling more information just given all the uncertainty.

So have the language platform that you launched in the last couple of years, So just what's holding back growth.

Why isn't this growing.

5% or more.

I guess, what's holding it back thanks.

Thank you for the question, Tony and I think the simple answer is the differentiated performance between our subscription oriented business, where we are capturing the strength of the.

The value of that lens platform.

S as well as the.

The strong demand for our energy transition, our chemicals metals and mining business and so there excluding the Russian the Russian impact.

The overall growth in that business is solidly in that mid single digits level at 5.52%.

And the weak part of it has been in the consulting side and there I think there are two factors we had a very strong 2021 with the with the rebound in that and it has been challenged by resource constraints frankly, the level of demand for the businesses there.

But given the demand for our professionals with energy and energy transition expertise. It has been more challenging for us to have the resources against those consulting projects and so I think the combination of those two factors.

And the <unk>.

Decline in revenues in that business, well, a very strong environment as you've indicated.

Has obscured what we think is the fundamental strength that we're seeing of re achieving and positive momentum in the subscription revenues, we continue to see very.

<unk> solid growth in our HCV from lens and research as a function of everything that you just that you've described but thats. The short answer I think that addresses your question Tony.

Thank you so much.

The next question is from Manav Patnaik with Barclays. Your line is open.

Thank you. Good morning, I was hoping you could perhaps talk about in a life insurance.

The business, there and maybe get the center how big it is today and just what the.

How we should think about the strategic vision builds.

We have life insurance.

Thank you for the question Manav I'll turn it over for marketing perspective, yes, summing up.

Forward to it thank you for the question.

I think we talked about life and marketing like it's been a story what we've seen is inside of those insurers that are really looking to upgrade probably decades old technology.

Our fast solution has been winning the day and that is a combination of tried and true traditional life insurers and theres been a lot of secondary market or a lot of M&A, where private equity is getting involved in buying books of business and because were able to implement quickly and at a very low cost in the sale.

Code low code environment, we had been.

Kind of danger.

Strategic partner of choice.

The beauty of these contracts.

At the beginning it's a little bit implementation, but everyone is going to be moving on to the platform and what you see is not only do they put their book of business on they start adding lines start extending across legal entities.

So we have a combination of new logos, but also more business coming onto the platform and as you think about the way we.

Charge for that obviously the subscription revenue associated with those license businesses are going to continue to grow nicely.

We are doing is kind of uniquely.

Positioning the solution with not only a combination of great modular software, but analytics seeking better understand and underwrite business, which parallels a lot of things we did in P&C. So.

We've kind of taken a little bit about P&C playbook, we bought <unk>. It was a great technology and I think we're starting to really make a difference.

Life insurance space, So very happy with the progress there and I don't know I don't know if we've given a size on that business, but it is certainly growing quite quickly.

Yes.

Okay.

I would add as recently out on the West Coast had an opportunity to meet with a number of our clients in the insured tech space that are out there and several of them are specifically focused on life applications and I will tell you that the thing that is really.

The two things that are really compelling one is how they are availing themselves of broader datasets that formerly really werent as relevant in the life space. So there is an appetite for data and a utilization of data and there is a real focus on the availability of instantaneous data so that they can.

Make underwriting decisions and I mentioned that because I think they represent the leading edge of where we see life insurance are going and that speaks to the broader opportunity that we face are the broader opportunity that we have in front of us to be gathering those datasets at scale.

Developing those applications and then deploying it against our relationships on the on the insurance side as we have done an incredibly successfully with the fastest with the fast acquisition so while still.

While still not a not a material contributor to our overall business. It is one that clearly we believe has tremendous penetration potential and growth potential just to tie. It altogether, we referenced limited Loma. That's an example of us bringing in industry data set and in <unk>.

Sri organization to fight fraud things that we do well on the P&C side, so kind of a good example, please comment.

Thank you.

The next question is from Jeff Silber with BMO capital markets. Your line is open.

So much I'm getting a lot of emails from some of your investors regarding exactly how you calculated adjusted EBITDA in terms of may be transferring some of the costs from the disposed businesses and I'm sorry to waste My question on this but can we just get a high level overview, because a number of our investors just asking that question.

Yeah, So Jeff.

Ill start and then I'll ask Stacy to describe but essentially we have the.

The allocated corporate costs that exist.

Still are.

We still bear are simply being allocated on a variety of basis, but generally kind of proportionate to this to the scale of the business.

And so that that impact we have to allocate those costs somewhere and they are being allocated to the insurance in the energy business Stacey fuels.

Embellish Jed just to be clear the two.

