Q2 2024 Verisk Analytics Inc Earnings Call
Good day, everyone and welcome to the very second quarter 'twenty 'twenty four earnings results Conference call. This call is being recorded.
Currently all participants are in a listen only mode. 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 it will have.
Further instructions for you at that time.
For opening remarks, and introductions I would like to turn the call over to <unk> head of Investor Relations Ms. Stacy broadband Mrs. Broadbent. Please go ahead.
Stacey Jill Brodbar: Thank you operator, and good day, everyone. We appreciate you joining us today for a discussion of our second quarter 2020 for financial results on the call today are Alicia <unk>, President and Chief Executive Officer, and Elizabeth map Chief Financial Officer.
The earnings release referenced on this call as well as our traditional quarterly earnings presentation and the associated 10-Q can be found in the investors section of our website <unk> Dot com.
Earnings release has also been attached to an 8-K that we furnished to the SEC.
Stacey Jill Brodbar: A replay of this call will be available for 30 days on our website and by dial.
Right.
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 our financial guidance actual performance could differ materially from what is suggested by our comments today information about the factors that could affect future performance.
Stacey Jill Brodbar: As contained in our recent SEC filings a reconciliation of reported an historic non-GAAP financial measures discussed on this call is provided in our 8-K at 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 adjusted EBITDA and adjusted EBITDA margin to the most directly comparable expected GAAP result, because of the unreasonable effort in high unpredictability of estimating certain items that are excluded from projected non-GAAP adjusted EBITDA and <unk>.
Felicia: Adjusted EBITDA margin, including for example tax consequences acquisition related costs gains and losses from dispositions and other non recurring expenses the effect of which may be significant and now I'd like to turn the call over to Felicia, though.
Felicia: Thanks Stacy.
Good morning, and thank you for participating in this morning's call.
As we Mark the halfway point in 2024, I can confidently say that we are on track to deliver against the strategic operational and financial goals that we articulated at Investor day and in our 2020 for full year guidance.
Felicia: Beth will provide the detailed financials.
A high level.
<unk> delivered solid organic constant currency revenue growth led most importantly by strong subscription growth of eight 3% and it was broad based.
Across most of our businesses.
This was partly offset in the quarter by modest declines in our transactional business related to historically high volumes in auto shopping and elevated weather related activity in the prior year quarter, which made for tough comparisons normalized activity this quarter.
We also experienced a drag on our transactional growth from the conversion of transaction based contracts to subscriptions, which enhances the consistency of our growth going forward.
To put this quarter in perspective, and minimize the transaction to subscription conversion impact on a two year compound annual growth rate basis, our total organic constant currency revenue growth has been 8% at the high end of our Investor day revenue growth targets.
We are driving subscription growth with strong renewals and improved price realization as our customers recognize the innovation and value added upgrades, we have incorporated into existing solutions. This is something that we've heard repeatedly in our renewal discussions with our largest clients.
Our focus on cost discipline and operating efficiency resulted in healthy organic constant currency adjusted EBITDA growth and strong margin expansion translating into 15% adjusted EPS growth.
We delivered these results while continuing to invest in innovation and technologies that can help our clients improve speed efficiency and accuracy through deeper insights improved data and increased automation.
Our strategy is unchanged as we focus on building long term value for the insurance ecosystem, while delivering consistent and predictable growth with high returns on capital for shareholders.
The industry backdrop in which we are currently operating as one marked by continued strong premium growth as rate increases continue to earn in.
In fact in the first quarter of 2024.
Industry wide direct premium increased 10% and Swiss re forecast is for 8% growth for the full year.
Profitability across the sector has improved and industry wide combined ratios have come down. So there is variability by line and geography.
Carriers continue to be cautious in an uncertain environment and focused on driving profitability.
Speaker Change: Specific to the homeowners line of insurance 2023 was the worst year on record for catastrophic losses with $15 2 billion in losses and direct combined ratios in 17 states, we're above the breakeven threshold of 100.
Felicia: This is driven carriers to restrict underwriting in certain markets and in some cases exit challenging states and lines of business.
Speaker Change: We are working with our clients and innovating new solutions that target these problem areas, including introducing new roof analytics that leverage aerial imagery and engaging with the respective departments of insurance and western states to share the updates we've made to our wildfire solutions.
Speaker Change: In the near term these market conditions may present, some headwinds for our predominantly subscription property business, but in the longer term. We continue to believe it highlights the need for the most accurate information to best price the risk.
Technological and regulatory change also continued to challenge the industry structurally and we continue to partner with clients to help them address the rapid pace of technological change as well as increased regulatory scrutiny on data privacy fairness generative AI and climate risk.
Speaker Change: As another example of our work to support understanding of broad industry challenges. We recently co authored a paper along with research organization Rand Corporation analyzing the impact of social inflation in insurance casualty claims payments with a focus on better understanding the trends impact.
Speaker Change: <unk> and potential structural factors in growing jury verdicts and trial awards.
Speaker Change: At the center of our growth strategy is our effort to engage with our clients on a more strategic level.
