Q3 2022 Verisk Analytics Inc Earnings Call

After today's prepared remarks, we will conduct a question and answer session, where we limit participants to one question. So that we can allow everyone to ask a question. We will have further instructions for you at that time.

Any remarks, and introductions I would like to turn the call over to Bruce head of Investor Relations Ms. Stacy ballpark with Barclays go ahead.

Thank you Savannah and good day, everyone. We appreciate you joining us today for a discussion of our third quarter 2020 to financial results on the call today are <unk> <unk>, Chief Executive Officer, Mark <unk>, President and Chief operating Officer, and Elizabeth <unk>, Chief Financial Officer.

The earnings release referenced on this call as well as our traditional quarterly earnings presentation and the associated 10-Q can be found in the investors section of our website <unk> Dot com.

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 and by dial in.

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.

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 SEC filings.

Finally, I'd like to also remind everyone that the financial results for recent dispositions are included in our consolidated GAAP results.

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 our CEO with shingle. Thanks, Stacey and good day, everyone before I jump into the earnings results I want to officially welcome Elizabeth manned severest Elizabeth brings operational and corporate.

<unk> finance experience from her three years at S&P Global capital markets and strategic sophistication from our 12 years of investment banking experience at Goldman Sachs and finally, an impressive academic foundation and enthusiasm for mathematics that fits perfectly into our analytical culture. She is coming up the curve quickly and is already established.

Yourself as a valued part of the team.

I am pleased to share that we delivered on our stated intention to become a global insurance focused data analytics and technology company as we announced on Monday, we have signed a definitive agreement to sell wood Mackenzie to Veritas capital for $3 1 billion in cash consideration payable at closing.

Future additional contingent consideration of up to $200 million.

Our ability to achieve this result in the midst of a deteriorating deal environment speaks to the quality of the asset and the momentum of the business with.

Wood Mackenzie is the globally recognized leader in natural resources intelligence with in depth proprietary datasets and subject matter experts that cover the full energy and natural resource value chain.

Since we acquired wood Mackenzie in 2015, the business has increased revenue and EBITDA.

Integrated acquisitions developed new areas of growth in the energy transition chemicals, and metals and mining and most recently upgraded their client platform lens.

This has transformed wood Mackenzie from an advisory services business focused on transactional research and consulting to a data analytics business bolstered by long term subscription contracts, our leading brand and market position.

We have been honored to work with and support our friends and colleagues at wood Mackenzie and we wish them well and look forward to their continued growth and success under the proven leadership of Mark Brendan and Joe Lubec and their respected future owners Veritas capital.

The future for Wood Mackenzie is very bright and we look forward to having an ongoing productive relationship with them.

This transaction, which is expected to close in the first quarter of 2023 will best position Wood Mackenzie to fully capitalize on secular industry tailwind, including the energy transition and deliver on the growth opportunity that lies ahead.

The closing of this transaction is subject to customary closing conditions, including regulatory approvals going forward. The wood Mackenzie business will be reported as discontinued operations beginning with various <unk> fourth quarter earnings report and 10-K filing.

We plan to use the approximate $3 1 billion in proceeds primarily for share repurchases and debt paydown.

After accounting for share repurchase and debt pay down we expect this transaction to be modestly dilutive to <unk> earnings in the range of 4% to 6%.

Said over the longer term, we believe the deal will bring various the added benefit of.

Increased focus on our core insurance business.

More consistent growth in lines with our long term targets and improved return on capital, which would drive shareholder value.

Now, let me turn my attention to our third quarter earnings results various delivered solid third quarter results as we partner with our customers to help them navigate through environmental challenges in the marketplace, including inflation and elevated losses in certain lines of insurance.

Adjusted for the impact of the suspension of commercial operations in Russia, various delivered mid single digit organic constant currency revenue growth and margin expansion, resulting in organic constant currency adjusted EBITDA growth of 7%.

This performance reflects our focus on cost discipline operational efficiency and the early benefits of initial steps taken in previously announced margin improvement initiative.

Elizabeth will provide more detail in her financial review.

On our EBITA margin expansion objective, we continue to be confident in our ability to achieve our stated target to deliver 300 to 500 basis points of margin expansion by 2024 and.

In insurance only baseline of $50 to 51% normalized adjusted EBITA margins.

We have taken actions to enhance operating efficiency improved productivity and streamline processes.

During the quarter, we eliminated certain roles across the organization Sunset legacy products and reduced office square footage.

Additionally, we entered into an agreement to sublease, our data center to a third party as we move more of our computing infrastructure to the cloud.

Delivering long term savings for very risk.

We have also advanced on our future of data collection project, where we are improving the efficiency and productivity of our field force, which not only saves money, but enhances our solutions.

We expect that over the next two years about half of our identified cost savings will come from head count actions about 25% from reductions in spending from infrastructure and about 25% from third party spending including real estate.

To date, we have made decisions and taken actions to address more than half of the cost savings we are targeting.

Turning to our customers our insurance customers continued to be generally healthy but are <unk>.

Dealing with the crosscurrents of inflation and increase in loss ratios, which are negatively impacting profitability across the industry.

This is having a disproportionate impact in personal lines ensure tech companies in certain geographic markets, while insurers are increasing rates to help cover inflation in repair costs. It takes time to get rates approved by the regulators and then implemented across the entire book of business.

To date premium growth has not yet caught up to loss costs, specifically in personal auto we continue to see pressure on underwriting activity across the industry has insurance providers are holding back on writing new business. In fact combined ratios across the industry continue to trend lower and as a result insurers are cut.

Back on marketing spend as a way to protect profitability.

The net result is lower transactional revenues for various across both our personal lines and auto underwriting solutions as well as certain of our marketing solutions. We believe this is a cyclical issue and will abate over time.

As we noted last quarter, Florida is a trouble spot for the insurance industry and the losses from Hurricane <unk> add complication, we are experiencing an increasing level of insolvencies across the market with four companies liquidating just this quarter, while other carriers are electing to exit the market entirely.

This has had a negative impact on both our subscription and transactional revenues to address these issues and drive future growth. Our sales teams are engaged with the new entrants into the market as well as expanding our relationship with the state backed insurer to help price and select risk.

We are also working with our existing customers to help them understand the impact of inflation across their book of business and to help them price the risks accordingly as policies come up for renewal.

Apart from the near term challenges, we continue to believe that the opportunity for <unk> to address the long term strategic and operating needs of the insurance industry remains substantial.

My many conversations with insurance Ceos. They are consistently encouraged us to develop a more strategic dialogue and how we can help the industry address technology regulatory and operating issues, leveraging our unique and legacy position as an effective utility for the industry.

To that objective, we've been coordinating a series of CEO and CIO round tables to develop solutions that can improve industry operating efficiency and capital efficiency as well as productivity.

While these initiatives will take time to develop and implement they represent a substantial incremental opportunity for various.

We're very excited about the opportunity to engage with the industry at the strategic level and broadened our technology partnership with them.

In recognition of our commitment to innovate on behalf of clients various was recognized by Celent as a luminary for developing innovative solutions that help property casualty and life insurers detect claims fraud.

Our solutions were recognized for highly advanced functionality and ability to integrate with third party data driving faster outcomes and a more accurate claims experience.

Similarly, we are committed to creating value for our employees, which includes providing an exceptional workplace and we were awarded the great place to work designation. This year in the U S U K, India, Spain, and New York.

We were also recognized as a great place to work for women in the U K.

In today's rapidly evolving workplace, we are focused on talent attraction development and retention by supporting our teammates passion and having a purpose driven culture that allows unlimited success.

Finally, as a demonstration of our commitment to ESG priorities virus has been ranked third out of 100 best ESG companies in 2022 by Investor's business Daily <unk>.

<unk> recognized companies with superior environmental social and governance ratings. In addition to fundamental and technical stock performance. We are honored to receive this recognition for our commitment to sustainability and the ability of our strong and growing business to meet customer and investor expectations.

As we move forward I am more confident than ever that with our proprietary datasets talented and dedicated people deep industry knowledge and technical expertise.

<unk> is best positioned to create value for our customers by helping them evolve in a new digital environment integrate rapidly growing data sets and achieve new levels of efficiency. This in turn will create value for our employees and shareholders.

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

I'm pleased to share that the insurance segment delivered another solid quarter in insurance, we are experiencing strong growth in subscription revenues across both underwriting and claims.

Resulting in OCC subscription growth of six 1%.

Second of all.

We've been underwriting we had strong results from core underwriting extreme event solutions and our international businesses.

We also had healthy contribution double digit growth achieved at certain of our newly acquired businesses, including life insurance and specialty business software solutions.

Thanks, Cam event solutions had a strong quarter.

Driven by the addition of new customers to our core touched on platform.

Well as the expansion of multiyear deals with existing customers.

In an environment of rising inflation insurers and reinsurers are challenged to keep up with the growth in their exposures.

Help our customers understand the risk.

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Third slope exposures, we recently released our 2022.

The model test losses reported.

Detailed key global financial loss metrics based on our latest suite of <unk>.