Two dispositions that we did do not hit the materiality threshold for discontinued operations. So that's why the accounting, it's a little bit confusing.

Organic constant currency basis.

We have adjusted and taken out Barry financial <unk>, all organic constant currency growth figure.

Adjusted for the impact of those transaction however, our total adjusted EBITDA.

Margins include the impact of all of those businesses there is reconciliations.

Reconciliations at the end of the press release, which will show you all the moving pieces and parts, but it does take in at least that we did take allocations that were previously associated with three and associated with first financial and put them into the energy segment and the insurance.

Segment overall.

Allocations to ensuring basically hurt insurance margin by 80 basis points year over year. So that'll give you a sense of what the.

Hopefully that's clear.

And we can talk all day long.

Offline.

Yes, I'll say I'll definitely follow up thanks, so much I appreciate it.

The next question is from Al <unk> with Deutsche Bank. Your line is open.

Yes, hi, thank you.

So I was hoping to get a little bit more color on the international business. You mentioned some management changes in the U K just wanted to get some updates there in terms of how you see that business trending and how it trended in the quarter and how you see it trending going forward.

So so far so thanks for the thanks for the question. So when we talk about our international business naturally our energy business is substantially and in our international business and so I.

In that regard we've kind of commented on two in answer to Tony's questions. The strength that we've seen in the subscription growth on a on a global basis for us as a function of our success lens.

As well as on the consulting side on the international business from an insurance from an insurance perspective, there are a variety of businesses. The most are the most significant of which is our specialty business solutions business and that is a business that is providing a software.

Oriented ecosystem to the non standard Lloyd's market.

As a business that has generated very strong revenue growth rates have doubled theres been a double digit grower within the business. We have successfully integrated other bolt on acquisitions, such as our ratings engine within that within that business.

And we're very happy with the performance of that business and our ability to expand off of that that is one piece of a larger portfolio of insurance businesses that we have developed which have generally been additive to our overall growth rate I'll ask Marc maybe to describe a couple of the other components of the businesses.

And generally the performance and their contributions to our international businesses, but I just want to make that distinction between energy and insurance.

And I think we highlighted that what you would probably recognize sequel suite of insurance software has been.

The bigger element and the big a big grower.

UK and beyond.

We also have a underwriting business that kind of does a lot of the things that we do here as it relates to understanding risks.

Understanding exposures, but we go beyond there and talk about.

Insurance as it relates to travel and even pet insurance those both tobacco and <unk> started to grow nicely.

That has been.

Nice grower once again, we're thinking of our international business is contributing to it and actually helping us accelerate our overall again in growth.

Are the two things that I'll quickly highlight as we kind of continue to extend selectively opt.

<unk> does a lot of the things that we do here in United States as it relates to property underwriting they do it in Canada. So that is a new acquisition that has been a good contributor in kind of new to the <unk> family as well as <unk>, which takes us into Germany again inside of the claim space primarily around auto.

No.

Our approach broadly it's been more around software and a little bit on the claim side around services augmented with solutions and things that we do in the U S trying to export them with a local footprint and all of that has been.

Successful, we've been pleased with our international growth and so I don't think.

It's we expect it to continue to be to be additive. We also view it as a broader opportunity.

And recognizing that in the U S.

Have the advantage of having been a utility or the P&C insurance industry and.

That doesn't exist to the same extent internationally, but software provides an ability for us to connect and create ecosystems, where we achieve a similar dynamic and thats kind of specifically, what we have observed with our specialty business solutions element and so we're particularly interested in businesses.

Where we are connecting the industry and we are facilitating an industry efficiencies and an improved performance and the international market in many respects is not as developed as what we have here in the U S and that's what we're excited about continuing to pursue.

Great. Thank you.

The next question is from Andrew Jeffrey with Truest Securities. Your line is open.

Hi, good morning appreciate taking.

Taking the question and all the color on the business.

Mark I wanted.

To ask you about another relatively new area for you, which is which is marketing and I wonder if you could sort of give us a sense of what the long term roadmap for that business looks like and also I'm wondering if there's if there are any cyclical considerations discretionary spend considerations you mentioned some pressures that.

Underwriters are facing today is that a business you think grows through the cycle, how do we think about that.

Great. Thanks.

Thanks again so.

Themes that is across all insurers is this digital engaged in trying to make sure they really satisfy the customer so.

What we've attempted to do from a P&C perspective, especially on the personal line side is due to this ultimate pre fill I mean, thats kind of the way sometimes you would hear described if you call. When you give us your name and number we can fill in all the information know everything about you and give you a quote that is you being an insurer and we support that facilitate that.

We wanted to go one step further we want to go even further to the front end and as you're providing that quote what if we found the right group of people too.