Speaker Change: As an example of what Ive been hearing recently from clients I've had conversations with those clients Ceos and <unk> about the importance to them of integrating data sets across their enterprise for efficiency and consistency.
Speaker Change: We are the natural trusted technology partner to help with this data asset conversions as we are best positioned given our deep data and domain expertise are positioned in the industry and our proven track record of aggregating and integrating industry data at scale.
Speaker Change: These C suite level and strategic conversations are opening up broader and enterprise wide opportunities and applications of our data and analytics with the industry and new avenues for growth for <unk>.
Speaker Change: For example, in casualty and area of focus for carriers due to the rising claim severity and liability navigator is an analytic solution that.
Speaker Change: And objectively assesses bodily injury claims to help carriers improved settlement consistency across claim teams.
Speaker Change: By integrating our proprietary medical provider fraud data and our discovery Navigator medical record review technology, we transform previously unstructured and disparate medical data into actionable insights at the point of decision thus.
Speaker Change: Thus improving efficiency and accuracy and bodily injury claims outcomes.
Speaker Change: Also key to our growth strategy is building upon our 50, plus year history, and insurance and our competitive advantages and positioning to serve as a network with the insurance industry.
Speaker Change: That and in our specialty business solutions, we are delivering solid double digit growth as we built out an interconnected ecosystem built upon the white space platform for the participants in the London market, including brokers underwriters and managing general agents.
Speaker Change: We're continuing to win new clients, adding 15, new clients in the quarter and placement volumes are growing rapidly as the scale of the platform builds.
Speaker Change: This network effect is also active across our claims platforms as we continue to add new partners to our claims solutions ecosystem.
Speaker Change: The claims search partnership enables insurance technology providers to integrate with the claim search platform.
Speaker Change: Allowing insurers to selected technology that best fits their individual business needs.
Speaker Change: Earlier this year, we announced two new collaborations with Frisk and globally technologies, who are integrating with our claims search platform.
Speaker Change: This integration will facilitate advanced fraud analysis, and detection, including more complex, scoring and triaging to improve decision making <unk>.
Speaker Change: Additionally, it should minimize the manual fraud detection process saving valuable time, and reducing operational costs for our clients.
Speaker Change: Finally, we continue to focus on innovation as a key pillar of our growth strategy.
Speaker Change: To that end earlier. This month, we officially launched ISO experience index, a new benchmarking tool, which is part of our core lines re imagine initiative the.
Speaker Change: The ISO experience index is designed to modernize how actuaries in the insurance industry analyzed risk patterns by addressing the increasing volatility and scale of loss patterns in the industry and offering a responsive and up to date indicator of observed underwriting experience <unk>.
Speaker Change: <unk> index empowers, our clients to be more responsive to changing conditions across various geographic markets by offering quarterly releases with more frequent updates compared to traditional loss cost reviews.
Speaker Change: This enables our customers to make more informed decisions in real time.
Speaker Change: Experience index is available for the homeowners line and will be expanded over time, the other lines of insurance.
Speaker Change: Our customers are realizing the value we are delivering through core lines re imagine and we are benefiting from this investment through better price realization and improved client dialogues and a recent conversation with the CEO of a national carrier.
Speaker Change: He expressed appreciation for our quarterly emerging issues updates. These reports are just one example of listening to our customers' requests to not only provide data, but to also deliver more valuable and actionable insights and with that let me turn it over to Elizabeth for the detailed financial review.
Elizabeth: Thanks, Lee and good day to everyone on the call.
Elizabeth: On a consolidated and GAAP basis.
Elizabeth: Quarter revenue was $717 million up six 2% versus the prior year, reflecting consistent levels of growth across both underwriting and claims.
Elizabeth: Income from continuing operations was $308 million up 51% versus the prior year, while diluted GAAP earnings per share from continuing operations were $2.15.
Speaker Change: Up 53% versus the prior year.
Speaker Change: The GAAP figures include a cumulative $102 million net gain associated with retained interests in previously disposed businesses as well as the gain associated with the bond tender transaction, we entered in June.
Speaker Change: The underlying EPS growth reflects strong revenue and profit growth.
Speaker Change: With a lower effective tax rate and a lower average share count.
Speaker Change: Moving to our organic constant currency results for the second quarter adjusted for nonoperating items as defined in the non-GAAP financial measures section of our press release.
Speaker Change: Our operating results demonstrated consistent growth across both underwriting and claims.
Speaker Change: OCC revenues grew 6% with growth of 6% in underwriting and five 8% and claims.
Speaker Change: This was the slowdown in growth as expected from the first quarter as we overlapped the tough comparison to our largest ever transactional revenue dollar quarter in the second quarter of 'twenty three.
Speaker Change: Our subscription revenues, which comprised 81% of our total revenue in the quarter.
Speaker Change: Grew eight 3% on an OCC basis during the second quarter.
Speaker Change: We experienced broad based growth across most of our subscription based solutions with strong renewals and expanded relationships with existing customers and solid sales of new solutions.