Strophe models.

Additionally, we are supporting insurers with a broad array of property solutions. So that they can ensure they're keeping up with the impacts of inflation and have a more informed view of risk.

Voters.

Our sustainability country risk business also had a very strong quarter as demand for our risk indices, both corporate and investor segments continued to drive strong double digit growth.

We're also beginning to get traction with the expansion of our sustainability offerings into the shops.

Within life insurance, we're delivering strong double digit growth with the addition of new customers as well as the expansion of our relationships with existing customers.

Our low code no code technology is leading the industry's monetization by helping carriers efficiencies improved profitability at scale with a simpler technology ecosystem faster time for implementation.

We continue to be excited about the growth potential for our life business and our success here serves as a great blueprint for our ability to drive growth and value creation with the extension of two large addressable adjacent markets.

<unk> transactional revenues grew a more modest one 8%. This quarter's transactional revenues were negatively impacted by lower level of storm activity versus the prior year when hurricane either made landfall.

Louisiana as well as the environmental impact of softer results in our personal auto underwriting and marketing businesses.

We do expect to see some benefit in the fourth quarter from Hurricane claims, but we caution that some of this can be offset by more liquidations or insolvencies within Florida insurance market.

Additionally, we expect the environment headwinds in personal auto and marketing to persist.

In our effort to advance the dialogue and our work on ethical AI algorithm. Dennis we recent coordinated and sponsor insurance transform will be presented on social fairness pricing and underwriting for insurance, let's say preliminary studies focused on personal auto rate, making.

During the conference, we engage with consumer advocates insurance regulators.

Want to ensure that we're at the forefront with conversation on this very topic.

The insurance industry is inherently tried to differentiate selecting and pricing risks, but our goal is to ensure that there is no fair unfair dissemination.

And our customer conversations we hear that they need help to become more automated more digitally engaged and more connected.

Speaker 1: Additionally, we expect the environmental headwinds in personal auto and marketing to persist. In our effort to advance the dialogue and our work on ethical AI and algorithmic fairness, we recently coordinated and sponsored the insurance fairness form where we presented on social fairness in pricing and underwriting for insurance. With a preliminary study focused on personal auto rate making. During the conference, we engaged with consumer advocates, insurance regulators, as we want to ensure that we're at the forefront of the conversation on this very important topic. The insurance industry is inherently trying to differentiate selecting and pricing risks. But our goal is to ensure that there is no fair, unfair discrimination. In our customer conversations, we hear that they need help to become more automated, more digitally engaged, and more connected. The insurance industry is directing their spending towards these projects and in turn to Verisk, the key ecosystem partner to drive these initiatives forward, which has been a key driver of growth for us. The industry continues to look to us to innovate and respond to recent industry events with leading edge solutions. For example, our Verisk teams responded to Hurricane Ian by helping clients track damage, dispatch adjusters and staff, estimate the cost to repair the damage, and speed the claims process to get properties repaired and safely return families to their homes. Our catastrophe loss estimate of $42 to $57 billion was an early and accurate estimate of insured losses related to Hurricane Ian, allowing insurers and re-insurers to understand the impact on their portfolios. In California, insurers face new regulatory measures to address rating property coverage, wildfire prone areas. Verisk is helping our customers comply with these new regulations.

<unk> industry is directing their spending towards these projects and in turn to <unk>.

Key ecosystem partner to drive these initiatives forward, which has been a key driver of growth for us.

The industry continues to look to us to innovate in response to recent industry events with leading edge solutions.

For example, our bare 16th responded hurricane and by helping clients track damage dispatch adjusters and staff.

Estimate the cost to repair the damage and speed the claims process to get properties repaired and safely returning families in their homes.

Our catastrophe loss estimate of $42 billion to $57 billion was early accurate estimate of insured losses related to hurricane, Ian allowing insurers and reinsurers to understand the impact on their portfolios.

And California insurers face new regulatory measures to address rating property coverage.

I'll fire prone areas.

Barrick is helping our customers comply with these new regulations.

We continue to help our customers select and price risk and root out fraud with our advanced data analytics and believe that we are well positioned to continue to grow as we advance our initiatives become the trusted technology partner for the industry.

Now, let me turn the call over to our new CFO Elizabeth Management Financial review.

Thanks, Mark and good morning to all of you here on the call and so happy to be here at Merit and speaking to you today.

I have admired the company and its phenomenal insurance business for over a decade as I worked in the information services sector and now is a particularly exciting time to join as we have an opportunity to redefine our strategy as a global insurance focused data analytics and technology company.

We can now focus our capital and all of our industry knowledge to support the needs of our customers as landmark have already highlighted.

Speaker 1: We continue to help our customers select and price risk and root out fraud with our advanced data analytics and believe that we are well positioned to continue to grow as we advance our mission to become the trusted technology partner for the industry. Now let me turn the call over to our new CFO , Elizabeth Mandel.

As I have joined Barrick over the last six weeks and I have been getting to know the people and digging into the business.

<unk> been focused on a few priorities.

The first is a focus on cost discipline and execution against the margin targets we have committed.

Speaker 2: Thanks Mark, and good morning to all of you here on the call. I'm so happy to be here at Verisk and speaking to you today. I have admired the company and its phenomenal insurance business for over a decade as I worked in the information services sector. And now is a particularly exciting time to join as we have an opportunity to redefine our strategy as a global insurance focused data analytics and technology company. We can now focus our capital and all of our industry knowledge to support the needs of our

Second lien has established a framework for capital allocation and ROIC metrics, which I intend to continue.

The resulting transparency and accountability on our deployment of capital will support our ability to invest with confidence to drive topline growth and strong return.

Third I will prioritize investor engagement gathering feedback and providing transparency into the business. So I look forward to getting out on the road and meeting all of you.

Let me now turn to our third quarter results.

Before I begin I want to remind everyone that all consolidated in GAAP numbers are negatively impacted by the recent disposition of three E Zurich financial services.

This effect will continue through the first quarter of 2023, when we will anniversary those transaction.

Speaker 2: tend to continue.

As noted due to its materiality wood Mackenzie will be accounted for as discontinued operations beginning in the fourth quarter of 2022.

Speaker 2: The resulting transparency and accountability on our deployment of capital will support our ability to invest with confidence to drive top-line growth and strong returns.

Speaker 2: Third, I will prioritize investor engagement, gathering feedback, and providing transparency into the business. So I look forward to getting out on the road and meeting all of you.

For the third quarter of 2020 detail on a consolidated and GAAP basis revenue was $745 million.

A modest decline from the prior year, reflecting the impact of recent dispositions and foreign currency exchange rate headwinds, which are most pronounced in our energy segment.

Speaker 2: Let me now turn to our third quarter results.

Speaker 2: Before I begin, I want to remind everyone that all consolidated and GAAP numbers are negatively impacted by the recent disposition of 3E and Verisk Financial Services.

That in part by acquisition.

Net income attributable to Barrick decreased 6% to $189 million.

Speaker 2: This effect will continue through the first quarter of 2023, when we will anniversary those transactions. This effect will continue through the first quarter of 2023, when we will anniversary

While diluted GAAP earnings per share attributable to Barrett decreased 3% to $1 25.

Speaker 2: As noted, due to its materiality, Wood-McKenzie will be accounted for as discontinued operations, beginning in the fourth quarter of 2022.

The decline was primarily due to the disposition within the former energy and specialized markets and.

Financial services segment <unk>.

Including the loss incurred as part of the true up of the closing adjustments.

Speaker 2: For the third quarter of 2022, on a consolidated and GAAP basis, revenue was $745 million, a modest decline from the prior year, reflecting the impact of recent dispositions and foreign currency exchange rate headwinds, which are most pronounced in our energy segment.

Yeah.

Moving to our organic constant currency results adjusted for nonoperating items as defined in the non-GAAP financial measures section of our press release we.

We are pleased with our operating results.

Led by continued growth in our subscription revenue.

Speaker 2: offset in part by acquisition.

In the third quarter OCC revenues grew four 8% driven by continued strength in our insurance segment and continued sequential improvement in our energy segment.

Speaker 2: Net income attributable to Verisk decreased 6% to $189 million, while diluted GAAP earnings per share attributable to Verisk decreased 3% to $1.20.

Our subscription revenue increased five 6%, while our transactional revenues increased a more modest one 2%.

Speaker 2: The decline was primarily due to the disposition within the former energy and specialized markets and various financial services segments.

Adjusting for $3 $3 billion in prior year revenue associated with our energy business in Russia.

Speaker 2: including the loss incurred as part of the true up of the closing adjustments.

OCC revenue would have grown five 3% and subscription revenues would have grown six 2%.

Speaker 2: Moving to our organic constant currency results adjusted for non-operating items as defined

Consolidated OCC adjusted EBITDA growth was 6% in the third quarter.

Speaker 2: We are pleased with our operating results, led by continued growth in our subscription revenues.

Normalizing for the prior year revenue associated with our energy in Russia, and the incremental expenses associated with exiting that business OCC adjusted EBITDA growth was 7%.

