Q4 2022 Verisk Analytics Inc Earnings Call
Speaker 1: I.
Speaker 2: Good morning everyone and welcome to the Verisk 4th quarter 2022 earning results conference call. This call is being recorded. Currently all participants are in a listen only mode. After today's prepared remarks we will conduct a question and answer session where we will limit participants to one question so that we can allow everyone to ask a question. We will further have instructions for you at that time.
Speaker 2: For opening remarks and introductions, I would now like to turn the call over to Barrick's Head of Investor Relations, Ms. Stacey Broadbar. Ms. Broadbar, you may go ahead. Thank you, Devin, and good day, everyone. We appreciate you joining us today for a discussion of our fourth quarter 2022 financial results. On the call today are Leigh Schabel, Barrick's President and Chief Executive Officer, and Elizabeth Mann.
Speaker 3: on our website and by dial-in. As set forth in more detail in today's earnings release, I will remind everyone today's call may include forward-looking statements about VAERS future performance, including those related to our financial guidance. Actual performance could differ materially from what is suggested by our comments today.
Speaker 3: Information about the factors that could affect future performance is contained in our recent filing.
Speaker 3: Finally, I'd like to remind everyone that the financial results for recent dispositions are included in our consolidated and GAAP results that were excluded from all organic constant currency growth figures. A reconciliation of reported and historic non-GAAP financial measures discussed on this call is provided in our AK and today's earnings presentation posted on the investor section of the
Speaker 3: that are excluded from projected non-GAAP-adjusted EBITDA and adjusted EBITDA margins, including, for example, tax consequences, acquisition-related costs, gain or loss from dispositions, and other nonrecurring expenses, the effect of which may be significant. And now, I would like to turn the call over to Leshay Ball. Leshay Ball is a non-GAAP-adjusted EBITDA.
Speaker 4: Good morning everyone and thank you Stacy and thanks to you all for participating today. We've really been looking forward to this call because it's our first opportunity to reintroduce VRISK in our new insurance focused configuration to discuss the momentum in the fourth quarter. And given all the structural changes, give you a forward view of our expected performance in twenty twenty three. We accomplished an extraordinary amount in twenty twenty two. So let me provide a brief summary. First, there's been a lot of structural change.
Speaker 4: In March, we sold 3E, our environmental health and safety business, for net cash proceeds of $575 million. In April , we sold Verisk Financial Services for net cash proceeds of approximately $500 million.
Speaker 4: And most recently in February , we sold Wood McKenzie for approximately 3.1 billion. We've begun the process of returning a substantial majority of the after tax proceeds of those transactions to shareholders through share repurchases as promised. Despite a challenging economic picture we've seen more cases continue on length of the normal scale of tax deposits passing through the sufficient numbers for the last 20- conew millennium.
Speaker 4: geopolitical and financing environment, we were able to complete these transactions at attractive valuations through the strong underlying businesses, capable management teams and a well organized sale process. Let's turn to governance change. Structural change wasn't the only transition at Verisk. We also made a number of governance changes that shareholders suggested. We are transitioning to a declassified board with annual elections.
Speaker 4: We added four new directors with fresh perspectives and experiences. Jeff Daley, Wendy Lane, Alumide Soroye, and Kim Stevenson. We separated the chairman and CEO role with the election of Bruce Hansen as our new chair. I have to personally thank Bruce for his advice and leadership through my transition. As a former CEO , he's been a great coach to me, as have been all of our directors.
Speaker 4: Let's turn to organizational change. And finally, organizationally, we've had substantial change. In addition to Scott Stevenson's retirement last year, Mark McBullary stepping down in January and the addition of Elizabeth Mann as our CFO , we have made over a dozen changes in senior management. These have enabled the next generation of management to rise.
Speaker 4: bringing new energy and fresh perspectives on how we can make Varysk better. At the highest level, I have reconstituted our senior operating committee with 10 colleagues, six of whom are new to the committee, who represent a better balance of business unit leaders and corporate leaders for improved integration and coordination. I'm also proud that the committee represents 50% gender diversity and 40% ethnic diversity, a strong signal for our entire organization.
