Q1 2025 Verisk Analytics Inc Earnings Call
Good day, everyone and welcome to give a risk first quarter 'twenty twenty-five earnings results conference call.
This call is being recorded.
Currently our participants are in a listen only mode. After today's prepared remarks, we will conduct a question and answer session, where we will limit participants to one question. So that we can allow everyone to ask a question.
We will have further instructions for you at that time.
Speaker Change: For opening remarks, and introduction I would like to turn the call over to you for risks had up investors Investor Relations Ms. Stacy broad word Miss Bradbury. Please go ahead.
Speaker Change: Thank you operator, and good day, everyone. We appreciate you joining us today for a discussion of our first quarter 2025 financial results on the call today are at least stable embarrassed 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-Q can be found in the investors section of our website Paris dotcom.
Speaker Change: The earnings release has also been attached to an 8-K that we have furnished to the SEC a replay of this call will be available for 30 days on our website and by dialing.
Speaker Change: As set forth in more detail in today's earnings release, I will remind everyone. Today's call may include forward looking statements about their future performance, including those related to our financial guidance actual performance could differ materially from what is suggested by our comments today.
Speaker Change: Information about the factors that could affect future performance are contained in our recent SEC filings.
Speaker Change: Reconciliation of reported an 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 adjusted EBITDA and adjusted EBITA.
Speaker Change: And to the most directly comparable expected GAAP result, because of the unreasonable effort in high unpredictability of Astro meeting certain items that are excluded from projected non-GAAP adjusted EBITDA and adjusted EBITDA margin, including for example tax consequences acquisition related cost.
Speaker Change: 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 Luis Jabal <unk>.
Luis Jabal: Thanks, Stacy good morning, everyone and let me welcome you to todays call I'm very pleased to share that 2025 is off to a positive start as we delivered solid first quarter results underscored by double digit subscription growth strong overall topline growth healthy margin expansion and profit growth.
Luis Jabal: Organic constant currency revenue growth of seven 9% was driven by 10, 6% subscription growth, which was broad based across most of our business units are.
Luis Jabal: Our focus on cost discipline, and delivered 130 basis points of margin expansion, resulting in OCC adjusted EBITDA growth of nine 5%.
Luis Jabal: Elizabeth will provide the details in our financial review, but these results are a demonstration of our emphasis on delivering consistent and predictable growth and our results oriented culture.
Luis Jabal: One of the hallmarks of <unk> business model is that we have delivered consistent levels of growth across varying macroeconomic and insurance specific operating environments. The current industry backdrop in which we are operating has strengthened as premium increases are better matched the levels of risk thus driving improved.
Luis Jabal: Trends in fact, according to data collected by <unk> and the American property Casualty Insurance Association. The insurance industry returned to profitability in 2020 for recording an underwriting gain of 25 billion, marking the first gain recorded in four years that said the.
Luis Jabal: <unk> still faces an uncertain risk environment ahead, as challenges, including inflation regulatory changes rising reconstruction costs, social inflation and the potential impact of tariffs and severe weather events are making it more complex to operate.
Luis Jabal: Speaking of severe weather last year marked the second worst year for catastrophic losses since 1950 with the vast majority of damages stemming from hurricane and severe convective storms, including the back to back Hurricanes of Helene in Melbourne.
Luis Jabal: And that trend has continued in 2025 as the year started with the devastating wildfires in Los Angeles, which has had a profound impact on individuals businesses and communities and our insurance industry clients in which various estimated would result in 28 to 35 billion in insurance losses.
Luis Jabal: <unk> for the industry.
Luis Jabal: At various we are focused on supporting our clients with the most advanced data analytics and insights to help them better understand risk and navigate through these dynamic times.
Luis Jabal: The changes to our go to market strategy that we implemented in 2024 have enabled us to get ever closer to our clients delivering better service improved customer satisfaction and strong sales results for <unk>. We are now taking the learnings from 2024 and applying this improved sales model.
Luis Jabal: A broader group of our business units in 2025, including our new growth vectors.
Luis Jabal: Through our strategic and elevated dialogue with clients. We continue to hear the re key resounding areas of need specifically, our clients are asking for one greater and more timely insights.
Luis Jabal: Two connection across our data sets and capabilities and three are more efficient and effective ecosystem.
Luis Jabal: Let me spend a few minutes on each and detail how we are leaning in on investment toward invention to create new solutions on behalf of the industry.
Luis Jabal: First is the demand for greater insights.
Luis Jabal: Data and insights that help our clients understand risk across their portfolio is the foundation of the work, we do and to our core lines re imagine project, we are converting data into insights with greater speed and frequency, helping our clients navigate these dynamic market pressures.
Luis Jabal: In particular, the actuarial hub within our core lines platform provides insights into loss cost trends 12 months earlier than usual to help clients address the evolving pricing needs of the market. Additionally, our executive insights reports leverage our statistical data across the <unk>.
Luis Jabal: Sixth largest lines of insurance to help with benchmark analyses and to evaluate individual client performance measures.
Luis Jabal: We are also delivering more granular insights throughout our underwriting data and analytic solutions as we are incorporating a broader range of data sources, including aerial derived analytics permit data property records real estate and claims data to enhance our property databases and offer a more comprehensive risk.
