Q4 2023 Verisk Analytics Inc Earnings Call
Good day, everyone and welcome to the various <unk> fourth quarter and full year 'twenty twenty-three earnings results Conference call. This call is being recorded.
Unknown Executive: Good day everyone, and welcome to the Verisk fourth quarter and full year 2023 earnings results conference call. This call is being recorded, and currently, all participants are in a listen only mode.
Currently all participants are in a listen only mode.
Unknown Executive: 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 have further instructions for you at that time. For opening remarks and introductions, I would now like to turn the call over to Verisk Head of Investor Relations, Ms. Stacey Brodbar. Ms. Brodbar, please go ahead.
After today's prepared remarks, we'll 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 have further instructions for you at that time for opening remarks, and introductions I would now like to turn the call over to various head of Investor.
Your relations Ms Stacy Burrowed bar Ms. Broberg. Please go ahead.
Stacey Jill Brodbar: Thank you, Operator, and good day, everyone. We appreciate you joining us today for a discussion of our fourth quarter and full year 2023 financial results. On the call today are Lee Shavel, Verisk's President and Chief Executive Officer, and Elizabeth Mann, Chief Financial Officer. The earnings release referenced in this call, as well as our traditional quarterly earnings presentation and the associated $10K, can be found in the investor section of our website, verisk.com. The earnings release has also been attached to an AK that we have furnished to the SEC. A replay of this call will be available for 30 days on our website and by dial-in.
Stacey Brodbar: Thank you operator, and good day, everyone. We appreciate you joining us today for a discussion of our fourth quarter and full year 2023 financial results Oh today, our lease Jabal <unk>, President and Chief Executive Officer, and Elizabeth Ma'am, Chief Financial Officer.
Speaker Change: The earnings release referenced on this call as well as our traditional quarterly earnings presentation and the associated 10-K can be found in the investors section of our website <unk> Dot com.
Speaker Change: The earnings release has also been attached to an 8-K that we furnished to the SEC a replay of this call will be available for 30 days on our website 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 <unk> future performance, including those related to work.
Unknown Executive: As set forth in more detail in today's earnings release, I will remind everyone that today's call may include forward-looking statements about Verisk's future performance, including those related to our financial guidance. However, 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 also 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 growth figures. A reconciliation of reported and historic non-GAAP financial measures discussed on this call is provided in our 8K and today's earnings presentation posted on the investor section of our website, verisk.com. However, we are not able to provide a reconciliation of projected adjusted EBITDA and adjusted EBITDA margin to the most directly comparable expected GAAP results because of the unreasonable effort and high unpredictability of estimating certain items that are excluded from projected non-GAAP And now, I'd like to turn the call over to Leigh Schaefer.
Speaker Change: Natural 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 also like to remind everyone that the financial results for recent dispositions are included in our consolidated GAAP results.
Speaker Change: 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 8-K and today's earnings presentation posted on the investors section of our website <unk> Dot com. However, we are not able to provide a reconciliation of projected.
Speaker Change: Adjusted EBITDA and adjusted EBITDA margin to the most directly comparable expected GAAP results because of the unreasonable effort and high 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.
Speaker Change: Cost gains and losses from dispositions and other nonrecurring expenses the effect of which may be significant and now I'd like to turn the call over to Lee shave off.
Lee M. Shavel: Thank you, Stacey. Good morning, everyone, and thank you for participating in this morning's call. I am pleased to be here today to recap what was an exceptional year for Verisk, marked by strategic, organizational, and cultural change, matched with outstanding financial performance and value creation for clients and shareholders alike. Elizabeth will provide the financial details. But in summary, we delivered 8.7% organic constant currency revenue growth in 2023, the strongest performance on record since our initial public offering back in 2009. And we exceeded the expectations we set at Investor Day in March. We combine this with double-digit organic constant currency, adjusted EBITDA growth, and 150 basis points of margin expansion on an insurance only basis. We achieved the low end of the initial margin improvement goal of 300 basis points one year earlier than our original target of 2024, and we have plans in place to build on that in 2024 and beyond. Despite the separation of our non-insurance business, we still grew free cash flow 6% to over $800 million and above our 2022 level on an unadjusted basis. Over the past two years, we demonstrated capital discipline by returning over $4 billion in proceeds from recent dispositions to shareholders through share repurchases, reducing our share base by about 10%.
Lee: Thank you Stacey good morning, everyone and thank you for participating in this morning's call.
Lee: I am pleased to be here today to recap what was an exceptional year for various marked by strategic organizational and cultural change matched with outstanding financial performance and value creation for clients and shareholders alike.
Lee: Elizabeth will provide the financial detail, but in summary, we delivered $8, 7% organic constant currency revenue growth in 2023, the strongest performance on record since our initial public offering back in 2009, and we exceeded the expectations, we set at Investor day in March.
Lee: We combine this with double digit organic constant currency adjusted EBITDA growth and 150 basis points of margin expansion on an insurance only basis.
Lee: <unk> the low end of the initial margin improvement goal of 300 basis points, one year earlier than our original target of 2024.
Lee: And we have plans in place to build on that in 2024 and beyond.
Lee: Despite the separation of our non insurance business, we still grew free cash flow of 6% to over 800 million and above our 2022.
Lee: Will on an unadjusted basis.
Lee: Over the past two years, we demonstrated capital discipline by returning over $4 billion in proceeds from recent dispositions to shareholders through share repurchases.
Lee: Using our share base by about 10%.
Lee M. Shavel: This also served to substantially improve our capital efficiency and boost our returns on invested capital. And while our strong 2023 revenue growth was exceptional, the long-term opportunity to address our clients' most pressing needs gives me confidence in our strategy to drive consistent and predictable growth in 2024 and beyond. The insurance industry backdrop in which we are operating is relatively comparable to 2023. Insurance carriers continue to deal with cyclical challenges to profitability resulting from higher losses and the lagging effects of inflation by restricting new business in profit-challenged markets. The most recent AMBEST data shows losses for the first nine months of 2023 were $32.2 billion, a further deterioration from the $24.5 billion in net losses recorded through the first six months of the year and tracking way ahead of the pace of losses in 2022.
Lee: He has also served to substantially improve our capital efficiency and boost our returns on invested capital.
Lee: And while our strong 2023% revenue growth was exceptional the long term opportunity of addressing our clients' most pressing needs gives me confidence in our strategy to drive consistent and predictable growth in 2024 and beyond.
Lee: The insurance industry backdrop in which we're operating is relatively comparable to 2023.
Lee: Insurance carriers continue to deal with cyclical challenges on profitability, resulting from higher losses, and the lagging effects of inflation by restricting new business in profit challenged markets.
Lee: The most recent am best data shows losses for the first nine months of 2023 were $32 2 billion.
Lee: Further deterioration from the $24 5 billion in net losses recorded through the first six months of the year and tracking way ahead of the pace of losses in 2022.
Lee M. Shavel: This caused AMVEST to downgrade their outlook for the homeowners line from stable to negative, while also maintaining their negative outlook on personal auto. To some extent, profitability challenges in the industry were the result of higher catastrophe-related losses. Our own PCS data points out that 2023 was the highest year on record for frequency of catastrophe activity with 74 events. While 2023 did not have a major tropical hurricane make US landfall, wind and severe convective storms were dominant and the major source of events in the year.
Lee: This caused a M best to downgrade their outlook for the homeowners line from stable to negative while also maintaining their negative outlook on personal auto.
Lee: To some extent profitability challenges in the industry were the result of higher catastrophe related losses.
Lee: Our own Tcs data points out the 2023 was the highest year on record for frequency of catastrophe activity was 74 events.
While 2023 did not have a major tropical hurricane make U S landfall wind and severe convective storms were dominant in the major source of events in the year.
Lee M. Shavel: That said, the fourth quarter of 2023 was a relatively quiet period with only seven events and was lower than the fourth quarter of 2022, which experienced 13 events. On the more positive side, carriers are having success raising rates and driving premium growth and are taking the very early steps in certain lines to unwind restrictions on writing new business as they achieve rate adequacy. In fact, net written premium growth increased 10.8% for the first nine months of 2023. More structurally, the insurance industry continues to be challenged by the rapid pace of technological change, including digitalization and cloud migration. This is being compounded by the fact that the industry also faces technological debt and aging legacy systems.
Lee: That said the fourth quarter of 2023 was a relatively quiet period with only seven events and was lower than the fourth quarter of 2022, which experienced 13 events.
Lee: On the more positive end carriers are having success raising rates and driving premium growth and are taking the very early steps in certain lines to unwind restrictions on writing new business as they achieve rate adequacy. In fact net written premium growth increased 10, 8% for the first nine months of.
Lee: 2023.
Lee: Structurally the insurance industry continues to be challenged by the rapid pace of technological change, including digitalization and cloud migration.
Lee: This is being compounded by the fact that the industry also faces technological depth and aging legacy systems. In addition, the industry continues to experience growing regulatory focus on issues of data privacy fairness and climate risk.
Lee M. Shavel: In addition, the industry continues to experience growing regulatory focus on issues of data privacy, fairness, and security. Our business model and strategy are designed to address our customers' most pressing needs, both from a cyclical and structural perspective. We invest on behalf of the industry, applying our industry knowledge and technical expertise at scale to deliver value to our clients at a lower cost of investment and ownership than any one participant can achieve individually. As we work with our clients on a more integrated basis, the opportunities to develop new solutions expand. We are focused on the three key priorities we articulated back at Investor Day, namely delivering consistent and predictable top-line growth, driving operating efficiency and profitability, and ensuring disciplined capital allocation. Let me spend a few minutes on how we plan to go after each in 2024 and beyond.
Lee: Our business model and strategy are designed to address our customers' most pressing needs both from a cyclical and structural perspective, we invest on behalf of the industry applying our industry knowledge and technical expertise at scale to deliver value to our clients at a lower cost of <unk>.
Lee: Vestment and ownership than any one participant can achieve individually.
Lee: As we work with our clients on a more integrated basis the opportunities to develop new solutions expands.
Lee: We are focused on the three key priorities, we articulated back at Investor day, namely delivering consistent and predictable top line growth driving operating efficiency and profitability and ensuring disciplined capital allocation, let me spend a few minutes on how we plan to go after each in 2024 and beyond.
Lee M. Shavel: Our first priority is delivering consistent and predictable growth through strategic dialogue with clients and innovation. Throughout 2023, we made substantial progress on our initiative to elevate the strategic dialogue with our clients and to become their strategic data analytic and technology partner. During the year, I met with over three dozen client CEOs and senior leaders representing over half of the U.S. property and casualty insurance industry's direct written premium to discuss how we could better support their objectives. [inaudible] How can you accelerate and expand the delivery of data and analytics to our organization? How can Verisk augment the capabilities of our colleagues to improve their ability to manage the amount of information they receive?
Lee: Our first priority is delivering consistent and predictable growth through strategic dialogue with clients and innovation.