Sure that close so what our team at <unk> and some of the marketing solutions has is we are the industry standard as to we know sitting on website shopping. So we know who is actually shopping for insurance. So this is a live a very real opportunity.

To kind.

Kind of drive this pipeline to drive this funnel.

Real opportunity.

And it provides that quote so the marketing solutions.

Had been a nice extension to both our P&C.

As well as our life insurance opportunities.

Front end that gives us the opportunity there probably is some cyclicality of that.

It's a difficult time, if people were trying to cut cost theres, probably more or less marketing spend that happens, but because of the unique situation that our marketing solutions you Jordan I and we sit on these websites no one else really has the ability to do what we do it its not like were competing directly against Google.

Have these relationships that we understand who the the.

Really.

Candidates are.

And what we also have the ability to do selectively is to take that capability and extend it beyond P&C. So it allows us to do life and P&C insurance, but as expected someone's buying house or a prime candidate for P&C insurance, but it's also a prime candidate for someone who needs a mortgage so there is an extension and big off.

<unk>, even inside of other vertical markets, where we are selectively looking so I hope that gives you the color you're looking for.

Yeah. It does thanks a lot.

The next question is from Jeff Mueller with Baird. Your line is open.

Thanks in part a related question, but related to the personal auto underwriting.

I guess it seems like the insurers are taking the right actions now. So if you can run this forward because I would think Theres also some counter cyclical demand in terms of consumer rate shopping to save money, if we're going into a recession.

So just.

Are there any historical parallels in terms of like what's the lag between those rate actions and when you see the increased churn that has a positive impact on your business and then just to be clear on the last answer since you said theres probably some cyclicality.

Are you seeing delayed uptake because of the cyclical headwinds of lightspeed and the marketing capabilities because it sounds like the market. The market is talking a lot about a need for more sophisticated segmentation. Thank you.

So great question now I'm going to try to piece it back together in response, maybe a little out of order. So first of all from kind of the end to the beginning we are continuing to see uptake in lightspeed people love the concept that people continue to buy solution.

What we're seeing now is the volumes coming through the solution are depressed a little bit and the short answer is there's less shopping.

I'll give you. The example that I think youre looking for.

Some of the insurer tax that had been our early adopters.

Who had a lot of volume coming through all of a sudden now start to focus on profitability.

As they start to focus on profitability that caused us to have to pull back on writing new business right.

Direct correlation or at least the early life of a policy. So that's a step of it to kind of of your other question a related question just about right in taking rate.

Everybody is working on rates Ive seen some rate increases as high as 40% by some.

Filings as it relates to certain states. So they are coming but people will start to write again when they get the rate increases they want how long does that take it really depends sometimes on the inner.

The inner workings of some insurers, especially in personal auto they use us as a benchmark they always use our direct filings so that could take six months to nine months to get in place at four before things start to ramp up again, because they have price. They expect will make them profit hope that was responsive to most of your questions.

And Jeff I would just add a center a broader overlay which is it.

Marc is describing we are seeing some of that near term pressure.

In the in the business, but longer term, we believe the fundamental driver is the demand for that marketing technology demand for kind of delivering that data and that underwriting decision.

Increasingly at the at the point of sale is what will continue to drive the growth in that business as the industry moves to deliver on that digital experience that Mark described.

Clear and comprehensive thank you Bob.

Yes.

And the next question is from Andrew Nicholas with William Blair. Your line is open.

Hi, Good morning, Thanks for taking my question I just wanted to circle back on your answer to an earlier question about transaction revenue it sounds like.

The vast majority of transaction revenue you would expect to kind of normalize to a higher rate over time, but there are some secular structural challenges in workers' comp and maybe some of the other pieces of that business. So my question is.

Expectation for transaction revenue within insurance to ultimately arrive at 7% plus kind of growth target that you have for the full business over time or should we kind of think of achievement of that objective as being <unk>.

Driven more by the subscription revenue.

And transaction at some level below that.

Andrew Thank you for the thank you for the question and the opportunity to address that I want to be very clear when we we believe that the transaction revenue over time.

That is at least at the 7% and actually historically has contributed a higher level of growth and reflects a lot of ways the applications of.

Of new data and new technology that is expressed at the initial stage and in transaction related activity that generates revenue for us. So I think what we are experiencing right now.

Are the impacts of a bit of the overhang of the pandemic more people working from home as Mark described with workers comp impact on on auto and the macroeconomic environment, but we maintain.

<unk> confidence that the transactional driven businesses overtime and on a normalized basis will be additive to our overall growth rate and can certainly exceed our 7% long term target say maybe.