Luis Jabal: <unk> buildings and building condition.
Luis Jabal: And finally, our reconstruction cost data is updated monthly to provide granular material and labor cost information and analysis to help our clients estimate costs and align insurance to value.
Luis Jabal: Our comprehensive database includes over 23000 line item activities assembled from over 14000 material equipment and labor components. Our team of researchers and analysts survey and report pricing for these line items and components at market level for over 470 gene.
Luis Jabal: <unk> in North America.
Luis Jabal: In periods of rapid economic change, we often complete by monthly updates to our research to ensure we are providing the most up to date market information in today's volatile economic environment, our clients depend on precision to maintain appropriate coverage levels and competitive pricing in the market and they turned to <unk> as the.
Luis Jabal: Trusted partner for our commitment to data accuracy and timeliness.
Luis Jabal: We recently published our quarterly reconstruction cost analysis, which provides reconstruction cost trends at the national and state levels.
Luis Jabal: The analysis is derived from building cost research using our property estimating solution.
Luis Jabal: In an effort to support our clients with detailed data to navigate the changing operating environments. This quarter's report includes detailed coverage of cost changes inclusive of recent severe weather and macroeconomic events.
Luis Jabal: The second area of need for our clients that I referenced is better connections across our data sets and capabilities and we have many active projects here. One such example is our enterprise exposure manager a cloud native solution that combines the unique capabilities from our specialty business solutions and extreme events.
Luis Jabal: <unk> <unk>.
Luis Jabal: Enterprise exposure manager is a scalable solution that enables users to evaluate enterprise wide risk across billions of locations with performance and stability, providing an improved understanding of global exposures and insights into portfolio wide risk accumulations to enable better.
Luis Jabal: <unk> informed business decisions.
Luis Jabal: This solution can utilize and analyze clients' data across insurance and reinsurance to create real time insights, including identifying the risk of multiple claims from a single event as well as trend and comparative analytics.
Luis Jabal: This new solution is also creating opportunities for us to address the needs of chief risk officers across of our clients are newer constituent for our services.
Luis Jabal: Another example of our work to connect our data and capabilities is in our extreme events business.
Luis Jabal: We are re imagining the core catastrophe modeling software platform into a fully cloud native scalable workflow solution, we are calling various synergy studio launching in 2026.
Luis Jabal: We recently engaged in more than 100 live one on one client demonstrations of various synergy studio at our various insurance conference last month and client interest and reception was very strong.
Luis Jabal: Upon release, various synergy studio will provide a flexible fast and stable platform on which our full global suite of catastrophe models will be deployed at a lower cost of ownership, allowing for a better understanding of the near present climate risk impacting the global insurance market.
Luis Jabal: Importantly, <unk> synergy studio can also serve as a platform to connect the functionality of various products and datasets and serve as an ecosystem hub for all of <unk> clients. We are excited about this rollout and are in active dialogue with clients ahead of the launch.
Luis Jabal: The third demand we are addressing is the need for an efficient and effective ecosystem that benefits all parties, namely as insurers reinsurers brokers regulators and ultimately policyholders.
Luis Jabal: The insurance industry has strengthened through the many ecosystem players being linked together and our ability to drive connectivity enables us to support many constituencies through data relationships and partners.
Luis Jabal: Specifically, we are continuing to grow our ecosystem by continually adding new partners to our various platforms across underwriting and claims including property estimating solutions and anti fraud.
Luis Jabal: This is driving increased revenues per bear risks more choice for clients and more connectivity and interoperability within the industry.
Luis Jabal: We are also creating new platforms to connect different parts of the ecosystem such as regulatory data exchange launched in April to regulators. This platform streamlines data sharing between regulators and the carriers across multiple jurisdictions.
Luis Jabal: Rdx enables regulators to review data elements that have been requested in prior data calls both in their own in other jurisdictions in order to make regulatory data calls more consistent efficient and less costly to insurers.
Luis Jabal: And finally, just last month, we closed on the strategic acquisition of <unk> from NASDAQ a SaaS platform that will be part of our extreme events business simply Liam supports an open ecosystem, where specialized model partners make models hazard data and analytics available to the <unk>.
Luis Jabal: Industry to help assess the global insurance protection gap.
Luis Jabal: This acquisition will provide our clients with access to over 303rd party models, providing unique niche views of risk across the globe supporting the entire risk transfer ecosystem.
Luis Jabal: Now, let me turn the call over to Elizabeth to review, our detailed financial results for the first quarter.
Luis Jabal: Thanks, Lee and good day to everyone on the call.
Elizabeth: On a consolidated and GAAP basis first quarter revenue was $753 million up 7% versus the prior year, reflecting solid growth across both underwriting and claims.
Elizabeth: Net income was $232 million up 6% versus the prior year, while diluted GAAP earnings per share or EPS were $1 65 up 9% versus the prior year.
Elizabeth: The increase in diluted GAAP EPS was driven by strong operating performance and a lower average share count.
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 continued broad based growth across both underwriting and claims.
Elizabeth: In the first quarter.
Elizabeth: <unk> revenues grew seven 9% with growth of seven 2% in underwriting and nine 6% and claim.