Speaker 4: We all share the common mission of creating value for our clients, employees, and shareholders. With all this change, we were, of course, carefully watching for disruption with our employees and clients. While there is some understandable anxiety with any organizational change, the feedback from employees at the Retown Halls, Anonymous Surveys, and informal feedback has been very positive with enthusiasm for our refocused strategy and insurance and new leadership.
Speaker 4: In particular, our purpose of working together to build global resilience for individuals, communities, and businesses has resonated strongly with our employees, as has our new cultural values of learning, caring, and results. As I believe all of you can appreciate, what we accomplished in terms of structural and organizational change in 2022 was no foregone conclusion.
Speaker 4: and the delivery of a clear view of our insurance only operations in our 10K was a massively complex exercise. It required the effort, expertise, and commitment of hundreds of our employees to accomplish. So I'd like to take this opportunity to personally thank all of our nearly 7,000 employees for their professionalism, commitment, and understanding as we have undergone so much change in 2022.
Speaker 4: They are absolutely talented and critical to our future success. What we accomplished this year demonstrates what we're capable of ahead. On the client front, we've also received a positive response from many clients who appreciate our renewed insurance focus and desire to improve our relationships across their organizations. I experienced this firsthand at our Elevate Conference in Salt Lake City and dozens of client meetings and calls.
Speaker 4: Their feedback reinforces that while we have been a great product organization, we can be a much better client organization. And that's an area where I'm dedicating substantial time and leading from the front. I spent most of my career as a client professional. And I'm excited to be returning to this particular role. Let's move to financial change. I won't steal Elizabeth's thunder on the financials. However, there are two elements that matter most to me in our twenty, twenty two performance and what we intend to achieve in twenty, twenty three. Key hacknow more focused on Turning the risk return value into Wast records for shares in previous five Drag
Speaker 4: First is our ability to continue to deliver strong revenue and adjusted Eva dog growth. Despite the changes and challenging environment in twenty, twenty two and the clear momentum in the fourth quarter results. We have clearly demonstrated what Veris is capable of in the fourth quarter by delivering organic constant currency, revenue, growth of over seven percent in the insurance only business. Even after eliminating the impact of storms. I'd also note that fiscal year twenty, twenty two insurance revenue growth of six and a half percent.
Speaker 4: and adjusted EBITDA growth of 8% is a solid result for a year of substantial change and macroeconomic challenges, and is a strong reflection of the stability of our business and a good foundation to build onto in 2023 and beyond. Second is our delivery of clear margin improvement consistent with the clear goals we set for the insurance-focused business of 300 to 500 basis points improvement from a normalized base of 50 to 51% in 2021. At 52.7% for the fourth quarter, we are on the cusp of delivering at the low end of our targeted range of 50 to 51% in 2021.
Speaker 4: We can't predict all contingencies, but represents our best assessment of 2023 financial performance. So where does that leave us after all of these changes?
Speaker 4: We are, as of this moment, a new virus.
Speaker 4: New structurally, organizationally, and with a re-energized and refocused purpose and values. There's a lot that you'll be familiar with, including our insurance focus, industry centrality, strong market position, stable growth, and strong margins. And some new elements that are expanding our growth opportunities in areas such as life insurance, marketing solutions.
Speaker 4: and in our European businesses, including specialty business solutions, where we are improving workflows and efficiency in the Lloyd's non-standard market.
Speaker 4: You will also see changes in our expense discipline to drive margin expansion and a new approach to providing financial guidance for the early head. Let's step back and take a moment to refram our opportunity.
Speaker 4: The insurance industry is massive, complex, and growing globally.
Speaker 4: Our clients face substantial technology, regulatory and macroeconomic challenges in a rapidly evolving environment. This is less an assertion than an often repeated sentiment that I hear from the leaders of our clients. One of my favorite client quotes was, we need Varisks' help to address this, but more importantly, the industry needs Varisks' help. That crystallizes our opportunity and position. You'll hear at Investor Day from several clients
Speaker 4: that Varysk is considered a true business partner rather than a vendor, and that we work together to collectively solve problems for the insurance industry. We create value for our clients through a simple economic mechanism. We invest in data, analytics, and software at scale to address industry needs much more efficiently than individual companies can.