Speaker Change: Our subscription growth also reflects the benefit of conversions to subscription from previously transactional contract.
Speaker Change: In some cases temporary assignments or pilots are converted into longer term contract in.
Speaker Change: In other cases customers are looking to move away from pricing mechanisms tied to volume and instead opting for fixed pricing to give more visibility in their own cost structures.
Speaker Change: We are experiencing this trend across underwriting data solutions.
Speaker Change: Anti fraud solutions casualty and property estimating solution and we expect the impact of these conversions to continue for the remainder of the year.
Speaker Change: The largest contributor to subscription growth continues to be farms rules and loss costs.
Speaker Change: We are benefiting from improved price realization in our renewals as we continue to modernize our platform and deliver more value and insights to our clients through features like experience index that we spoke about earlier.
Speaker Change: In anti fraud.
Speaker Change: We experienced underlying strong price realization in the business with growth augmented by strong sales of new solutions, including claims coverage identifier and claim scoring alright.
Speaker Change: <unk> real time monitoring tool that uses both rules based and predictive models to identify and triage suspected fraudulent claims.
Speaker Change: And within extreme event solutions, we delivered another quarter of high single digit subscription growth driven by strong multiyear renewals with existing clients as well as the addition of new logos to the risk.
Speaker Change: Our transactional revenues, representing 19% of total revenue in the second quarter declined 3% on an OCC basis, reflecting a tough comparison versus the prior year a drag on growth from conversion to subscription.
Speaker Change: And the impact of lower year over year weather related claims activity.
Speaker Change: Continue to experience a longer term secular trend of growing weather related claims across the property sector.
Speaker Change: And in fact, while 2024 claims volumes are down in the second quarter year over year. They are still continuing an upward trend as they are running approximately 20% above the trailing five year average.
Speaker Change: Moving now to our adjusted EBITDA results Oc.
Speaker Change: OCC adjusted EBITDA growth was eight 5% in the quarter.
Speaker Change: While total adjusted EBITDA margin, which includes both organic and inorganic results was 55, 4%.
Speaker Change: Up 130 basis points from the reported results in the prior year.
Speaker Change: As we've said in the past the margin rate in any given quarter can be influenced by revenue mix and timing of spending.
Speaker Change: We think it's useful to look at our margin on a trailing 12 months basis.
Speaker Change: Which as of June 32024 was 54, 3% up 120 basis points over last year's level.
Speaker Change: This level of margin expansion reflects the positive impact of sales leverage cost discipline and our global talent optimization efforts are.
Speaker Change: Our margins also reflect a lower level of head count growth in the quarter.
Speaker Change: We expect to accelerate hiring in the back half of the year to support our growth investments for.
Speaker Change: For the full year of 2024, we continue to expect our margins to be in the 54% to 55% range.
Speaker Change: We remain confident in our ability to meet our margin expansion targets, while strategically investing in future growth opportunities.
Speaker Change: Continuing down the income statement net interest expense was $29 million for the second quarter compared to 32 million in the prior year, reflecting higher interest income on cash balances.
Speaker Change: During the second quarter, we issued $600 million of senior notes due 2034 and successfully tendered for $400 million of our notes due in 2025.
Speaker Change: The net effect of these two financing transactions is that the ongoing run rate for net interest expense will be higher in the second half of the year than it was in the first half.
Speaker Change: That said, we are comfortable with our current leverage which at two times is at the low end of our targeted range of two to three times EBITDA.
Speaker Change: On taxes, our reported effective tax rate was 21, 7% compared to 23, 8% in the prior year quarter.
Speaker Change: The year over year decrease in the tax rate is primarily due to the timing of certain discrete items that we do not expect to repeat.
Speaker Change: We believe that our tax rate for the full year 2024 will be at the low end of the 23% to 25% range.
Speaker Change: There could be some quarterly variability related to employee stock option exercise activity.
Speaker Change: Adjusted net income increased 13% to 249 million and diluted adjusted EPS increased 15% to $1 74 for the quarter.
Speaker Change: The increase is primarily driven by solid revenue growth strong margin expansion, a lower effective tax rate and a lower average share count.
Speaker Change: This was partially offset by higher depreciation and amortization expense.
Speaker Change: With revenue for 2024 to be in the range of 2.84 billion to $2 9 billion.
Speaker Change: We expect adjusted EBITDA to be in the range of 1.54 to $1 $6 billion and adjusted EBITDA margin in the 54% to 55% range.
Speaker Change: Below the line.
Speaker Change: We expect fixed asset depreciation to be at the high end of the range as we continue to put new projects into service.
Speaker Change: And the tax rate to be at the low end of the range given certain one time discrete items for the first half of the year.
Speaker Change: Combined with the slightly higher net interest expense due to our refinancing.
Speaker Change: The net result is that we still expect adjusted earnings per share in the range of $6 30 to $6 60.
Speaker Change: A complete listing 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.
Speaker Change: And now I will turn the call back over to Lee for some closing comments.
Lee: Thanks Elizabeth.
