Q2 2023 Verisk Analytics Inc Earnings Call
Good day, everyone and welcome to the very second quarter 20 twenty-three earnings results Conference call.
This call is being recorded and currently all participants are in a listen only mode.
After two days prepared remarks, we will conduct a question and answer session, where we will limit participants to one question. So that we can allow everyone time to ask a question.
We will have further instructions for you at that time.
For opening remarks, and introductions I would like to turn the call over to various six head of Investor Relations Ms. Stacy brought bar.
<unk>. Please go ahead.
Thank you Abbey and a good day, everyone. We appreciate you joining us today for a discussion of our second quarter 2023 financial results Uhm.
On the call today are unstable, President and Chief Executive Officer, and Elizabeth Ma'am, Chief Financial Officer.
The earnings release referenced on this call as well as our traditional quarterly earnings premeditation any associated 10-Q can be found in the investors section of our website <unk> dot com the.
The earnings release has also been attached to an 8-K that we are furnished to the SEC.
A replay up this call will be available for 30 days on our website at by Dylans.
For it in more detail in today's earnings release, I will remind everyone. Today's call may include forward looking statements about barracks future performance, including those related to our financial guidance 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 remind everyone that the financial results for recent dispositions are included in our consolidated and GAAP results, but are excluded from all organic constant currency wrote figures a.
A reconciliation of reported it in historic non-GAAP financial measures discussed on this call is provided in our 8-K in today's earnings presentation posted on the investors section of our website <unk> Dot com.
However, we are not able to provide a reconciliation a projected adjusted EBITDA and adjusted EBITDA margin to the most directly comparable expected gap resolved because of the unreasonable effort and hi, unpredictability of estimating certain items that are excluded from projected non-GAAP adjusted EBITDA and adjusted EBITDA margin.
Including for example tax consequences.
Acquisition related costs.
And losses from disposition and other nonrecurring expenses effective which made me sick, Connecticut, and now I'd like to turn the call over it'll be stable.
Good morning, and thank you for participating in today's call I'm excited to be with you today to provide an update on our strategy focus and results oriented culture is translating into strong financial performance for <unk>.
I will leave the details of the financial results to Elizabeth but in summary, merits delivered continued business momentum in the second quarter underscored by strong organic revenue growth and solid margin expansion translating into double digit profit growth.
We were driving these results, but focusing on our clients. Most pressing needs is the deal with an environment mark by elevated underwriting losses, including those from catastrophes and high levels of inflation, leading to pressure on profitability we.
We have elevated the conversation and directed our sales focus to the solutions in our portfolio best suited to solve those challenges.
A byproduct of the tough operating environment is a hardening of the insurance market as carriers are taking right actions to help drive improved profitability, leading to stronger net written premium growth.
Right. It takes time to work through so we expect this environment to persist into 2024.
Cross currents of elevated underwriting losses, and increasing pricing in the insurance industry has become a hot topic across the press with headlines about trouble spots like Florida and California.
Specific to Florida since our last update there has been little change as we have not seen any additional liquidations, though uncertainty remains.
We continue to watch the market carefully, particularly as we head into the Atlantic Hurricane season.
We are also keeping a keen eye out for new financial stability readings for the Florida market, which we expect in the next few weeks and could identify further deterioration in the market.
Recent legislative reforms in the property market are expected to have a positive impact, but it may take some time for that to materialize.
In California current regulation restricts insurers from using catastrophe models and ratemaking.
But the department of insurance is exploring a change to that policy.
To that end <unk> recently testified in front of the California State Assembly joint hearing insurance and emergency management is the expert on catastrophe models and how they're used can help insurers assess risk from low frequency I severity events like wildfires ultimately benefiting the <unk>.
Residents and businesses in the state.
This is a great example of our enhanced industry engagement as we leverage our expertise to benefit all the players in the insurance ecosystem, including carriers and regulators and build resilience for consumers and businesses.
That's why I disgusted investor day, and I'm on prior calls a key pillar on our strategy is elevating and strengthening the strategic dialogue with our clients to that and I had the opportunity in the second quarter to visit with many of our clients in the U S to understand their focus and explore how we can better support their objectives.
Conversations generated several initiatives for expanded dialogue with C sweet support to accelerate opportunities on technology and data initiatives, particularly regarding inflationary impacts.
A visit to Europe , I encountered similar opportunities with our clients there as well as exceptional energy and focus at various offices in London Malaga Cracow in Cologne.
Message that we here is very similar across industry participants large and small you as an international we welcome Verex expertise in partnership to drive more automation lower our investment cost and improve efficiency.
Given our mission critical data deep customer relationships and engagement and scale no. One is better positioned to meet this need the embarrassed.
A key extension of our conversations with our clients is our innovation agenda.
We are listening to our customers in designing solutions to meet their most pressing needs. For example, we recently launched a new solution for carriers contractors and adjusters within our property estimating solutions called exact expert.
Exact expert as a no code <unk> <unk>.