Speaker 4: We are addressing hundreds of billions of dollars of premiums and expense across the industry to improve revenue growth, risk outcomes, client experience, productivity and margins. These investments deliver real value to the industry and in turn drive our growth, operating leverage and high incremental returns on capital. Much of this opportunity is realized by facilitating connectivity across the insurance ecosystem.
Speaker 4: Hence the theme of our annual report for 2022, connecting what matters. To connect, you must be central. You must be trusted, and you must understand the needs of the ecosystem. No company is better positioned than Varysk with our scale, relationships, and expertise to create this value for the insurance industry. We're very proud of what we accomplished in 2022, but it was all to put us in this position where we can demonstrate our full potential focused on serving the substantial and expanding needs of the insurance industry. With a reconfigured and energized organization.
Speaker 4: Bound together by a common purpose and values, we are very excited about the path ahead and can already feel the benefits of this better integrated and focused approach. This is the way. As our 2023 financial guidance implies, and as you'll hear at our upcoming investor day, we believe this path will see continued growth, improving margins and strong returns on capital.
Speaker 4: I'll end with thanks to our shareholders who encouraged us to consider new approaches and offered their perspectives directly or indirectly through surveys and our analyst community. We in our board have listened carefully and our actions and path ahead clearly reflect your input.
Speaker 4: We are here to expand the opportunities, execute on the plan, and deliver value on your behalf. I can't imagine us being in a better position to do so and we're off to a solid start. With that, I'll hand it over to Elizabeth to review our financial results for the quarter, the year, and our financial guidance for 2023. Thanks, Lee. And good day to everyone on the call. Before I start with the fourth quarter result, I have a few reminders for everyone. I'm going to hand it over to you.
Speaker 3: First, all consolidated and gap numbers are negatively impacted by the dispositions of 3E and Varisk financial services. This effect will continue through the first quarter of 2023 when we will anniversary those transactions. Second, as we described previously, due to its materiality, Wood McKenzie is accounted for as discontinued operations. The first, as we described previously, due to its materiality, Wood McKenzie is accounted for as discontinued operations.
Speaker 3: beginning this quarter, and its results are not included in our revenue or adjusted EBITDA results in either the current period or the prior period. Third, in the earnings presentation now posted on the investor's section of our website, we have included certain pro forma quarterly financial metrics, removing the operational results of all our divestitures, as well as a reconciliation to our historical reported results, which we hope you will find helpful.
Speaker 3: Turning now to the financial results, I'm pleased to share that we had a strong finish to 2022. For the fourth quarter, on a consolidated and gap basis, revenue was $630 million up slightly versus the prior year, reflecting growth and insurance offset by the impact of the VFS and 3E disposition. Income from continuing operations was 216 million, while deluded gap earnings per share attributable to Barrisks was $137 million.
Speaker 3: across our business contributed to the strongest quarter of the year.
Speaker 3: In the fourth quarter, OCC revenues grew 8.1% with growth of 6.5% in underwriting and rating, and 11.9% in claims. This quarter's result included $5.6 million in storm-related revenue associated with Hurricane EN. Excluding the storm-related revenues, OCC revenue would have grown 7.1%.
Speaker 3: Our subscription revenues, which comprise 80% of our total revenue in the quarter, grew 7.2% on an OCC basis. We saw broad-based growth across most of our businesses, with strengths in core underwriting, property estimating solutions, extreme events, antifraud, and life insurance solutions.
Speaker 3: We did experience a modest negative impact from the liquidations in Florida. As we noted in previous calls, Florida has been a trouble spot for the insurance industry, and the losses from Hurricane Ian add complication. In 2022, the market saw six liquidations, and so far in 23, we have seen one company placed into receivership after higher than expected losses from Hurricane Ian pushed the carrier into insolvency.
Speaker 3: help customers leverage data earlier in their quoting process, ensuring they underwrite risk appropriately, as well as help drive non-rate action for enforced policies. Trans-Accional OCC Revenue Growth of 12.1%, representing 20% of total revenue in the fourth quarter, also improved from the third quarter, reflecting the revenues associated with hurricane inn.