Lee: In summary, our execution priorities are unchanged as we remain focused on delivering consistent and predictable growth.
Lee: Keating capital to our highest return on investment opportunities our focus on heightened strategic engagement with clients. Both large and small has strengthened relationships and has fostered new product and business opportunities for the industry, where we can invest at scale to drive value for our clients employees and shareholders.
Speaker Change: 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:
Speaker Change: Thank you ladies and gentlemen, we will now begin our question and answer session. If you have dialed in and would like to ask a question. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question simply press Star one again.
Speaker Change: As a reminder, please limit yourself to one question only afterwards, you may add yourself back to the key for any additional questions football's for a moment to compile the Q&A roster. Thank you.
Speaker Change: Okay.
Speaker Change: The first question comes from the line of Manav Patnaik from Barclays. Please go ahead.
Manav Shiv Patnaik: Thank you and good morning.
Manav Shiv Patnaik: I just wanted to follow up I know you talked about the 8% growth on a two year stack.
Speaker Change: I was kind of what it used to be.
Speaker Change: Just wondering the components of that outperformance I know you've talked about pricing before.
Speaker Change: I was wondering this this transition from transactional to subscription if there was a way to quantify how much that might have helped and just the sustainability of this for the next several years.
Speaker Change: Good morning, and thank you Manav for the for the question Yeah. I appreciate the focus on the on the 8% to year two year stacked growth rate because I think it does give broader context beyond what we experienced in this in this quarter and to answer your question to the drivers of that have been generally.
Speaker Change: Speaking more demand for our products from the industry as they are facing a variety of the challenges in on the underwriting side on the claims side of the value of what we have been providing to them, but also and I think this is the element that is the sustainable aspect of it.
Speaker Change: Is the success that we've had in increasing our value capture from the investments that we have made across the business and this is something I referenced in the earlier comments, we are hearing it repeatedly from clients that they recognize the innovations of the investment.
Speaker Change: That we have made and thats, enabling us in this environment to capture more of that value and we believe that that is a longer term longer term trend that will enable us to continue to meet that meet that growth supplemented by new products and new innovations that we are.
Speaker Change: Adding <unk>.
Speaker Change: Continue to see strong growth in our specialty business solutions area, where we've been innovating with our white space platform, which has this very strong network effects. We have continued to see growth in our international businesses, which is a penetration opportunity for us and growth in our life insurance business. So.
Speaker Change: As we said at Investor Day, we have core strength, where we are adding value in capturing that value and pricing and that's supplemented by new penetration opportunities that we believe will sustain that growth over time, and then I would finally add that the elevated strategic dialogue that we have accomplished.
Speaker Change: With our clients is opening up new opportunities to provide our products on a on a broader enterprise and global basis too to our clients recently last week I had two CEO level calls visits where we spoke about how we can help improve the consistency of the.
Speaker Change: Data and the analytics that they are using across their organizations for some portions that aren't utilizing our data or analytics and I think that is a structural and a relationship benefit that we've been able to achieve and we will see continued support on the growth in our growth from from those aspects.
Speaker Change: And the trends.
Speaker Change: Of transition it's happening in a variety of ways. Some of it is structural some of it is episodic I think that it will be.
Speaker Change: What is contributing to what we're what we are experiencing is a relatively tough comparison enhanced by some of the transaction to subscription migrations that are more pronounced in this quarter as we think about that element on an ongoing basis I think we generally expect that our transactional.
Speaker Change: Our transactional growth rates are ones that are generally at our at our broader.
Speaker Change: At our broader growth rates to slightly higher because in many cases, they represent some of our higher growth or higher growth businesses that tend to have more of a transactional aspect that the at the early stage.
Speaker Change: No.
Speaker Change: With that I'll ask Elizabeth to add some perspective.
Elizabeth: Thanks, Thanks, Lee for characterizing that the factors that impact our transaction growth and you can see the historical trends are they in that our earnings presentation that he referenced I think for for mechanical reasons are first of all it you know it is variable over time, it's inherently harder to predict we don't try to predict.
Speaker Change: The weather, but you know that inherent variability for some of the mechanical factors. For example, the conversion of transactional to subscription that can have a one year that that if that can persist for a full year. After a subscription locks. It. So I just wanted to fly you know, we do expect a tough comparisons for our for the balance.
Speaker Change: The year on that transactional revenue side.
Speaker Change: The next question comes from the line of Pone Kaplan from Morgan Stanley. Please go ahead.
Toni Michele Kaplan: Thanks, so much and I sort of wanted to continue on this conversion topic I guess over the years there've been some times I can remember moving some revenue streams to subscription from transaction and over time, I think that that makes a lot of sense.
Speaker Change: In the near term it creates a little bit of noise and so I know you said you expect this to continue but are there other products that you can think of within the portfolio that you will also pursue this conversion for as well like should we expect this to you now.
Speaker Change: Every so often come up as as a.
Speaker Change: Theme that you know maybe the growth is a little bit lower in the quarter, but for the long term, where we're thinking of moving stuff to the subscription or are there other products that could fall into that as well. Thanks.
