Good day, everyone, and welcome to the Verisk Third Quarter 2022 Earnings Results Conference Call. This call is being recorded. Currently, all participants are in a listen-only mode. After today’s prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] For opening remarks and introductions, I would like to turn the call over to Verisk’s Head of Investor Relations, Ms. Stacey Brodbar. Ms. Brodbar, please go ahead.

Thank you, Savannah, and good day, everyone. We appreciate you joining us today for a discussion of our third quarter 2022 financial results. On the call today are Lee Shavel, Verisk’s Chief Executive Officer; Mark Anquillare, President and Chief Operating Officer; and Elizabeth Mann, 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, verisk.com. 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 dial-in. As set forth in more detail in today’s earnings release, I will remind everyone, today’s call may include forward-looking statements about Verisk’s future performance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance is contained in our recent SEC filings. Finally, I’d like to also remind everyone that the financial results for recent dispositions are included in our consolidated and GAAP results, but are excluded from all organic constant currency growth figures. A reconciliation is provided in our 8-K. And now I’d like to turn the call over to our CEO, Lee Shavel.

Thanks, Stacey, and good day, everyone. Before I jump into the earnings results, I want to officially welcome Elizabeth Mann to Verisk. Elizabeth brings operational and corporate finance experience from her three years at S&P Global capital markets and strategic sophistication from her 12 years of investment banking experience at Goldman Sachs, and finally, an impressive academic foundation and enthusiasm for mathematics that fits perfectly into our analytical culture. She is coming up the curve quickly and has already established herself as a valued part of the team. I’m pleased to share that we delivered on our stated intention to become a global insurance-focused data analytics and technology company. As we announced on Monday, we have signed a definitive agreement to sell Wood Mackenzie to Veritas Capital for $3.1 billion in cash consideration, payable at closing, plus future additional contingent consideration of up to $200 million. Our ability to achieve this result in the midst of a deteriorating deal environment speaks to the quality of the asset and the momentum of the business. Wood Mackenzie is the globally recognized leader in natural resources intelligence, with in-depth proprietary data sets and subject matter experts that cover the full energy and natural resource value chain. Since we acquired Wood Mackenzie in 2015, the business has increased revenue and EBITDA; integrated acquisitions; developed new areas of growth in the energy transition, chemicals and metals and mining; and most recently, upgraded their client platform, Lens. This has transformed Wood Mackenzie from an advisory services business focused on transactional research and consulting to a data analytics business bolstered by long-term subscription contracts, a leading brand and market position. We have been honored to work with and support our friends and colleagues at Wood Mackenzie and we wish them well and look forward to their continued…

Thanks, Lee. I’m pleased to share that the Insurance segment delivered another solid quarter. In Insurance, we are experiencing strong growth in subscription revenues across both underwriting and claims, resulting in OCC subscription growth of 6.1% for the segment overall. Within Underwriting, we had strong results from core underwriting, extreme event solutions and our international businesses. We also had healthy contribution with double-digit growth achieved in certain of our newer acquired businesses, including life insurance and specialty business software solutions. Extreme event solutions had a strong quarter, driven by the addition of new customers to our core Touchstone Platform as well as the expansion of multi-year deals with existing customers. New environment of rising inflation, insurers and reinsurers are challenged to keep up with the growth in their exposures. To help our customers understand the risk of the inflation and assess their exposures, we recently released our 2022 Global Modeled Catastrophe Losses Report, detailing key global financial loss metrics based on our latest suite of catastrophe models. Additionally, we are supporting insurers with a broad array of property data solutions so that they can ensure they’re keeping up with the impacts of inflation and have a more informed view of risk and ongoing exposures. Our sustainability and country risk business also had a very strong quarter as demand for our risk indices in both the corporate and investor segments continue to drive strong double-digit growth. We’re also beginning to get traction with the expansion of our sustainability offerings into the Insurance segment. Within Life Insurance, we’re delivering strong double-digit growth through the addition of new customers as well as the expansion of our relationships with existing customers. Our low-code, no-code technology is leading the industry’s modernization by helping carriers gain efficiencies and improve profitability at scale with a simpler technology…