Elizabeth: This strong revenue growth represents a solid start to the year and reinforces our ability to deliver consistent levels of growth across varying macroeconomic and insurance specific operating environment.
Elizabeth: Our subscription revenues, which comprised 83% of our total revenue in the quarter grew 10, 6% on an OCC basis during the first quarter.
Elizabeth: We experienced solid growth across most of our largest subscription based solution with strong price realization in our renewal expanded relationships with existing clients and solid sales of new solutions.
Elizabeth: We also continued to see a benefit from the conversion to committed subscription from previously transaction all contracts.
Elizabeth: We then farms rolls on loss costs, we continued to see improved value capture through pricing as we digitize our content expand our insights and release more client facing innovations as part of re imagine.
Elizabeth: This quarter, we expanded executive insights and the ISO experience index to another major line of insurance commercial auto and brought several new innovations to market, including re imagined ratings for homeowners and personal auto.
Elizabeth: We also introduced a generative AI tool within our Mozart forms management platform to help clients efficiently compare changes in our proprietary form.
Elizabeth: <unk> migrated additional circular content to our new client platform.
Elizabeth: In anti fraud, we experienced underlying strength in the business.
Elizabeth: Rented by strong sales of new solutions like claim scoring as well as the continued benefit from the conversion to subscription of previously transactional clients.
Elizabeth: And within extreme event solutions, we delivered another quarter of high single digit subscription growth driven by strong multi year renewals with existing clients as well as the addition of new logos to Barrick.
Elizabeth: In our marketing business, we have experienced a recovery in growth from our insurance clients.
Elizabeth: Continue to experience headwinds in other client segments that are more economically sensitive.
Elizabeth: Our transactional revenues, which comprised 17% of total revenues declined 4% on an OCC basis during the first quarter.
Elizabeth: We have had continued success converting transactional revenues to committed subscription, including the one discrete contract that we have previously mentioned, which has reduced our transactional revenue growth.
Elizabeth: In addition, we continued to experience soft results in our personal auto business as well as lower levels of service revenue in certain of our software related businesses.
Elizabeth: This decline was partially offset by better than expected transactional growth within extreme event solutions related to securitization.
Elizabeth: Moving now to our adjusted EBITDA results.
Elizabeth: <unk> adjusted EBITDA growth was nine 5% in the quarter, while total adjusted EBITDA margin, which includes both organic and inorganic results was 55, 3% up 130 basis points from the reported results in the prior year.
Elizabeth: This level of margin expansion reflects the positive impact of sales leverage the timing of certain expenses and our ongoing cost discipline, including the benefits from our global talent optimization efforts.
Elizabeth: This level of expansion also embeds, the self funded investments back into our business for invention and future growth.
Elizabeth: On a trailing 12 month basis, adjusted EBITDA margins were 55% up 110 basis points over last year's levels.
Elizabeth: Moving down the income statement.
Elizabeth: Net interest expense was $36 million in the quarter compared to $29 million in the same period last year, resulting from higher debt balances and higher interest rates.
Elizabeth: During the first quarter, we issued $700 million of senior notes at five 5% due 2035 and subsequently in April retired $500 million of 4% notes that were due in June 2025.
Elizabeth: While we still expect our full year interest expense to be in line with the previously guided range. The net effect of these transactions is that our ongoing quarterly run rate for the remainder of the year will be higher than in the first quarter.
Elizabeth: That said, we are comfortable with our current leverage which stands at two times. The EBITDA and is at the low end of our targeted range of two to three times EBITDA.
Elizabeth: Our reported effective tax rate was 21, 6% compared to 23% in the prior year quarter.
Elizabeth: This year over year increase was primarily related to a onetime tax benefit in the prior year period.
Elizabeth: We continue to believe our tax rate will be in the range of 23% to 25% for the year. So there could be some quarterly variability related to employee stock option exercise activity.
Elizabeth: Adjusted net income increased four 5% to 245 million and diluted adjusted EPS increased six 1% to $1 73 for the quarter.
Elizabeth: The increase is primarily driven by solid revenue growth strong margin expansion and a lower average share count.
Elizabeth: This was partially offset by higher depreciation expense higher interest expense and a higher tax rate.
Elizabeth: From a cash flow perspective on a reported basis net cash from operating activities increased 20% to $445 million, while free cash flow increased 23% to $391 million.
Elizabeth: This was driven by an increase in operating profit and the timing of certain tax funds received in the quarter.
Elizabeth: As of March 31, we had $1 $1 billion in cash on our balance sheet. However on April 21, we retired $500 million of our 4% notes due June 2025, reducing our cash balance.
Elizabeth: We are committed to returning capital to shareholders.
Elizabeth: During the first quarter, we paid a cash dividend of <unk> 45 per share a 15% increase from the prior year.
Elizabeth: We also initiated a $200 million accelerated share repurchase program, which was completed in April.
Elizabeth: We continue to have $1 $4 billion in capacity remaining under our share repurchase authorization.
Elizabeth: We are pleased with our strong results for the first quarter and reiterate our outlook for 2025 or.
Elizabeth: More specifically, we expect consolidated revenue for 2025 to be in the range of $3.03 billion to $3.08 billion.
Elizabeth: We expect adjusted EBITDA to be in the range of $1 67 to $1 $72 billion.