Speaker Change: Yeah. Thanks for the question Toni you're you're right that we have previously talked about this in the context of our claims essential bundle, where there was a targeted effort for a certain customer segment of I would say and you hear us talk now more broadly across the business. We are seeing it in a number of different businesses, where a customer.
Speaker Change: There is a or on a pilot and choose to lock that in for a longer term subscription.
Speaker Change: Or they have a subscription with overage tiers and as their business grows they lock into a higher subscription so that they have more visibility into their own price point.
Speaker Change: So those are trends that we will continue to see across the business overtime, you've still seen that subscription transactional mix of our revenues be fairly steady at 80 20 ish.
Speaker Change: And probably as some of our transactional customers convert into subscription at the same time, we will have new an introductory products or new markets that we're entering where it's more common to enter it in a transactional basis. So we will continue to top up I think that that transactional revenue base as well.
Speaker Change: The next question comes from the line of Ashish the boardroom from RBC capital markets. Please go ahead.
Speaker Change: Thanks for taking my question last quarter. There was also a reference to a double digit growth within life insurance solution that benefited the transactional revenue growth I was wondering if you could highlight.
Speaker Change: Highlight what was going on with the life insurance solution, both on the subscription but also transactional site.
Speaker Change: Yes. Thank you for the question Ashish, we do not break out for individual businesses that the transactional versus subscription there are transactional elements for the development opportunities that we have within within life as I indicated earlier in response to <unk> question.
Speaker Change: That's a that's a business that continues to contribute and add to our growth rate generally falling into that that higher in the double digit growth rates that we have for many of our higher growth businesses.
Speaker Change: The next question comes from the line of Andrew Steinman from JP Morgan. Please go ahead.
Speaker Change: Sure Hi, it's Andrew could you quantify if you if you're willing to how various auto insurance revenue growth did in the second quarter and specifically when thinking about data providers into that end market is that I believe is gaining losing or maintaining share currently for auto.
Speaker Change: Insurance.
Speaker Change: Yeah.
Speaker Change: Yeah. Thanks, Andrew our our auto insurance are related the shopping related revenue did continue to grow in this quarter.
Speaker Change: But the you know the year over year comp I. It means that it's growing off a much higher level. So there's deceleration there.
Speaker Change: From a from a market share standpoint, we believe were generally steady in that market.
Speaker Change: Okay. Thank you.
Speaker Change: The next question comes from the line of Greg Peters from Raymond James. Please go ahead.
Greg Peters: Good morning, everyone.
Greg Peters: I'm going to pivot back to your comments Lee about strengthening relationships among your customer set.
Greg Peters: I have no doubt that your focus is really helped with your larger accounts, maybe you could spend a minute and provide us an update on how you're progressing with your smaller accounts and also speak to potential disintermediation risk that might exist inside the smaller customers.
Greg Peters: Yeah.
Speaker Change: Great Great. Thank you very much for the question and I.
Speaker Change: You appreciate we have a broad range of clients naturally our largest clients receive a water focused because of their sophistication and their specific needs, but to Europe to your point, we want to make certain that we are delivering value for the entire insurance ecosystem.
Speaker Change: One thing that I would say kind of specific to the small and midsized clients is that proportionally they receive a greater value from the scale that we are able to deliver to them both from an operational standpoint and from the value of the data that we provide to them.
Speaker Change: Because often they have a lower share of AV access to overall loss costs or general information I think they benefit more from the skilled competitiveness that we provide them in a variety of claims solutions and we have not seen any evidence.
Speaker Change: <unk> of higher levels of attrition or disintermediation of that range of clients within our within our business and that is something that we've watched and we've asked the question around.
Juan: Thank you Juan.
Speaker Change: There are two points that I would I would make supplemental Lee.
Speaker Change: Is that a lot of our clients.
Speaker Change: Well they are interested in new ideas the risk of taking on a new small private technology vendor is something that they think about very carefully because they have to know that it's some some affirm that they can rely on over the long term. This is clearly an advantage for us because of our stability RV.
Speaker Change: Our liability.
Speaker Change: And to that end, we have also been working as we've talked about kind of most significantly in the claims area of finding ways to deliver some of those new technology providers by integrating them into our systems and platforms. So that our clients can receive the benefit of that but also in with gray.
Speaker Change: Our confidence that we have added and are supporting and integrating those products into our overall systems. So I really appreciate the perspective, it's not something that we have observed in terms of the behavior of our clients. Obviously I think a much bigger impact is occasionally our clients to <unk>.
Speaker Change: Signed to leave a line of business for leave a state that we will have more influence and we haven't seen any pattern of clients in the smaller mid size that have been have been leaving to another technology provider.
Speaker Change: The next question comes from the line of Alex Kramm from UBS financial. Please go ahead.
Alexander Kramm: Yes, Hello, everyone apologies in advance to harp on the whole subs versus transaction, one more time, but clearly it matters to people and also for the quarter. In particular, so maybe you can just help us talk about the impact of the transition in this specific quarter I know Lee you gave the two year stack and if youre not.