Speaker 3: Adjusting for the storm impact, transactional growth with a healthy 8.2 percent, comprised of continued strong recovery in international travel, strong sales of life insurance solutions, and a modest contribution from our workers' compensation business, which is improving, though continues to be below pre-pandemic level.
Speaker 3: This was offset in part by continued weakness across auto underwriting and marketing solutions. On the auto underwriting side, we continue to see cyclical softness across our auto underwriting and marketing solutions as carriers are dealing with the impact of rising inflation and increasing loss ratios. To that end, carriers have pulled back on underwriting new auto policies as well as on marketing spending to drive new policy volume and customer acquisition.
Speaker 3: Careers are working to reset pricing, which we think could take another six to 12 months to truly take effect. To help our customers bridge this uncertain time and drive growth for Varisk, we are working with them to help identify ways to improve profitability with targeted non-rate actions that minimize premium leakage.
Speaker 3: We are actively engaging with customers about our risk check renewal product, which allows insurers to analyze an entire book of business with minimal IT resources and pinpoint policies that require attention. Moving now to our adjusted EBITDA results. OCC adjusted EBITDA growth was 12.9 percent in the fourth quarter.
Speaker 3: the impact of certain cost reduction actions, and the high incremental margins associated with storm-related revenue. This level of margin also includes a number of margin headwinds, including approximately 110 basis points from recent acquisitions, as well as 80 basis points from the headwinds from our ongoing technological transformation and higher T&E expenses.
Speaker 3: If you could compare the fourth quarter margins on a pro forma basis for all divestitures, the 4 Q2 022 margins of 52.7%, represent an 80 basis point margin expansion from 51.9% in the fourth quarter of 2021 pro forma.
Speaker 3: Reflecting on our objective to deliver 300 to 500 basis points of margin improvement in 2024 from a normalized base of 50 to 51 percent in 2021, we took great strides in 2022 with full year adjusted EBITDA margin of 52 percent on a pro forma basis, reflecting approximately 140 basis points of margin expansion associated with our operational excellence focus.
Speaker 3: To date, we have made decisions and taken actions to address more than 60% of the run rate cost savings we are targeting. The impact of those actions will be realized through 2024 with about 30% of the accumulated expected cost savings already achieved in the reported results in 2022. Our business continues to demonstrate the operating leverage embedded in our data analytics business model and we have confidence in our ability to deliver on the objective in 2024. Interest expense. Interest expense totaled $41 million for the fourth quarter compared to $30.2 million in the prior year.
Speaker 3: For the full year, interest expense totaled $139 million versus $127 million in 2021. This increase in interest expense is related to higher balances on our revolving credit facility, as well as higher interest rates. We have paid off all borrowings under our credit facility as of February 2023, and in the near term, we'll look to establish the go-forward balance sheet for the business, staying within our targeted leverage range of two to three times adjusted EBITDA. Taxes. Our reported effective tax rate was 9.9% compared to 16.8% in the prior year quarter. This lower tax rate included a one-time benefit of approximately $30 million.
Speaker 3: which was primarily the result of transaction benefits related to our Wood-McKenzie divestitures, offset in part by lower stock compensation benefits versus the prior year period. For the full year 22, our effective tax rate was 17.5 percent as compared to 22.8 percent in the prior year, including approximately $67.7 million in benefits related to all our dispositions throughout the year. The net effect of these transaction-related tax benefits was a reduction in our full year effective tax rate of 5.4 percent.
Speaker 3: Adjusted net income and diluted adjusted EPS. Adjusted net income increased 14% to $225 million, and diluted adjusted EPS increased 18% to 143 for the fourth quarter of 22. These changes reflect organic growth in the business, contributions from acquisitions, a lower effective tax rate, and a lower average share count. Capital returns. During the fourth quarter,
Speaker 3: We returned $514 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 our business. In particular, included in that amount is $366 million of share repurchases we have completed since the announcement of the Wood McKenzie transaction back in November . In the coming days, we intend to enter into an additional $2.5 billion accelerated share repurchase agreement for a total capital return of $2.87 billion associated with the transaction proceeds.
Speaker 3: This is consistent with our plan to return the majority of the proceeds from the Wood-McKenzie divestiture to shareholders via share repurchases. We continue to expect the dilution from the transaction to be within the 46 percent range. Looking ahead to 2023, as Leigh mentioned, we have listened to shareholder feedback and will now be providing annual financial guidance.