Speaker 2: In the third quarter, OCC revenues grew 4.8%, driven by continued strength in our insurance segment and continued sequential improvement in our energy segment.

Total adjusted EBITDA margin, which includes both organic and inorganic result.

Speaker 2: Our subscription revenues increased 5.6%.

Was 51, 5%.

Speaker 2: while our transactional revenues increased a more modest 1.2%.

Up 160 basis points from the year prior.

Afflicting strong cost and operational discipline as well as the benefit from recent disposition.

Speaker 2: Adjusting for $3.3 million in prior year revenue associated with our energy business in Russia, OCC revenue would have grown 5.3 percent and subscription revenues would have grown 6.2 percent.

This level of margin include approximately 60 basis points of headwind from recent acquisition.

The basis points of headwind from our ongoing technological transformation, including cloud expenses, which we absorbed into our cost structure.

Speaker 2: Consolidated OCC adjusted EBITDA growth was 6% in the third quarter.

Speaker 2: Normalizing for the prior year revenue associated with our energy in Russia and the incremental expenses associated with exiting that business, OCC adjusted EBITDA growth was 7%.

And 40 basis points from higher year over year <unk> expenses.

Despite the environment and cyclical headwinds to margin. This quarter's margin expansion is further demonstration of our commitment to efficiency.

Speaker 2: Total adjusted EBITDA margin, which includes both organic and inorganic results, was 51.5%.

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

Speaker 2: up 160 basis points from the year prior, reflecting strong costs and operational discipline, as well as the benefit from recent disposition.

For insurance in the third quarter.

<unk> segment revenues increased five 3%.

We saw healthy growth in our industry standard insurance programs claims analytics extreme events life insurance and specialty business solution.

Speaker 2: This level of margin includes approximately 60 basis points of headwind from recent acquisitions.

Speaker 2: 50 basis points of headwind from our ongoing technological transformation including cloud expenses, which we absorbed into our cost structure, and 40 basis points from higher year-over-year T&E expenses.

Subscription revenues increased six 1%.

Reflecting tougher comparison versus last year's seven 9% growth.

As well as the impact of some of the environmental factors Lee and Mark spoke about earlier.

Speaker 2: Despite the environment and cyclical headwinds to margins, this quarter's margin expansion is further demonstration of our commitment to efficiency.

Transactional revenues increased one 8% in the quarter, reflecting a lower level of storm activity in the quarter as well as continued softness from personal auto underwriting and marketing.

Speaker 2: On that note, let's turn to our segment results on an OCC basis.

This was offset in part by strong recovery growth in international travel insurance solution.

Speaker 2: For insurance, in the third quarter, insurance segment revenues increased 5.3%.

Within workers' compensation.

Speaker 2: We saw healthy growth in our industry standard insurance programs, claims analytics, extreme events, life insurance, and specialty business solutions.

We have seen a return to modest growth the business is not yet back to pre pandemic levels.

Adjusted EBITDA grew six 9% in the third quarter, while margins declined 70 basis points to 55, 2%.

Speaker 2: Subscription revenues increased 6.1%.

Speaker 2: Reflecting tougher comparisons versus last year's 7.9 percent growth, as well as the impact of some of the environmental factors Leigh and Mark spoke about earlier.

These margins reflect a heavier burden from the corporate costs that were previously allocated to businesses that have been disposed.

Speaker 2: Transactional revenues increased 1.8% in the quarter, reflecting a lower level of storm activity in the quarter, as well as continued softness from personal auto underwriting and marketing.

As well as the impact of recently acquired businesses higher cloud expenses and the partial normalization of travel expenses back into the business.

This level of margin also includes continued investment in our high growth areas like life insurance and specialty business solutions.

Speaker 2: This was offset in part by strong recovery growth in international travel insurance solutions.

And the impact of recently acquired businesses.

Speaker 2: Within workers compensation.

Speaker 2: We have seen a return to modest growth, so the business is not yet back to pre-pandemic levels.

Energy and specialized market.

Revenue increased two 5% in the third quarter.

Speaker 2: Adjusted EBITDA grew 6.9% in the third quarter, while margins declined 70 basis points to 55.2%.

Normalizing for the impact of our exit from Russia energy revenue growth was five 2%.

Our subscription revenue increased three 5% or six 8% normalizing for the Russian exit.

Speaker 2: These margins reflect a heavier burden.

Speaker 2: from the corporate costs that were previously allocated to businesses that have been disposed.

Led by double digit growth in energy transition chemical and metals and mining research coupled with modest growth in our core research subscription.

Speaker 2: as well as the impact of recently acquired businesses.

Speaker 2: higher cloud expenses, and the partial normalization of travel expenses back into the business.

Additionally, we continue to experience strong adoption in contract expansion from our lens renewals.

Speaker 2: This level of margin also includes continued investment in our high growth areas like life insurance and specialty business solutions.

Transactional revenue decreased one 8% as growth was constrained by consulting resources.

Speaker 2: and the impact of recently acquired businesses.

Speaker 2: Energy and specialized markets.

Adjusted EBITDA decreased <unk>, 2% in the third quarter at margins contracted 210 basis points to 34, 4%.

Speaker 2: Revenue increased 2.5% in the third quarter.

Speaker 2: Normalizing for the impact of our exit from Russia, energy revenue growth was 5.2%.

These adjusted EBITDA and adjusted EBITDA margin figures include $2 million in incremental expense related to the suspension of operations in Russia normalizing for that impact adjusted EBITDA growth would have been seven 8%.

Speaker 2: Our subscription revenues increased 3.5%, or 6.8% normalizing for the Russian exit.

Speaker 2: led by double-digit growth in energy transition, chemicals, and metals and mining research, coupled with modest growth in our core research subscriptions.

On taxes, our reported effective tax rate was 22, 7% compared to 29% in the prior year quarter.

Speaker 2: Additionally, we continue to experience strong adoption and contract expansion from our LENs renewals.

It's higher year over year tax rate was the result of lower level of stock option activity versus the prior year.

Speaker 2: Transactional revenues decreased 1.8% as growth was constrained by consulting resources.

Looking ahead to the remainder of 2022, we expect the tax rate in the fourth quarter to be approximately 24% to 26%, reflecting the impact of discontinued operations as well as a lower than originally expected level of stock option activity.

Speaker 2: Adjusted EBITDA decreased 0.2% in the third quarter, and margins contracted 210 basis points to 34.4%.

Speaker 2: These adjusted EBITDA and adjusted EBITDA margin figures include $0.2 million in incremental expense related to the suspension of operations in Russia. Normalizing for that impact, adjusted EBITDA growth would have been 7.8%.

On adjusted net income and diluted adjusted EPS.

Adjusted net income decreased one 9% to $230 million and diluted adjusted EPS increased one 4% to $1 46 for the third quarter of 2022.

Speaker 2: On taxes, our reported effective tax rate was 22.7 percent compared to 20.9 percent in the prior year quarter.

These changes reflect organic growth in the business contribution from acquisition and a lower average share count.

Speaker 2: This higher year-over-year tax rate was the result of lower level of stock option activity versus the prior year.

Offset in part by the impact of divestitures and the higher interest expense and tax rates.

Speaker 2: Looking ahead to the remainder of 2022,

Speaker 2: We expect the tax rate in the fourth quarter to be approximately 24 to 26 percent.

For free cash flow net.

Net cash provided by operating activities was $280 million for the quarter down one 8% from the prior year period due to the loss of operating cash flows related to the disposition.

Speaker 2: reflecting the impact of discontinued operations as well as a lower than originally expected level of soft option activity.

Speaker 2: On adjusted net income and diluted adjusted EPS,

Normalizing for the impact of the <unk> and various financial services dispositions free cash flow would have been up seven 5%.

Speaker 2: Adjusted net income decreased 1.9% to $230 million, and diluted adjusted EPS increased 1.4% to $146 for the third quarter of 2022.

Capital expenditures were $66 million for the quarter up 7% versus last year.

Speaker 2: These changes reflect organic growth in the business, contribution from acquisitions, and a lower average share count.

Selecting increases in capitalized software development offset in part by savings on third party hardware and software as we move to the cloud.

Speaker 2: offset in part by the impact of divestitures at a higher interest expense and tax rate.

We now expect capital expenditures for the full year to be within the range of $270 million to $280 million.

Speaker 2: For free cash flow,

Speaker 2: Net cash provided by operating activities was $280 million for the quarter, down 1.8 percent from the prior year period due to the loss of operating cash flows related to the disposition.

This range supports our plans to increase our software investment into core underwriting, where we believe there is a significant opportunity for platform enhancement.

In addition, we now expect fixed asset depreciation and amortization to be within the range of $195 million to $205 million and intangible amortization should be approximately $145 million for the full year 2022.

Speaker 2: Normalizing for the impact of the 3E and Verisk Financial Services dispositions, free cash flow would have been up 7.5 percent.

Speaker 2: Capital expenditures were $66 million for the quarter, up 7% 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.

Both depreciation and amortization elements are subject to foreign currency variability the timing of purchases the completion of project and future M&A activity.