Lee: We're willing to be useful specific for this year.
Speaker Change: If I look at what you said, 8% over two years I think the average of the reported numbers were $8. Seven so is it fair that maybe that added 70 bps this quarter and maybe the core growth was more in the mid sevens any any any help would be helpful. Since people are clearly asking.
Speaker Change: Yes and.
Alex: Alex I am.
Alexander Kramm: We're trying to relate to the $8 seven that you have in the 8% was looking at our total revenue.
Alexander Kramm: Not a subscription versus transaction, so just kind of taking into account the trying to eliminate the impact of that migration between subs and trans I wanted to point out that our overall revenue growth over that two year period at 8% was still at the high end of that of that range.
Alexander Kramm: I think the thing that I would say further is that there.
Speaker Change: Where it was a specific significant contract that is a function of.
Speaker Change: The renewal of that contract and some of the.
Speaker Change: Regulatory aspects of of how that needed to be approved them had to be characterized as transactional in the prior year.
Speaker Change: <unk> was a subscription is now on the subscription side. So that is an element, we're not going to quantify that within it but I would characterize that as a kind of a specific situation that.
Speaker Change: That added to the the weakness in the subscription growth and beyond that we have other I'm sorry, the weakness in the transactional and the transactional growth. There. So this was last year revenue from a contractual standpoint was transactional and now that that that contract has been has been.
Speaker Change: Confirmed and executed he is now subscription so that is an element. In addition to what I think you can look at those historic historical transactional growth rates in <unk> in.
Speaker Change: In the second quarter of 2023, and see a normalization more to that longer term longer term growth rate. So those are the those are the elements.
Speaker Change: We don't think it makes sense to break all of those pieces apart, but hopefully it's clear enough that you had some seasonal highs or cyclical highs in that prior year quarter, plus some structural elements that were contributing to an exceptional tough comparison on the transactional revenue growth.
Speaker Change: The next question comes from Phil I'll have Jeff Feeler from Baird. Please go ahead.
Phil Feeler: Yes. Thank you and good morning. My question is on underwriting or I guess slide eight.
Phil: Having trouble connecting the descriptors under business highlights with the line chart showing deceleration.
Speaker Change: It sounds like core growth was good life in SBS remain accretive.
Speaker Change: And two of the three bullets that you are talking about per transactional headwinds fall into claims and I think marketing has been weak for a while so what are the primary factors driving the OCC deceleration in underwriting.
Speaker Change: Just beyond the slowdown in auto rate shopping thank you.
Speaker Change: Yeah, Jeff Thanks, Thanks for the question.
Speaker Change: Some of it in the underwriting solutions that first descriptor, you've got the underwriting data analytics solutions.
Speaker Change: That is where the auto the auto insurance shopping activity set.
Speaker Change:
Speaker Change: So that's a that's an element.
Speaker Change: The next question comes from the line of <unk> <unk> from Autonomous Research. Please go ahead.
Speaker Change: Hi, Good morning, Thanks for taking my question. So theres still a lot of discussion around where we are in the cycle for the insurance industry and whether we'll see pricing kind of peak for 2025.
Speaker Change: Since 20% to 25% tariff revenues come from contracts that have premium grows at a rapid and put in price increases are often with a two year lag does this basically insulin therapy and $2 27, even if 2025 with kind of the pricing for insurance companies or how should we think about the cycle.
Speaker Change: Call dynamics here.
Speaker Change: Yeah, Kathy Thanks for the question Anna and welcome to the call.
Speaker Change: On the question of the of the insurance cycle look it's we've talked over time about being in a in a hard market broadly in the property and casualty industry, that's hitting different segments certainly at different times, but we know it's not going to last forever. So.
Speaker Change: It's a when not an if that hard market begins to peak and becomes more competitive I think one of the strengths of various you have seen us continue to grow historically through both hard markets and softer market and the insurance cycle.
Speaker Change: I would I would not go so far as to say we are insulated I think the pressure remains on us to continue to deliver value to our to our clients through all the innovations and product strengths that.
Speaker Change: That we've talked about on the call. So I think if we if we continue to do that we will continue to deliver value to our customers and our and continue to.
Speaker Change: To grow revenue throughout the cycle.
Speaker Change: The next question comes from the line of Jeff Silber from BMO capital markets. Please go ahead.
Jeffrey Marc Silber: Thanks. So much my question is about your outlook I know you don't give quarterly guidance, but you had some pretty good quarters. The first half of this year from a bottom line perspective by maintaining your guidance. It implies a pretty slow down in adjusted EPS growth in the back half of the year I know you called out accelerated hiring.
Speaker Change: Is there anything going on maybe from a timing perspective, but if you can provide a little bit more insight there that'll be appreciate it. Thanks.
Speaker Change: Yeah. Thanks, Thanks for the question Jeff.
Speaker Change: A couple a couple of things we did we have historically talked about some of the seasonality in our in our margin any quarters margin can vary based on revenue mix as well as as well as just the timing of spending.