Lee: Throughout 2023, we made substantial progress on our initiative to elevate the strategic dialogue with our clients and to become their strategic data analytics and technology partner.
Lee: During the year I met with over three dozen clients Ceos and senior leaders representing over half of the U S property and casualty insurance industry direct written premium to discuss how we could better support their objectives. Three primary themes came up repeatedly how can you accelerate and expand the.
Lee: <unk> of data and analytics to our organization.
Lee: Within various augment the capabilities of our colleagues to improve their ability to manage the amount of information they receive.
Lee M. Shavel: And finally, how can Verisk help better connect the ecosystems we operate in to improve our efficiency? At the acceleration point, we are intensively addressing this opportunity across our businesses, but perhaps most significantly, in our core lines reimagined project to reengineer how we deliver our core data sets and analytics to meet the rapidly evolving ingestion demands of our clients. Prospectively, we see the application of low, no-code, and microservices technology that we have successfully deployed in the life insurance industry having material significance to the property and casualty segment. On augmentation, we have already been applying generative AI technology through our Discovery Navigator solution to dramatically accelerate the summarization of large and complex medical files in our casualty disk.
Lee: And then finally, how can <unk> help better connect the ecosystems, we operate in to improve our efficiency.
Lee: On the acceleration point, we are intensively addressing this opportunity across our businesses, but perhaps most significantly in our core lines re imagine project to reengineer, how we deliver our core datasets and analytics to meet the rapidly evolving ingestion demands of our clients.
Lee: Prospectively, we see the application of low no code and micro services technology that we have successfully deployed in the life insurance industry, having material significance to the property and casualty segment and have been working with clients on testing applications.
Lee: An augmentation, we have already been applying generative AI technology through our discovery navigator solution to dramatically accelerate the summarization of large and complex medical files and our casualty business.
Lee M. Shavel: In perspective, we have been developing and working with clients to refine several augmented underwriting applications. In terms of connectivity, we've been investing in our exact where platform to support the integration of more ecosystem partners. Last week, I attended our Elevate Conference in Salt Lake City, which had record attendance from our insurance, contractor, and adjuster clients and over 30 ecosystem partners. [inaudible] Both clients and partners expressed enthusiasm for our delivery of improved connectivity and efficiency, demonstrating the network potential of this business. Finally, on connectivity, we were thrilled at last week's announcement of Marsh's expansion of its digital trading initiative on the Verisk WhiteSpace platform. This builds on a successful pilot in 2023, which traded over $400 million in premium and is a gratifying endorsement by a world-leading insurance broker that should draw more participation onto a data-first platform that will drive greater efficiency for the market.
Lee: <unk>, we have been developing and working with clients to refine several augmented underwriting applications.
Lee: On connectivity, we've been investing in our exact wear platform to support the integration of more ecosystem partners last week I attended our elevate conference in Salt Lake City, which had record attendance from our insurance contractor adjust real clients and over 30 ecosystem partners, both clients and <unk>.
Lee: <unk> has expressed enthusiasm for our delivery of improved connectivity and efficiency.
Lee: Demonstrating the network potential of this business.
Lee: Finally on connectivity, we were thrilled at last week's announcement of marches expansion of its digital trading initiative on the various <unk> white space platform.
Lee: This builds on a successful pilot in 2023, which traded over $400 million in premium and as a gratifying endorsement by a world leading insurance broker that should draw more participation onto a data first platform that will drive greater efficiency for the market with.
Lee M. Shavel: With expansion across its UK specialty and international placement business, Marsh anticipates that over 90% of all client premium in that segment will flow through the platform by the end of 2024. Our strategic conversations are also helping to drive more informed innovation. In our conversations with clients, we repeatedly hear about the increasing regulatory focus and reporting requirements on fairness and unfair discrimination. To address this need, during the fourth quarter, we launched FairCheck, a solution designed to address issues of fairness and discrimination in underwriting. FairCheck helps insurers test their personal lines, models, and variables to respond to regulatory change and to evaluate and mitigate the potential for unfairly discriminatory outcomes.
Lee: With expansion across its UK specialty and international placement business, Marcia anticipates that over 90% of all client premium in that segment will flow through the platform by the end of 2024.
Lee: Our strategic conversations are also helping to drive more informed innovation and our conversations with clients. We repeatedly here about the increasing regulatory focus and reporting requirements on fairness and unfair discrimination to address this need during the fourth quarter, we launched fare check a solution designed.
Lee: And to address issues of fairness and discrimination in the underwriting process fair check helps insurers test their personal lines models and variables to respond to regulatory change and to evaluate and mitigate the potential for unfairly discriminatory outcomes. This solution is an extension of the work we did.
Lee M. Shavel: This solution is an extension of the work we did internally to assess Verisk's own personal auto rating model to determine whether there were unfair pricing outcomes regarding race. We recently signed a national property and casualty carrier to be our first customer. Internally, during 2023, we worked with an outside consultant to sharpen our go-to-market strategy and are implementing the first steps of this changed approach in 2024. This includes an investment in sales effectiveness, incorporating a change to the composition of incentives to be more in line with industry best practice. In addition, we have identified pricing and packaging opportunities within property estimating solutions and extreme event solutions, and we will be bringing them to market throughout this year. Our second priority from Investor Day is driving operating efficiency and profitability. We remain committed to driving operating efficiency and margin expansion over time. We are leaning into our global talent optimization initiative, tapping into talent-rich and low-cost markets like Krakow, Poland, and Hyderabad, India.
Lee: Internally to assess various own personal auto rating model to determine whether there were unfair pricing outcomes regarding race, we recently signed a national property and casualty carrier to be our first customer.
Lee: Internally during 2023, we worked with an outside consultant to sharpen our go to market strategy and are implementing the first steps of this changed approach in 2024. This includes an investment behind sales effectiveness, incorporating a change to the composition of incentives to be more in line with industry best practices in.
<unk>, we have identified pricing and packaging opportunities within property estimating solutions and extreme event solutions, and we will be bringing them to market throughout this year.
Lee: Our second priority from Investor day is driving operating efficiency and profitability.
Lee: We remain committed to driving operating efficiency and margin expansion over time, we are leaning into our global talent optimization initiatives tapping into the talent rich and low cost markets like Krakow, Poland and hydro Bad India.
Lee: We have recently expanded our real estate footprint in both markets to support our growth. Additionally, we should continue to achieve savings as we modernize and optimize our technology infrastructure across all of our legacy systems, including our internal financial and human capital ERP upgrade which is underway and what.
Lee M. Shavel: We have recently expanded our real estate footprint in both markets to support our growth. Additionally, we should continue to achieve savings as we modernize and optimize our technology infrastructure across all our legacy systems, including our internal financial and human capital ERP upgrade, which is underway and should start delivering early efficiency benefits in 2025, with the full impact to be achieved in two to three years. As we look ahead, we see opportunity in improving our operational efficiency through careful reviews of our workflow and processes. We will continue to deploy our Lean Six Sigma program to drive additional savings and continue to focus on our organizational structure and efficiency. And finally, our third priority is disciplined capital outlay. Disciplined capital allocation underscores all our decision making.
Lee: Should start delivering early efficiency benefits in 2025 with the full impact to be achieved in two to three years as we look out we see opportunity in improving our operational efficiency by careful reviews of our workflow and processes. We will continue to deploy our lean six Sigma program to drive additional savings.
Lee: And continue to focus on our organizational structure and efficiency.
Lee: And finally, our third priority is disciplined capital allocation.
Lee: Disciplined capital allocation underscores all our decision, making in Paris, we invest our strong free cash flow into value, creating opportunities that support growth with attractive returns excess capital is returned to shareholders through dividends and share repurchases in 2023, our return on invested capital was approximately.
Lee: 26% with incremental returns on capital at approximately 19% as we continue to invest our capital at high internal rates of return.
Lee M. Shavel: We invest our strong free cash flow into value creation opportunities that support growth with attractive returns. Excess capital is returned to shareholders through dividends and share repurchases. In 2023, our return on invested capital was approximately 26%, with incremental returns on capital at approximately 19%, as we continue to invest our capital at high internal rates of return. We are excited about the many opportunities we have to invest across our business in emerging technologies, including generative AI, low- and no-code applications, and international expansion. We are also investing in upgrades and replatforming of our core solutions, some of which have been underinvested and need modernization to support future innovation. The most notable example is our Corelines Reimagined project.
Lee: We are excited about the many opportunities we have to invest across our business in emerging technologies, including generative AI low no code applications and international expansion.
Lee: We also are investing behind upgrades and re platforming of our core solutions, some of which had been underinvested and need modernization to support future innovation.
Lee: The most notable example is our core lines re imagine project as we highlighted before we are about one third of the way through this project from an investment perspective, and we are engaging our clients as we plan for customer facing modules launching in 2024.
Lee: While there is still much work to be done we are already driving returns through strong contract renewals with our largest customers as they recognize the value of the program.
Lee M. Shavel: As we highlighted before, we are about one-third of the way through this project from an investment perspective, and we are engaging our clients as we plan for customer-facing modules launching in 2024. While there is still much work to be done, we are already driving returns through strong contract renewals with our largest customers as they recognize the value of the program. We are also investing in modernizing our property estimating solutions platform to advance our strategic goal of creating a more open ecosystem that is resilient, redundant, and available for all stakeholders. We are simplifying partner integration and developing new services to enable deeper workflow integration.
Lee: We are also investing in modernizing our property estimating solutions platform to advance our strategic goal of creating a more open ecosystem that is resilient redundant and available for all stakeholders. We are simplifying partner integration and developing new services to enable deeper workflow integration richer solutions.
Lee: And better client services.
Lee: This initiative should increase our agility and create a more dynamic work environment for both our clients and our development teams.
Lee: We are also excited about the opportunities to continue to create incremental value in our insurance related acquisitions. For example in claims we are driving growth and synergies in our three recent acquisitions in Germany, where we have a leading market position in the bodily injury space and are adding services and technology offerings in the auto.
Lee M. Shavel: Richer Solutions and Better Client Services. This initiative should increase our agility and create a more dynamic work environment for both our clients and our development teams. We are also excited about the opportunities to continue to create incremental value in our insurance-related acquisitions. For example, in claims, we are driving growth and synergies in our three recent acquisitions in Germany, where we have a leading market position in the bodily injury space, and are adding services and technology offerings in the auto and property spaces through the acquisitions of Actineo, Krug, and Rocket, respectively. These acquisitions enable us to deliver solutions and add value to our German customers across the entire claims life cycle. Before we close, I want to address the recent leadership announcements naming three new business leaders to the Verisk Senior Operating Committee. Rob Newbold was named president of Extreme Events, taking over the reins from Bill Churney, who retired at the end of the year, and Doug Kutchase and Saurabh Kemka were recently named co- I want to thank both Bill and Neil for their many contributions to Verisk and to me personally, as I stepped into the role of CEO, and while we will miss them, they have left their business in the very capable hands of talented, experienced, and energized leaders. 2023 was a demonstration of Verisk's evolving culture.