<unk> rules engine designed to streamline the insurance restoration and claims estimation process.
Exact expert targets the key challenges, our clients space, including inaccurate and incomplete information and things estimates high compliance needs pressure to reduce cycle times revisions loss adjustment expenses and a need for more digital and simplified processes for a changing workforce.
Demographic.
Further it empowers carriers contractors and adjusters to customize organizational estimating behaviors delivering quick accurate claims estimation by reducing manual input errors and driving consistency accuracy and efficiency throughout the claims estimating process.
We're seeing strong interest from our customers for this newly launched solution.
And our anti fraud solutions, we recently launched image forensics.
And a I tool designed to detect fraud in digital images submitted as part of the claim settlement process.
Image using claims processing has grown exponentially with more and more images being submitted directly by the claimant. In fact, just since mid to 2020th photo estimates for auto claim settlement have doubled and while virtual claims processing is driving industry efficiency and customer satisfaction. It is.
Also exposed to insurers to an increasing source of fraud from activities like reusing prior loss images, using internet images or digital or document manipulation.
We are leveraging the depth and breadth of our customers relationships in building a contributory image database combining it with images sourced from Verex property estimating solutions databases to provide images in match reports and indications is an image was used in a prior loss.
Forensics is also a great example of how our innovation engine is now actively associating datasets that were previously siloed into powerful new tools for our customers is this tool combines data from anti fraud with data from property estimating solutions.
I know that <unk> has been top of mind for many.
<unk>, we've been using artificial intelligence machine learning computer vision, and natural language processing and many of our solutions for some time for example, or Mozart forms composer uses machine learning and natural language processing to help insurers organized track edit and analyze insurance policy forums with greater consistency.
Efficiency and speed.
This tool employees advanced technology to digitize, historically documents driven process and addresses a major pinpoint for our clients.
Managing the complex and growing problem of analyzing policy language across multiple lines and states, while enhancing their ability to customize policy language more quickly.
With regard to January <unk>. We are currently testing private versions of generative AI and are making an index of possible use cases focused on both customer facing solutions and internal efficiency opportunities. We are working in partnership with our customers and state regulators to ensure that we are approaching this innovative technology.
With a focus on ethical use in fairness.
Finally, I would like to formally welcome Samantha on to various as our Chief Privacy Officer.
Date of governance, and stewardship has always been a key focus for various <unk> and <unk> will be the oversight and enhancement of our policies to protect the data entrusted to various and will help ensure the integrity of <unk> data practices regulation and compliance.
Addition to the focus and dedicated privacy leadership.
New privacy officer expands on the <unk> leadership, <unk>, providing across the insurance industry.
S technology and data capabilities expand the privacy risks expand as well <unk>.
Concerns about AI data risk management and security all have a key nexis and privacy and we're glad to be joining the best in class companies that articulate a values based approach to the privacy office with that I'll hand, it over to Elizabeth to review our financial results.
Thankfully and good morning to everyone on the call.
And please to share that various delivered strong second quarter financial results.
Consolidated and gas basis revenue was 675 million.
10% versus the prior year in income from continuing operations with 204 million up 18% versus the prior year.
<unk> strong growth across both underwriting claims.
Deluded GAAP earnings per share from continuing operations or $1.35 cents up 9% versus the prior year.
Moving to our organic constant currency results adjusted for non-operating items as defined in the non-GAAP financial measures section of our press release.
Our operating results demonstrated strong and broad based growth from most of our businesses aided by some in period transactional benefit.
In the second quarter, OCC revenues grade, 9.8% growth at 9.3% in underwriting and 11.2 per cent and quaint.
This quarter's result was boosted by certain transactional revenues that we do not expect to repeat in the back half of the year.
Our subscription revenues, which comprise 79% of our total revenue in the quarter grew 9.1% on an O C C basis.
We saw contributions across nearly all of our subscription offerings.
More specifically on the drivers of growth and subscription revenues during the quarter. We experience. The continued benefit uncertain of our revenues from the stronger and that <unk> that written premium growth in 2021, which is currently reflected in some of our contract pricing.
An anti fraud, we are driving accelerated growth from the successful conversion to subscription from previously transaction all customers.
The essential bundle.
And and property estimating solutions, we continue to benefit from strong contractor subscription growth contractors are realizing the value of being part of the various network, particularly with the active weather patterns we are undergoing.
In fact, according to various property claim services P. C. S. In 70 plus years of history. This was the most active first half of the year on record from a weather in that perspective.
<unk> by hail.
Xander storms.
Finally, liquidations and consolidation across the industry was lower than historic average during the quarter, but we continue to anticipate some normalization in the second half of the year.
Alright, transactional revenue representing 21% of total revenue in the second quarter grew 12.4% on any other city data.
The largest contributor to growth for the second consecutive quarter was from our auto solution driven by increased it by increased rate shopping by consumers.
And the continuation of a large non rate acts and deal with a national ensure that we told you about last quarter.