Elizabeth: And adjusted EBITDA margin in the range of 55 to 55, 8%.
Elizabeth: We expect our tax rate to be in the range of 23% to 25% and adjusted earnings per share in the range of $6 80.
Elizabeth: To $7 10.
Elizabeth: 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.
Elizabeth: And now I will turn the call back over to Lee for some closing comments. Thanks. Elizabeth we are pleased that 2025 is off to a solid start our execution priorities are unchanged as we remain focused on delivering consistent and predictable growth, while allocating capital back toward investment for future growth.
Elizabeth: Our heightened strategic engagement with clients has strengthened relationships and fostered new product and business opportunities for the industry, where we can invest at scale to drive value for our clients employees and shareholders.
Elizabeth: Our durable subscription based economic model and strong cash flow enabled us to continue to invest in our business. While also returning capital to shareholders. We continue to appreciate the support and interest in <unk> given the large number of analysts we have covering us we ask that you limit yourself to one question with that I'll ask the op.
Elizabeth: Operator to open the line for questions.
Speaker Change: Thank you we will now begin the question and answer session. At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Speaker Change: And your first question comes from the line of Toni Kaplan with Morgan Stanley. Your line is open.
Toni Kaplan: Thanks, So much I was hoping you could give us your latest observations and thoughts on the marketing solutions, particularly you called out the non insurance business seemed like that was a bit of a drag this quarter on the transactional side I was just really wondering is this core to your business or are there synergy.
Toni Kaplan: Is that you have with your insurance marketing solutions and that's why you have it or I'm. Just wondering if it makes sense to continue to be in that business and just any color on the outlook for the marketing business overall and 25, especially if we were to see a bit of a macro slowdown. Thank you.
Speaker Change: Yeah. Thanks, Thanks for the question Tony.
Speaker Change: Yeah. The marketing business you know that we entered a couple of years ago does present us an opportunity to access some of the spend that takes place at our insurance carrier clients.
Speaker Change: And that part of the business has a it has continued to grow.
Speaker Change: As you know we entered those businesses from acquisition and so those remain exposed to a couple of other customer segments.
Speaker Change: Particularly within financial services and mortgages and those have had been going through some headwinds over the last couple of years and then as we look ahead with potential pressures on discretionary spend that could be a challenge for the balance of the year.
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of Kelsey Xu with Autonomous Research. Your line is open.
Speaker Change: Hi, Good morning, Thanks for taking my question you called out strong pricing realization in pharmacy with loss costs. I was just wondering whats contributing to trends you're seeing there. Obviously, we know 20% to 25% of your revenues come from contracts that have a direct and cost based on premium growth.
Speaker Change: Two years ago I was wondering if that was the main driver of that strong pricing realization and just how much the pricing contribute to overall growth in Q1.
Speaker Change: Yeah. Thanks, Kelcey our of course, our main focus in that business is delivering the value to clients and as you've heard us talk about the developments in core lines re imagine I think there is getting to be more and more tangible that they can see and feel and experience that's contributing to that to that sense of value that is supported by the <unk>.
Speaker Change: <unk> premium environment, and so for those contracts with a with a premium inputs the oven the the full year 'twenty three premium strength.
Speaker Change: It was very strong at.
Speaker Change: Over over 10% around 11% so both of those things are factors.
Speaker Change: And I might.
Speaker Change: AD.
Speaker Change: Kelsey that this is.
Speaker Change: One example, we have also seen this.
Speaker Change: In other product areas and I think we've talked previously about the strength of the performance in our extreme event solution. It's a function of not only investing but also elevating the dialogue and the awareness of the value that we're creating across the enterprise that I think is supporting that and.
Speaker Change: <unk>.
Speaker Change: In terms of ongoing developments I'm going to ask Rob Kimco is with us to talk about some of the features that we're continuing to roll out over the next over the next year or so that will add to the value of the incremental value that we're providing to clients, yes, absolutely happy to leave so on two fronts. One we've talked about on the executive.
Speaker Change: Sides, the experience indexes, which provide more insights and thus more value to our customers as they think about their pricing in this environment. There's also a lot of tools that we're providing for automation in that are driving efficiencies in their operations and they see value both from an inside perspective, but also from a cost savings.
Speaker Change: Perspective.
Speaker Change: Yeah.
Speaker Change: Thank you and your next question comes from the line of Phase I I'll Lee with Deutsche Bank. Your line is open.
I'll Lee: Yes, hi, thank you.
Speaker Change: Wanted to ask about margins, you've had really strong margin performance over the last couple of years and even now you've been above sort of the long term.
Speaker Change: Level of margin growth that you had talked about so I'm curious I know you mentioned some timing of expenses.
Speaker Change: But maybe talk a little bit about you know where you are in the journey of the global talent optimization efforts and how we should think about about efficiencies in the business going forward.
Speaker Change: Yeah. Thanks, Thanks for the question Phase I it is.
Speaker Change: Margin efficiency has become a discipline that I think has become really embedded into our processes and there's there's always more that we can do on the efficiency front that that said as you highlighted.
Speaker Change: We had a couple of years of very very significant focus on margin expansion and I think the the trajectory.