Lee: Property spaces through the acquisitions of <unk> crude and rocket respectively.
Lee: These acquisitions enabled us to deliver solutions and add value to our German customers across the entire claims lifecycle.
Lee: Before we close I want to address the recent leadership announcements naming three new business leaders to the various senior operating committee, Rob Newbold was named President extreme events, taking over the reins from Bill Cherny, who retired at the end of the year and Doug could chase and so Rob Kimco, where recently, meaning co presidents of underwriting.
Lee: Solutions, replacing Neil Spector, who has moved into a strategic advisory role.
Lee: All three leaders are evidence of our deeply talented management bench and focused leadership development and succession planning process.
Lee: I want to thank both bill and Neil for their many contributions to <unk> and to me personally as I stepped into the role of CEO and while we will miss them. They have left their business in the very capable hands of talented experienced and energized leaders.
Lee: <unk> 2023 was a demonstration of <unk> evolving culture, we delivered strong financial success, while absorbing organizational and leadership change and I am excited about having the fresh perspective and energy of these three leaders as we move into 2024 with that I'll hand, it over to Elizabeth to review our financial results.
Lee: Else.
Elizabeth: Thanks, Lee and good day to everyone on the call.
Elizabeth: I am pleased to share that <unk> delivered a solid fourth quarter capping off an outstanding 2023.
Elizabeth: On a consolidated and GAAP basis fourth quarter revenue was $677 million up seven 4% versus the prior year, reflecting solid growth in underwriting and more modest growth in claims.
Elizabeth: Income from continuing operations was $182 million down 15, 5% versus the prior year, while diluted GAAP earnings per share from continuing operations were $1 25 down eight 8% versus the prior year.
Lee M. Shavel: We delivered strong financial success while absorbing organizational and leadership change, and I am excited about having the fresh perspective and energy of these three leaders as we move into 2024. With that, I'll hand it over to Elizabeth to review our financial plan.
Elizabeth: The year over year decline in both measures were primarily due to a $19 million litigation reserve expense related to our former financial services segment that was previously sold.
Elizabeth Mann: Thanks, Lee, and good day to everyone on the call. I am pleased to share that Verisk delivered a solid fourth quarter, capping off an outstanding 2023 on the Consolidated and Gap Space. Fourth-quarter revenue was $677 million, up 7.4% versus the prior year, reflecting solid growth in underwriting and more modest growth in claims. Income from continuing operations was $182 million, down 15.5% versus the prior year, while diluted GAAP earnings per share from continuing operations were $125, down 8.8% versus the prior year.
Elizabeth: Alongside a one time tax benefit of $30 million or <unk> 19 per share in the fourth quarter of 2022.
Elizabeth: Additionally, elevated depreciation and amortization expenses in the fourth quarter of 2023.
Elizabeth: Resulting from the completion and implementation of certain large internally developed software project during the year.
Elizabeth: Also contributed to the decrease.
Elizabeth: These factors were partially offset by strong revenue growth lower net interest expense and the benefit from our accelerated share repurchase program.
Elizabeth: Moving to our organic constant currency results adjusted for nonoperating items as defined in the non-GAAP financial measures section of our press release.
Elizabeth: Our operating results demonstrated solid growth from most of our businesses.
Elizabeth Mann: The year-over-year decline in both measures was primarily due to a $19 million litigation reserve expense related to our former financial services segment that was previously sold, alongside a one-time tax benefit of $30 million, or $0.19 per share, in the fourth quarter of 2022. Additionally, elevated depreciation and amortization expenses in the fourth quarter of 2023. Resulting from the completion and implementation of certain large internally developed software projects during the year also contributed to the. These factors were partially offset by strong revenue growth, lower net interest expense, and the benefit from our accelerated share repurchase program. 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.
Elizabeth: In the fourth quarter OCC revenues grew 6% with growth of seven 3% in underwriting and two 8% in claim.
Elizabeth: Normalizing for the $5 $6 million in storm related revenue in the fourth quarter of 2022.
Elizabeth: Total OTC revenue growth would have been six 9% and claims OCC revenue growth would have been six 8%.
Elizabeth: As expected and as we highlighted in prior quarters.
Elizabeth: Some of the environmental trends, which supported elevated growth earlier in the year began to normalize in the fourth quarter. Additionally, we did begin to overlap tougher comparisons in many of our businesses.
Elizabeth: That said 2023 was a record year for Barrett with total OTC revenue growth of eight 7% driven by strong growth of eight 5% in underwriting and nine 3% in claims.
Elizabeth: For the full year was broad based with almost all businesses delivering better than expected results.
Elizabeth Mann: Our operating results demonstrated solid growth from most of our businesses. In the fourth quarter, OCC revenues grew 6%, with growth of 7.3% in underwriting and 2.8% in claims, normalizing for the $5.6 million in storm-related revenue in the fourth quarter of 2022. Total OCC revenue growth would have been 6.9%, and claims OCC revenue growth would have been 6.0%. As expected, and as we highlighted in prior. Some of the environmental trends that supported elevated growth earlier in the year began to normalize in the fourth quarter.
Elizabeth: Throughout 2023, our increased focus on the insurance business and are energized organization capitalize on three key industry and environmental trends to amplify our growth.
Elizabeth: These trends included the pricing environment, resulting from the hard insurance market.
Elizabeth: The high transaction activity driven by elevated shopping activity for auto insurance.
Elizabeth: And the active U S weather patterns that Lee highlighted.
Elizabeth: Our subscription revenues, which comprise 80% of our total revenue in the quarter grew seven 3% on an OCC basis during the fourth quarter with growth in almost all our subscription based solutions.
Elizabeth Mann: Additionally, we did begin to overlap tougher comparisons in many of our businesses. That said, 2023 was a record year for Verisk, with total OCC revenue growth of 8.7%, driven by strong growth of 8.5% in underwriting and 9.3% in claims. Growth for the full year was broad-based, with almost all businesses delivering better than expected results.
Elizabeth: The drivers of growth we experienced in the quarter were consistent with trends we saw throughout 2023.
Elizabeth: More specifically during the quarter, we experienced the continued benefit on certain of our revenues from the stronger net premium growth in 2021, which is currently reflected in some of our contract pricing.
Elizabeth: In anti fraud, we saw underlying strength in the business with growth augmented by the continued benefit from the conversion to subscription from previously transactional customers through our claim the central bundle.
Elizabeth: That said, we have started to anniversary the benefit we experienced from the conversion and are expecting the benefit from this transition to continue to moderate in 2024.
Elizabeth Mann: Throughout 2023, our increased focus on the insurance business and our energized organization will capitalise on three key industry and environmental trends to amplify our growth. These trends include the pricing environment resulting from the hard insurance market, The High Transaction Act, driven by elevated shopping activity for auto insurance, and the active U.S. weather patterns that Lee highlighted.
Elizabeth: These strengths were offset in part by continued weakness within various marketing solutions and a more normalized level of attrition across the business, including some reduction in the level of contractor activity due to the weather.
Elizabeth: And some pressure within our insurer tax customer segment.
Elizabeth: Our transactional revenue representing 20% of total revenue in the fourth quarter increased a modest <unk>, 8% on an OCC basis, reflecting a tough comparison versus the prior year, which included revenues associated with hurricane in it.
Elizabeth Mann: Our subscription revenues, which comprise 80% of our total revenue in the quarter, grew 7.3% on an OCC basis during the fourth quarter, with growth in almost all our subscription-based solutions. The drivers of growth we experienced in the quarter were consistent with trends we saw throughout 2023. More specifically, during the quarter, we experienced the continued benefit on certain of our revenues from the stronger net premium growth in 2021, which is currently reflected in some of our contract prices. In anti-fraud, we saw underlying strength in the business, with growth augmented by the continued benefit from the conversion to subscription from previously transactional customers through our claims essential bundle. That said, we have started to anniversary the benefit we experienced from these conversions and are expecting the benefit from this transition to continue to moderate in 2024. These strengths were offset in part by continued weakness within Verisk marketing solutions and a more normalized level of attrition across the business, including some reduction in the level of contractor activity due to the weather and some pressure within our InsureTech customer segment.
Elizabeth: Adjusting for the storm impact transactional revenue growth would have been four 1%.
Elizabeth: During the quarter, we continued to see strong results from our auto solution driven by healthy consumer shopping activity and the final quarter of benefit from the large non rate action deal we signed for 2023.
Elizabeth: We have begun to overlap the positive inflection in shopping behavior from last year and are expecting growth to moderate in 2024.
Elizabeth: Our transactional revenue growth also benefited from double digit growth within life insurance solutions as we are seeing strong customer demand for incremental services.
Elizabeth: And within our extreme event business, we saw better than expected transactional growth driven by securitization.
Elizabeth: Moving now to our adjusted EBITDA result.
Elizabeth: OCC adjusted EBITDA growth was six 5% in the fourth quarter.
Elizabeth: While total adjusted EBITDA margin, which includes both organic and inorganic results.
Elizabeth: With 53, 4% up.
Elizabeth: Up 70 basis points from the reported results in the prior year.
Elizabeth: The fourth quarter margin rate reflect the positive impact of sales leverage cost discipline and foreign currency changes.
Elizabeth Mann: Our transactional revenue, representing 20% of total revenue in the fourth quarter, increased a modest 0.8% on an OCC basis, reflecting a tough comparison versus the prior year, which included revenues associated with Hurricane Ian. Adjusting for the storm impact, transactional revenue growth would have been 4.1%. During the quarter, we continued to see strong results from our auto solutions driven by healthy consumer shopping activity and the final quarter of benefit from the large non-rate action deal we signed for 2023. We have begun to overlap the positive inflection in shopping behavior from last year and are expecting growth to moderate in 2024. Our transactional revenue growth also benefited from double-digit growth within life insurance solutions, as we are seeing strong customer demand for incremental services. And within our extreme events business, we saw better than expected transactional growth driven by securitization. Moving now to our adjusted EBITDA results. OCC adjusted EBITDA growth was 6.5% in the fourth quarter, while total adjusted EBITDA margin, which includes both organic and inorganic results, was 53.4%, up 70 basis points from the reported results in the prior year.
Elizabeth: This was offset in part by margin pressure from higher incentive compensation acquisitions and organic investments for future growth.
Elizabeth: 2023 was a year of tremendous growth and efficiency for Barrick and evidenced by total OTC adjusted EBITDA growth of 11, 5%.
Elizabeth: While total adjusted EBITDA margin was 53, 5% up 150 basis points from the prior year.
Elizabeth: This margin rate reflects core operating leverage from the strong revenue growth and cost discipline across the organization.
Elizabeth: As Lee discussed earlier, delivering operational efficiency and profitability remains a key priority for us as we move forward into 2024 and beyond.
Elizabeth: We have confidence we can continue to make further progress while also balancing investment to support future growth.