Alright trends are reflective of those noted by recent J D power data, which pointed to a 13% increase in shopping activity for auto insurance in the second quarter as consumers react to rate increases.
However, J D. Power also noted that Kerry you're switching increased that much more modest, 4%, which may I suggest a potential shot slowing of the market going forward.
In addition to gains an auto transactional revenue growth also benefited from double digit growth from life insurance solution.
We are seeing strong customer demand for incremental services.
Uhm within our extreme events business with a very strong transactional growth related to securitization.
Second quarter marked a record for new issuance in a catastrophe.
Right.
I will remind you that that catastrophe down market is seasonal and we do not expect this level of activity to continue in the second half of 2023.
The transaction results also included some one time benefits, including overage charges on specific large underwriting contracts that renewed in the corner.
Moving now to our adjusted EBITDA results.
Oh C C. Adjusted EBITDA growth was 12.6 per cent in the second quarter, reflecting core operating leverage on the strong revenue growth and the impact of certain cost reduction actions, we have taken in connection with our margin expansion objective.
Total adjusted EBITDA margin, which includes both organic and inorganic results with 54.1% up 160 basis points from the reported results in the prior year.
On a pro forma basis for all divestiture in the second quarter margin expanded 140 basis points from margins of 52.7% in Q2 22.
The margin rate in any given quarter can be influenced by the revenue next bleeding to a seasonal pattern in our magenta.
As such we think it's helpful to look at our magenta trailing 12 month basis within the.
Within the second quarter or 53.1% on a trailing 12 month basis of 140 basis points over the prior period.
The year over year change in the second quarter margin reflects the impact of certain one time expenses in the prior year quarter as well as strong cost and operational disciplined and the impact of our cost reduction program.
This was all set in part by higher levels of performance based compensation, including commission related to our stronger year to date performance.
Well as a decrease in our pension credit negative margin impact from recent acquisitions.
At higher T any expenses.
Reflecting on our ongoing cost reduction plan, we continue to have confidence in our ability to deliver on the margin targets that we articulated in our 2023 guidance and that Investor day in mid March.
Continuing down the income statement.
Interest expense was 31.6 million for the second quarter compared to $31.9 million in the prior year.
With the divestiture is now behind US the proceeds from the sale directed to our 2.5 billion dollar accelerated share repurchase plan.
And a long-term capital structure now in place.
Now expect this current level of net interest expense to be at a similar quarterly run rate for the remainder of the year.
On taxes.
Reported effective tax rate with 23.8% compared to 19.2% in the prior year quarter.
The year over year change in the tax rate is related to lower stock compensation benefits in this quarter versus the prior.
Prior year period.
Forward, we still expect the tax rate for the remainder of the year to be in the originally guided range of 23 to 25 per cent.
Adjusted net income increased 8.5% to 219.8 million.
<unk> adjusted EPS increased 18.9% to $1.51 cents for the second quarter 2023.
These changes reflect organic growth in the business contributions from acquisition and a lower average to your account all set in part by a higher tax rate.
With regard to this your account we received the vast majority of the shares from the 2.5 billion dollar accelerated share repurchase plan when we entered into the plan back in March.
And while we did not make any purchases in the second quarter.
We do have the ability to repurchase some additional shares outside of the I S. R and we may do so in the future.
From a cash flow perspective.
Cash from operating activities increased 48% to 193 million.
Strong operations and a decrease in cash taxes paid.
Decrease in taxes paid is primarily related to the nonrecurring gain on the three he disposition in the prior year quarter.
No. There was also a one time cash tax payment of $17 million paid in the second quarter of 2023 related to the energy divestiture.
Well remind you that the prior year cash flow metrics include the results from previously divested businesses.
Turning to guidance.
Given our strong have strong first half performance.
As well as the contribution from recent acquisition, we are increasing our financial outlook for 2023.
We have posted a summary of all guidance measures in the earnings on the investors section of our website <unk> Dot com.
Physically for 2023.
Now it's back to consolidated revenue to be in the range of $2.63 billion to $2.66 billion and adjusted EBITDA ought to be in the range of 1.392 $1.43 billion.
We continue to expect adjusted EBITDA margins to be in the range of 53 to 54 per cent.
Walking further down the piano, we still expect fixed asset DNA to be between 175 and $195 million.
An intangible amortization to be approximately $70 million.
Both depreciation and amortization elements are subject to currency variability the timing of purchases the completion of projects and future M&A activity.
Regarding capital expenditures.
We now expect capex to be between 220 and $240 million, reflecting increases associated with recent acquisition as well as our continued focus on investing organically behind our highest return on investment opportunity.
These include a modernization of our farms rule the mascot.
Migration of our extreme events platform to a cloud native architecture, and further investments across our growth businesses.
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%, bringing adjusted earnings per share to a range of 550 570.
And now I will turn the call back over to Lee for some closing comments.
Thanks Elizabeth.
Summary, we're excited about the opportunity ahead, and our ability to focus all our attention talent and resources on the global insurance industry.