Speaker Change: And we've signaled we've commented that we intend to invest in the business. So that you know that our margin guidance gives you in our EBITDA guidance gives you a good feeling of where are where we expect to end up on an EBITDA basis. If you look at the EPS rate.
Speaker Change: In addition, there's the tax the tax rate, where we've had certain benefits in the first half of the year that we don't expect to continue in the second half of the year.
Speaker Change: The next question comes from the line of Heather Bulky from Bank of America. Please go ahead.
Heather Nicole Balsky: Hi, Good morning, I, just wanted to piggyback on <unk> question earlier on pricing and just ask you you know net written premiums as we go into next year that I guess the 2023 net written premiums were quite strong and it sounds like you're seeing very good value realization in terms of price.
Speaker Change: Thing from your doing a core line.
Speaker Change: Think about your your 3% to 4% pricing target that you said at their Investor Day, do you think you're positioned to be at the higher end of that or even above them based on what you're seeing you're seeing and how should we think about pricing in the near term.
Heather Nicole Balsky: Yeah. Thank you Heather.
Speaker Change: Appreciate the question one I'm not going to go beyond the guidance.
Speaker Change: Questions on the guidance statement that we've made just remaining confident in the in the guidance that we provided I do want to try to address the pricing aspect a little a little further.
Speaker Change: And as I mentioned in my earlier comments the fundamental dynamic.
Speaker Change: Almost.
Speaker Change: Regardless of the the premium growth, which does I think influenced said in some cases directly to a modest impact but also from a from a psychological standpoint, it's helpful. But even with those two if we arent providing value to our clients and they don't perceive that.
Speaker Change: Value then that's where we are going to run into challenges in improving improving pricing and driving the revenue. That's why the value of the investments that we have made in our core lines of business and with our re imagine initiative. While one example of how we are driving.
Speaker Change: <unk> is what's critical.
Speaker Change: <unk> is the most critical factor in what sustains our revenue growth and that's where we continue to get very strong feedback for how we are helping our clients improve the value of what they're doing and I'd like to ask sorry of kimco, who leads that business and that initiative to share a little bit about what we are hearing from clients and how they perceive.
Speaker Change: The value of the investments that we've made and I hopefully that will provide more context for how we've been able to overachieve on those on that renewal pricing absolutely. Thanks, Lee Yeah look on the core lines are re imagine side, our engagement with our customers has really demonstrated the value of our content.
Speaker Change: And the upcoming innovations that we have is delivering additional value for them. So for example, the yeah. The feedback has been very encouraging across the spectrum of our customers large and small they're seeing additional value in the new insights like the experience index, the executive insights as well as the new technology innovations that we have around.
Speaker Change: The delivery of our content, which is creating efficiencies for them and so what we're hearing from our customers is these new insights as helping them be better in terms of reacting to market conditions and these new efficiency tools are helping them to be more efficient in their operations. So it has been it's been very good I would also say that we've been flexible.
Speaker Change: In terms of how we deliver our content. So some of our smaller customers liked the packaged insights in the turnkey solutions and there are larger customers prefer zones, the access to underlying components to our analytics. So that they can create more differentiation and so by being flexible we are benefiting all of our customers.
Speaker Change: And Heather to give you two specific examples one one product innovation has been the the update to our moats or Mozart product, which allows our clients to manage their policy forms much more efficiently because they have thousands of forms based upon product line and state and different.
Speaker Change: <unk> areas it is a.
Speaker Change: Time consuming laborious process to keep those updated them, particularly if they reference our ISO policy policy forms and so the investment that we've made is effectively in a document management platform that allows them to do that much more easily and more quickly that's one dimension, where they cruise clearly.
Speaker Change: <unk> significant value increase another as we've talked about is on the experience index experience index. This is where they have asked us to move further beyond those traditional loss costs that we provide to them in the underwriting process and give them a more current read on what's happening what we see evolving in <unk>.
Speaker Change: So we are able to provide them more actionable information on a more timely basis that provides value to them on the underwriting side just to kind of tie that down to some specific products that we've been investing in.
Russell Quelch: The next question comes from the line of Russell coach from Redburn Atlantic. Please go ahead.
Russell Quelch: Yes, hi, thanks for taking my question.
Russell Quelch: You might have put in the pre remarks about putting out the fact that youre at the bottom end of the target leverage range.
Russell Quelch: Keen to hear your thoughts on <unk>.
Speaker Change: Future capital deployment.
Speaker Change: So got debt capacity I'm wondering if you might look to inorganic growth again soon it obviously has a period, where you havent been active, particularly if rates come down and if you do maybe could you talk to what areas you might target could be inorganic growth, particularly wondering if there's more we could do for example in the live space that'd be great. Thanks.
Speaker Change: Yeah. Thanks for the question Russell.
Speaker Change: So yes, as we look at our target leverage range.
Speaker Change: And where we are relative to the two to three times. We go back to our capital allocation philosophy. We are a we are willing to deploy capital to support the business. We do remain active in M&A markets and looking at what is available.