Elizabeth: Continuing down the income statement net interest expense was $28 million for the fourth quarter compared to $41 million in the prior year.
Elizabeth: The current level of net interest expense reflects lower year over year debt balances as well as higher interest on cash balances.
Elizabeth: Depreciation and amortization of fixed assets was $68 million for the quarter, an increase of 57%.
Elizabeth: The increase was primarily driven by an additional $23 million of expense related to the timing of certain large internally developed software projects that were completed and placed into service during the year.
Elizabeth Mann: The fourth quarter margin rate reflects the positive impact of sales leverage, cost discipline, and foreign currency changes. However, this was offset in part by margin pressure from higher incentive compensation, acquisitions, and organic investment for future growth. 2023 was a year of tremendous growth and efficiency for Verisk, as evidenced by total OCC adjusted EBITDA growth of 11.5%, while total adjusted EBITDA margin was 53.5%, up 150 basis points from the prior year. This margin rate reflects core operating leverage from the strong revenue growth and cost discipline across the organization. As Lee discussed earlier, delivering operational efficiency and profitability remains a key priority for us as we move forward into 2024 and beyond. We have confidence we can continue to make further progress while also balancing investments to support future growth. Continuing down the income statement, net interest expense was $28 million for the fourth quarter, compared to $41 million in the prior year.
On taxes, our reported effective tax rate was 24, 9% compared to nine 9% in the prior year quarter.
Elizabeth: The year over year increase in the tax rate is related to the onetime tax benefit of $30 million in the fourth quarter of 2022, and the $19 million litigation reserve taken in the fourth quarter 2023 that we mentioned earlier.
Elizabeth: Adjusted net income decreased nine 3% to 204 million and diluted adjusted EPS decreased two 1% to $1 40 for the fourth quarter.
Elizabeth: These changes reflect the negative impact from the onetime tax benefit in the prior year quarter.
Elizabeth: And higher depreciation and amortization expenses.
Elizabeth: Partially offset by solid revenue and EBITDA growth lower net interest expense and a lower average share count.
Elizabeth: This share count reflects the impact of the additional $250 million of share repurchases executed in the fourth quarter as well as the final settlement of our $2 $5 billion accelerated share repurchase plan that we entered into in March.
Elizabeth Mann: The current level of net interest expense reflects a lower year-over-year debt balance, as well as higher interest on the cash balance. Depreciation and amortization of fixed assets was $68 million for the quarter, an increase of 57%. The increase was primarily driven by an additional $23 million of expense related to the timing of certain large internally developed software projects that were completed and placed into service during the year. On taxes, our reported effective tax rate was 24.9% compared to 9.9% in the prior year quarter. The year-over-year increase in the tax rate is related to the one-time tax benefit of $30 million in the fourth quarter of 2022 and the $19 million litigation reserve taken in the fourth quarter of 2023 that we mentioned earlier. Adjusted net income decreased 9.3% to $204 million, and Diluted Adjusted EPS decreased 2.1% to 140 for the fourth quarter.
Elizabeth: From a cash flow perspective on a reported basis net cash from operating activities increased one 4% to 252 million, while free cash flow increased 15, 8% to $196 million.
Elizabeth: It is important to note that the prior year cash flow figures still include the results of our previously divested energy business.
Elizabeth: So these growth figures understate, the full cash flow growth potential of our insurance only business.
Elizabeth: On dividends and repurchases.
Elizabeth: During 2023, we returned $3 billion of capital to shareholders through dividends and repurchases.
Elizabeth: We are pleased to share that our board has approved a five or 15% increase in our quarterly cash dividend to <unk> 39 per share.
Elizabeth: In addition, our board has also authorized an additional $1 billion in share repurchases, bringing our total authorization to $1 6 billion.
Elizabeth: On guidance, we are pleased to deliver our expectations for 2024 with growth and margin in line with our Investor day targets.
Elizabeth Mann: These changes reflect the negative impact of the one-time tax benefit in the prior year quarter and higher depreciation and amortization expenses, although partially offset by solid revenue and EBITDA growth, lower net interest expense, and a lower average share. The share count reflects the impact of the additional $250 million of share repurchases executed in the fourth quarter, as well as the final settlement of our $2.5 billion accelerated share repurchase plan that we entered into in March. From a cash flow perspective, on a reported basis, net cash from operating activities increased 1.4% to $252 million, while free cash flow increased 15.8% to $196 million.
Elizabeth: And they build upon the exceptional performance we delivered in 2023.
Elizabeth: More specifically, we expect consolidated revenue for 2024 to be in the range of 284 billion to $2 9 billion.
Elizabeth: We expect adjusted EBITDA to be in the range of 154 billion to $1 6 billion and adjusted EBITDA margin in the 54% to 55% range.
Elizabeth: This margin reflects strong cost discipline, while also funding incremental investment opportunities that we expect to drive future growth.
Elizabeth: These opportunities include investing in our Salesforce to drive greater sales effectiveness.
Standing internationally through our recent acquisitions and building our capabilities with new advanced technologies, including generated AI.
Elizabeth Mann: It is important to note that the prior year cash flow figures still include the results of our previously divested energy business, so these growth figures understate the full cash flow growth potential of our insurance-only business. On dividends and repurchases, During 2023, we returned $3 billion of capital to shareholders through dividends and repurchases. We are pleased to share that our board has approved a $0.05, or 15% increase, in our quarterly cash dividend. The Bulletproof Executive 2013, In addition, our board has also authorized an additional $1 billion in share repurchase, bringing our total authorization to $1.6 billion on Guide.
Elizabeth: Walking further down the P&L, we expect depreciation and amortization of fixed assets in the range of $210 million to $240 million.
Elizabeth: Amortization of intangibles of approximately $75 million.
Elizabeth: Both items are subject to the timing of completion of projects and foreign currency changes.
Elizabeth: We expect our tax rate to be in the range of 23% to 25%.
Elizabeth: This all culminated in adjusted earnings in the range of $6 30 to $6 68 per share.
Elizabeth: We also expect capital expenditures to be between $240 million and $260 million as we continue to invest organically to drive future growth.
Elizabeth Mann: We are pleased to deliver our expectations for 2024, with gross and margins in line with our Investor Day target, and they build upon the exceptional performance we delivered in 2023. More specifically, we expect consolidated revenue for 2024 to be in the range of $2.84 billion to $2.9 billion. We expect adjusted EBITDA to be in the range of $1.54 billion to $1.6 billion and adjusted EBITDA margin in the 54% to 55% range. This margin reflects strong cost discipline while also funding incremental investment opportunities that we expect to drive future growth. These opportunities include investing in our sales force to drive greater sales effectiveness, expanding internationally through our recent acquisition, and building our capabilities with new advanced technologies, including generated AI. Walking further down the P&L, we expect depreciation and amortization of fixed assets in the range of $210 to $240 million, and amortization of intangibles of approximately 75%. Both items are subject to the timing of the completion of projects and foreign currency changes. We expect our tax rate to be in the range of 23 to 25%. This all culminates in adjusted earnings in the range of $630 to $660 per share.
Elizabeth: A complete list of all guidance measures can be found in the earnings slide deck, which has been posted to the investors section of our website <unk> Dot com.
Elizabeth: And now I will turn the call back over to Lee for some closing comments.
Lee: Thanks Elizabeth.
Lee: In summary, we're excited about the opportunity that lies ahead are motivating purpose is to partner with our clients and building resilience for individuals communities and businesses globally.
Lee: The combination of our focused business model deep customer relationships and strategy to deliver value for clients through improved decision, making and operational efficiency is a formula that will also deliver value to our shareholders through growth and returns.
Lee: We continue to appreciate the support and interest in <unk> given the large number of analysts we have covering us we ask that you limit yourself to one question with that I'll ask the operator to open the line for questions.
Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star followed by the number one on your telephone keypad. Your first question comes from the line of Faiza All way from Deutsche Bank. Please go ahead.
Faiza Alwy: Yes, hi, good morning, Thank you.
Faiza Alwy: Wanted to talk about their revenue guide Les you mentioned, a few puts and takes and we've been talking all of last year about some of the one time impacts that you noted are normalizing so maybe give us a bit more perspective, specifically, how youre thinking about transaction growth and what some of some of the puts and.
Lee M. Shavel: We also expect capital expenditures to be between $240 million and $260 million as we continue to invest organically to drive future growth. A complete list of all guidance measures can be found in the earnings slide deck, which has been posted to the investor section of our website, verisk.com. And now, I will turn the call back over to Lee for some closing comments. Thanks, Elizabeth. In summary, we're excited about the opportunity that lies ahead. Our motivating purpose is to partner with our clients to build resilience for individuals, communities, and businesses globally. The combination of our focused business model, deep customer relationships, and strategy to deliver value for clients to improve decision making and operational efficiency is a formula that will also deliver value to our shareholders through growth and return.
Faiza Alwy: Next there are thank you.
Les: And takes but zooming back on the full year, we really think there were three drivers of strength in 2023. The first was the pricing environment in the hard insurance market.
Les: The second was the transactional rebound and particularly the activity in the auto shopping space and the third was the elevated weather activity, which as you heard 2023 was a record breaking year for cat events, even though there wasn't a single large hurricane driving it when we think about making assumptions for a future year.
Les: We think in general that that first that hard insurance market does does persist into 2024.
Lee M. Shavel: 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. Thank you. As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Faiza Alwy from Deutsche Bank. Please go ahead. Yes, hi, good morning.
Les: But for the other factors for transactional activity, we would expect that to normalize somewhat and whether we can never forecast mother nature. So we assume a more normalized level of weather activity.
Les: Your next question comes from the line of Heather <unk> from Bank of America. Please go ahead.
Les: It's where he'd immuno on for Heather Thanks for taking our questions.
Heather: Just wanted to comment a little bit more on the pricing environment for 2023, you said he was quite elevated can you comment on how that is going into 2024.
Heather: Yes.
Heather: So thanks. This is Lee so first of all let me distinguish I think from a from a pricing standpoint first as we indicated in our in our comments and as Elizabeth just described the overall premium growth market.
Faiza Alwy: Thank you. I wanted to talk about the revenue guide. Liz, you mentioned a few, you know, puts and takes, and we've been talking all of last year about some of the one-time impacts that you noted are normalizing. So maybe give us a bit more perspective, specifically how you're thinking about transaction growth and what some of the puts and takes there are. Thank you. Transcription by https://otter.ai. Your next question comes from the line of Heather Balsky from Bank of America. Please go ahead. Hey, it's Waheed Aminan for Heather.
Lee: <unk> continued to be strong as insurers have been able to secure some rate approvals, we think theres more progress in that regard so I want to differentiate that.
Lee: Pricing environment, which has been constructive.
Lee: And from our perspective that is a partial benefit.
Speaker Change: Represents approximately 20% to 25% of our revenue base is tied to.