Speaker 2: We now expect capital expenditures for the full year to be within the range of $270 to $280 million.

On capital return.

In the third quarter, we returned $349 million in capital to shareholders.

Speaker 2: This range supports our plans to increase our software investment into core underwriting, where we believe there is a significant opportunity for platform enhancement.

Share repurchases and dividends as our strong cash flow allows us to consistently return capital to shareholders. While also investing in the business.

Speaker 2: In addition, we now expect fixed asset depreciation and amortization to be within the range of $195 to $205 million, and intangible amortization should be approximately $145 million for the full year 2022.

Additionally in October of 2002, we entered into a new $100 million accelerated share repurchase agreement to be completed in the fourth quarter as is our normal practice.

Looking ahead, we plan to optimize the use of proceeds from the sale of wood Mackenzie, while also maintaining our leverage range. We will achieve this through a combination of debt pay down and share repurchases and May Act opportunistically from a timing standpoint.

Speaker 2: Both depreciation and amortization elements are subject to foreign currency variability, the timing of purchases, the completion of projects, and future M&A activity.

Speaker 2: on capital returns.

Before I turn the call back over to Lee I, just want to remind everyone that we will be hosting an investor day in March where we will provide more transparency and clarity on our strategic and financial profile and growth drivers of the global insurance focused data analytics and technology company.

Speaker 2: During the third quarter, we returned $349 million in capital to shareholders through share repurchases and dividends, as our strong cash flow allows us to consistently return capital to shareholders while also investing in the business.

Speaker 2: Additionally, in October of 2022, we entered into a new $100 million accelerated share repurchase agreement to be completed in the fourth quarter, as is our normal practice.

And now I will turn the call back over to Lee for some closing comments. Thanks Elizabeth.

In summary, our business is strong as evidenced by our organic constant currency EBITDA adjusted EBITDA growth of 7% and strong margin performance in the quarter.

Speaker 2: Looking ahead, we plan to optimize the use of proceeds from the sale of wood McKenzie while also maintaining our leverage range.

We are confident that we have the team in place to execute on our operational efficiency plans over the next two years and deliver on our margin expansion targets.

Speaker 2: We will achieve this through a combination of debt paydown and share repurchases and may act opportunistically from a timing standpoint.

Longer term, we continue to believe as well that the opportunity to create value for our customers and employees will drive value for our shareholders. 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 and with that I'll ask the operator to open up.

Speaker 2: Before I turn the call back over to Leigh, I just want to remind everyone that we will be hosting an investor day in March where we will provide more transparency and clarity on our strategic and financial profile and growth drivers as a global insurance-focused data analytics and technology company.

The line for questions.

Speaker 2: And now I will turn the call back over to Lee for some closing comments. Thanks, Elizabeth.

And if you would like to ask a question. Please signal by pressing star one and if you would like to remove yourself from the queue simply press star one again and with that we will take our first question from Ashish <unk> from RBC capital markets. Please go ahead.

Speaker 1: In summary, our business is strong as evidenced by our organic constant currency adjusted EBITDA growth of 7% and strong margin performance in the quarter.

Speaker 1: We are confident that we have the team in place to execute on our operational efficiency plans over the next two years and deliver on our margin expansion targets.

Congrats Elizabeth and look forward to working with you Lee Thanks for providing the details on the impact of the divestiture I was just wondering if you could provide some.

Speaker 1: Longer term, we continue to believe as well that the opportunity to create value for our customers and employees will drive value for our shareholders. We continue to appreciate the support and interest in Verisk. Given the large number of analysts we have covering us, we ask that you limit yourself to one question. And with that, I'll ask the operator to open the line for questions.

Your line is options.

Any color on if there is any tax leakage how does the tax increase for the remaining company trended costs.

Color on those trends would be helpful. Thank you.

Thank you thank you Ashish.

First let me say on the question on tax leakage.

Speaker 3: And if you would like to ask a question, please signal by pressing star one. And if you would like to remove yourself from the queue, simply press star one again. And with that, we will take our first question from Ashish Subhadra from RBC Capital Market. Please go ahead. And if you would like to ask a question, please signal by pressing star one.

The $3 1 billion in proceeds I think if your question is directed towards that we are not expecting any any significant tax tax leakage. There may be some upside for us on that modestly.

We think that we will be able to deploy.

Speaker 4: Congrats, Elizabeth, and look forward to working with you. Lee, thanks for providing the details on the impact of the divestiture. I was just wondering if you could provide some underlying assumptions, any color on tax, if there is any tax leakage, how does the tax increase for the remaining company, stranded cost, any color on those fronts will be helpful. Thank you.

The full amount of that in share repurchases and debt paydowns.

As it relates to the future on future tax rate, we have provided some guidance for the fourth quarter, but.

It's obviously a complex issue that we are working through in terms of the longer term impact it depends upon the composition of the business overall, and we would intend to provide more clarity for that.

Speaker 1: Thank you, Ashish. First, let me say on the question on tax leakage, the $3.1 billion in proceeds, I think if your question is directed towards that, we are not expecting any significant tax leakage. There may be some upside for us on that modestly, but we think that we will be able to deploy the full amount of that in share repurchases and debt paydowns.

As we look ahead I think it's fair to assume.

Of course kind of as is implicated in the fourth quarter and our effective tax rate will be higher but we'll try to provide more specific guidance as we sort that out.

And in the timeframe that we typically do with our fourth quarter earnings results.

That's very helpful.

Speaker 1: As it relates to the future tax rate, we have provided some guidance for the fourth quarter, but it's obviously a complex issue that we are working through in terms of the longer-term impact. It depends upon the composition of the business overall, and we would intend to provide more clarity for that as we look ahead. I think it's fair to assume, of course, kind of as implicated in the fourth quarter, that our effective tax rate will be higher, but we'll try to provide more clarity.

Our next question will come from Jeff Mueller with Baird.

Thank you. Thank you.

Mark maybe if you could just give a more holistic perspective on what the adjacent market opportunity is for you as you focus your efforts and capital insurance you talked about life.

We print for extension into adjacent markets and you talked about developing solutions.

Yeah.

It's an incremental opportunity for you coming out of the CEO and CIO Roundtables, but maybe you could give us more.

What's typically address just how you see addressable market our adjacent opportunities.

Sure. Thank you, Jeff I'm going to I'm going to take a first crack at it and then hand it over to Mark for his for his perspective, but one way that we're looking at this as we're looking at the totality of the insurance industry spend in aggregate.

Speaker 5: if you could just give a more holistic perspective on what the adjacent market opportunity is for you as you focus your efforts in capital on insurance. You talked about life being a blueprint for extension into adjacent markets, and you talked about developing solutions.

And that's.

A very substantial substantial.

A substantial number kind of a 100.

And.

Jeff.

Maybe rattling of paper there.

But we're looking at that aggregate amount and I guess, we've talked to investors previously when we look at the amount of revenue that various generates from the insurance industry relative to their operating costs is a 40% to 45 basis point amount.

Speaker 5: That's an incremental opportunity for you coming out of the CEO and CIO roundtables. But maybe if you could just more holistically address just how you see addressable market or adjacent opportunities.

And we think that there's a broader opportunity for us to address.

Speaker 1: Sure, thank you, Jeff. I'm going to take a first crack at it and then hand it over to Mark for his perspective. But one way that we're looking at this is we're looking at the totality of the insurance industry spend in aggregate and that's a very substantial substantial number in kind of a hundred. And this is and Jeff, I think you may be rattling a paper there.

Their marketing spend and finding efficiencies and finding solutions to drive productivity gains to find efficiencies on technology spend which are substantially larger opt.

Opportunities for for us relative to the scale of what we're of what we're doing so that will give you a sense of why we think thats a substantial opportunity and we've been engaged in addressing a lot of those with current initiatives that we look to expand on and I know Mark can certainly speak to some of the things that we've been doing on that front.

Speaker 1: But we're looking at that aggregate amount. And I think as we've talked to investors previously, when we look at the amount of revenue that Verisk generates from the insurance industry relative to their operating costs, it is a 40 to 45 basis point amount. And we think that there's a broader opportunity for us to address their marketing spend and finding efficiencies and finding solutions to drive productivity gains.

Super So maybe I'll try to give you three examples we talked about life.

But even within life, we have the ability to continue to extend into group life. We are focused today from a life insurance effective primarily United States. We can go international.

To you to the extent you're talking about other lines of insurance yoga lines of business related to life disability that is an opportunity for us we see opportunities to extend into pet insurance travel insurance. Those are some examples of like <unk>.

Customer sets that we don't operate it.

I'll make the obvious example, but I just do want to remind everybody thats from a marketing perspective that is a huge customer set the marketing department since ive ensures that we just never really dealt with before and now we have access to through some recent acquisitions and it really is forming the foundation of how we kind of go to market with some of our customers really helping them understand the best.

Speaker 1: examples we talked about life but even within life we have the ability to continue to extend into group life. We are focused today from a life insurance effective primarily in the United States we can go international. To the extent you think about other lines of insurance or other lines of business related to life you know you have disability that's an opportunity for us. We see opportunities to extend into.