<unk> is best positioned to capitalize on the opportunity because of our scale and expertise.
Motivating purpose is to work together with our clients and building Brazilians for individuals communities and businesses globally. The combination of our focus business model deep customer relationships and strategy to deliver value for clients to improve decision, making and operational efficiency is a formula. So we're confident will also deliver value to our Sherwood.
<unk> through broken returns, we continue to appreciate the support and interest in <unk> given the large number of animals, 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.
Thank you.
As a reminder, if you would like to ask a question press star one on your telephone keypad. If you would like to withdraw your question and remove yourself from the question queue Press Star One a second time and we will pass for just a moment to compile the Q and a roster.
Mmm, we'll take our first question from Heather Passkey with Bank of America. Your line is open.
Hi, Good morning, Thanks for taking my question I wanted to ask about the outlook for the back half on sale.
That go with this quarter and last quarter U E rings and some items.
Articulated potentially one time.
But it seems like guidance implies at the high end seven a half percent revenue growth versus.
10 per cent organic sales in the first half of it is it is it those items tapering off you have a different outlook for the environment.
[noise] helpful to reconcile how you how you did in the first half and your expectations for the back half.
Yeah, Hi, there. Thanks. Thanks for the question you know we've been very happy in the in the first half that we've been kind of firing on all cylinders, we have a diversified business within the insurance face and we've we've called out a number of different environmental or industry factors, where the revenue growth in the first half.
Not be sustained into the second half and so for those you know just to reiterate them I think there's there's no fewer than six different factors that have contributed to the strength in the first half to go through those there has been low attrition and consolidation in the industry Uhm, which has the potential to re normalize in the.
In the second half of the year and in the future.
And the level of auto shopping activity driving transaction volume in our in our auto insurance business named moderate at third the level of weather activity has been elevated in the first half although no specific catastrophe events and I'd also related to weather is the fact that there was obviously.
Large hurricane in the fourth quarter of last year.
So that that will create a difficult cough in the fourth quarter.
Fourth on on the list of reasons for strength in our anti fraud business, we've been driving strong growth by converting transactional customers too subscription in our claims essential bundle, we will start to lap that that benefit which started roughly this time last year.
Fifth we talked about the securitisations on the strength of the of the ILS market Uhm, which was elevated in the second quarter and we don't expect that to continue and then lastly, a call that various technical items like billing catch ups or overages and the extra business day in the quarter all of those have been contributing to the ninth.
8% revenue growth, which has been above our longterm sustainable 6% to 8% target and may not continue the second half and.
Can I put a wrapper around the detail that Elizabeth provided you've got you ask the question. Initially in terms of a sales dynamic in the second half and is Elizabeth was describing these really aren't sales related elements, they're more environmental factors that contributed to a strong first half that we think or or.
Likely to moderate in the second half, where we can't have confidence that they will continue to reoccur. So there's nothing that that we see that this is predominantly sales driven it is more environmental.
I appreciate that thank you.
And we will take our next question from Georgetown with Goldman Sachs. Your line is open.
Hi, Thanks, Good morning, just to follow up on the on the private question Uhm as you think about the normalization of trends and the external environment acknowledging that the internal execution has been relatively stable and strong.
When would you expect that normalization how would you expect the subscription in transaction revenue performance to normalize in the coming quarters.
Yep.
So George Thanks for the question I mean, I'll I'll start off by saying that I think implicit if you go through all of those details uhm that Elizabeth has gone through it's it's difficult to predict what that is going to happen I think of you know the the senses, but there is there is probably some reversion to mean in the Iowa market, we had a strong second <unk>.
<unk>, it's not your typically you see that from quarter to quarter, but it's difficult to predict the shopping activity is one we're seeing some early trends, but that's going to depend upon backrow macro economic economic factors. So I don't think that given the nature of that in this particular strength on the transactional side we're in.
In a position to to estimate or predict when that's likely when that's likely to moderate or simply taking up a more conservative point of view around the the impact in the second half.
Got it thank you.
We will take our next question from Andrew Steiner men with J P. Morgan Your line is open.
Hi, I was hoping to revisit kind of an older question about net written premiums that I know it has lots of effect on various pricing, but it's still part of the virus price again looking back to 2021 2022, those were strong growth years for net written premiums for the U S P and C insurance industry.
And I just wanted to get a sense you know with the two year lag, but I think it's typical for a contract you know how much is that helping this year's organic rabbit growth.
Yeah. Thanks, Andrew It is it is helping this year's revenue growth and we're looking back to 2021 or 20 twenty-three contract Uhm I think we've previously called that that was at 9.6% <unk> premium rose across the industry and as I called out the factors of strength in our.
<unk> growth.
That and add to strengthen our farms rules and laws cause business has probably been the largest contributor to our subscription growth.
And.
You already answered.
Add a little bit of context around that.
As you know as Elizabeth described you know it has been a benefit but there are also I think the impact of of inflation is clearly driving some of that net written premium. We're also seeing the benefit of a hardening market within the insurance as a whole, but the the other element is it'll be cause of an inflation our costs are going.