Heather Nicole Balsky: Thanks for taking our question. Um, I just wanted to comment a little bit more on the pricing environment for 2023. You said it was quite elevated.
Speaker Change: Prior to year premium growth and so that provides some level of support but I think the more meaningful element of our pricing is our ability to deliver value to our clients. We're doing that probably most significantly in the investments that we're making in our core lines re imagine project where.
Lee M. Shavel: Can you comment on how that is going into 2020? Yeah, so thanks. This is Lee.
Lee M. Shavel: So first, let me distinguish, I think, from a pricing standpoint. First, as we indicated in our comments and as Elizabeth just described, the overall premium growth market has continued to be strong, as insurers have been able to secure some rate approvals. We think there's more progress in that regard. So I want to differentiate that pricing environment, which has been constructive. And from our perspective, that is a partial benefit, because it represents approximately 20 to 25% of our revenue base is tied to prior two-year premium growth. And so that provides some level of support.
Speaker Change: Early renewals from clients that have seen what we are doing what we are creating how we are improving their experience. Their efficiency has demonstrated that value and we have been able to realize stronger pricing momentum than we had originally anticipated which.
Speaker Change: We feel good about as we continue to deliver more functionality through that platform and I would say further I think we through the go to market review that we have done we have identified some areas to identify how we can capture more value that we're delivering to our clients from pricing structures that align.
Speaker Change: To identifying and identifying that value that recruiting for our clients.
Andrew Charles Steinerman: But I think the more meaningful element of our pricing is our ability to deliver value to our clients. We're doing that probably most significantly in the investment that we're making in our core lines reimagined project, where early renewals from clients that have seen what we are doing, what we are creating, how we are improving their experience, their efficiency, has demonstrated that value. And we have been able to realize a stronger pricing momentum than we had originally anticipated, which we feel good about as we continue to deliver more functionality through that platform. And I would say further, I think we through the go to market review that we have done, we have identified some areas to identify how we can capture more value that we are delivering to our clients from pricing structures that align to identifying and identifying that value that we're creating for our clients. Your next question comes from the line of Andrew Steinerman from J.P. Morgan. Please go ahead. Hi.
Speaker Change: Your next question comes from the line of Andrew Steinman from J P. Morgan. Please go ahead.
Andrew Steinman: Firstly I just wanted to say how much I appreciate slide seven the revenue mix very helpful. My question is about various auto underwriting revenues, which I think is all non subs just please clarify that.
Andrew Steinman: How did this AD market due in the fourth quarter at what's the assumption for 'twenty four within the guide.
Speaker Change: Thanks, Thanks, Andrew and thanks for the feedback on that on the slide we're always listening to you guys.
Speaker Change: On the on the auto underwriting revenues it is largely transactional but not 100% there is some some subscription revenues in there.
Speaker Change: And.
Speaker Change: The shopping activity was in Q4, it taper down from Q3.
Speaker Change: But it is still elevated relative to historical levels I think for third party data that J D power.
Speaker Change: Data encapsulates that I think we are assuming that it will continue tapering down to more historic levels, even even at where it is where we're now lapping the benefit of the of the strong environment, but maybe for more on that environment I'll turn it over to Doug to Chase alright. Thanks, a lot Lisa Thanks, Elizabeth Thanks, Andrew for the question.
Elizabeth Mann: First, I just want to say how much I appreciate slide seven, the revenue mix. Very helpful. My question is about various auto underwriting revenues, which I think are all non-subs. Just please verify that. You know, how did this ad market do in the fourth quarter? And what's the assumption for 24 within the guide?
Doug Chase: Echo what you'd said Elizabeth you know as we look at our internal data and also external shopping data we see.
Doug Chase: A slight slowdown in Q4 from a shopping activity and when you look at it months over months you see a slight a slight slowdown from October November and December. So we are seeing that slowdown happened, we expect that slowdown to continue but in 2024, we expect still elevated levels of shopping activity.
Doug Kutchase: Thanks, thanks, Andrew. And thanks for the feedback on the slide. We always listen to you guys.
Elizabeth Mann: On the auto underwriting revenues, it is largely transactional, but not 100%. There are some some subscription revenues in there. And, you know, the shopping activity was in Q4, it tapered down from Q3, but it is still elevated relative to historical levels. I think for third-party data, the J.D.
Doug Chase: Pendant on this is also that will focus on our non rate action campaigns, which actually allow us to go and help carriers bring in premium.
Doug Chase: Immediately that's leaking out booked while the rates of return and so it helps in that way.
Doug Chase: Your next question comes from the line of Ashish Sabra draw from RBC. Please go ahead.
Doug Kutchase: Power data encapsulates that. I think we are assuming that it will continue tapering down to more historic levels. Even at where it is, we're now lapping the benefit of the strong environment. But maybe for more on that environment, I'll turn it over to Doug Cachese. Sure. Thanks, Elizabeth. Thanks, Andrew, for the question. Just, I'll echo what you had said, Elizabeth.
Ashish Sabadra: Thanks for taking my question.
Ashish Sabadra: I just wanted to focus on the subscription growth.
Ashish Sabadra: There were three headwinds that we called out I was just wondering how should we think about the marketing solution some of the attrition and contracted activity in insurance stick.
Ashish Sabadra: As we go through 2024.
Ashish Sabadra: Yeah on the on the marketing side as we've as we've called out in the year.
Ashish Sabadra: Carriers and being challenged and in still trying to achieve profitable growth has not yet turned on their marketing spend. We are we are starting to see that tide turn and some of them are returning to profitability.
Doug Kutchase: You know, as we look at our internal data and also external shopping data, we see a slight slowdown in Q4 from a shopping activity standpoint. And when you look at it month over month, you see a slight slowdown in October, November, and December. So we are seeing that slowdown happen. We expect that slowdown to continue. But in 2024, we expect still elevated levels of shopping activity. The pivot on this is also that we'll focus on our non-rate action campaigns, which actually allow us to go and help carriers bring in premiums immediately that's leaking out of the book while they're waiting for return. And so it helps them.
Ashish Sabadra: The marketing engine haven't been turned on quite yet, but you're starting to see green shoots in that environment I would say, we're assuming that it will it will start to return to more normalized levels in the second half of this year.
Ashish Sabadra: Your next question comes from the line of Manav Patnaik from Barclays. Please go ahead.
Ashish Sabadra: Hi, This is Brandon on for Bob.
Brandon: The new products.
Brandon: Hi.
Brandon: Sure.
Manav Patnaik: What's the plan for this year and then also.
Manav Patnaik: Okay.
Manav Patnaik: Okay.
Manav Patnaik: So anything related to that.
Manav Patnaik: Yeah.
Speaker Change: Sure. Thank you Brandon I'm going to repeat the question because you cant came through a little choppy. There. So I think the question was how do we feel about the new product pipeline.
Speaker Change: He is of oven investment and so.
Speaker Change: I'd say, we are really excited about a number of the new products and developments that we are that we have been working on.
Doug Kutchase: Your next question comes from the line of Ashish Sabadra from RBC. Please go ahead. Thanks for taking my question. I just wanted to focus on subscription growth. There were three headwinds that were called out.
Speaker Change: In particular, I think certainly a lot of the focus has been around generative AI and its application and we have been exploring its application across a variety of our businesses I'm going to isolate for a second on our claims business, where we have deployed some generative AI applications and are also looking.
Ashish Sabadra: I was just wondering what we should think about the marketing solution, some of the attrition and contracted activity, and insurance tech as we go through 2020. Yeah, on the marketing side, as we've called out in the year, carriers, who are still challenged in trying to achieve profitable growth, have not yet turned on their marketing spend. We are, we are starting to see that tide turn, and some of them are returning to profitability. You know, the marketing engines haven't been turned on quite yet, but you're starting to see green shoots in that environment. I would say we're assuming that it will start to return to normal, more normalized levels in the second half of this year. Your next question comes from the line of Manav Patnaik from Barclays. Please go ahead. Hi, this is Brendan on Suribata.
Speaker Change: <unk> at developing other applications I'm going to ask my colleague marooned Maraud to talk a little bit about what we're doing in that area. As an example of what we have been looking to do more broadly. Thank you Lee and thank you for the question just building on our.
Maraud: 2023 momentum, let me just highlight our strong levels of client engagement and ecosystem partner driven innovations and co creation that led to the product position of a couple of solutions.
Maraud: In the casualty above the injury space, we have deployed a traditional AI methods as well as generous AI technologies and data extraction and medical file summary space.
Elizabeth Mann: I just wanted to ask about this new product pipeline, any benefits from that this year? And what's kind of, what's planned for this year? And then also, you talked about some incremental investments as well with AI, Gen AI, so anything related to that? Sure. Thank you, Brandon.
Maraud: In conjunction with the.
Maraud: <unk> deep domain expertise of our legal as well as medical staff in order to continue.
Maraud: Delivering value to our customers in that space and also in the property estimation space. We have also deployed the gen AI and other AI methods in order to continue delivering automation.
Manav Shiv Patnaik: And I'm going to repeat the question because you came through a little choppy there. So I think the question was, how do we feel about the new product pipeline areas of investment? And so I would say we're really excited about a number of the new products and developments that we have been working on. You know, in particular, I think certainly a lot of the focus has been around generative AI and its application.
Maraud: The estimation product process, we've talked in the past about exact expert as a solution to continue driving productivity speed as well as accuracy, which is very important for our customers.
Maraud: To connect Adjustors contractors as well as insurers.
Speaker Change: And I would add to that brand and I wanted to give you a <unk>.
Speaker Change: A taste of what we're doing on that front, but as many of you know we've been really thrilled about the success that we've had with our fast businesses application of low and no code technology to the life insurance business.
Lee M. Shavel: And we've been exploring its application across a variety of our businesses. I'm going to isolate for a second on our claims business, where we have deployed some generative AI applications and are also looking at developing other applications. I'm going to ask my colleague Maroun Mourad to talk a little bit about what we're doing in that area as an example of what we have been looking to do more broadly. Thank you, Lee, and thank you, Manav, for the question, building on our 2023 momentum, let me just highlight our strong levels of client engagement, and ecosystem partner driven innovations and co-creation that led to the productization of a couple of solutions. In the casualty, bodily injury space, we have deployed a traditional AI method as well as generative AI technologies in the data extraction and medical file summary space in conjunction with the deep domain expertise of our legal as well as medical staff in order to continue delivering value to our customers in that space and also in the property estimations space we have also deployed the gen AI and other AI methods in order to continue delivering automation in the estimation product process we've talked in the past about exact expert as a solution to continue driving productivity speed as well as accuracy which is very important for our customers to connect adjusters contractors as well as insurers.
Speaker Change: We believe and have begun to engage with clients on how that can be potentially applied to the P&C area. So I think thats a broad opportunity and then we also as a more insurance focused entity have been able to try to integrate more of our data sets in our extreme events business and our.