Speaker 3: We have posted a summary of all guidance measures in the earnings deck on the Investor section of our website, barrisque.com. Specifically, for 2023, we expect consolidated revenue to be in the range of $2.59 to $2.63 billion versus $2.437 in 2022. We expect adjusted EBITDA to be in the range of $1.37 to $1.42 billion versus $1.266 billion in 2022.
Speaker 3: and adjusted EBITDA margins to be in the range of 53 to 54 percent. Working further down the P&L, we expect fixed asset DNA to be between 175 and 195 million and intangible amortization to be approximately 70 million. Both depreciation and amortization elements are subject to FX variability, the timing of purchases, the completion of projects, and future M&A activity. We also expect capital expenditures to be between 200 and 230 million as we continue to invest organically behind our highest return on investment opportunities.
Speaker 3: These include a modernization of our core line services to digitize our industry standard offering and enable expansion into new workflows and improved productivity for the industry. We are also investing in an upgrade of our financial and human capital system that will enable future efficiencies once implemented. As previously communicated, we expect the tax rate to be in the range of 23 to 25%.
Speaker 3: bringing adjusted earnings per share to a range of $520 to $550. This range represents strong double-digit growth rates on EPS after normalizing for the impact of transaction tax benefits in 2022. Before I turn the call over to Leigh, I just want to remind everyone that we will be hosting an investor day on March 14th here in Jersey City where we will provide more transparency and clarity on our strategic profile, growth drivers, and long-term financial targets. And now I will turn the call back over to Leigh for some closing comments.
Speaker 3: bringing adjusted earnings per share to a range of $520 to $550. This range represents strong double-digit growth rates on EPS after normalizing for the impact of transaction tax benefits in 2022. Before I turn the call over to Leigh, I just want to remind everyone that we will be hosting an investor day on March 14th here in Jersey City where we will provide more transparency and clarity on our strategic profile, growth drivers, and long-term financial targets. And now I will turn the call back over to Leigh for some closing comments. Thanks, Elizabeth.
Speaker 4: In summary, we are excited to focus all our attention, talent, and resources on the global insurance industry where we can deliver substantial value to our clients through improved decision-making and operational efficiency. We will be engaged more intensively as a strategic technology partner to our clients and the broader insurance industry to identify and develop ways for Verisk to support their objectives. With our scale, relationships, and expertise, we are well positioned to help make those connections in this period of accelerated change for the industry and by extension to the people and communities they serve. Our motivating purpose is to work together with our clients in building resilience for individuals, communities, and businesses globally. Combined with our focused business model and unique market position, this is a formula that will deliver value to our shareholders through growth and returns. 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. With that, I'll ask the operator to open the line for questions. At this time, I would like to remind everyone in order to ask a question, press star 1 on your telephone keypad. Our first question comes from Toni Kaplan with Morgan Stanley . Thank you so much and congrats on the results today and particularly I think your progress on the margin front. You talked about hitting 53 to 54 percent margin in 23 and as you mentioned, that will essentially be at the low end of the 24 target range. Does this change your strategy around investment, meaning does this allow you to go more aggressively after growth opportunities just given that your margin is in a really solid place? Thanks. Thanks, Toni. I'm going to hand it over to Elizabeth to respond. Thanks, Toni. I don't think it changes our overall strategy. We are committed to the targets delivering in the next three to four months.
Speaker 3: 22 to 23. Yeah, let me talk a little bit about that. If you start with the baseline 22 of 52% that that pro forma, that already includes the headwinds from from Stranded Cough and it includes, you know, most of the headwinds from from recent M&A. As we move forward on that, there is there is still a little bit more headwind.
Speaker 3: of sort of core operating leverage. I haven't broken that down between operating leverage, you know, growth impact and the cost savings target, but those are all included in that 150 to 250 basis points, bringing us to the net of 100 to 200 basis points of origin expansion.