Thanks, Mark, and good morning to all of you here on the call. I’m so happy to be here at Verisk and speaking to you today. I have admired the company and its phenomenal insurance business for over a decade as I worked in the information services sector. And now is a particularly exciting time to join as we have an opportunity to redefine our strategy as a global insurance-focused data analytics and technology company. We can now focus our capital and all of our industry knowledge to support the needs of our customers, as Lee and Mark have already highlighted. As I’ve joined Verisk over the last six weeks, and I’ve been getting to know the people and digging into the business, I’ve been focused on a few priorities. The first is a focus on cost discipline and execution against the margin targets we’ve committed. Second, Lee has established a framework for capital allocation and ROIC metrics, which I intend to continue. The resulting transparency and accountability on our deployment of capital will support our ability to invest with confidence to drive top line growth and strong returns. Third, I will prioritize investor engagement, gathering feedback and providing transparency into the business. So I look forward to getting out on the road and meeting all of you. Let me now turn to our third quarter results. Before I begin, I want to remind everyone that all consolidated and GAAP numbers are negatively impacted by the recent dispositions of 3E and Verisk Financial Services. This effect will continue through the first quarter of 2023 when we will anniversary those transactions. As noted, due to its materiality, Wood Mackenzie will be accounted for as discontinued operations beginning in the fourth quarter of 2022. For the third quarter of 2022, on a…

Thanks, Elizabeth. In summary, our business is strong, as evidenced by our organic constant currency, EBITDA, adjusted EBITDA growth of 7% and strong margin performance in the quarter. We are confident that we have the team in place to execute on our operational efficiency plans over the next two years and deliver on our margin expansion targets. Longer-term, we continue to believe as well that the opportunity to create value for our customers and employees will drive value for our shareholders. We continue to appreciate the support and interest in Verisk. Given the large number of analysts we have covering us, we ask that you limit yourself to one question. And with that, I’ll ask the operator to open the line for questions.

[Operator Instructions] And with that we will take our first question from Ashish Sabadra from RBC Capital Markets. Please go ahead.

Congrats, Elizabeth, and look forward to working with you. Lee thanks for providing the details on the impact of the divestiture. I was just wondering if you could provide some underlying assumptions. Any color on that? If there is any tax leakage, how does the tax increase for the remaining companies, stranded cost? Any color on those fronts will be helpful. Thank you.

Thank you, Ashish. First, let me say on the question on tax leakage. The $3.1 billion in proceeds, I think, if your question is directed towards that, we are not expecting any significant tax leakage. There may be some upside for us on that modestly. But we think that we will be able to deploy the full amount of that in share repurchases and debt paydowns. As it relates to the future tax rate, we have provided some guidance for the fourth quarter. But we – it’s obviously a complex issue that we are working through in terms of the longer-term impact. It depends upon the composition of the business overall, and we would intend to provide more clarity for that as we look ahead. I think it’s fair to assume, of course, kind of as implicated in the fourth quarter, that our effective tax rate will be higher. But we’ll try to provide more specific guidance as we sort that out and in the time frame that we typically do with our fourth quarter earnings results.

Thanks.

Your next question will come from Jeff Meuler with Baird. Go ahead.

Thank you. Lee or Mark, maybe if you could just give us a more holistic perspective on what the adjacent market opportunity is for you as you focus your efforts in capital on insurance. You talked about life being a blueprint for extension into adjacent markets, and you talked about developing solutions. That’s an incremental opportunity for you coming out of the CEO and CIO roundtables. But maybe if you could just give us more holistically address just how you see addressable market or adjacent opportunities.

Sure. Thank you, Jeff. I’m going to take a first crack at it and then hand it over to Mark for his perspective. But the one way that we’re looking at this is we’re looking at the totality of the insurance industry spend in aggregate. And that’s a very substantial number in kind of the [indiscernible] and Jeff, I think you may be rattling a paper there. But we’re looking at that aggregate amount. And I think as we’ve talked to investors previously, when we look at the amount of revenue that Verisk generates from the insurance industry relative to their operating costs, it is a 40 to 45 basis point amount. And we think that there’s a broader opportunity for us to address their marketing spend in finding efficiencies, in finding solutions to drive productivity gains, to find efficiencies on technology spend, which are substantially larger opportunities for us relative to the scale of what we’re doing. So that will give you a sense of why we think that’s a substantial opportunity. And we’ve been engaged in addressing a lot of those with current initiatives that we look to expand on. And I know Mark can certainly speak to some of the things that we’ve been doing on that front.