Summarizing that we are taking share across all of this so when volumes return we are taking share and that will be reflected in transactions.

That'd be helpful. Thank you.

The next question is from Andrew Steinman with J P. Morgan. Your line is open hi, I just wanted to ask if Directionally you expect your energy and specialized markets business to accelerate in the second half of the year. Lee you did point out like you see on slide six that.

Non subs business in energy and specialized was down because of consulting constraints do you expect those constraints to resolve themselves or is that going to be with us near term and then you mentioned solid growth in a C. V. I would think some solid growth in HCV would translate into stronger growth in <unk>.

Descriptions for energy and specialized.

Yes, Andrew Thank you for the very clear question and so.

Deal with it in the in the two two parts I think the.

The conclusion that you that you do or the logic that you described is consistent that we see with the ACB growth and the layering on of additional contracts, where we have been able to.

Price the.

The research product as a function of the value our clients see and plans on that that should continue to have a positive impact on the overall growth rate and so we do anticipate momentum on that on that front over the over the balance of the year the more difficult element to estimate is just the consulting side.

And so I think that is is one where in this in this competitive market we do face.

A challenging in getting.

The level of resources that we think fully address the demand. So I would say I think we believe that that's the that's the case for the research business on the consulting side, it's a little bit more difficult and I would say conservatively that we probably wouldn't anticipate at this point.

A material change on the on the consulting front.

Are you.

The next question is from Hamzah, Missouri with Jefferies. Your line is open.

Hi, This is Hans Hoffman filling in for Hamzah. Thanks for taking my question could you just walk us through how you're thinking about further M&A and where the focus is there and then sort of what the pipeline looks like.

Certainly so and thanks for the thanks for the question. So as you can imagine our primary focus at this at this stage is on the near term objectives of the energy separation analysis and project into the margin expansion opportunity.

And so that.

That is where most of our corporate resources, our focus from an M&A from an M&A standpoint, and then secondly, as we are taking this opportunity to evaluate where the business is where we want to take it what are other opportunities.

That we that we have in front of us and how we want to think about internal versus external investment that is occupying that of the next largest part of our time and as we define that certainly M&A will be a a part of how we think about deploying capital and creating value.

We have.

Demonstrated in areas, particularly on the insurance side, where we have a new dataset for a new technology I've asked with fast.

And with sequel, and with <unk>, we have the ability to materially accelerate revenue revenue growth within those businesses and integrating those with our data set so I want to I want to say that.

We are we will continue to look for opportunities, where we can materially improve the business and create value through strong returns on the invested capital.

That.

That will be our primary focus will be in the scale level, but I think you've seen but for the near term. We don't expect this high level of activity one thing that I want to emphasize that we are not looking at any new verticals.

Outside of outside of insurance and I think until we come to a resolution on the energy business, we're not looking at anything in the energy in the energy space. So that would be the direction that I that I provide to you.

Thanks.

Our final question today is from George Tong with Goldman Sachs. Your line is open.

Hi, Thanks, good morning.

We're committed to expand margins three to 500 bips off of our 50% to 51% baseline for an insurance only business I wanted to confirm that you can achieve those margin targets, regardless of the outcome of your energy strategic review and since you've taken a close look at costs in the insurance business as part of the strategic process. How likely are you able to also take up.

Medium term organic revenue growth for insurance beyond the historical 7% range.

Thank you for the question George I May have to ask you to repeat the rather extended second part of the question, Let me remind you of.

Georges as we said explicitly when we provided the guidance.

The margin improvement of 300 to 500 basis points was specifically associated with an insurance focused entity. So I'd just ask you to review that I think there is the answer to your question the determination of what we do with energy.

We will have we will have to evaluate.

<unk>.

That business has retained then there will be a different margin profile, we will still seek to achieve those cost savings.

Related to the insurance business overall and look toward margin expansion, but it.

Those savings were.

Clearly defined as specific to an insurance focused entity.

Can I ask you to.

We reiterate the second part of your question George.

Sure the second part of it since you've already taken a look at the insurance business from a cost perspective.

Have you also taken a.

<unk> to the business from a growth perspective in insurance, how likely are you able to take up the <unk>.

Medium term organic revenue growth for insurance beyond 7%.

So George we continue to maintain our long term targets for the overall business. We've said repeatedly in the past passed that 7% organic growth as our as our target we've demonstrated a consistent ability to achieve that.

We're not at the stage, where we're changing our long term guidance for the business. Obviously, we have an ongoing objective too to exceed that growth rate in our compensation systems are tied to overachieve against that goal.

Got it thank you.

We have no further questions at this time and this will conclude today's conference call. Thank you everyone for participating you may now disconnect.

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