That gives us a little bit more scope on the pricing side and we're also continuing to add value to those products, which particularly in this environment with the insurance industry focused on improving the efficiency, we've been able in a number of areas to deliver substantial value on that on that front, given those pressures and that those elements are.
Probably a larger factor than the pure net written premium I think we estimate that you know the portion of our revenues that has some exposure to that is in the 15 to 20 per cent type of type of range.
Perfect Thankfully thankfully.
Mmm, we'll take our next question from Tony Katherine with Morgan Stanley . Your line is open.
Thanks, So much I'm gonna ask a question that's sort of a compile Asian of the prior three when when you think about the sort of abnormal items are at one time items.
Today.
Most of those same to impact fee not subscription business couple of them seem to apply the subscription uhm, but I guess you know when.
And you think about <unk> traditional like subscription business is.
Is it the pricing or is it the low attrition like what's having the biggest impact and maybe if you think about the premium growth in 20th 20th two versus 21, how should we be thinking about that with regard to pricing in 2024 six.
Thanks, Tony.
So on the on the subscription growth side.
I would call out kind of the top three drivers to the to the strong subscription growth. The first is across the forms rules and lost cause business and that includes both the pricing dynamic that we talked about as well as the low historical industry liquidations or consolidation.
The second biggest factor second biggest contributor to growth in prescription has been the anti fraud.
<unk>, particularly with the transition from the from the previously transactional customers.
The claim to central bundle that that has been adding to subscription growth.
And then third on the property estimating solutions subscription growth has been has been strong this quarter uhm driven by continued contractor contractor usage and and as well as insurance carrier usage, given the weather events.
So those those are the main drivers of subscription growth. It is broad base. It is not just a pricing dynamic I think I think that's fair to say moving to your question about that written premium and add 22. The <unk> review of the 2022 net written premiums is is not yet published but the a M.
Data came out recently.
It showed 8.4% that written premium growth across the U S. P and C industry. That's that's in line with the preliminary data that we've quoted previously so that that is a positive tailwind on the other hand Dudley highlighted some of the challenges on inflation and profitability.
They add that data also shows a 15% increase in losses with with overall combined ratios above 100 per cent so that points to the challenges facing the carriers.
The difficulty in profitability for which many of our solutions and products are designed to help that address.
Thank you.
And we will take our next question from my Knob Panic with Barclays. Your line is open.
Thank you I just have a question on the margins I know you retrieve it the number just hoping you could give us an update on you know how much it the <unk>.
So I'm gonna cost actions have been taken as you did last week and I was just curious you know the talk and Janie I and then I think you are capex growing up as well.
Is that I mean, if you have to spend more on that does that change. Your you know, perhaps read your smart and outcomes thinking a couple of years out.
Yeah. Thanks. Thanks for the question a couple of comments on the on the margins I think as as we highlighted before I think I think they said that about 90% of the of the cost actions would be would be seen within the run rate in 2023. So we are largely largely working through that.
I think that as we look you know we had called out previously some of the some of the investment kind.
Kind of on the on the business side, maybe just to give some color for the quarter you know that the.
The the M&A has been probably a 40 basis point headwind for the quarter from from recent acquisitions. The investments that were that were doing in the business on the cloud side as well as the E. R. P investment and the renormalization of T. N E. All add up to about 90 basis.
Point uhm headwind for the quarter.
And then finally as a as a non operating item that the pension the pension has been a 50 basis point headwind for the quarter.
Forward in terms of in terms of investment in technology that we continue our our margin targets continue to support them as they have been already our investments in technology to the extent as we highlighted were in early days on on reviewing some of the opportunities with our clients and some new opportunities open.
Up with Jen AI, so to the extent, we learn more will come back to you on that in the future.
I would just add I think on a lot of those investment opportunities. They are more capex driven than off actually driven at this at this point and you know we we have giving you our targets that we are very focused on achieving while at the same time continuing to maintain the necessary <unk>.
<unk> both on our backs on Capex to make certain that we're delivering on our top priority, which is organic growth in the business.
We will take our next question from Greg Peters with Raymond James Your line is open.
Good morning, Lee Elizabeth Stacey I'm Gonna focus my question on the transactional revenue component.
And I'm curious if there is a reporting lag.
Some of your transaction revenue for example, you called out the benefit from auto.
Quarter, yet we're seeing some of the large auto insurance companies really cut back into marketing expenses in the second quarter results.
<unk> would it be appropriate for us to match.
Property transaction revenue with either P. C S advance and or hurricane activity, because you called that out of one of your answers. Thank you.
So so great. Thanks for the question I I I'll take the the first half and I I would say.
First you know we have a lot of complex factors in the overall financial reported results you know.
Marketing Uhm dimension is being reflected in uhm weaker performance in our various marketing solutions and so I think we are experiencing that the shopping activity. However, uhm does does generate some some offsetting revenue as people are exploring.
Central potential right opportunities that are out there.