Super. So maybe I’ll try to give you three examples. We talked about life. But even within life, we have the ability to continue to extend into group life. We are focused today from a life insurance perspective primarily in the United States. We can go international. To the extent you think about other lines of insurance, other lines of business related to life, you have disability. That’s an opportunity for us. We see opportunities to extend into pet insurance, travel insurance. Those are some examples of like customer sets that we don’t operate in. I’ll make the obvious example, but I just do want to remind everybody that from a marketing perspective, that is a huge customer set, the marketing departments inside of insurers that we just never really dealt with before, and now we have access to through some recent acquisitions. And it really is forming the foundation of how we kind of go to market with some of our customers, really helping them understand the best target markets and where and how to price. Last but not least, you have heard it throughout the themes here. We think we can do more from a software and technology platform perspective with our customers. We don’t deal with the CIO as being the chief information officers inside of our major customers. And we see ourselves as a technology player and has been a strong partner to them. So hopefully, that helps.

Yes. And Jeff, I think you see there are three dimensions there that we’re talking about. One is a functional orientation. And so that’s Mark speaking to the marketing opportunity. We see similar opportunities on the technology side. And then operationally, there is the business line opportunity or dimension that we’re looking at with travel and other areas. And then, of course, there is the international, where we feel as though the opportunity to bring some of that expertise. All of those are – create, I think, a broad envelope for us to look to expand on what we’re doing.

Thank you, both.

Our next question will come from Alex Kramm with UBS Financial. Please go ahead.

Yes. Good morning, everyone. Maybe just a quick follow-up to Ashish’s question. But since you didn’t report this quarter as discontinued operation but will next, maybe you can give us the apples-to-apples EBITDA margin, how it would have been if it would have been a discontinued operation already? And if you can’t add into that specifically, maybe outline what the stranded or servicing costs related to Wood Mac will be and how they will fade away over time. Thanks.

Yes. Alex, thanks for the question. We’re not at the point where we have broken through both the combination of the adjustments that we’re making in the overhead costs or the overhead allocation. So I think that is something that we’ll look to provide more input on as we move ahead, probably with the fourth quarter earnings, where we’ll have that discontinued operations. Our focus has been on getting the transaction done. As you can imagine, that has been, I think, a pretty solid accomplishment in a difficult market. It will take time for us to sort through the accounting consequences now that we understand that, and there are a lot of transitional elements that we need to take into account. So it’s not a simple metrics to us.

Understood. Thanks.

And our next question will come from Toni Kaplan with Morgan Stanley. Please go ahead.

Thank you. Thanks very much. Wanted to ask about your pricing, how that’s looking for 2023. I know you mentioned the insurers currently trying to put through sizable rate increases to cover inflation. I guess, will you be able to benefit from that by being able to increase your subscription prices? How should we think about the magnitude of price increases next year versus 2022 or versus a normal year, however you want to break that out? Thanks.

Yes. Thank you, Toni. I appreciate. This is Mark. Let me first remind everybody, we do have some connectivity of pricing to premium volumes. The utility of our products are seen and demonstrated through the premiums they write. So to the extent that it’s a harder market or meaning price is going up and there’s more premium, we will see that on a little bit of a lag effect. To your more direct and short-term, I think what we’re trying to do is really balance the opportunity to hopefully maybe take a little bit more price, only because, like everybody, we’re incurring some more costs around labor and other inflationary type of spend. But at the same time, we’re in it for the long-term. And what we’re trying to do is make sure that we are able to sell new products, new solutions to customers and not cause any short-term angst degree with regard to pricing today.

Thanks a lot.

Our next question will come from Manav Patnaik from Barclays. Please go ahead.

Thank you. You just called out kind of broader insurance inflation pressures, I guess, and then more specifically, the Florida issues as well. Is there any way to quantify how much each of that impacted the growth? And how long should this headwind continue?

