Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Verisk Analytics Inc (VRSK, Financial) delivered solid organic constant currency revenue growth, led by strong subscription growth of 8.3%.
- The company experienced healthy organic constant currency adjusted EBITDA growth and strong margin expansion, translating into 15% adjusted EPS growth.
- Verisk Analytics Inc (VRSK) continues to invest in innovation and technologies, enhancing client offerings and driving long-term value.
- The company reported a significant increase in income from continuing operations, up 51% versus the prior year.
- Verisk Analytics Inc (VRSK) maintained a strong balance sheet with $632 million in cash, providing financial flexibility for future investments and shareholder returns.
Negative Points
- The company faced modest declines in its transactional business due to historically high volumes in auto shopping and elevated weather-related activity in the prior year quarter.
- There was a drag on transactional growth from the conversion of transaction-based contracts to subscriptions, impacting short-term revenue.
- The company expects tough comparisons in auto-related transactional revenues for the balance of the year.
- Verisk Analytics Inc (VRSK) experienced a slowdown in growth from the first quarter, reflecting tough comparisons to the prior year's high transactional revenue.
- The company anticipates higher net interest expense in the second half of the year due to recent financing transactions.
Q & A Highlights
Q: Lee, you talked about the 8% growth on a two-year stack growth in above formats. Can you break down the components of this outperformance and the sustainability of this growth?
A: The drivers of this growth include increased demand for our products, value capture from investments, and strong growth in specialty business solutions and international markets. The transition from transactional to subscription models also contributed. We believe these trends are sustainable due to ongoing innovations and strategic client engagements.
Q: Is there any way to characterize the level of transaction activity related to weather and auto? How should we think about this going forward?
A: The second quarter of 2023 saw exceptionally high levels of auto shopping activity and weather-related claims, creating tough comparisons. We expect transactional growth to normalize to broader growth rates over time, with some variability due to weather and other factors.
Q: Are there other products within the portfolio that you will pursue converting from transaction to subscription?
A: Yes, we see this trend across various businesses where customers are moving from pilots or overage tiers to longer-term subscriptions for better cost visibility. This trend will continue, but we will also introduce new transactional products, maintaining a balance.
Q: Can you highlight what is driving the double-digit growth within life insurance solutions?
A: While we don't break out specific transactional versus subscription growth for individual businesses, our life insurance solutions continue to contribute significantly, generally falling into higher double-digit growth rates.
Q: Could you quantify how Verisk's auto insurance revenue growth did in the second quarter? Is Verisk gaining, losing, or maintaining market share in auto insurance?
A: Our auto insurance-related shopping revenue continued to grow, but at a decelerated rate due to high year-over-year comparisons. We believe we are generally maintaining market share in this segment.
Q: How are you progressing with smaller accounts, and is there any disintermediation risk with these customers?
A: Smaller and mid-sized clients benefit significantly from our scale and data. We have not observed higher levels of attrition or disintermediation in this segment. Our clients value the reliability and integration of our solutions, which mitigates the risk of switching to smaller technology vendors.
Q: Can you provide more insight into the impact of the transition from transactional to subscription revenue in this specific quarter?
A: A significant contract renewal, which was previously transactional, is now subscription-based, contributing to the decline in transactional growth. This transition, along with tough year-over-year comparisons, explains the variability in our transactional revenue.
Q: What are the primary factors driving the deceleration in underwriting solutions?
A: The deceleration is primarily due to the high level of auto insurance shopping activity in the prior year and the transition of some transactional revenues to subscriptions. These factors created tough comparisons for the current quarter.
Q: How should we think about the cyclical dynamics in the insurance industry and its impact on Verisk's pricing and revenue growth?
A: While the hard market in the property and casualty industry won't last forever, Verisk has historically grown through both hard and soft markets. Our ability to deliver value through innovations and product strength will help us continue to grow revenue throughout the cycle.
Q: Can you provide more details on the Experience Index and its reception among customers? Is this a new revenue opportunity?
A: The Experience Index has received positive feedback for providing more frequent and current data, helping customers benchmark their experience against the industry. While it may be included in broader offerings, it represents a significant value addition and potential new revenue opportunity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