Speaker Change: Specialty business solutions area, tying together some of the functions in the excess and specialty market and the reinsurance markets as well as tying together some of our claims data on our underwriting data and so as we have now we migrated to the cloud our ability to facilitate those types of integrations are are particularly attractive.
Speaker Change: <unk>, so a lot of really great stuff that we have underway that should support future growth for the company.
Speaker Change: Your next question comes from the line of Jeff Mueller from Baird. Please go ahead.
Jeff P. Meuler: Yes. Thank you I know a lot of factors contribute to consistent growth, but I just would love your perspective on the pro cyclicality of bookings or innovation sell through especially when it's discrete upsell.
Jeff P. Meuler: And I guess, what I'm wondering is as.
Jeff P. Meuler: As you start to see that move towards premium adequacy would you expect to see bookings pick up with that and maybe if you can call out a few areas I'd imagine mark against one but any other areas, where there may be pent up demand.
Lee M. Shavel: And I would add to that, Brandon. I wanted to give you a taste of what we're doing on that front. But, as many of you know, we've been really thrilled about the success that we've had with our fast businesses application of low and no-code technology to the life insurance business. We believe and have begun to engage with clients on how that can be potentially applied to the P&C area. So I think that's a broad opportunity. And then we also, as a more insurance-focused entity, have been able to try to integrate more of our data sets in our extreme events business and our specialty business solutions area, tying together some of the functions in the access and specialty market and the reinsurance markets, as well as tying together some of our claims data and our underwriting data. And so, as we have now fully migrated to the cloud, our ability to facilitate those types of integrations is particularly attractive.
Jeff P. Meuler: <unk> get healthier from a profitability perspective, thank you.
Speaker Change: Sure Jeff.
Speaker Change: Complex.
Speaker Change: Question, and so I think we're trying to get a handle on it.
Speaker Change: Kind of isolate on as we see premium adequacy improve and the pro cyclicality dimension of the of the business.
Speaker Change: I'd probably start by saying.
Speaker Change: Right.
Speaker Change: By saying as I think many of our investors and analysts understand we don't have a high degree of economic sensitivity.
So there is.
Speaker Change: Muted cyclicality.
Speaker Change: <unk> sensitivity to cyclical effects, we tend to be more influenced as you've observed by weather events or activities in the ILS market and so those tend to have a more pronounced element to it.
Lee M. Shavel: So a lot of really great stuff that we have underway that should support future growth for the company. Your next question comes from Jeff Mueller from Baird. Please go ahead.
Speaker Change: I do think that there is some.
Speaker Change: Pro cyclicality elements that as the business as the insurance industry is doing well and we've seen premium growth that that does encourage more investment in technology and renovation.
Jeffrey P. Meuler: Yeah, thank you. I know a lot of factors contribute to the consistent growth, but I just would love your perspective on the pro cyclicality of bookings or innovation. Sell through, especially when it's a discrete upsell. And I guess what I'm wondering is, as you start to see the move towards premium adequacy. Would you expect to see bookings pick up with that? And maybe if you could call out a few areas? I'd imagine marketing is one, but any other areas where there may be pent-up demand as the environment gets healthier from a profitability perspective? Thank you. Sure, Jeff.
Speaker Change: <unk> accelerates our ability to deploy some of the technologies that we have invested in and that is a positive tailwind in that in that scenario.
Speaker Change: However, I want to isolate that to insurance cyclicality, so that as their profitability grows and that may be separate and unconnected to just broader economic cyclicality, which is relatively muted so hopefully that.
Lee M. Shavel: It's a, you know, complex question, and so I think we're trying to get our handle on it. You know, I'm going to kind of isolate on as we see premium adequacy improve and the pro-cyclicality dimension of the business. I should probably start by saying, or by saying, as I think many of our investors and analysts understand, we don't have a high degree of economic sensitivity. And so, you know, there is muted cyclicality, muted sensitivity to cyclical effects. We tend to be more influenced, as you've observed, by weather events or activities in the ILS market. And so those tend to have a more pronounced element to them.
Speaker Change: It addresses kind of the core of your question Jeff.
Speaker Change: Your next question comes from the line of Toni Kaplan from Morgan Stanley. Please go ahead.
Speaker Change: Hey, Good morning. This is Greg Harrison on for Tony Thanks for taking my question.
Greg Harrison: Well, let's talk about margin you talked about what sounded like expansion of some of the ongoing efficiency initiatives that you have.
Greg Harrison: It is the benefit from those within the ongoing 25% to 75 basis points of your framework and balanced by investment or do you skew a little bit higher over the next two to three years as you work through those initiatives.
Jeffrey P. Meuler: I do think that there are some pro-cyclical elements that as the business, as the insurance industry is doing well, and we've seen premium growth, that that does encourage more investment in technology and renovation that accelerates our ability to deploy some of the technologies that we have invested in. And that is a positive tailwind in that scenario. However, I want to isolate that to insurance cyclicality so that as their profitability grows, and that may be separate and unconnected to just broader economic cyclicality, which is relatively muted. So hopefully, that, you know, I think addresses kind of the core of your question. Your next question comes from the line of Toni Kaplan for Morgan Stanley. Please go ahead. Hey, good morning. This is Greg Parrish on for Tony.
Speaker Change: Should we think about that thanks.
Speaker Change: Yeah. Thanks. Thanks for the question. We are we are continually focused on an efficiency here at merit and looking at the next levers that we can pull.
Speaker Change: We do think in the long term that that being efficient in our core business will enable us to fund some of the investments we've been talking about all while delivering operating leverage in the business. So.
Speaker Change: Beyond 2024 is a long way out and we'll come back and give impact on that in future years as we as we get closer but thats. The general concept of delivering efficiency in order to fund investments and still have margin expansion.
Speaker Change: Your next question comes from the line of Jeff Silber from BMO capital markets. Please go ahead.
Jeffrey Marc Silber: Thanks, So much wanted to continue on the margin discussion and I'm, sorry, if I'm nitpicking here, but I'm looking at your Investor Day Slide last March where you were guiding for 54% to 50%, 56% excuse me adjusted EBITDA margins in 2024, and then another 25% to 75 basis points increase in 2025.
Toni Michele Kaplan: Thanks for taking our question. Why don't you talk about margin? You talked about without the like expansion of some of the ongoing efficiency initiatives that you have. Is the benefit from those within the ongoing 25 to 75 basis points of your framework and balanced by investment, or do you skew a little bit higher over the next two to three years as you work through those initiatives? How do we think about that? Yeah, thanks.
Jeffrey Marc Silber: Today, you are talking about 54% to 55% in 2024.
Jeffrey Marc Silber: Just wondering what's changed since then and should we should should we still expect the margin expansion in 2025 that you had guided to last year.
Elizabeth Mann: Thanks for the question. We are, you know, continually focused on efficiency here at Verisk and looking at the next levers that we can pull. We, you know, we do think in the long term that being efficient in our core business will enable us to fund some of the investments we've been talking about, all while delivering operating leverage in the business. So, you know, beyond 2024 is a long way out. And we'll, we'll come back and give impact on that in future years as we get closer. But that's the general concept.
Speaker Change: Yeah. Thanks, Thanks for the question.
Speaker Change: Yes, Youre right our range now at the end of one year guidance at a one point range is a tightening from from what we had said at Investor day, which at that time. It was two years out in a two point range and I'll remind you that that that investor day range of $54 to fix itself was a tightening of what had been our three year margin target, which was a three point.
Speaker Change: <unk> of <unk> 53 to 56.
Speaker Change: Our trajectory over the past three years has been to increase margins by 150 basis points in 2022.
Elizabeth Mann: Delivering Efficiency in Order to Fund Some Investments and Still Have Margin Expansion. Your next question comes from Jeff Silber from BMO Capital Markets. Please go ahead. Thanks so much.
Speaker Change: Another 150 basis points in 2023, and then currently the mid point of this guide would represent 100, another 100 basis points on top of that so we are balancing that margin expansion in the trajectory of margin expansion with investments in growth.
Jeffrey Marc Silber: I want to continue on the margin discussion, and I'm sorry if I'm nitpicking here, but I'm looking at your Investor Day slide last March, where you were guiding for 54 to 50 percent, 56 percent, excuse me, adjusted EBITDA margins in 2024, and then another 25 to 75 basis points increase in 2025. Today, you're talking about 54 to 55 percent in 2024. I'm just wondering what's changed since then, and should we still expect the margin expansion in 2025 that you guided us to last year? Yeah, thanks.
Speaker Change: The differential between the current midpoint of our guide at the midpoint at Investor Day is entirely encompassed by the three incremental investments that I highlighted that we're not yet in the cards at the time of Investor day, those are the investments in our sales force.
Speaker Change: Lee discussed.
Speaker Change: International expansion with our M&A that has that has taken place since investor day, and then the investments in generative AI to drive a new product so.
Speaker Change: I think we think we're delivering on all of our client facing investments those those three ones being the ones that are particularly new since investor day, we're doing that while still delivering a 100 basis points of margin expansion and so we think that balance.
Elizabeth Mann: Thanks for the question, Jeff. Yes, you're right. Our range now as a one-year guidance and a one-point range is a tightening from what we had said at Investor Day, which, you know, at that time, it was two years out and a two-point range. And I'll remind you that that Investor Day range, the 54 to 6, itself was a tightening of what had been our three-year margin target, which was a three-point range of 53 to 56 So, you know, our trajectory over the past three years has been to increase margins by 150 basis points in 2022, another 150 basis points in 2023, and then currently, the midpoint of this guide would represent another 100 basis points on top of that. So, we are balancing that margin expansion and the trajectory of margin expansion with investments in growth. The differential between the current midpoint of our guide and the midpoint at Investor Day is entirely encompassed by the three incremental investments that I highlighted that were not yet in the cards at the time of Investor Day.
And as an attractive package if you compound this and this margin expansion on top of what we already delivered in 2023.
Speaker Change: Out ahead of those those targets that we had in March.
Speaker Change: Your next question comes from the line of Andrew Jeffrey from Truest Securities. Please go ahead.
Andrew Jeffrey: Hi, Good morning, I. Appreciate you taking the question I'll Echo Andrew's comments on slide seven and Super helpful.
Andrew Jeffrey: And Mike My question goes specifically to that graphic.
Speaker Change: We and Elizabeth when you look at the.
Speaker Change: The different solutions here.
Speaker Change: Maybe you could call out a couple about which you are the most excited and perhaps where you think you have the ability to drive.
Speaker Change: Faster growth, whether thats on the claims side of the underwriting side. It sounds like you have some pricing initiatives, obviously life and rest of world is pretty exciting if somewhat small but are there are a couple of areas, where you think if we look at this chart say three to five years from now where the the contributions of certain solutions.