Thank you, Manav. So these are – there are a variety of factors, some of which are difficult to kind of fully separate. I’m going to ask Mark to kind of give his perspective on both impact and sustainability of these effects that you’re asking about.

So quantifying is difficult. So I’m going to maybe qualify – kind of quantify, I apologize. So inside the auto market, what we’re seeing is just a general theme of people trying to write less business or quote less new business. They are waiting for their rate filings to be implemented and in turn, wait for higher prices or higher premium before they write. So that seems like a depression that will occur and be soft, I would guess, probably for another six months or so into 2023. That’s our take. But at the same time, it is something that cyclically will come and will go, so we expect it to rebound. Two, Florida is clearly a challenge. There has been an insurer last resort. Basically, rates there have been subsidized when people try to get into the market. They’ve been hurt by large cat and inside of those new customers and those existing customers that are going out of business. That does affect us and will be – let me say it this way, that will be a little bit longer term. Ultimately, new emerging insurers will rise. We will hopefully serve them. We are working with them now, but that will take time. So that rebound would probably be over the course of a year or more, I would say, in that regard. I think the last comment that you were referring to or at least we’re referring to is the workers’ comp space. We did see some growth this quarter. At the same time, the market is still depressed. Some of that is regulation, I think I’ve highlighted in the past. Some of it, I do believe it’s just the fact that the work-from-home environment leads to fewer claims in the future. So I think we’ve started to anniversary the challenge. I think it will start to rebound a bit. I don’t want to be optimistic, but I would assume that should occur in 2023 at some point. I hope those are the three trends or themes that you were talking about. The other thing that affected us a little timing was storms. Obviously, Ida last year, Ian this year, both pretty big storms affecting different quarters.

Yes. And I would add one other dimension, Manav, which is I think that what we’ve seen is kind of fairly solid subscription growth. I think that what you saw in 2022 was some weakness on the transactional revenue growth. And I think it will probably manifest itself, some of these trends in – some sustaining of that weaker growth into 2023 if these dynamics have the impact that we described. But again, also subject to variability on storm levels, but hopefully, that’s helpful.

Yes, thank you very much.

The next question will come from Andrew Steinerman with JPMorgan.

Hi, it’s Andrew. I’m going to ask you about Verisk’s ongoing organic revenue growth goal of 7%. And my question is, how long will it take Verisk Insurance to get there? And what needs to happen? And where your comments about Florida workers’ comp going to hold us back from getting there?

Thank you, Andrew. So we certainly understand that. What I will first say and reiterate that our confidence in that long-term target remains in place given what we see as the opportunities in front of us. I think when you look at what we’ve even achieved in 2021 at a more challenging environment, where we had two quarters of organic revenue growth above 7% clearly demonstrates the ability of the insurance – of our insurance business to achieve that. We’ve had some weakness related to pandemic effects, such as lower driving activity, impact on workers’ comp. And I think, to Mark’s comments, we are seeing some weakness as a result of the economic environment, but we’re also seeing recovery in some of the pandemic-related effects. And I think that biases us towards stronger performance ahead from a growth perspective as we come out of some of these stronger elements. Some of the macroeconomics may persist, but I think we’re seeing kind of more momentum towards that target ahead. That would be the way, I think, about it, both from a longer-term perspective, which we are still confident that we can deliver on that. We have to work our way through, I think, the conflicting impacts of some recovery from pandemic impacts and then some of the more sustained macroeconomic, which, I think, are of a lower magnitude than what we experienced through the pandemic.

Got it, thanks Lee.

The next question will come from Greg Peters with Raymond James. Please go ahead.

Yes, good morning, everyone. I guess, I’ll step back and ask a bigger picture question. I heard in your comments, Lee, about talking with all your customers and trying to partner with them to help innovate, et cetera, and that’s going to require investment in your business. And so I guess, what I’m getting at here is, just to go back and sort of reset or recast a die in how you’re going to balance the desire to improve margins. And you’re sending out some margin targets versus the need really, to invest in your business in order to help your customers get the innovation they’re looking for.