Speaker 5: Thank you so much. Our next question comes from Ashish Sababara with RBC capital markets. Thanks for taking my question, changing gears and moving to the top line, really strong OCC growth in the quarter. I was wondering for your 2023 guidance, what is the organic constant currency assumption for that guidance range? And then as we think about a quarterly cadence, I was wondering if you could provide any color on that and any color on the puts and takes as we think about auto and the right in coming back worker comp improving as well as any color on pricing trends and and comping some of the Florida insurance headwinds.
Speaker 2: That's for you. Our next question comes from Stephanie Moore with Jeffries. How youinet all right at all about.
Speaker 4: Hi, this is Hans Hoffman on for Stephanie. Congrats on the strong quarter and thanks for taking my question. Just wanted to talk a bit about your strategy within insurance, specifically internationally and just how organic growth is trending there. And then just kind of maybe as part of that, are there any acquisitions in the international pipeline that could help you gain further critical mass that are going forward? Thank you for the question. Let me try to try to address the components of that. So I think I outlined in my comments the general strategy where we are looking to make investments in data or technology that solve industry problems that we can monetize across that across that industry. And that strategy really holds across the across the.
Speaker 4: We will continue to look for opportunities to leverage those types of additions, as well as data sets and functionality that we have within the US business. We recently made an acquisition in Sweden, and you may be familiar with both our acquisitions of Actoneo in Germany and Opta, where we're deploying similar strategies. And generally across our international business.
Speaker 4: and the contributions to growth from each of those elements. Very helpful, thanks. Our next question comes from Jeff Mueller with Baird. Yeah, thank you. I want to ask about the pickup in claims underlying growth normalized for the discrete storm revenue. I mean, it's a pretty big step up. So I'm trying to understand whether any other, like one time benefits in the quarter, is this mostly about COVID recovery because the factors you cited were things like recovery and international travel and workers' comp or what I'm really looking for. Was there like a pickup in like cross selling and upselling trends in the business and the stepped up growth rate could be sustainable? Thank you. Thanks Jeff. So I would say the general, the general dimension has been that it has been the normalization of activity across the business in a couple fronts. Driving activity being one of that, I think that has had.
Speaker 4: positive improvement in some of our anti-fraud categories. Elizabeth made reference to some of the return to growth in our workers' comp businesses. And I think on the proper property estimating side, I think we've seen higher and more normalized levels of activity. Some of that, well, they're excluding the actual storm revenue, I just think we have seen more more activity. I'd ask my colleague, Maroon Maraud, who leads our claims business if there's anything that he'd like to add to that, the general pickup that we've seen in the claims business. Thank you, thank you, Lee, and thank you, Jeff, for the question. We've been experiencing overall healthy growth across the different claims businesses that we've got. So in addition to the comments made by Elizabeth and Lee around property estimating solutions as well as the casualty workers' comp business, we continue to see the customer engagements that is resulting in very healthy growth activity across our anti-fraud suite of solutions. Thank you. Thank you both.
Speaker 4: Our next question comes from Andrew Steinerman with JP Morgan. Hi, this is Alex Hassan from Andrew Steinerman. I want to ask maybe a bit about retention rate in the pressures you saw from Florida and then as a sort of second part to that question, any sort of operational or balance sheet efficiency statistics you can provide for the standalone insurance fair. So to that Florida question maybe what was your retention rate in 23 and 22 and what was it sort of tax Florida? So Alex, thanks. I would say we are experiencing continued high client retention rates. And I think what we talked about, there's been one liquidation in Florida. And so that's something that we have called out. But I don't think, and I'll look to my colleague, Neil Specter here to see if there are other than that situation, whether we have seen any changes in our overall retention on the underwriting side of the underwriting side of the business. So I think those remain remain very solid. We're watching it carefully because of the risks in Florida, but to date, I think we've only had one one liquidation. Neil, anything you'd like to add?