Speaker Change: We tend to focus on businesses that are unique in their markets.
Speaker Change: Serve our insurance end market, but for which various has a unique reason to be the right owner of that business and so those can be data opportunities that we can add to our existing services, they can be customer opportunities or geographic or market expansion.
Speaker Change: The next question comes from the line of George Tong from Goldman Sachs. Please go ahead.
George Tong: Alright, thanks, good morning.
Speaker Change: Going back to the transactional revenue performance.
George Tong: 3% decline you saw in the quarter were there any unusual headwinds you would call out.
Speaker Change: That may not persist just just trying to.
Speaker Change: I understand the overall trend since if you look at the quarterly cadence a swing from plus three in one cuda downstream <unk> was quite significant and want to understand if that trajectory should be carried forward into future quarters.
Speaker Change: Or if the <unk> decline is a reasonable rate to persist.
Speaker Change: <unk>, which also represents a tough comp if you look at the year ago period.
Speaker Change: Yes, thanks for the question George So yes.
Speaker Change: We always highlight that our transactional revenue does have some variability to it one important thing that I will point to of course from a growth perspective, we always look year over year, but it's a it is interesting also to look on a sequential basis this quarter relative to the first quarter. Our total revenues grew relative to the first quarter.
Speaker Change: And in fact, our transactional revenues also grew relative to the first quarter.
Speaker Change: So it's just the year over year that that has that pattern now that there's some seasonality and some things that hit the second quarter typically and that were particularly strong in the second quarter of last year and the ones that we called out, whereas the weather impact which was.
George Tong: And historically strong in the second quarter of last year are the auto shopping activity.
George Tong: For which we've anniversaried that tough comp and then the transition of transactional revenue to subscription.
Speaker Change: Again, if you would like to have to ask a question or have any additional questions. Please feel free to press star one again. Thank you.
Speaker Change: The next question comes from the line of Alex Kramm from UBS financial. Please go ahead.
Alexander Kramm: Okay. Thank you for the follow up just quickly and you mentioned Lee the experience index here just a couple of questions ago, but you know as an outside of the industry.
Alexander Kramm: I can certainly see the applicability here pretty pretty strongly so I know, it's early days and it's good to see this finally being launch but can you just maybe talk about the reception you've seen with that because again it seems like a lot of customers should kind of move to a more reasonable at the time index and if so.
Speaker Change: Or is this definitely a new revenue opportunity or do you think it's going to get you know kind of included in upgrades. Thank you.
Alexander Kramm: Alex Thanks for the thanks for the follow up I'm going to actually asks us are up to want to talk about that addressing your question yeah.
Alexander Kramm: Yeah, absolutely Alex So you know the feedback has been very positive first of all as you noted.
Speaker Change: Getting more frequent data and more current data is always helpful to our customers.
Speaker Change: And this is a tool that helps them very easily benchmark their experience versus the industry.
Speaker Change: And it becomes an additional input into their own internal decision, making and priority. So what we're hearing from customers is this is a very good innovation, we've launched it for the homeowners line of business and the most frequent comment I hear is when are you going to launch the other lines of businesses. So we're excited about it and we're going to continue launching other lines of business and as we get feedback from them.
Speaker Change: Customers, adding more elements to the experience index yeah.
Speaker Change: And I think regardless of whether it's priced separately or it's part of the broader element. This is an example of where we expect to capture value from that greater.
Alexander Kramm: The greater currency, meaning kind of recency of that of that data I want to take that Alex.
Speaker Change: Just given the question and kind of broaden it we recently did a voice of the customer exercise an isolated three primary.
Speaker Change: Asks that we have had from our clients the first which the experience index addresses is that they wanted more they want to see greater investment in data both broadening the datasets that we have.
Speaker Change: And the currency of the datasets that we have so this isn't a an opportunity to improve the currency and the action ability of that dataset.
Speaker Change: The other thing that's important is that the client is also asking for more data, which means that there is an implicit desire on their part to give us more data. So that we can expand and develop it so that in and of itself creates more and more value for us and we've seen a variety of initiatives and appetite from the clients.
Speaker Change: In the excess and surplus area, which Ford insurance industry analysts will recognize has been a growing area of the.
Speaker Change: Of of industry underwriting the second theme that we heard was more insights and we've talked I've talked about on the emerging issues, providing greater insights from the data on what the trends are that are taking place and so that has been a key enhancement and then the final final theme that we heard from clients is connecting the <unk>.
Speaker Change: Ecosystem, they want us to be that central provider building that network aspect, so as to improve the efficiency, but the overall system and their ease of operating within that so all of these elements.
George Tong: Sure because theyre reflections not entirely of US, saying this is what the industry needs, but what we are hearing from clients that they expect from us given our role given our centrality and the datasets that we have.
George Tong: Yeah.
Speaker Change: Ladies and gentlemen, this concludes our Q&A session and today's conference call. Thank you for your participation you may now disconnect.
George Tong: [music].