Andrew William Jeffrey: Those are the investments in our sales force that we discussed, the international expansion with our M&A that has taken place since Investor Day, and then the investments in generative AI to drive new products. So, I think we think we're delivering on all of our client-facing investments, those three ones being the ones that are particularly new since Investor Day. We're doing that while still delivering 100 basis points of margin expansion, and so we think that balance is, you know, an attractive package. If you compound this and this margin expansion on top of what we already delivered in 2023, you come out ahead of those targets that we had in March. Your next question comes from the line of Andrew Jeffrey from Truist Securities. Please go ahead.
Speaker Change: Have significantly changed.
Speaker Change: Yes, Thank you Andrew.
Speaker Change: I'm going to I'm going to answer answer your question in a way.
Speaker Change: That's.
Speaker Change: I think gives you some insight in terms of where we see value creation opportunity.
Speaker Change: I think first of all of our businesses are clearly generating.
Speaker Change: Strong organic growth delivering value to the industry.
Speaker Change: There are different skill levels and so on.
Speaker Change: You reiterate that for instance, in our our forms rules and loss cost area, where we focused on our core lines re imagined area. That's a broad area, where we are creating value and I'm going to ask Rob Kimco, who leads that effort in that business to talk a bit about about how we are.
Lee M. Shavel: Hi, good morning; appreciate you taking the question. I'll echo Andrew's comments on slide seven, super helpful. And my question goes specifically to that graphic.
Rob Kimco: Creating value there is probably our most skilled opportunity, where we can find incremental incremental value and capture that value.
Andrew William Jeffrey: Lee and Elizabeth, when you look at the different solutions here, maybe you could call out a couple about what you're the most excited about and perhaps where you think you have the ability to drive Faster Growth, whether that's on the claim side or the underwriting side. It sounds like you have some pricing initiatives. Obviously, life and the rest of the world is pretty exciting, if somewhat small, but are there a couple areas where you think we will see the contributions of certain solutions significantly changed three to five years from now? Yeah, you know, thank you, Andrew.
Rob Kimco: Underneath the businesses as a whole.
Rob Kimco: And this war.
Rob Kimco: Harken back to Investor day, we see opportunities to build network value.
Rob Kimco: We've talked about it was in the claims ecosystem, where we're adding partners, which creates value for our all of our market participants, but particularly our insurance clients and I'll also note that with our specialty business solutions.
Lee M. Shavel: I'm going to answer your question in a way that I think gives you some insight in terms of where we see value creation opportunities. You know, I think first off, all of our businesses are clearly generating strong organic growth, delivering value to the industry, but they're at different scale levels.
Rob Kimco: 3% of our total 2023 revenue contribution represents connectivity and a network impact, particularly with the March announcement that allows us to build value in that in that network expansion and I think that holds true in <unk>.
Lee M. Shavel: And so I'll reiterate that, for instance, in our forms, rules, and loss costs area, where we focused our core lines reimagined area, that's a broad area where we are creating value. And I'm going to ask Saurabh Kimka, who leads that effort in that business, to talk a bit about how we're creating value there. It's probably our most scaled opportunity where we can find incremental, incremental value and capture that value underneath the businesses as a whole. And this will harken back to Investor Day.
Rob Kimco: A variety of areas property estimating solutions and forms with some loss costs, but let me ask robin opportunity to talk a little bit about where we are adding value to our clients in a variety of ways with the core lines re imagine project sure. Thanks, Lee and good morning. So overall, we feel really.
Speaker Change: Good bye.
Robin: Where we are with the re imaging program and the progress the team has made and as the program naturally moves towards client deliverables in 2024, our customers will see additional value from benefits of our modernization of our internal systems, which will allow them to have faster access to analytics, new analytics and insights like our <unk>.
Saurabh Kemka: We see opportunities to build network value. We've talked about it within the claims ecosystem, where we're adding partners, which creates value for all of our market participants, but particularly our insurance clients. And I'll also note that with our specialty business solutions, while 3% of our total 2023 revenue contribution represents connectivity and a network impact, particularly with the Marsh announcement that allows us to build value in that network expansion. And I think that holds true in a variety of areas. Property estimating solutions, information on rules, and loss costs.
<unk> industry insights that will be brought into five lines of business.
Robin: <unk> benchmarking analytics to our customers.
Robin: New innovation around our forms management platform, which will make it easier for our customers to manage and track changes to our core programs and finally continued migration of our content services to the new platform. We are really encouraged by the client feedback around these innovations and our customers are excited to see these come to fruition.
Robin: Capping off by saying another dimension of incremental growth is the ability to move some of our traditional products into more of a SaaS type of environment and there are extreme events business and the migration to more of a SaaS model. We believe opens up opportunity to deliver more value to that that segment of our clients.
Lee M. Shavel: But let me give Saurabh an opportunity to talk a little bit about where we are adding value to our clients in a variety of ways with the core lines reimagined process. Sure. Thanks, Lee. And good morning.
Robin: Lions as well, but thanks for the thanks for the question.
Jefferies: Your next question comes from the line of surrender themed from Jefferies. Please go ahead.
Surinder Singh Thind: Thank you.
Saurabh Kemka: So overall, we feel really good about where we are with the reimagined program and the progress the team has made. And as the program naturally moves towards client deliverables in 2024, our customers will see additional value from the benefits of our modernization of our internal systems, which will allow them to have faster access to our analytics. [inaudible] We are really encouraged by the client feedback around these innovations, and our customers are excited to see them come. And I'll cap it off by saying, you know, another dimension of incremental growth is the ability to move some of our traditional products into more of a SaaS type of environment. And there, in our extreme events business, the migration to more of a SaaS model, we believe, opens up the opportunity to deliver more value to that segment of our clients as well. But thanks for the question. Your next question comes from the line of Surinder Thind from Jeffrey's. Please go ahead. Thank you.
Surinder Singh Thind: In terms of just the.
Surinder Singh Thind: The go to market strategy the investment in the sales force at this point can.
Surinder Singh Thind: Can you provide a little bit more color in terms of.
Changes in the compensation structure head count things that Youre looking for.
Surinder Singh Thind: How should we think about that part of the equation.
Speaker Change: Yes, thank you surrender so.
Speaker Change: There are a number of elements and I really have to complement the organization for its receptivity to outside perspectives on what we could be doing better we looked at it across all of our businesses and certainly compensation structure was an area of focus in there I think.
Speaker Change: Two things one we looked at where market levels were both from a level and from a composition standpoint.
Speaker Change: So that our sales team felt as though they were being being fairly treated create a good opportunity and and aligning our interests with the customer and we believe that that will improve our retention and and make certain that there are focused on the opportunities that generate the most value for us. We also spent time.
Surinder Singh Thind: In terms of just the go-to-market strategy, the investment in the sales force at this point, can you provide a little bit more color in terms of changes in compensation structure, headcount things that you're looking for? How should we think about that part of the equation? Yeah, thank you, Surinder.
Speaker Change: Looking at pricing relative to value and where we feel as though we're delivering demonstrable value to our clients and how we can be more response responsive to structuring our pricing in a way that aligns with our clients' perception of value and what they are and what their needs are.
Lee M. Shavel: So there are a number of elements, and I really have to compliment the organization for its receptivity to outside perspectives on what we could be doing better. We looked at it across all of our businesses. And certainly, the compensation structure was an area of focus. And there, I think we had two things.
Speaker Change: So I would just.
Speaker Change: <unk> identified those as two of the primary functions I would add somewhat outside of this we have also been working to make certain that our sales effort is well tied into our senior level strategic dialogue. So that as we have driven a stronger level of dialogue we are.
Lee M. Shavel: One, we looked at where market levels were, both from a level and from a composition standpoint, so that our sales team felt as though they were being fairly treated, creating a good opportunity and aligning our interests with the customer. And we believe that that will improve our retention and make certain that they are focused on the opportunities that generate the most value for us. We also spent time looking at pricing relative to value and where we feel as though we're delivering demonstrable value to our clients and how we can be more responsive to structuring our pricing in a way that aligns with our clients' perception of value and what their needs are. So I would just identify those as two of the primary functions.
Speaker Change: Communicating effectively internally to capitalize on opportunities for sales on existing products that our clients may not be aware of where we find higher support because of the value proposition at a senior level within the organization and so thats an area, where we expect that we'll be able to do a better job as well.
Speaker Change: Your next question comes from the line of Andrew Nicholas from William Blair. Please go ahead.
Andrew Owen Nicholas: Hi, good morning, Thanks for taking my question.
Andrew Owen Nicholas: Wanted to ask about the higher growth businesses, a different way I think back in the Investor Day, you talked about those potentially representing 20% of your business.
Andrew Owen Nicholas: I would add somewhat outside of this, we have also been working to make certain that our sales effort is well tied into our senior-level strategic dialogue so that as we have driven a stronger level of dialogue, we are communicating effectively internally to capitalize on opportunities for sales on existing products that our clients may not be aware of, or we find higher support because of the value proposition at a senior level within the organization. And so that's an area where we expect that we'll be able to do a better job as well. Your next question comes from the line of Andrew Nicholas from William Blair. Please go ahead. Hi, good morning.
Andrew Owen Nicholas: In 2025 is there a way to kind of comment on that trajectory and how those faster growth businesses.
Andrew Owen Nicholas: Formed in 2023, specifically.
Andrew Owen Nicholas: Yes, physical Isabella, yes, I can I can comment on that they continue to be on the on the path and on the trajectory to to achieve that goal so Dave Dave.
Andrew Owen Nicholas: Achieved strong results in 2023.
Andrew Owen Nicholas: And the only the largest change in our.
Andrew Owen Nicholas: Our growth mix in 'twenty three versus that versus kind of the algorithm laid out at investor day, and it's been the over performance of the core businesses.
Andrew Owen Nicholas: Your next question comes from the line of Russell Quilts from Redburn Atlantic. Please go ahead.
Russell Quilts: Yes, I appreciate you having me.
I appreciate the strategy a bit.
Elizabeth Mann: Thanks for taking my question. I wanted to ask about the higher growth businesses in a different way. I think back in the investor day, you talked about those potentially representing 20% of your business in 2025. Is there a way to kind of comment on that trajectory and how those faster growth businesses performed in 2023 specifically? Yes, this is Elizabeth.
Russell Quilts: Growing the business.
Russell Quilts: Free cash flow yield.
These low rate pay great, but did mention it.
Russell Quilts: Our focus on growing our free cash flow. So maybe you could expand on this a little bit how much we should expect free cash flow to grow in.
Russell Quilts: 2024 and beyond.
Speaker Change: Yeah. Thanks for the question Russell will have to live with you at that at that Stat on free cash flow yield because we think the insurance business has very strong free cash flow again looking at it maybe as a percent of revenue may they understate.
Elizabeth Mann: Yes, I can. I can comment on that. They continue to be on the path and on the trajectory to achieve that goal. So they've achieved strong results in 2023. And the only, you know, the largest change in our growth mix in 23 versus the kind of the algorithm laid out at investor day has been the underperformance of the core business. Your next question comes from the line of Russell Quelch from Redburn Atlantic. Please go ahead. Yeah, I appreciate you having me on.