The homeowners I think there are so many different products that react in different ways to the dynamics, it's hard to tie them to a single <unk> single metric and.
I would also just make a comment that the the activity and auto is really being driven right now by consumer activity rather than rather than interior activity at this point uhm. So hopefully they get it's not a probably satisfying your answer, but it's very difficult to tie.
The performance of financial performance in a broad sense to kind of specific.
Indicators on the on the auto side is it just too many factors going on.
I understand it's it's a tricky question thanks for the attempt.
Thank you.
And we will take our next question from India, Andrew Jeffrey with drinks to your line is open.
Hi, Good morning, everybody. Appreciate you taking the question Lee I continue to be intrigued by some of the conversations around moving up into the sea, Sweden, and perhaps sort of expanding the scope of your relationships with some of the carriers given relative.
Really low sort of share of of net written premium can you just talk about <unk> a little bit how you think that will affect the longterm trajectory of your revenue growth and if that's still a benefit to the yet to come over the next several years.
Yeah. Thank you very much for the question Andrew and it has been something that I've emphasized across the enterprise and we have really been pleasantly surprised at the receptivity that we've had at that level I don't think we had really prosecuted that dialogue.
As effectively or N S coordinated fashion as we probably should have and you'll just in the past two weeks I've had conversations at the C. E O level with with three executives of our of of large clients. We're partners of ours actually for.
Over the past over the past three weeks and in one instance, it was very clear the C. E. O was focused on the impact of climate change on their business model over the long term and they asked us to come in and give a broader perspective on what we see in terms of the impact of the longer of the longer term model.
And how we see that potentially impacting their underwriting decisions within within geography, so tying together some of our underwriting benchmark and analysis with our longer term weather trends, that's an opportunity for us to tie together some of our data sets and analytics and another conversation there was a focus around.
Some of the regulatory Cham challenges on right approval. So it was an opportunity for us to deliver some of our expertise around non reactions to enable the carriers to realize some lift on the on the right side and then the third instance, there was a recognition that the client was facing some technology and <unk>.
As challenges as they were trying to move their organization forward, where we could learn some technical support and building and helping them build technology that meets the client needs more effectively.
And in each of those I think it opened up opportunities for us to tie our data sets together to deliver an integrated product and the other dynamic is that when you have that support at the C suite, rather than us pushing product up within the organization you have a mandate that.
Motivates and energizes that that client if we can demonstrate real value and I think we're really just at the early stages of that as we find opportunities to address these broader needs that then can be expanded to new industry solutions across the across all of our clients such.
So at this stage I think what you are seeing in our performance is some beneficial environment. So focus within a certain number of businesses energy released by some of our organizational changes, but I think we're still at a very early stage and expanding and opening a more strategic relationship and <unk>.
No ship with our clients.
Very thorough thanks.
And we will take our next question from Jeff Super with BMO capital markets. Your line is open.
Thank you so much Elizabeth called out about a half a dozen items that you may not recur in the second half of the year I normally be difficult to quantify the impact on that but is it is it possible to quantify the impact those items that either in the first half of the year or maybe just the task order.
Thanks, Thanks for the question, Jeff Yeah, we haven't we haven't quantified kind of the the opponents of each of these I would say two things you know as as listed out factors contributing to subscription and transactional growth those have been in order.
Magnitude that'll besides them up at any other point you know we have a rough rule of thumb of calling out kind of one time events that are that contribute more than one per cent to revenue growth. None of these single factors.
Hit that threshold.
And I I would say yes.
You can you can certainly see some of the the outperformance relative to our longterm targets and so you know some significant portion of that Delta reflects those one time elements otherwise they would be part of our normal operating <unk> I think it gives you some kind of sense of the scale of the of the impact of some of these.
Okay, Great. That's helpful. Thanks, so much.
And we will take our next question from Andrew Nicholas with William Blair. Your line is open.
Hi, Good morning. Thank you for taking my question just wanted to circle back on marketing solutions I I think he called out.
And they are prepared remarks or in the slide <unk> that you continued to to see some pressure there a new customer acquisition spelled as is low amongst the carriers.
Any signs of moderation there does seem like in general they they continue to pull back I think the expectation previously it was was that was going to improve in the second half I'm just wondering what what kind of the latest temperature check is there and what kind of baked into guidance in terms of a recovery.
Yeah, well. Thank you Andrew I think you're you're reading the situation correctly. The carriers are are pulling back on marketing expense uhm, largely driven by uncertainty around whether they can underwrite profitably within certain markets or or product lines and that is having an affair.
<unk> It had an effect for us in the first half and you know based upon what we are seeing we do expect that effect to continue in the in the second half for that business. It's a small part of our business, but I want to come back in and emphasize that there's clearly shopping appetite as as consumers.
Naturally or seeing higher rates, there is a desire to find a more competitive alternative to what they have currently in so that that latent energy is is there I think we expect over time that as the regulators approved some of the rate increases in <unk>.