Target markets.

<unk> price last but not least <unk>.

Throughout the themes here.

We can do more from a software and technology platform perspective, with our customers. We don't deal with the CIO has been the chief information officers inside of our major customers and we see ourselves as a technology play areas and strong partner to them. So hopefully that helps.

Speaker 1: pet insurance, travel insurance, those are some examples of like customer sets that we don't operate in. I'll make the obvious example, but I just do want to remind everybody that from a marketing perspective, that is a huge customer set. The marketing departments inside of insurers that we just never really dealt with before, and now we have access to through some recent acquisitions, and it really is forming the foundation of how we go to market with some of our customers, really helping them understand the best target markets, and where, and how to price.

Jonathan.

There are three dimensions, there that we're talking about one is a functional functional orientation and so that's mark speaking to the marketing opportunity, we see similar opportunities on the technology side, and then operationally there is the business line opportunity or dimension that we're looking at with travel Pat.

And other than other areas and then of course, there was the international where we feel as though the opportunity to bring some of that expertise, but all of those are create I think a bra.

Speaker 1: Last but not least, if I've heard it throughout the themes here, we think we can do more from a software and technology platform perspective with our customers. We don't deal with the CIOs being the chief and information officers inside of our major customers and we see ourselves as a technology player and a strong partner.

Rod envelope for us to look to expand on what we're doing.

Thank you Bob.

Our next question will come from Alex Kramm with UBS financial.

Go ahead.

Speaker 6: So hopefully it helps. And Jeff, I think you see there are three dimensions there that we're talking about. One is a functional orientation. And so, you know, that's Mark speaking to the marketing opportunity. We see similar opportunities on the technology side. And then operationally, there is the business line opportunity or dimension that we're looking at with travel, pet, and other areas. And then of course there is the international where we feel as though the opportunity to bring some of that expertise. All of those are create, I think, a...

Yes, good morning, everyone.

Maybe this is a quick follow up to Ashish question, but.

Since you didn't.

Didn't report this quarter's discontinued operation, but will next maybe you can give us the apples to apples EBITDA margin how it would have been if it would've been a discontinued operation already and if you can't answer that specifically.

Maybe maybe outline what the stranded or servicing costs related to woodmac will be and how they will fade away.

Over over time thanks.

Yes, Alex Thanks for the question, we're not at a point, where we have broken through both the combination of the adjustments that we're making in the overhead costs.

Or the overhead the overhead allocation.

I think that is something that we'll look to provide more.

Input on as we as we move ahead.

Probably with the fourth quarter earnings, where we'll have that discontinued operations. Our focus has been on getting the transaction done as you can imagine that has been I think.

A pretty solid accomplishment in a difficult market.

Speaker 7: detail margin, how it would have been if it would have been a discontinued operation already. And if you can add into that specifically, maybe outline what the stranded or servicing costs related to WoodMac will be and how they will fade away over time. Thanks!

It will take time for us to sort through the accounting consequences now that we understand that there are a lot of transitional elements that we need to take into account. So it's not a simple exercise.

Understood. Thanks.

Speaker 6: Yeah, Alex, thanks for the question. We're not at the point where we have broken through both the combination of the adjustments that we're making in the overhead costs or the overhead allocation. So I think that is something that we'll look to provide more input on as we move ahead, probably with the fourth quarter earnings where we'll have that discontinued operations. Our focus has been on getting the transaction done. As you can imagine, that has been, I think, a pretty solid accomplishment in a difficult market.

And our next question will come from Toni Kaplan with Morgan Stanley .

Please go ahead. Thank you thanks.

Thanks very much.

I wanted to ask about your pricing how that's looking for 2003 I know you mentioned the insurers currently trying to put through sizable rate increases to cover inflation I guess will you be able to benefit from that by being able to increase your subscription prices. How should we think about the magnitude of price increases next.

Year versus 22 or versus a normal year. However, you want to break that out thanks.

Speaker 6: will take time for us to sort through the accounting consequences now that we understand that. And there are a lot of transitional elements that we need to take into account. So it's not a simple exercise.

Yeah. Thank you Toni I. Appreciate this is Marc let me first remind.

Everybody, we do have some connectivity of pricing premium volumes utility of our products are seen and demonstrated through the premiums that right. So.

Speaker 8: Understood. Thanks.

Speaker 9: Our next question will come from Tony Kaplan with Morgan Family. Please go ahead. Thank you. Thanks very much. I wanted to ask about your pricing, how that's looking for 23. I know you mentioned the insurers currently trying to put through sizable rate increases to cover inflation. I guess, will you be able to benefit from that by being able to increase your subscription prices? How should we think about the magnitude of price increases next year?

You said that it's a harder market or meaning prices going up and theres more premium we will see that on a little bit of a lag effect.

To your more directed short term I think what we're trying to do is really balance.

The opportunity to hopefully.

Take a little bit more price only because like everybody. We're encouraged some more costs around labor and other inflationary type of expense.

But at the same time, we're here for the long term and what we're trying to do is make sure that we are able to sell new products, new solutions to customers and not because any short term angst degrees with regard to pricing today.

Speaker 9: versus 22 or versus a normal year, however you want to break that out. Thanks.

Speaker 1: Thank you, Tony. I appreciate this is Mark. Let me first remind everybody, we do have some connectivity of pricing to premium volumes. The utility of our products are seen and demonstrated through the premiums they write. To the extent that it's a harder market or meaning prices going up and there's more premium, we will see that on a little bit of a lag effect.

Thanks, a lot.

Our next question will come from Manav Patnaik from Barclays.

Please go ahead. Thank you.

Thank you.

You disclosed that.

Speaker 1: to your more directed short-term, I think what we're trying to do is really balance.

On a global insurance inflation pressures I guess in a more specific.

Speaker 1: the opportunity to hopefully take a little bit more price only because like everybody we're incurring some more costs around labor and other inflationary type of expense. But at the same time, we're in it for the long term. And what we're trying to do is make sure that we are able to sell new products, new solutions to customers and not cause any short term angster grief with regard to pricing today.

Florida issues as well.

Is there any way to quantify how much each of that impact.

Growth and how long should those headwinds continue.

Okay.

Thank you Manav. So these are there are a variety of factors some of which are difficult to kind of fully fully separate I'm going to ask mark to kind of give his perspective.

On both.

Speaker 3: Thanks a lot. Our next question will come from Manav Patnik from Markley.

Both impact and sustainability of these of these.

FX that youre asking about.

So.

Quantifying it is difficult so I'm going to maybe qualify quantify I apologize.

Speaker 10: Please go ahead. Thank you.

Speaker 10: Thank you. You just called out kind of broader insurance and safety pressures, I guess, and then more specifically, the Florida issues as well. Is there any way to quantify how much each of that impacted the growth and how long should this headwind continue?

So inside the auto market. What we're seeing is just a general theme of people trying to write less business or quote Westlake business. They are waiting for their rate filings to be implemented and turn wait for higher prices are high premix before they right. So that seems like a depression that will occur.

Kurt and be soft I would guess probably for another six months or so into 2023, that's a cake.

Speaker 6: Thank you, Manav. So, these are a variety of factors, some of which are difficult to kind of fully separate. I'm going to ask Mark to kind of give his perspective on both impact and sustainability of these effects that you were asking about.

But at the same time it is something that cyclically will come and go so we'd expect it to rebound to.

Two floor.

Florida is clearly a challenge yes.

Speaker 1: So, quantifying is difficult, so I'm going to maybe qualify and kind of quantify. I apologize. So, inside the auto market, what we're saying is just a general theme of people trying to write less business or quote less new business. They are waiting for their rate filings to be implemented and to turn, wait for higher prices or high premiums before they write. So, that seems like a depression that will occur and be soft, I would guess probably for another six months or so into.

There has been an issue.

Our last resort basically rates there have been subsidized when people try to get into the market they've been hurt by large cap.

And inside of those new customers in those existing customers that are going out of business that does affect us.

It will be.

Let me say it this way that will be a little bit longer term ultimately.

New emerging insurers will rise.

Hopefully serve them, we are working with them now, but that will take time, so that rebound would probably.

Probably over the course of a year.

Year or more I would say in that regard I think the last comment that you were referring to or at least we were referring to is the workers' comp space.

We did see some growth.

This quarter at the same time the market is still depressed some of that is regulation I think have highlighted in the past.

Some of it I do believe it's just the fact that the work from home environment leads to fewer claims in the future. So I think we've started to.

Speaker 1: and those existing customers that are going out of business. That does affect us and will be, you know, let me say it this way, that'll be a little bit longer term. Ultimately, new emerging insurers will rise. We will hopefully serve them. We are working with them now, but that will take time. So that rebound would probably be a little bit longer term.

Anniversary the challenge.

It will start to rebound a bit.

I don't want to be optimistic, but I would assume that should occur in 'twenty three at some point.

I hope those are the three trends or themes that you were talking about.