Speaker Change: Margin expansion from here may taper a bit as our guidance indicates for the quarter itself. It was a it was a pretty strong margin expansion.
Speaker Change: Some of that reflects as I said, the timing of spend can vary quarter to quarter, which is why we always tend to look at the trailing 12 months. The other thing I mentioned is you know we had a benefit it was a relatively strong revenue performance quarter.
Speaker Change: It did include and maybe we'll get to this there was a modest benefit of some storm associated revenue in the property estimating solutions business, which always comes out at high incremental margins.
Speaker Change: And finally, I would add one other thing which is the the counterbalance to those operating efficiencies is our level of investment intensity and so what we are always trying to do is balance that that incremental investment that will support growth and even efficiency down the down the road.
Speaker Change: The more immediate more immediate margins and so its going to vary from quarter to quarter, but that is also a moderating influence that we think is in the best long term interest for our shareholders.
Speaker Change: Your next question comes from the line of Andrew Nicholas with William Blair. Your line is open.
Andrew Nicholas: Hey, good morning, Lee in your prepared remarks, you talked about bringing the improved sales model to a broader group of businesses and.
Andrew Nicholas: And your new growth vectors could you spend a little bit more time flushing that out I mean is that specific to <unk>.
Andrew Nicholas: Speaking to executive groups more regularly being more in tune with their needs or is there something beyond that and maybe what it looks like in practice in terms of fleshing that out and bringing it to other groups within the organization. Thank you.
Andrew Nicholas: Alright. Thank you. Thank you Andrew and so yeah.
Andrew Nicholas: It really relates to when we did the review of our go to market strategy was focused on our largest businesses and so our.
Andrew Nicholas: Our claims sales team are extreme events sales team.
Andrew Nicholas: Our underwriting.
Andrew Nicholas: Underwriting decision analytics sales team. We are obviously wanted to identify where we can have the biggest impact across those large businesses and what we're referring to from an extending that is bringing some of the disciplines and what we have learned from the very positive impact we've had across those larger businesses to some of our <unk>.
Andrew Nicholas: Growth businesses, So you with our life insurance business with our Sps business with various marketing solutions, how can we leverage some of that some of those learnings against those businesses and so we're hopeful that we'll see a similar level of success that we've had in some of the larger businesses. So that's the that's the extension.
Andrew Nicholas: You referred to the broader elevation of our strategic dialogue I think that is already in place by do think that that has been focused on our largest customers, but those skill sets are something that we will look to expand and be part of our philosophy in terms of how we think about serving our oh.
Andrew Nicholas: All of our clients with more of a relationship and enterprise orientation.
Speaker Change: Your next question comes from the line of Alex Kramm with UBS. Your line is open.
Alex Kramm: Yes. Good morning, everyone. Just wanted to come back to the I guess uncertain environment over the last couple of months tariffs et cetera, I think.
Alex Kramm: Your end market is generally fairly insulated against that but obviously you already mentioned with the marketing side that there is somewhat the industry. So just wondering across the business are you seeing any delays in decision, making or is it too as it always been that the insurance industry seems to be very immune to some of what's going on but anything youre seeing would be helpful. Thanks.
Alex Kramm: Yes, Thanks, a bunch for the further question, Alex It's certainly something that we've been monitoring very closely.
Alex Kramm: From our own business from our various financial perspective, we don't believe we have kind of a material direct exposure to tariffs and the implications I think for.
Alex Kramm: For the insurance industry overall, I think there are potential impact.
Alex Kramm: You know if if there were to be an environment with higher costs that would translate into higher costs for claims and claims fulfillment and so that that could potentially lead to lower profitability in the insurance industry in the short term.
Alex Kramm: So that's something that our clients are monitoring very closely and we're working with them. Indeed, our data and analytics is doing a lot to try to support them in a in measuring and assessing the environment that they are in so.
Alex Kramm: So those are kind of some of the factors that we've been following.
Speaker Change: Your next question comes from the line of Andrew Steiner Man with J P. Morgan Your line is open.
Andrew Steiner: Hi, Elizabeth could you.
Speaker Change: On slide 10, the Guy could just focus a little bit more on the DNA line I know I've asked you about this last quarter.
Speaker Change: Do you feel like G&A as a percentage of revenues will kind of stay in this range.
Speaker Change: And going forward from here like is there a bias upwards as they're biased downwards again, DNA as a percentage of <unk>.
Speaker Change: Revenues and what the implications on ROIC here going forward.
Speaker Change: Yeah, Andrew Thanks, Thanks for the question.
Speaker Change: It is something that we take a look at you know we haven't given up our long term forecast for DNA as a as a percent of revenue.
Speaker Change: The DNA is a direct consequence, obviously of the.
Speaker Change: The capex on the projects that we've placed in service and I think for this year and these quarters, you're seeing the impact of some projects placed into service that were actually fairly long term builds both the work we've been doing on the on the core lines, we imagine program as well as the the nexgen.
Speaker Change: <unk> financial models that were that were developed in extreme event solutions.
Speaker Change: So both of those things, where some long term builds that are being placed into service I think from where we are now the growth rate of that DNA will probably.
Speaker Change: Yeah.
Speaker Change: The number will converge with the Capex I think the growth from here will probably be up.