Speaker Change: The strength of it.
So so we think it's been growing I mean.
Speaker Change: The demonstration of the growth has been the Q4 number which which has grown over the prior year.
Speaker Change: Even though the prior year numbers still include the energy business.
Speaker Change: So we are excited about the free cash flow generation of the business.
Speaker Change: We don't give guidance on it but conceptually it should continue to grow.
Russell Quelch: I also appreciate the strategy you've been making and improving and growing the business. But I want to look at the free cash flow yield; it's still at the low end of the peer group. And Elizabeth did mention in her remarks, I think, a focus on growing free cash flow. So maybe you could expand on this a little bit and how much we should expect free cash flow to grow in 2024 and beyond. Yeah, thanks for the question, Russell.
Speaker Change: Roughly in line with our bottom line.
Speaker Change: The purest demonstration, we can give of that confidence has been the commitment on the dividend increase and Russell. The one thing I would add is I think that if you start with free cash flow given.
Speaker Change: Counting difference differences over time should even out and so it should approximate.
Speaker Change: Our overall EBITDA growth rate assuming that the capex.
Speaker Change: Capex is is growing commensurate with that I do think in 2020 and 2024, we're seeing slightly higher capex growth because of what we see is a number of opportunities within the business part of that.
Elizabeth Mann: We'll have to look with you at that at that stat on free cash flow yield, because we, we think the insurance business has has very strong free cash flow. Again, looking at it maybe as a percent of revenue may may understate the strength of it. So, so we think it's been growing. I mean, a demonstration of the growth has been the Q4 number, which, which has grown over the prior year. Even though the prior year numbers still still include the energy business.
Speaker Change: <unk> to the degenerative AI opportunity and so we may have periods of higher level of Capex investment that may you bring the overall free cash flow growth down but over the long term, we see that very it should be very commensurate with our overall adjusted EBITDA growth.
Elizabeth Mann: So we are excited about the free cash flow generation in the business. We don't give guidance on it, but conceptually, it should continue to grow, you know, roughly in line with our bottom line. And I think the purest demonstration we can give of that confidence has been the commitment to the dividend increase.
Speaker Change: Your next question comes from the line of Seth Weber from Wells Fargo Securities. Please go ahead.
Seth Weber: Hi, Thanks, good morning.
Seth Weber: Lee Ive heard a couple of times, you talked about pricing opportunities I think you called out extreme events in property estimating I'm just trying to.
Seth Robert Weber: And Russell, the one thing I would add is that I think that if you start with free cash flow, you know, given accounting differences, differences over time should even out. And so it should approximate our overall EBITDA growth rate, assuming that that CapEx is growing commensurate with that. I do think in 2020 and 2024 we're seeing slightly higher CapEx growth because of what we see as a number of opportunities within the business. Part of that relates to the generative AI opportunity. And so we may have periods of higher levels of CapEx investment that may bring the overall free cash flow growth down.
Seth Weber: Maybe get some more details on that do you think that will impact 2024 or is that a long longer term.
Seth Weber: Kind of play here and is this just sort of the first couple of areas where you are.
Seth Weber: Finding these new opportunities and we should expect more of that kind of going going forward or.
Seth Weber: Any way you can help frame this pricing opportunity. Thank you.
Seth Weber: Yes.
Speaker Change: Thanks for the question.
Speaker Change: Difficult to kind of isolate it because it occurs across our business I would say that certainly that those pricing improvements that I referred to in terms of new contract renewals are factored into our 2020 or 2024 guidance from an overall.
Lee M. Shavel: But over the long term, we see that very should be very commensurate with our overall adjusted EBITDA. Your next question comes from the line of Seth Weber from Wells Fargo Securities. Please go ahead. Hi, thanks. Good morning.
Speaker Change: Revenue growth perspective, so in that regard, we're beginning to see some of that influence that our near term expectations, but I do believe that it is a source of growth for us longer term and it's it's not a really very different than what we've described as our general op.
Seth Robert Weber: Lee, I've heard a couple times you talked about pricing opportunities. I think you called out extreme events and property estimating. I'm just trying to, maybe, get some more details on that. Do you think that will impact 2024? Or is that a longer-term, you know, kind of play here?
Speaker Change: Operating model, which is that we believe that we can create much broader value for the industry by investing in this data and technology and capturing that particularly as we add value to our existing clients is largely value driven pricing.
Lee M. Shavel: And is this just sort of the first couple areas where you're finding these new opportunities? And should we expect more of that kind going forward? Or is there any way you can help frame this pricing opportunity? Thank you. Yeah, I know, Seth, it's, thanks for the question.
Speaker Change: So that supports the.
Seth Robert Weber: It's difficult to kind of isolate it because it occurs across our business, but I would say certainly that those pricing improvements that I've referred to, in terms of new contract renewals, are factored into our 2020 and 2024 guidance from an overall revenue growth perspective. So, you know, in that regard, we're beginning to see some of that influence our near-term expectations, but I do believe that it is a source of growth for us longer term. And it's not really very different from what we'll describe as our general operating model, which is that we believe that we can create much broader value for the industry by investing in this data and technology. And capturing that, particularly as we add value to our existing clients, is largely value-driven pricing.
Speaker Change: Longer term, 6% to 8% growth our growth target that we are working to achieve on a predictable and consistent basis.
Speaker Change: Your next question comes from the line of Greg Peters from Raymond James. Please go ahead.
Speaker Change: Hey, Good morning, this is Sid on for Greg.
Sid: Wanted to focus on slide 18 of your investor deck and where.
Where you talk about your capital management philosophy, and just moving forward curious, how we should view repurchases falling in your capital management framework versus acquisitions or internal investments et cetera.
Speaker Change: Yes, thanks for the question.
Speaker Change: As we highlight there our capital management philosophy really focuses on our returns on invested capital we will look.
Speaker Change: To invest in the business.
Speaker Change: Our capex range that we've set.
Speaker Change: We've given you for the year shows the organic investment in the business on the M&A side, we are active in the market and we will continue to evaluate opportunities and what we see out there for strong businesses, which bring something additive to the to the various business.
Lee M. Shavel: And so that supports that longer-term six to 8% growth growth target that we are working to achieve on a predictable and consistent basis. Your next question comes from the line of Greg Peters from Raymond James. Please go ahead. Hey, good morning. This is Sid on for Greg.
Speaker Change: And those those two things should be generating returns well above our cost of capital and we we assess that and continue to track it as Lee highlighted in the in the script our incremental returns on invested capital. This year were approximately 19%.
Greg Peters: I wanted to focus on slide 18 of your investor deck, where you talk about your capital management philosophy and just moving forward. Curious how we should view repurchases falling in your capital management framework versus acquisitions or internal investments, etc. Yeah, thanks for the question, Sid. You know, as we highlighted there, our capital management philosophy really focuses on our returns on invested capital. We will look to invest in the business. Our CapEx range that we've given you for the year shows the organic investment in the business. On the M&A side, we are active in the market, and we will continue to evaluate opportunities and what we see out there for strong businesses, which brings something additive to the veris business. You know, and those two things should be generating returns well above our cost of capital.
Speaker Change: To the extent, we don't find opportunities there we will continue to return capital to shareholders as you've seen us do pretty consistently in the past.
Speaker Change: And Greg one thing that I would add.
And I want to thank all of our investors who participated in the yearend Investor Survey that was conducted we thought it was important to get feedback after the first three quarters and following Investor day and specific to your point in Elizabeth's comments, Greg one very clear priority from the investors that we surveyed.
Elizabeth Mann: And we will continue to assess that and continue to, to track it. As we highlighted in the script, our incremental returns on invested capital this year were approximately 19%. You know, to the extent we don't find opportunities there, we will continue to return capital to shareholders, as you've seen us do pretty consistently in the past. And Greg, one thing that I would add, and I want to thank all of our investors who participated in the year-end investor survey that was conducted. We thought it was important to get feedback after the first three quarters and following investor day.
Speaker Change: Was a preference for for internal investment kind of recognizing our ability to leverage that and generate very high returns and so we appreciate that input we share the view that that's very additive to our to our business and we will clearly be a priority for us.
Speaker Change: Your final question today comes from George Tong from Goldman Sachs. Please go ahead.
George K. Tong: Alright. Thanks, good morning, I wanted to dive a little bit deeper into some of the transaction revenue trends youre seeing adjusting for storm comps transaction revenue growth was 4% on an organic constant currency basis and <unk> Directionally in 2024, how do you expect transaction revenue growth a trend from that.
Lee M. Shavel: And specific to your point and Elizabeth's comments, Greg, one very clear priority from the investors that we surveyed was a preference for internal investment, kind of recognizing our ability to leverage that and generate very high returns. And so we appreciate that input. We share the view that that's very additive to our business and will clearly be a priority for us. Your final question today comes from George Tong of Goldman Sachs. Please go ahead.
George K. Tong: 4%.
George K. Tong: Normalized for storm comps considering trends like auto rate shopping behavior and the conversion of transaction revenue to subscription revenue what are some of the puts and takes that gets you higher or lower than 4% transaction revenue growth. This year.
Speaker Change: Yeah. Thanks for the question George.
Youre right. The transaction revenue is well first of all it's coming off a full year of very strong transactional growth double double digit I think for that for the prior four quarters.
George Tong: Hi, thanks, and good morning. I wanted to dive a little bit deeper into some of the transaction revenue trends you're seeing. Adjusting for storm comps, transaction revenue growth was 4% on an organic constant currency basis in 4Q. Directionally, in 2024, how do you expect transaction revenue growth to trend from that 4% normalized for storm comps, considering trends like auto rate shopping behavior and the conversion of transaction revenue to subscription revenue? What are some of the puts and takes that get you higher or lower than 4% transaction revenue growth this year? Yeah, thanks for the question, George. You're right.
Speaker Change: So we are sort of lapping that period, the biggest driver in that elevated strength a big piece of it was the auto shopping activity that we've talked about before.
Speaker Change: And the weather trends actually being another Ah another element of that transactional growth.
Speaker Change: That was actually offset by some headwinds in our anti fraud business as they converted transactional customers to subscription customers.
Speaker Change: So looking forward I think we expect those trends to normalize.
Speaker Change: Again, we're not we're not assuming elevated weather activity the auto shopping trends will begin to normalize.
Elizabeth Mann: The transaction revenue is, well, first of all, it's coming off a full year of very strong transactional growth, double-digit, I think, for the prior four quarters. So we are sort of lapping that period. The biggest driver in that elevated strength, a big piece of it was the auto shopping activity that we've talked about before, and the weather trends actually being another element of that. transactional growth That was actually offset by some headwinds in our anti-fraud business as they converted transactional customers to subscription customers. So, looking forward, I think we expect those trends to normalize. Again, we're not assuming that with elevated weather activity, the auto shopping trends will begin to normalize.
Speaker Change: We thank you for participating on the call today you may now disconnect have a great day.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].
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