Speaker 1: probably over the course of a year or more, I would say, in that regard. I think the last comment that you were referring to, or at least we were referring to, is the workers' cop space. We did see some growth this quarter. At the same time, the market is still depressed.

The other thing that.

Affected us a little timing was with storms, obviously either last year Ian.

And this year.

Both pretty big storms affected different quarters.

I would add one other dimension manav, which is I think that what we've seen is kind of fairly solid subscription growth I think that what you saw in 2022 was some some weakness on the transactional revenue growth and I think it will probably manifest itself. Some of these trends in in some sustaining of that weaker growth in into.

Speaker 1: Some of that is regulation I think I've highlighted in the past.

Speaker 1: Some of it, I do believe it's just the fact that the work from home environment leads to fewer claims in the future. So, I think we've started to anniversary the challenge. I think it will start to rebound a bit. I am.

<unk> 2023, if these dynamics have the impact that we've described but again also subject to variability on storm on strong levels, but hopefully that's helpful.

Speaker 1: I don't want to be optimistic, but I would assume that should occur in 23 at some point. I hope those are the three trends or themes that you were talking about. The other thing that

Yes, thank you very much.

Yeah.

Our next question will come from Andrew <unk> with Jpmorgan.

Speaker 1: Effectively, this little timing was with storms. Obviously, Ida last year, Ian this year, both pretty big storms affect the different quarters.

Hi, Hi, it's Andrew I am going to ask you about various ongoing organic revenue growth goal of 7% and my question is how long will it take various insurance to get there and what needs to happen.

Speaker 6: And I would add one other dimension, which is, I think that what we what we've seen is kind of fairly solid subscription growth. I think that what you saw in twenty, twenty two was some some weakness on the transactional revenue growth. And I think it will probably manifest itself some of these trends in in some sustaining of that weaker growth in into twenty, twenty three. If these dynamics have the impact that we've described. But again, also subject to variability on storm on storm levels, but hopefully that's helpful.

And what are your comments about Florida workers' comp.

Could you hold us back from getting there.

Thank you.

Thank you Andrew.

We certainly understand understand that.

First say reiterate.

Our confidence in that that long term target.

<unk> remains in place given what we see as the opportunities in front of US I think when you look at.

What we even achieved in 2021.

More challenging environment, where we had two quarters of organic revenue growth bump above 7% clearly demonstrates the ability of the insurance of our insurance business to achieve that we've had some.

Speaker 11: in and where your comments about Florida workers comp going to hold us back from getting there.

Weakness related to pandemic effects, such as lower driving activity.

Back on the workers comp and I think two of them.

Speaker 6: Thank you. Thank you, Andrew. So we certainly understand understand that I what I will first say reiterate that our, our confidence in that that long term target. It remains in place given what we see as the opportunities in front of us. I think when you look at what we even achieved in in twenty, twenty one in a more challenging environment where we had two quarters.

Mark's comments, we are seeing.

Some.

As a result of the economic environment, but we're also seeing recovery in some of the pandemic related effects and I think that biases us towards stronger performance ahead from a growth perspective, as we come out of some of the stronger elements. Some of the macroeconomics may persist, but I think we're seeing kind of more momentum towards that.

Towards that target ahead that would be the way I think about it both from a longer term perspective.

Speaker 6: of organic revenue growth above 7% clearly demonstrates the ability of the insurance of our insurance business to achieve that. We've had some weakness related to pandemic effects, such as lower driving activity impact on workers comp. And I think to Mark's comments, we are seeing some some weakness as a result of the economic environment. But we're also seeing recovery in some of the pandemic related effects.

We are still confident that we can deliver on that we have to work our way through I think the conflicting impacts of some recovery from pandemic impacts and then some of the more sustained macroeconomic which I think are of a lower magnitude than what we experienced through the pandemic got it. Thanks Lee.

Okay.

Our next question will come from Greg Peters with Raymond James.

Please go ahead.

Speaker 6: And I think that biases us towards stronger performance ahead from a growth perspective as we come out of some of those stronger elements. Some of the macroeconomics may persist, but I think we're seeing kind of more momentum towards that towards that target ahead. That would be the way I think about it both from a longer term perspective, which we are still confident that we can can deliver on that. We have to work our way through, I think, the conflicting impacts of some recovery from pandemic impacts and then some of the more sustained macro.

Yes, good morning, everyone I guess.

Ill step back and ask a bigger picture question I heard your comments about.

Talking with all your customers.

Trying to partner with them to help innovate et cetera, and that's going to require investment in your business and so I guess, what I'm getting at here is just to go back and sort of reset.

A recast the die and how youre going to balance the desire to improve margins and you're sending out some margin targets versus the need really to invest in your business in order to help your customers get.

The innovation, they're looking for.

Great. Thanks for the question and particularly I would particularly value your perspective of knowledge around the insurance industry, and so you're probably better off better understand better than better than most.

The challenges that the insurance industry is facing and so let me kind of break that up break that apart I think the opportunity to invest in these and these new opportunities.

Speaker 12: you know talking with all your customers and you know trying to partner with them to help innovate etc and that's going to require investment in your business and so I guess what I'm getting at here is just just to go back and sort of reset a recast to die in how you're going to balance the desire to improve margins and you're sending out some margin targets versus the need really to invest in your business in order to help your customers

<unk> generated both growth and very strong returns for the internal investments that we have made in a variety of areas and I would probably cite our lightspeed product, where we've been able to accelerate the delivery of quote to a bankable quote to the point of sale.

<unk> had a very strong economic growth for us and a very good return on return on capital. So we're looking for similar elements of two that we've been.

Speaker 12: get the innovation they're looking for.

Speaker 6: Great. Thanks for the question. And I particularly, I would particularly value your perspective and knowledge around the insurance industry. And so you probably better understand better than most the challenges that the insurance industry is facing. And so, you know, let me kind of break that up, break that apart. I think the opportunity to invest in these and these new opportunities have generated both growth and very strong returns for the internal investments that we have made in a

About our investment in the core lines re imagined initiative to migrate.

Migrate a lot of our data data and services into that new technology platform, which delivers substantially greater value for our clients on that on that front opening up I think new opportunities for growth and certainly a high a high return that we can generate on that so those three.

Third point that I would make is that on the margin.

<unk> target that has been focused on looking not at cutting investment within the business, but looking for areas of opportunity from an operational efficiency perspective within the within the business that I think it's been a very healthy exercise for us that we demonstrated progress against but it hasnt come at the cost of us.

Pursuing these these overall opportunities. So I think the fundamental concern is look we're hearing that there are a lot of opportunities to invest on how does that does that conflict with a margin objective.

Speaker 6: migrate a lot of our data data and services into that new technology platform, which delivers substantially greater value for our clients on that on that front opening up, I think, new opportunities for growth and certainly a high, a high return that we can generate on that. So those and the third point that I would make is that on the margin efficiency target that has been focused on looking at not at cutting investment within the business, but looking for areas of opportunity from an operational efficiency perspective.

I don't believe so I think that we can continue to make these investments we can deliver on the of the operational efficiencies within the business to drive that margin improvement and continue to generate very solid growth and.

Strong returns on capital.

Okay I appreciate the additional color.

Thanks, Craig.

Yeah.

Our next question will come from George Tong with Goldman Sachs.

Please go ahead hi.

Hi, Thanks, good morning.

With respect to the wood Mackenzie sale proceeds how are you thinking about splitting the $3 1 billion between debt Paydown and share repurchases do you have a target leverage multiple in mind for the Standalone insurance company.

Thank you George I'm going to hand that over to Elizabeth to address Yeah, Hey, George Thanks, Thanks for asking.

We like.

Speaker 6: operational efficiencies within the business to drive that margin improvement and continue to generate very solid growth and strong returns on capital.

Like we said, we're going to balance it between debt paydown and share repurchases.

We haven't established a precise number for that paid out.

Other than to say there is no change to our target leverage range of two to three times in order to maintain our investment grade rating within that we'll look to optimize over time kind of the best of the best balance of.

Speaker 8: I appreciate the additional color.

Speaker 8: Thanks Greg.

Speaker 3: Our next question will come from George Tong with Goldman Sachs.

Interest savings versus share repurchases.

Speaker 13: Please go ahead.

And either way that the majority of it the significant majority will be unfair share repurchase.

Speaker 8: Hi, thanks. Good morning. With respect to the Wood-Bakinsie sale proceeds, how are you thinking about splitting the $3.1 billion between that pay down and shared purchases? Do you have a target leverage multiple in mind for the standalone insurance company?

But either way sort of farther than where we ended up within that fairly small range will still be within the accretion dilution range that we quoted.

Speaker 2: Thank you, George. I'm going to hand that over to Elizabeth to address. Hey, George. Thanks for asking. Like we said, we're going to balance it between debt pay down and share repurchases. We haven't established a precise number for debt pay down, other than to state there's no change to our target leverage range of two to three times in order to maintain our investment grade rating. Within that, we'll look to optimize over time, kind of the best balance of interest savings versus share repurchase.

Very helpful. Thank you.

Okay.

