Verisk Analytics, Inc. Q3 FY2024 earnings call

• Subscription revenue growth driven by enhanced go-to-market approach and strong products/solutions built on proprietary data. Core Lines Reimagine initiative advancing digital delivery and analytics. Future of Forms introduced for general liability, providing time-saving digital experience. Executive insights reports added for personal auto and general liability, reinforcing thought leadership. Combined Verisk claims data into Okta's peril score for Canadian market. Launched mobile app for field representatives to speed up surveys. Work with FEMA on Community Rating System and other programs to address climate risks.

On a consolidated and GAAP basis, third quarter revenue was $725 million, up 7% versus prior year. Subscription revenues, comprising 82% of total revenue in the quarter, grew 9.1% on an organic constant currency (OCC) basis. Transactional revenues, representing 18% of total revenue, declined 2.5% on an OCC basis. OCC revenues grew 6.8%, with 6.5% growth in underwriting and 7.4% in claims. Subscription revenues grew 9.1% OCC, driven by broad-based growth across solutions, including forms rules/loss costs, anti-fraud, and extreme event solutions. Transactional revenues declined due to strong prior-year results and conversions to subscription.

• Consolidated revenue for 2024 expected in range of $2.84 billion to $2.9 billion. Adjusted EBITDA expected in range of $1.54 billion to $1.6 billion, with adjusted EBITDA margin in 54% to 55% range. Adjusted earnings expected in range of $6.30 to $6.60 per share. Fourth quarter tax rate expected in 23% to 25% range.

• Potential headwinds include longer premium growth cycle challenging pricing momentum, carriers focusing on profitability affecting spend, normalization of attrition that has boosted growth, and weather factors impacting results.

Q: I wanted to ask on extreme event solutions. Elizabeth, you talked about or cited 10 new customer wins in the quarter in a few of the different customer segments where you're having success. Could you flesh that out a little bit more? Where are those wins coming from? What specifically is driving that increased interest from clients? And then also, like within that, are those competitive takeaways or are those taking advantage of white space on the extreme event front?

A: 9 of 10 new customers new to modeling space. Driven by heightened catastrophe loss activity. Focus on segments like excess and surplus lines and managing general agents. Reflects broader interest in climate change modeling.

Q: Just maybe quickly on the auto shopping trends, I think this was the first quarter where it finally turned from a tailwind to a headwind. So, maybe you can help us a little bit in terms of the potential outlook here, maybe if we stay flat at these current levels how much that would weigh on the growth in the next 12 months or maybe if it's down whatever 10%, 15%, what that would mean for overall growth if you can be that specific.

A: Auto shopping trends turned to headwind. Comps continue challenging on transactional side, but hard to quantify future impact precisely.

Q: You reaffirmed your 2024 revenue and adjusted EBITDA guidance, but it applies a pretty wide range for the fourth quarter. Are you being overly conservative or can you at least give us some indication what would be at the top end of the range or the low end of the range in terms of what's driving those assumptions.

A: Guidance ranges for full year, not quarterly mark-to-market. In line with full year range based on current observations.

Q: Thank you for the helpful color and the prepared remarks on some of the new initiatives and products Verisk has rolled out and been working on. I'm wondering if you could share some more color specifically on the Discovery Navigator tool, if there are any adoption or utilization metrics you could share, that would be great. And maybe just more generally on any of your Gen AI capabilities. How are those going and what kind of conversations are our clients having with you around those products?

A: Discovery Navigator is AI-driven in medical data extraction. Gen AI used internally and externally for productivity. Examples include Ask Max, underwriting copilot, premium auditing AI, and ISO forms AI summarization. Clients engaging on talent augmentation and productivity with these tools.

Q: Transactional revenue, tough comps begin to lap in 4Q. Can you discuss what transactional revenue trends in 4Q are incorporated into your guidance? And how much benefit from hurricanes Helene and Milton is actually embedded into the reiterated outlook versus your upside?

A: Forecast includes average storm year. Comps lap, but transactional variability due to contract conversion continuing. Helene and Milton impact early to tell, but flow through varies.

Q: I'm curious if you could walk through again the moving pieces on guidance. It sounds like there's now at least some level of hurricane benefit baked into 4Q. I think I also caught that there was a 60 basis point benefit to margins from FX in 3Q. I'm not sure if you now expect to see something similar in 4Q. And then it sounds like there was an offset from higher interest expenses. I'm sorry if I missed it, but if you could say what interest expense you're expecting for 4Q and then if there's just any other puts and takes that I missed, it would be appreciated if you could walk through this again.

A: Guidance ranges for full year. 60 basis point FX benefit in 3Q not expected in 4Q. Interest expense $32 million this quarter, with net interest expense potentially affected by interest rate changes. Puts and takes small relative to full year guidance.

Q: I wanted to ask about the international business. I think you called out, if I heard it right, in the pre-scripted remarks, you've seen an increased contribution to growth from the international business in the quarter. Maybe you could be a bit more specific about that, exactly what parts of the international business that's coming from, and if this is an area where you might look for further inorganic opportunities to grow in 2025, now you're at the bottom end of your leverage range and obviously funding rates are coming down.

A: Strength in life health and travel business, Okta business in Canada, and claims businesses in Germany. International business growth areas, with potential for further inorganic acquisitions given leverage range and funding rate trends.