Speaker Change: A hair below the capex, because we're reflecting some of those longer term build.
Speaker Change: Andrew its way I can't resist our return on invested capital question.
Speaker Change: And I just want to make certain that you understand what when we when we are looking at our return on invested capital depreciation and amortization, which is H and expensing of that Capex is removed we put all of our capex into invested capital So our returns which would be.
Speaker Change: Classic net operating profit loss after tax excludes any accounting expense related to that the capex is that gives the capital element or the invested capital element that we're engaging a return off of.
Jeff Miller: Your next question comes from the line of Jeff Miller with Baird. Your line is open.
Jeff Miller: Yes. Thank you do you expect the increased contribution to forms rolls on loss costs revenue growth from four lines.
Jeff Miller: Boy out over kind of the two to three year adoption period or can it extend beyond that with ongoing better innovation and starting to implement AI and whatnot or I guess at the very least culprits.
Jeff Miller: Cross sell for the other businesses in conjunction with <unk>.
Jeff Miller: Go to market efforts.
Speaker Change: Yes al.
Speaker Change: Start with that I think look the goals in the investments that we're making in core lines re imagined is absolutely to be a platform to continue to deliver long term value for our clients and to continue to innovate as.
Speaker Change: The possibility of what you can do with data and analytics and now incorporating gen. AI can do overtime. So we expect to continue delivering more value yet.
Speaker Change: One thing I would add is for a majority of our clients, they're signing long term contracts with us as they are signing these contracts. They are seeing this value being accrued to them over long terms as we do the contracts today.
Speaker Change: And Jeff. Thanks for the question I think one one dimension of this is that we are enabling the deeper and more efficient integration of our datasets into their processes, which then becomes just part of the part of the way that they're doing business and so I think there is inherently a real long term long.
Speaker Change: Term benefit and value to them from that.
Speaker Change: Your next question comes from the line of Gregory Peters with Raymond James Your line is open.
Gregory Peters: Good morning, everyone.
Speaker Change: Appreciate your comments.
Speaker Change: The opening about helping your clients become more efficient with their ecosystems. It seems like thats, a pretty ripe area.
Speaker Change: I was wondering if you could just build on some of your information than that because it it feels like even though you have a cloud based approached you.
Speaker Change: Using up to date technology, a lot of your customers are operating on legacy platforms that are <unk>.
Speaker Change: Ian outdated to say the least.
Speaker Change: Maybe you could just give us some color on how it how challenging it is to deploy our solutions when youre dealing.
Speaker Change: With these these legacy systems, which.
Speaker Change: Our old to say.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: Yeah, Greg Thanks for thanks for the question I mean, I think it's a.
Speaker Change: A very relevant question.
Speaker Change: The way I would answer it is that it.
Speaker Change: There are two factors here one is I think that the industry is taking more steps than ever to modernize that that infrastructure through work with third party vendors many of which are partners of ours and so that is facilitating our ability to enable some of the benefits from our.
Speaker Change: Core lines re imagine.
Speaker Change: Investments for their benefit so I think we are seeing that a lot of our work is isn't necessarily directly with the carriers, but with their with their vendors and integrating that data set and I also think that a variety of technologies that are facilitating more connectivity within the.
Speaker Change: Street is helping in that regard.
Speaker Change: In that in that vein.
Speaker Change: Our role as a.
Speaker Change: Our connector within the industry and within specific functions like claims.
Speaker Change: Or in risk modeling.
Speaker Change: Our providing a level of connectivity and integration.
Speaker Change: <unk> is very costly to your point for a lot of our customers to handle on them.
Speaker Change: The road I'll give you a specific example, and so.
Speaker Change: You have heard us talk about our efforts to make our claims platform are property estimating solutions or exactly where platform by a more open ecosystem and that was based on a lot of feedback that we had from clients where there were.
Speaker Change: Complementary vendors or service providers that masked much of the industry had to invest time in diligence ing and connecting into their systems, which was problematic, but with our existing connection to insurers contractors adjusters clients on that platform.
Speaker Change: It was much more efficient and easy for us to be able to validate ensure security.
Speaker Change: Standards for those for those vendors and Thats, an inherent efficiency and we're doing that in claims I think we're increasingly doing that on the underwriting side and as you hear US talk about synergy studio that is also a connected network that I think is facilitating that greater that greater efficiency on behalf of the clients.
Speaker Change: <unk>.
Speaker Change: Your next question comes from the line of George Tong with Goldman Sachs. Your line is open.
Speaker Change: Hi, Thanks, Good morning, I wanted to go back to your point on improved price realization. It sounds like this is a structural change to your approach to pricing can you talk about what proportion of your broader business began to accelerate.
Speaker Change: Are you seeing increases and how long they may take to close the gap between pricing and value provided that's the broader company level.
George: George Thanks for the question.
Speaker Change: I would.
Speaker Change: I'd say, what the the the avenues have been focused on where we are making investments based upon feedback from clients on how we can create how we can create value for them and recognizing that that requires requires investment on our part and I think that dialogue.
Speaker Change: Which has benefited from that higher level more strategic dialogue has helped us clarify and improve and understanding of where we are creating value for them and how we participate in that value and that value creation and I think you asked around which channels.