We are seeing some positive signs on that as we alluded to in some of our earlier comments that that will give us a greater opportunity to support our our carriers and our clients with that marketing analysis, but one thing I want to emphasize that longer term the demand from our clients were.
Sophisticated analytics around Uhm, how are they who was looking to shop for insurance in an online context, what are they looking for how can we deliver the right product at the right time is something that they are strategically committed to and we see a broad and growing opportunity to continue to serve that not <unk>.
Standing some of the the marketing headwinds that we were experiencing in the industry.
Understood Thankfully.
And we will take our next question from Alex Crammed with UBS your mindless.
Yes, Hey, good morning, everyone. It may be scrutinizing the guidance change you a little bit too much but just a quick question about the margin when I look at the change in guidance from before and revenue.
<unk> it seems like the incremental margins you're applying you are at the mid point in the low forties had even at the high end only 50 per cent. So again. This maybe just you know some of the like in a number thing, but I just wondering why the incremental margins on the on the.
Outperformance would be lower than than your overall emergence as it is at performance space payments as it is a great of investing or is it just to make some business.
Yeah, I think that looks good. Good question. One is you know they're they're they're each ranges. So so you know there there is some range there, but I I would say in general there's a couple of different things. What is what is the <unk> the incremental M&A. That's been added since we gave guidance obvious.
We talked about the pattern, where our recent acquisition typically have have lower margins than than our existing business. You know some of it yeah, there's a little bit of business next across the full year. You know there is there are incentive payments based on the strong performance and the other day.
And in general.
Yeah, there, there's some there's some seasonality and our emergency but but finally also there is as we talked about before there is there is investment over the course of the year as we look to balance efficient operation with also you know our calls for long term sustainable growth.
Fair enough. Thank you.
And we will take our next question from Russell clubs with Red Burn Your line is open.
Mmm.
[noise] four eight.
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Sure.
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Yeah.
I'm sorry, we can it's not legible <unk>, we're not able to hear what the analysts are saying.
Sir Yes, we have a very garbled connection if you could try reconnecting and rejoining the queue. Please.
Sure it's up in it now.
It is thank you.
Thank you <unk>. Thank you <unk>. So the question was could you give us the H one review numbers fooled about three business <unk> business.
The life insurance on the international businesses. So we can assist you. This is the numbers that you gave at the invest today other than this year.
So I wanted to if you might consider increasing disclosure going forward. So we can better assist the growth in the business notes. So did an insurance business. Thank you.
Thanks for the question Russell, Yeah, we don't give we don't give that level of disclosure at the moment on our on our businesses you know the Investor day will give a longterm you know a sense of our longterm overall portfolio and was was more disclosure than we'd ever given in the past so.
We will take your feedback on that and and consider it.
Okay Uhm it was worth a dry and then just a quick follow up on the revenues the cockpit.
<unk>.
Most of the O P is and I heard you talk about incremental investment.
<unk> I wondered if you'd be willing to tell you that <unk> capex ratio over 10%. If you have to see a great opportunity to invest it at Yahoo opportunities in the next couple of years.
So thanks. Thanks for the question in terms of Capex is that as a percent of revenue.
Again, we've talked about it that's that's not a metric that we target what we target is strong returns on invested capital for our for our capital deployment, but if you are benchmarking against our peers. There's two things that you have to keep in mind in terms of Capex as a per cent of revenue one is our very high margins, which would make that.
That says a per cent of revenue skewed and maybe we should look at <unk> as a per cent of EBITDA free cash flow. The second point is that R. R. A D is very well just given the way that we classify items and so you should look at cat that plus alrighty and and on that basis, you'd you'd get to a more normalized level as to.
Add to kind of where we would take it I think I add investor day, I pointed to a similar range of of sort of high single digits.
Uhm.
Area.
Yeah, and we continue to assess what the opportunity is and what's the best way to create value for shareholders.
Okay. Good stuff, thanks for that and apologize for the connection issues.
Thanks Bye bye.
And we will take our next question from Ashish Sinatra with R. B C. Your line is open.
Thanks for taking my question I wanted to drill down further on the new product innovation Lee you make sure several new product that were launched in a quarter gaining traction with customers I was wondering how deep <unk> internally and is there anything that you can share it externally.
How we can track the success that you're having with this new <unk> and the new product innovation or the near term, but also with the next three to five years.
Yeah, I think <unk> I think.
Given the scale of these <unk> deeply embedded no. This is something where I think we will continue to describe our anecdotally our success and what we are traction with clients around these but it's at a level of detail and certainly at this stage isn't a a significant financial impact and so we won't be <unk>.
Finding a specific specific items around that but I think they reflect a few of a larger portfolio of investments that we make across the business that overtime. We expect can be contributors to perhaps tie it to other renovations that we have that we have made.
Or light speed suite of products as an example of where we identified indeed, we developed an application and now that it has been a significant contributor to growth as we've been able to help our our clients grow there or improve their ability to deliver a bindable quote on an accelerated unacceptable.