Speaker 4: Thanks, Lee. No, I think you summarized it well. I would just say that while there are potential for liquidations down there, there's also new formations of companies that come into the market because there's need for coverage, which gives us opportunities. So just it isn't a one-way flow of businesses exiting their businesses entering as well, which helps offset some of that. Thank you. And there's a question. I don't know on the operational and the balance sheet. Elizabeth, I think can respond. Yeah, thanks. Thanks for that, Alice. We haven't, you know, I don't have any specific stats. Pull that out on that right now. But I think in general, the insurance business is the most cash flow generative and sort of the most capital efficient of our of our former businesses. It generates, you know, strong free cash flow, negative working capital characteristics and high kind of yield, not even that. And when I think about balance sheet of efficiency, Alex, I think the most striking thing is that with these dispositions, we have released a lot of capital that was, you know, was not generating as higher return as in our core insurance businesses. And so I think you will see that in the return on invested capital, you know, particularly as we utilize the proceeds to, you know, to repurchase shares, that's probably the most significant balance sheet efficiency in my mind.
Speaker 4: I think you summarized it well. I would just say that while there are potential for liquidations down there, there's also new formations of companies that come into the market because there's need for coverage, which So it isn't a one-way flow of businesses exiting their businesses entering as well, which helps offset some of that. Thank you. And there's a question. I don't know on the operational and the balance sheet. Elizabeth, I think can respond. Yeah, thanks. Thanks for that. Alice. We haven't, you know, I don't I don't have any specific stats. Pull that out on that right now. But I think in general, the insurance business is the most cash flow generative and sort of the most capital efficient of our of our former businesses. It generates, you know, strong free cash flow, negative working capital characteristics and and high kind of yield on the top. And when I think about balance sheet of efficiency, Alex, I think the most striking thing is that with these dispositions, we have released a lot of capital that was, you know, was not generating as higher return as in our core insurance businesses. And so I think you will see that in the return on invested capital, you know, particularly as we utilize the proceeds to to re purchase shares, that's probably the most significant balance sheet efficiency in my mind. Thank you.
Speaker 4: Our next question comes from Greg Peters with Raymond James. Welcome morning team Beresque. Lee, in your comments, you acknowledged all the changes that the company has gone through over the last year. Now that you're laser focused on the insurance piece, can you talk about how you're tracking customer satisfaction? Specifically, is there something like the comprehensive customer survey that you're using where you can collect unfiltered feedback rather than just looking at retention numbers and feedback you get at conferences? Greg, thank you very much. You've touched on something that we, I think we have a good system. We undertake a survey and an NPS scoring twice a year in 2022. That is in the mid 40s, which is consistent with where we've been before the pandemic and through the pandemic. And I think we saw an increase in that during the pandemic as a function of kind of a general lift from working from working from home from our clients, some of the features that we offered through client experience that were well received, but still a very solid number. So we undertake that. We also have a customer experience unit that is always looking to gauge the feedback that we receive from our clients on product experience.
Speaker 4: focus on areas we think Varys has the ability to really leverage assets and potentially accelerate top line. Andrew, thank you very much for the question. I will do my best to address it here, but I think we're really excited about drilling into that at investor day. So forgive me for another advertisement for investor day, but I really think it will be a great opportunity for you to hear not only what I have to say strategically, but also hear it directly from the business and the investments that we're making.
Speaker 4: all growth rates. So we will continue to look for those opportunities. The second level is internationally, as we've described, also a penetration opportunity where our international businesses are growing faster. They represent an opportunity for us to deliver some of the data, the analytics and technology into those markets as well as developing new solutions. And so the success that we've had in UK.
Speaker 4: broader opportunity based upon the conversations that I've had with other CEOs and other C-suite clients around the opportunity to improve the efficiency of the broader insurance industry.
Speaker 4: I think to my earlier point, I think we've been great on the products that are focused on specific underwriting or specific claims applications, but our ability to tie those solutions together potentially find shared services or more automated solutions to address the hundreds of billions of dollars of expenditure by the industry is an area that has a very strong reception from the clients we've dealt with. You know, one element that I'll tease that has gotten a lot of interest is our ability to digitize more of the
Speaker 4: So that hopefully gives you a little bit of a start in terms of where we think we can find new areas to potentially expand that growth rate.
Speaker 4: Great. Look forward to investor day. Our next question comes from Jeff Silver with BMO Capital Markets. Thanks so much. Wanted to focus on your auto underwriting and marketing that you talked about actually a two-part question. Can you just remind us what your exposure is there? What was it the percentage of revenues, free pandemic, what it is now? And what do you do the confidence that these companies can really reset premiums within the next six or twelve months? Thanks.