Speaker Change: It's really all of our major channels on the underwriting side extreme events within our claims business that has been part of what we have improved in our ability to achieve a stronger price realization through that now in terms of closing the gap I don't know that you will.
Speaker Change: Ever get there, there's always going to be a difference in perception between how we think we're providing value and where our clients are providing value. I think there is a gap. The objective is to continue to use that as a means for us to deliver more value and capture that with our with our clients. So in that sense I think it's a continuous journey.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of David Montana, My Dad with Evercore ISI. Your line is open.
David Montana: Hey, good morning, I have a question on.
Speaker Change: Just just the broader market.
Speaker Change: <unk>.
Speaker Change: So it looks like in commercial P&C pricing is starting to get a little bit more competitive. We're also seeing that on the personal auto side.
Speaker Change: Are you seeing any early signs that your customers are getting a little bit more focused on expenses.
Speaker Change: David Thanks, and thanks for the question.
Speaker Change: I would say that are our customers have been focused on efficiency pretty consistently.
Speaker Change: At an enterprise level.
Speaker Change: And I don't think that the I wouldn't be our observation that.
Speaker Change: Trends in.
Speaker Change: Pricing.
Speaker Change: Have a material impact I, certainly think that when the.
Speaker Change: When overall profitability is challenged and you are seeing greater combined ratios. There is a natural inclination to try to find greater and greater efficiencies, but the general trend that we've observed in which we referenced in the in the opening comments is the 2024 was the first year in the past four years, where you had an underwriting gain and we.
Speaker Change: I think 96% combined ratio for the industry. So I would say generally the premium growth has led to more appetite for investment to support continued efficiencies across it. So I think thats just a general trend, we havent seen a particular inflection point.
Speaker Change: Upon trends in commercial P&C or personal auto from from my perspective.
Speaker Change: Your next question comes from the line of Ashish <unk> with RBC capital markets. Your line is open.
Speaker Change: Hi, Good morning. This is David page on for Ashish. Thanks for taking our question I was wondering on the buyback can you just maybe give a luxury items or just for full year 2025, how are you thinking about buybacks.
Speaker Change: Our Q2 report here. Thank you so much.
Speaker Change: Yeah. Thanks, Thanks, David.
Speaker Change: We don't give a forecast for buyback amount for the year and the real reason for that is that we follow our capital allocation framework.
Speaker Change: So we prioritize organic investment in the business.
Speaker Change: We look we explore M&A opportunities we are obviously committed to the dividend return there then.
Speaker Change: And then we balance kind of balanced balance sheet availability and.
Speaker Change: And attractiveness of our share repurchase.
Speaker Change: But to the extent, we don't have a need for capital. We will continue returning it to shareholders in the form of buybacks as well as dividends.
Speaker Change: Your next question comes from the line of Russell quotes with Redburn Atlantic Your line is open.
Speaker Change: Yes, Hi, good morning, Elizabeth you bet.
Speaker Change: So in your opening comments.
Speaker Change: But maybe you could give us a breakdown of the various drivers of the 4% year on year fall in transaction revenue.
Speaker Change: A disclosed the household growth in transactional revenue was excluding the impacts of onetime conversions, mostly particularly interested in why there was not a positive.
Speaker Change: To transaction revenue growth from the.
Speaker Change: A new hotel shopping sector, given the strong J D power data in the quarter and maybe you could discuss that as well. Thanks.
Speaker Change: Yeah sure. Thanks, Thanks for the question Russell I'll take that as a two parter. So first the transactional and the 4% decline.
Speaker Change: We quantified for you the one contract conversion that we've called out in the past. This is the last last full quarter of that.
Speaker Change: And that that's an impact of 200 to 250 basis points.
Speaker Change: For the quarter.
Speaker Change: No other.
Speaker Change: Other headwinds and transactional more generally is contract conversions and we've talked about that before in our anti fraud space.
Speaker Change: We had in the past great success with the Tpa customer segment and it's a playbook that's been very successful for us to continue to get customers to commit to committed contracts. So we will continue playing that and in other customer segments as we see the opportunity.
Speaker Change: In addition, some of our ecosystem partners are now shifting to our committed contracts. So that's that's a benefit for us.
Speaker Change: But apart from that one single contract, we haven't and aren't able to quantify the full aggregate impact of it finally.
Speaker Change: Some of our transactional revenue comes from my implementation that software programs and so those can be sometimes lumpy.
Speaker Change: In the start of a of ongoing subscription so our specialty business solution had some significant projects last year that we're now comping the impact of.
Speaker Change: So again that transactional revenue is really the output of how we run our business in the aggregate rather than something we are managing.
Speaker Change: As a bucket in and of itself.
Speaker Change: So that was the first part of your question I think the second part of your question was on the auto business and on some of the.
Speaker Change: The transactional headwinds there the shopping activity does continue so that that businesses.
Speaker Change: Has balanced results.
Speaker Change: I think we talked in the last quarter about some attrition, particularly in the insured tech.
Speaker Change: Customer segment, and our overall mix in that auto business may or may not be an exact match for the for the market as a whole.
Speaker Change: The final point the final dynamic that's going on in the auto segment, we've talked about our non rate action business as rates overall have recovered in the industry. There's been less activity on that non rate action deal as carrier shift their focus.