Our next question will come from Andrew Jeffrey with true Securities.

Hi, Good morning, I appreciate you taking the question Mark I'm intrigued.

I hear you talk about some of these new markets, which which really would be.

Two extensions.

<unk> for various pet.

One I think that you mentioned.

I'm wondering if you have you think you have the data.

And the kind of digital customer facing solutions that you might need.

To expand into those markets or if you think youre going to need to add capabilities to to be able to penetrate those new markets and drive new revenue streams.

So Andrew.

Great question I appreciate that I think when we attack new markets. We typically go at it.

Speaker 3: Jeffrey with Truist Securities.

Speaker 14: Hi, good morning. I appreciate you taking the question. Mark, I'm intrigued.

The series that we can build some great models.

And then as data information starts to flow, we can improve those models. So tight as an example.

Speaker 14: But I hear you talk about some of these new markets, which really would be...

Speaker 14: True extensions for Verisk, you know, PET being one I think that you mentioned.

What we do with travel it's not that travel you would think like boy I missed my flight it's going to.

Speaker 14: I'm wondering if you think you have the data.

In short this is the type of travel that focuses on somebody who has a pre existent medical condition if to the extent that they are traveling how do they get the Wright medical.

Speaker 14: and the kind of digital customer facing solutions that you might need to expand into those markets, or if you think you're going to need to add capabilities to be able to penetrate those new markets and drive new revenue streams.

That is a modeled outcome that is kind of the data we have around it we can apply those type of models to pets.

Dogs cats more traditional pets in a way that we can understand how.

Speaker 1: So, Andrew, great question. I appreciate that. I think when we attack new markets, we typically go at it with the theory that we can build some great models and then as data information starts to flow, we can improve those models. So, PET is an example. What we do with travel, it's not the travel you would think like, boy, I miss my flight.

Health of the patent existing conditions.

Cause and will affect payout. So I hope that's just an example of ways. We can kind of adjust our models I think the digital engagement and the way we're going at those things are very.

Best in class and dairy digitally engaged so I think we're well positioned there.

We do not hold the same data advantage that we deal with some of the United States committed lines, but that doesn't cause us to shy away from and actually provides us with an opportunity to find a way to gather some information I hope that said sponsored.

Speaker 1: to be insured. This is the type of travel that focuses on somebody who has a pre-existing medical condition and to the extent that they're traveling, how do they get the right medical? So, that is a modeled outcome and that has kind of the data we have around it. We can apply those type of models to pets.

Yeah look forward to seeing your progress here.

Speaker 1: dogs, cats, more traditional pets in a way that we can understand how health of the pet and existing conditions cause and will affect payouts. So, I hope that's just an example of ways we can kind of adjust our models. I think the digital engagement and the way we've gone at those things are very best in class and very digitally engaged. So, I think we're well positioned there. We do not hold the same data advantage that we do in some of the United States' admitted lines.

And our next question will come.

Similar with BMO capital markets.

Please go ahead.

Thanks, so much that's close enough.

To go back to Manav question, where you parsed out some of the environmental impacts affecting the business I understand the impact on the non subscription revenue, but I was just curious on the subscription side in terms of the slowdown I know if you've got customers that go bankrupt, obviously, that's an impact but.

Why are we seeing the slowdown in subscription revenue and then is that something we should expect to continue.

Speaker 1: But that doesn't cause us to shy away from and actually provides us with an opportunity to find a way to gather some information. I hope that's responsive.

Yes.

One of the things I think we tried to do is sure that even though you would think of subscriptions is being this this wonderfully flat right from quarter to quarter, even inside of our subscription businesses. When we bring on new customers, where we have some anniversary of days there is a little bit of an up and down inside that so to the extent that you look at this year's.

Speaker 14: Yeah, look forward to seeing your progress here.

Speaker 3: And our next question will come from Jeff Sibler with CMO Capital Markets.

Speaker 15: Please go ahead.

Speaker 16: Thanks so much. That's close enough. I want to go back to Manav's question where you parsed out some of the environmental impacts affecting the business. I understand the impacts on the non-subscription revenue, but I would just career on the subscription side in terms of the slow down. I know if you've got customers that go bankrupt, obviously that's an impact, but why are we seeing the slow down in subscription revenue? If that's something we should expect to continue. Thanks.

Subscription for last year. So I think that's a good rule of thumb. If you look at it quarter by quarter. There is some up and downs.

I would not read anything into the subscription level growth in the quarter everything is very solid and everything is running as we would expect so I'll kind of reinforce please earlier comments about the subscription growth things being strong and we're optimistic.

Okay. Thank you.

Speaker 1: One of the things I think we tried to do is share that even though you would think of subscriptions as being this wonderfully flat ride from quarter to quarter, even inside of our subscription businesses when we bring on new customers or when we have some anniversary of dates, there is a little bit of an up and down inside that. So to the extent that you look at this year's

Okay.

And our next question will come from Pacer Ali with Deutsche Bank.

Please go ahead, Hey, guys, Tom Hi, Good morning, Thank you.

Wanted to focus a little bit more on the insurance specific margin.

Came in a lot better than what we had talked about because I think previously you had talked about those margins declining in line with.

Speaker 1: Subscriptions to last year's I think that's a good rule of thumb if you look at a quarter by quarter there's some up and downs. I would not read anything into the subscription level growth in the quarter. Everything is very solid and everything is running as we would expect so I will kind of reinforce these earlier comments about the subscription growth being strong and more optimistic.

Year to date that you have seen in the second quarter. So I'm curious what drove the upside I think it sounds like you've made some progress around your cost savings initiatives that you had talked about.

So maybe just address.

How much of how much that contributed to margins and how we should think about it in the fourth quarter and maybe Lee if you can talk about.

Speaker 17: Ok Thank you.

Speaker 3: And our next question will come from Paisa Alli with Deutsche Bank.

If you have confidence in those targets.

As you have done some work around them.

Speaker 18: Please go ahead. Yes, hi. Hi, good morning. Thank you. I wanted to focus a little bit more on the insurance specific margins, and I think those came in a lot better than what we had talked about, because I think previously you had talked about those margins declining in line with, you know, year to date that you had seen in the second quarter. So I'm curious what drove the upside. I think it sounds like you've made some progress around.

Yeah. Thanks, David Thanks for the question, let me comment a bit on the on the insurance only margin for Q3.

While it was a slight year over year decline I think we reminded you that that was offsetting some of the headwinds in the in the baseline that included the reallocation of corporate expenses from the divestitures.

It included the impact of recent acquisitions, which are themselves lower margin businesses and edited.

Speaker 18: you know, your cost savings initiatives that you had talked about. So maybe just address how much of how much that contributed to margins and how we should think about it in the fourth quarter. And maybe, Lee, if you can talk about, you know, if your confidence in those targets has improved as you've done some work around them.

Our investment in cloud and the return of <unk> expenses.

Offsetting those there is there is the natural kind of operating leverage in.

In the business and business growth.

Things kind of offset each other.

The one other thing I might call out in the quarter that it's also offsetting a slight decrease in the pension credit which happened at the corporate level and so the insurance business had a had its allocation of that that component of that that is expected to continue in the fourth quarter.

Speaker 2: Thanks, Fazza. Thanks for the question. Let me comment a bit on the insurance-only margin for Q3. While it was a slight year-over-year decline, I think we reminded you that that was offsetting some of the headwinds in the baseline that included the reallocation of corporate expenses from the divestitures. It included the impact of recent acquisitions, which are themselves lower-margin businesses and it...

More generally as we look ahead to the fourth quarter for insurance.

These headwinds will continue.

The impact may not be exactly linear quarter to quarter, so that that could move around.

Yes.

Elizabeth is describing.

Is that underneath the overall margin performance when you kind of strip away. The Reallocations. There is still a very strong operating leverage that is expressing itself.

In terms of looking at it before we look at kind of a non operational elements and so that's that's the core of the business and Thats, how we will drive EBITDA growth ahead of revenue growth on the second part of your question the confidence that we.

Speaker 2: of that component and that that is expected to continue in the fourth quarter.

We have on achieving our targets is driven by a very methodical process that we've gone through to identify all areas of potential savings that as we indicated on the call that we have identified and taken actions that address up over half.

Speaker 2: More generally, as we look ahead to the fourth quarter for insurance, these headwinds will continue. The impact may not be exactly linear quarter to quarter, so that could move around.

Speaker 6: What Elizabeth is describing, Fiza, is that underneath the overall margin performance, when you kind of strip away the reallocations, there is still a very strong operating leverage that is expressing itself in terms of looking at it before we look at kind of the non-operational elements. And so that's the core of the business and that's how we drive EBITDA growth ahead of revenue growth. On the second part of your question, the confidence that we have

Of that target at this point and we have line of sight on additional opportunities that will be although we will be pursuing over time part of these will be influenced by the trends the transitional demands of the separation of our businesses and so we have transition service obligations for those until.

Those businesses are separated that's a factor and we wanted to see how those those sorted out before we worked towards.

The further the additional decisions that we need to make to achieve that but we feel very confident in our ability to meet those expectations.