Speaker 4: Yeah. So, one, I'm going to address the second part first. And then, just also ask a Elizabeth or Stacy to kind of refresh me on the overall exposure element. But I think we're confident because we are already seeing in a number of regulatory areas that those rate increases are being approved.
Speaker 4: There was previously a bit of a delay, I think, because of elections that probably created some delay from a regulatory standpoint. We're now seeing those begin to emerge, I think, a recognition that the inflationary costs that the auto insurers have borne is something that is legitimate, needs to be factored within overall pricing.
Speaker 6: total insurance revenue.
Speaker 4: And that's what it was or that's what it is now. In general. It has been at that level consistently. It hasn't changed materially. Okay. Appreciate the scholar. Thanks.
Speaker 4: Our next question comes from Manav Patnaik with Barclays. Thank you, good morning. And first, thank you so much for the guidance details and providing that. I just had a question around the pricing environment. If you could just talk about
Speaker 4: you know, what pricing, how pricing fed, I guess this year and then looking out into 23 if you should expect any incremental improvement versus that? Yeah, thanks, Mono. So as you can appreciate, we have hundreds of products and so each has a different pricing dynamic, we're selecting what we view as the demand elements for that, the value that we provide and first and foremost, our primary pricing philosophy is
Speaker 4: a decreasing factor over time as other products not tied to that have grown faster. But that is an element where we are expecting some lift given generally stronger premium growth as we've seen in different part of the businesses. And then finally, I would say going into 2023, reflecting somewhat of the higher inflationary environment.
Speaker 4: And the imposed costs on us from a compensation standpoint, we have included a somewhat in certain instances, a higher inflationary component to reflect that reality as we think, you know, most of our clients have done in similar situations. So all of those factor into the guidance from a revenue standpoint as it relates to pricing. I would say, you know, however, that, you know, that while pricing and particularly the value added element is the most important component, we do also expect contributions from new customers, from upsell of existing products, from growth from our...
Speaker 4: and the sort are the primary drivers to the top and bottom end or are there other kind of puts and takes the call out that underlie the 23 guidance range. Thank you. Yeah good good question. Yes as you as you fly kind of one of the one of the swing factors between the top and bottom and would be the recovery of some of the more sensitive macro sensitive parts of our business like like auto.
Speaker 3: you know, in general with the 80% subscription revenue, there's a lot of stability in the overall. One or two other environmental related factors that I would point out that could contribute to the difference in that, the top and bottom end of that range, as you say, the amount of storm-related revenue is inherently unpredictable, obviously. We have included sub-assumptions for that in the budget, but what a sort of moderate assumption in there. And then there's one or two other sort of macro-related factors.
Speaker 7: specific on what we should be expecting there because I think some people struggling getting from your EBDA guide to EPS.
Speaker 3: Yeah, it's a great question. We're not giving you a specific number on interest guidance, but I can give you some dimensionality to it. I think if you look at our fourth quarter interest expense, we're going to see a lot
You know, that was obviously higher than it was kind of on a run rate basis for the full year. I think for 2023, we would assume that the interest expense is slightly less than it was in the fourth quarter annualized, but higher than it was for kind of the full year of 22. Quarter between those two factors.
Okay, Fair enough. Thank you. Yeah. Our final question comes from Faza Always with Deutsche Bank. Yes, hi. Thanks and good morning. And I just want to say congratulations on executing all the changes in in 2022. And thank you for me also on providing guidance.
Today, I wanted to go back on margins and specifically about the 2024 goals. Now, the range is still pretty wide and wanted to get a sense of, you know, what are some of the factors that would take you, you know, to the low end of the range versus the high end of the range? Yeah. Thanks, Faisa for the question. You know, really we're here today to talk about the quarter and the 2023 view. So sort of longer term discussions we'll talk about at.
at investor day. In FIZ, I would just say look, we have clearly an objective of delivering on that and we want to demonstrate our ability to improve that margin. In a longer term, I think what we'll talk about are the trade-offs between investment and margin and the value that the investment can deliver in terms of growth and returns. I think that's not a new dynamic, that's something that we have always worked to try to find a balance to demonstrate a margin strength, but also not at the cost of delivering where we think values created most significantly, which is through growth and return.