Speaker Change: Your next question comes from the line of <unk>.
Jason: Jason has with Wells Fargo. Your line is open.
Speaker Change: Hey, good morning, and thanks for taking my question I'm curious if you've seen any change in client conversation and the quarters a period given the macro uncertainty if youre seeing any pause in projects or anything like that and then maybe you could talk more big picture about.
Speaker Change: Curious, which parts of your business do you see it most economically sensitive and which parts are more resilient and even potentially countercyclical. Thank you.
Jason: Sure Jason Thanks.
Speaker Change: I'll start off generally saying is in terms of our dialogue with our clients I don't think we have seen a fundamental change.
Speaker Change: In terms of their priorities and what they need to accomplish day to day and how we serve that naturally there is some greater focus on the impact of tariffs, particularly to the extent that any inflationary factors are beginning to affect their claims costs and that's something that we're very well positioned to address.
Elizabeth: As Elizabeth described earlier.
Elizabeth: Through our property estimating solutions business, we track a great deal of specific sub supplies and materials costs as well as labor costs associated with rebuilding and so we have already had conference calls and put out reports tracking any sensitivity and we'll continue to do so so I would say that's.
Elizabeth: The one area that they have been focused on and understanding the potential impacts of the tariffs of the tariff situation.
Elizabeth: I was going to add you were asking about other our other customer segments and economically sensitive customer segment. So I was just going to add that we are we are watching the macroeconomic impact on some of our non carrier customer segments. We talked last quarter, you know the federal government.
Elizabeth: It's less than 1% of our revenues. So it has a small impact.
Elizabeth: But we are seeing cost pressure across across federal agencies, and so that's one that could have some sort of discretionary spend impact as well as the marketing the marketing segments that we've already talked about.
Elizabeth: So we do have we do have some small segments that are I would describe as more economically sensitive sensitive but of course, the vast majority of our of our of our revenues are from insurance related clients that are relatively insensitive to the to the tariff impact.
Speaker Change: Again, if you would like to ask a question press star one on your telephone keypad.
Speaker Change: And your next question comes from the line of Manav Patnaik with Barclays. Your line is open.
Speaker Change: Hey, this is Brendan on for Manav, just wanted to ask on <unk>.
Speaker Change: M&A opportunities.
Speaker Change: We could see valuations come down you know maybe alongside public equities at some point this year. So I guess, what what kind of areas would you like to kind of augment your capabilities and kind of what are you seeing there.
Speaker Change: Thanks, Brendan I appreciate the question so certainly the.
Speaker Change: The uncertainty in the market and the impact on valuations as a as a potential benefit.
Speaker Change: Also have observed that the private private equity community generally has been more challenged in monetizing some of their investments. So I do think that the environment has improved what we continue have been and will continue to look for is where are there products that have demonstrated an ability to <unk>.
Speaker Change: Add value to the insurance industry that we can improve either by accelerated distribution or integration into our products to enhance their business as well as potentially contributing datasets that are are valuable to our analytics business. So we have have been act.
Speaker Change: <unk> monitoring that sector have you saw recently a small deal with.
Speaker Change: The acquisition of <unk> from from NASDAQ. So it's a sign that we are watching for opportunities with a primary focus on how do we add value to those businesses leveraging the relationships and the capabilities that we have.
Speaker Change: And your next question comes from the line of Jeff Silber with BMO capital markets. Your line is open.
Jeff Silber: Thanks, So much for squeezing me in in your prepared remarks, you talked about some of the weather impact on the industry I'm. Just curious is it possible to parse out what the impact was on your business in the second quarter in terms of claims from some of those events.
Jeff Silber: Yeah. Thanks for the thanks for the question, Jeff from a wildfire perspective, which I think is what we were talking about there. It has very little sort of de Minimis impact I did mentioned that we had a very modest benefit from weather related.
Jeff Silber: That's N P S that that relates primarily to a small.
Jeff Silber: Tail from the fourth quarter Hurricanes as well, it's actually a pretty active severe convective storm environment across the U S.
Speaker Change: And I would say Jay I think your fundamental question was what Elizabeth addressed but with regard to the wildfires clearly that has been an important topic and as we have said we were the first to submit our wildfire model too.
Jeff Silber: The California Department of Department of insurance and <unk>.
Speaker Change: We've gotten a lot of questions and interest from clients around our wildfire model and I want to ask Rob Newbold Who's with US just give us an update in terms of the <unk>.
Speaker Change: Level and the quality of dialogue that we've been hearing from clients on the on that model in particular, yes. Thanks. Lee we were really pleased to bring an updated view of risk for California wildfire to the market last summer in June of 2020 for our client dialogue has been really excellent on the value of that model is providing to people's overall risk management as we noted we're engaging with the California Department.
Speaker Change: Insurance on allowing.
Speaker Change: Allowing that model to be used for ratemaking in the states and continue to be excited about the possibilities that we will open up to bring global resilience to that particular market.
Speaker Change: We continue to believe that the.
Speaker Change: The severe weather that we're experiencing continues to point to the value of the of the analytics and the models that we provide to our clients.
Speaker Change: And ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].