[noise] basis. So there are throughout the organization a large portfolio of these opportunities it's not limited to the two or three that I've described and so it's probably an overwhelming level of detail to kind of share all of that with you, but it's a fundamental part of our process of finding ways to add.
Value for all of our clients.
That's great. Thank you.
As a reminder to start whenever you would like to ask a question and we will take our next question from Stephanie more with Jeffries. Your line is open.
Hi, good morning, Thank you.
I was wondering if you could talk a little bit about your strategy within and within a year for your international business. You know maybe you could touch on how organic growth is trending you know also you know your thoughts on any kind of acquisitions or that could help you you know kind of further gain critical mass going forward. Thank you.
Yeah, well, thank you Stephanie and you'll be the international opportunity for US is one that we pursue in with a couple of approaches and I'll start with.
The natural inclination to see if we can build off of the product search that we have in the U S. So there are a variety of underwriting products for instance, <unk> participation product or four lines.
Forums rules and laws cost businesses, where international buyers see interest in that data and that information and so we have been able to penetrate that market delivering that about products that we also have claims products that we have developed specific to that.
International market. So that is the first stage of our of our international approach. In addition, as you can imagine we have made a number of acquisitions in international markets that represent the our ability to deliver similar services that we can add.
Value to uhm, either by providing additional capital leveraging our network of relationships, adding technology expertise or improving the efficiency uhm that accelerates the the penetration of that of that marketplace and then the third element is to be able to tie those together in order.
To create more composite value or to create a stronger ecosystem in there I would point to our specialty business solutions that is a uhm a combination and integration of our original sequel acquisition with acquisitions like White space Ignite <unk>.
Book and most recently a morning data that is serving the the the non standard market or the London market with a broadening an increasingly integrated set some products that allows us to serve the the insurance industry more.
Effectively so those each of those are elements that we're pursuing in that international dimension in a broad sense. We have generally been been experiencing double digit growth rates for our international business as a whole reflecting contributions from all of those in some cases.
We have a life and health travel there has been growing at a high rate as the global travel industry has recovered uhm post COVID-19 uhm, that's beginning to normalize and we have other businesses that are automating or augmenting traditional functions and the claim side. You know those are some of the businesses that we recently acquired in Germany.
<unk> and and Sweden, and we continue to have success in the U K and serving boosted general insurance market Uhm as well as the the London, Nancy non standard X as in surplus surplus market. So there are a lot of elements, but we generally view the the international markets as.
<unk> areas, where we can bring our expertise and we can augment existing insurer tech players that are effectively serving the industry there.
Great really appreciate all the color.
Mmm.
We will take our next question from five only with Deutsche Bank. Your line is open.
Yes, hi, Thank you and good morning, So I wanted to talk about the sales growth acceleration you know your site.
Basically environmental factors that has accelerated you girls, but you also talked about innovation better dialogue in partnership with your customers. So it seems like you know the financial impact of that represents more upside over time, but curious how you think about the return.
This innovation you know some of the cultural things that you're doing is that something that you think accelerates that grows by allowing for pricing improving retention cross selling etc. Uhm.
King evolve just over the last few months since you gave me a longterm elflock.
Yeah. So far so thanks, a lot rolled up in that in that question. So I'm gonna take give us the best the best crack I can't here Uhm I I think the essence of your question is as we have.
<unk> a year uhm from our our exits from the <unk> the Noninsurance businesses and we've described our ambitions for what we can do more broadly with the industry as R. As our culture has evolved becoming more focused around insurance you do we remain.
Confident that the the growth opportunity that we described it to add Investor day remains in place and I I think the short answer is yes, we've been really happy with the level of engagement from our clients I've been very happy with the feeling I've had within the organization of our config.
Duration as an insurance focused entity I think that we are putting more energy into looking at how we can tie or datasets and our products together to serve the industry more broadly and I think that's also improved the energy around innovating for for the industry and we've been focused on how do we do that not only from Ah.
Bottoms up standpoint with ideas from our employee base, which are often the closest to the products and how we add value to those for the benefit of our clients and our ability to realize the commercial benefits as well as now integrating I think <unk> input from the top down to make certain that.
In those conversations with our clients when we have identified identify and an opportunity to address their needs by tying things together that we are productizing that and we're delivering something not just for that client, but something that we can rule out to the industry as a whole you know at the core of our economic value <unk>.
A physician is driven by an ability to invest in and develop a a solution or an analytic uhm that can serve not just one client, but the industry as a whole and so our ability to January uhm uhm.
Uhm rapidly monetize and generate a strong return on that investment and serving as an effective utility for the industry is quite powerful and so I think everything that we've seen so far is a validation of of what our thesis was and I think we're also reassured that our investors are seeing the <unk>.
<unk> Uhm at an early stage, there's a lot to build upon and so we're hopefully we'll be able to continue to execute against that dynamic.
Great. Thanks May I appreciate it.
And ladies and gentlemen. This concludes today's call. We thank you for participating and you may now disconnect.
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