Great very helpful. Thank you both.

Our next question will come from Seth <unk> with Jefferies.

Please go ahead.

Speaker 6: over time. Part of these will be influenced by the trends, the transitional demands of the separation of our businesses. And so we have transition service obligations for those until those businesses are separated. That's a factor. And we wanted to see how those those sorted out before we worked towards the the further or the additional decisions that we need to make to achieve that. But we feel very

Hi, good morning.

To get a bit more color on just the international business, maybe some update on how it performed during the quarter and how your expectations going forward. Thank you.

Sure. Thank you Stephanie so I would start off by saying that our international businesses and obviously.

Going to presume that the question is directed to our insurance international businesses at Wood Mackenzie of course, as any international business, but we kind of covered that in the call, but on the on the insurance side.

A variety of businesses on the claims and on the underwriting side.

Most significantly our specialty business services or what was formerly known as sequel that addresses the Lloyd's nonstandard market with a workflow platform and management system for that market that continues to have great success in delivering a very compelling.

Speaker 3: during the quarter and kind of your expectations going forward. Thank you.

Solution, both on the front end of business.

Speaker 6: Sure, thank you, Stephanie. So I would start off by saying that our international businesses, and obviously I'm going to presume that the question is directed to our insurance international businesses. You know, Wood McKenzie, of course, is an international business, but we kind of covered that in the call. But on the insurance side, we have a variety of businesses on the claims and on the underwriting side probably most significantly are specialty business services or what was formerly known as SQL that addresses the

Business origination pricing and rating.

And then ultimately kind of the policy management side that.

As continue to drive double digit growth and we've seen similar performance from a lot of the other international businesses that we've had.

Ill turn it over to Mark for some additional color, perhaps on the businesses other than specialty business, but I think you had it right I think we are seeing growth there.

Success of our U S business, what I also like to highlight although not organic at this point.

The acquisition of after which is a business intelligence solution up in Canada.

A wonderful business very much aligned with what we do and the synergies that we anticipated are greater than we anticipated. So I think we're making great progress there and it's a really nice addition to that they are spending.

Okay.

Great. Thank you so much.

Our next question will come from Andrew Nicholas with William Blair.

Speaker 1: international businesses that we've had. I'll turn it over to Mark for some additional color, perhaps on the businesses other than specialty business. Well, I think you had it right. I think we are seeing growth there, which is in excess of our US business. What I also like to highlight, although not organic at this point, the acquisition of Opta, which is a business intelligence solution up in Canada, is a wonderful business, very much aligned with what we do, and the synergies that we anticipated,

Hi, Good morning, Thanks for taking my question I wanted to follow up on the end market health and insurance profitability pressures.

I understand that there are some environmental factors here that seem a bit more temporary auto market, Florida workers' comp, where like but are you seeing that leading to the.

The more core traditional conversations has there been any impact on the sales cycle in your P&C business or the pipeline just trying to understand if some of these these issues are truly concentrated in the items that you called out or if there is the risk of this being a bit more pervasive. Thank you.

Speaker 1: are greater than we anticipated. So I think we're making great progress there and it's a really nice addition to the Ferris family.

Speaker 19: Great. Thank you so much.

Speaker 3: Our next question will come from Andrew Nicholas with William Blair.

Yeah. Good question I mean, I think you've read it you've seen it I mean, the insurance industries like many under a little bit of pressure.

Speaker 16: Hi, good morning. Thanks for taking my question. I wanted to follow up on the end market health and the insurance profitability pressures. I understand that there are some environmental factors here that seem a bit more temporary, auto market, Florida, workers comp and the like, but are you seeing that?

Inflationary costs and inflation in general is causing pain to their bottom line.

In cat along with some other costs I mean.

Another big year, probably 100 billion of losses, so that creates stress and pressure on them to look at costs look at ways. They can be.

Speaker 16: lead into the more core traditional conversations? Has there been any impact on the sales cycle in your PNC business or the pipeline? Just trying to understand if some of these issues are truly concentrated in the items that you called out or if there is the risk of this being a bit more pervasive. Thank you.

More focused on underwriting discipline.

<unk>.

I would tell you that we have this wonderful business that continues to have a wonderful spot inside of their key decisions.

And we have not seen anybody trying to move away, but there is definitely pressure. There there is definitely people scrutinizing and repurchase and scrutinizing when and how they buy so we.

Speaker 1: Yeah, good question. I mean, I think you've read it. You've seen it. I mean, the insurance industry is, like many, under a little bit of pressure. Inflationary costs and inflation in general is causing pain to their bottom line.

We are seeing some of that.

We've highlighted some of the areas where it's been most.

Alright.

More on the transactional side.

Andrew I want to extend them on Mark's comment because that near term pressure that youre asking two specifically.

Speaker 1: the cat along with some other cats. I mean, another big year, probably 100 billion of losses. So that creates stress and pressure on them to look at costs, look at ways they can be more focused on underwriting and underwriting discipline. So there are ways your intent on promoting this business

It is part of what we're experiencing but it also creates that broader opportunity because that focus on how do we address though the impact of those inflationary costs not just on our.

Speaker 1: I would tell you that we have this wonderful business that continues to have a wonderful spot inside of their key decisions. And we have not seen anybody trying to move away, but there is definitely pressure there. There is definitely people scrutinizing every purchase and scrutinizing when and how they buy. So, we are seeing some of that and we've highlighted some of the areas where it's been most.

Our loss and loss adjustment expenses, but also on our operational efficiency and the inflation that we're experiencing that is driving a more robust dialogue around automation and how we can utilize data.

Select risk, how we can improve the processes by creating more connections through the ecosystem to handle a lot of the steps that are probably not as efficient as we could be so I think that while it is creating that some of that near term pressure. It is also bringing a greater urgency.

Speaker 6: more on the transactional side. And Andrew, I want to extend on Mark's comment because that near term pressure that you're asking to specifically is part of what we're experiencing, but it also creates that broader opportunity because that focus on how do we address the impact of those inflationary costs, not just on our loss and loss adjustment expenses, but also on our operational efficiency and the inflation that we're experiencing that is driving.

And focus as I described in the strategic orientation of our client Ceos around how do we solve industry problems that can create a lot of value and savings for them.

Makes sense thanks for the color.

And our final question will come from Heather <unk> with Bank of America.

Thanks for taking my question.

I'd love to get an update from you guys on your cloud transformation and how it's progressing.

And then just any color you can give on the implementation costs and then when you kind of expect to see some savings.

And what type of savings.

And then and then just with regard to your margin expansion goals does that incorporate the cost of implementation rolling off and those savings flowing through or is that.

Speaker 6: thrive in the strategic orientation of our client CEOs around how do we solve industry problems that can create a lot of value and savings for them.

Incremental to that target.

Speaker 17: Makes sense. Thanks for the call.

Thanks, Heather and I would so with regard to cloud transformation.

Speaker 3: And our final question will come from Heather Bolsky with Bank of America.

In prior calls.

<unk> <unk>.

Identified the fact that we're in kind of the the final year of that implementation and we have achieved this is a very important distinction we have achieved operating cash savings when you look at our at our incremental cloud expenses netted against the.

Speaker 2: Thank you for taking my question. I'd love to get an update from you guys on your cloud transformation and how it's progressing. And then just any color you can give on the implementation costs and then when you kind of expect to see some savings and what type of savings. And then just with regards to your margin expansion goals, does that incorporate the cost of implementation rolling off and those savings flowing through or is that...

What would have previously been capex expenditure.

In the business and so that's we believe that it is delivered real cash savings to us. However.

It is important to understand that that from an accounting standpoint from an EBITDA perspective means that we have added EBITDA expense to the.

To our P&L and so that has come on we have been able to adjust adjust that but we're effectively converting.

Depreciation and amortization to EBITDA expense, that's why you hear us talk about the headwinds from the cloud cloud implementation. We do think that that incremental cost is one that we are substantially substantially through.

Speaker 6: Our incremental cloud expenses netted against the what would have previously been CapEx expenditure in the in the business and so that we believe that it has delivered real cash savings to us. However it's important to understand that that from an accounting standpoint from an EBITDA perspective means that we have added EBITDA expense to the to our P n L And so that.

And in addition, we have been able to take out the opex expense through some of the outsourcing to that third party that we described earlier in the earlier in the call.

All of that is included in the in our overall margin improvement targets. So as we have realized those savings that is factored into the margin element, particularly the outsourcing of our of our legacy data centers.

<unk>.

I think that addresses the two parts of your question.

Thank you very much.

Okay.

And that will conclude today's earnings conference call. Thank you very much for participating and you may now disconnect.

Speaker 6: outsourcing to that third party that we described earlier in the call. All of that is included in our overall margin improvement targets. So, as we have realized those savings, that is factored into the margin element, particularly the outsourcing of our legacy data centers. I think that addresses the two parts of your question.

Speaker 19: Thank you very much.

Speaker 3: And that will conclude today's earnings conference call. Thank you very much for participating, and you may now disconnect.

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