Greg, thanks for the question. And particularly – I would particularly value your perspective and knowledge around the insurance industry. And so you probably better understand better than most the challenges that the insurance industry is facing. And so let me kind of break that apart. I think the opportunity to invest in these new opportunities have generated both growth and very strong returns for the internal investments that we have made in a variety of areas. And I would probably cite our LightSpeed product, where we’ve been able to accelerate delivery of quote to – a bindable quote to the point of sale, has generated a very strong economic growth for us and a very good return on capital. So we’re looking for similar elements to that. We’ve been talking about our investment in the core lines, reimagined initiative to migrate a lot of our data and services into that new technology platform, which delivers substantially greater value for our clients on that front, opening up, I think new opportunities for growth and certainly a high return that we can generate on that. So those – and the third point that I would make is that on the margin efficiency target, that has been focused on looking at – not at cutting investment within the business, but looking for areas of opportunity from an operational efficiency perspective within the business that, I think, it’s been a very healthy exercise for us that we’ve demonstrated progress against, but it hasn’t come at the cost of us pursuing these overall opportunities. So I think if you – the fundamental concern is, look, we’re hearing that there are a lot of opportunities to invest. How does that – does that conflict with the margin objective? I don’t believe so. I think that we can continue to make these investments. We can deliver on the operational efficiencies within the business to drive that margin improvement and continue to generate very solid growth and strong returns on capital.

I appreciate the additional color.

Thanks, Greg.

The next question will come from George Tong of Goldman Sachs. Please go ahead.

Hi, thanks. Good morning. With respect to the Wood Mackenzie sale proceeds, how are you thinking about splitting the $3.1 billion between debt paydown and share repurchases? Do you have a target leverage multiple in mind for the stand-alone insurance company?

Thank you, George. I’m going to hand that over to Elizabeth to address.

Yes, hey George, thanks for asking. Like we said, we’re going to balance it between debt paydown and share repurchases. We don’t – we haven’t established a precise number for debt paydown, other than to state there’s no change to our target leverage range of 2x to 3x in order to maintain our investment-grade rating. Within that, we’ll look to optimize, over time, kind of the best balance of interest savings versus share repurchases. And either way, the majority of it, the significant majority will be on share repurchase. But either way, sort of farther to where we end up within that fairly small range, we’ll still be within the accretion dilution range that we quoted.

Very helpful. Thank you.

Our next question will come from Andrew Jeffrey with Truist Securities.

Hi, good morning. I appreciate taking the question. Mark, I’m intrigued when I hear you talk about some of these new markets, which really would be true extensions for Verisk, pet being one, I think, that you mentioned. I’m wondering if you have – do you think you have the data and the kind of digital customer-facing solutions that you might need to expand into those markets? Or if you think you’re going to need to add capabilities to be able to penetrate those new markets and drive new revenue streams.

So Andrew, great question. I appreciate that. I think when we attack new markets, we typically go at it with a theory that we could build some great models. And then as data information starts to flow, we can improve those models. So pet as an example. What we do with travel is not that travel, you would think like, boy, I missed my flight. It’s going to being short. This is the type of travel that focuses on somebody who has a pre-existing medical condition. And to the extent that they’re traveling, how do they get the right medical. So that is a modeled outcome and that has kind of the data we have around it. We can apply those type of models to pets, dogs, cats, more traditional pets, in a way that we can understand how health of the pet and existing conditions cause and will affect payouts. So I hope that’s just an example of ways we can kind of adjust our models. I think the digital engagement and the way we’ve gone at those things are very best-in-class and very digitally engaged. So I think we’re well-positioned there. We do not hold the same data advantage that we do in some of the United States’ admitted lines. But that doesn’t cause us to shy away from and actually provides us with an opportunity to find a way to gather some information. I hope that’s responsive.

Yes. I look forward to seeing your progress there.

And our next question will come from Jeff Silber with BMO Capital Markets. Please go ahead.

Thanks so much. That’s close enough. I want to go back to Manav’s question where you parsed out some of the environmental impacts affecting the business. I understand the impacts on the non-subscription revenue. But I was just curious on the subscription side in terms of the slowdown. I know if you’ve got customers that go bankrupt, obviously, that’s an impact. But why are we seeing the slowdown in subscription revenue? And is that something we should expect to continue? Thanks.

Yes. So one of the things I think we tried to do is to share that, even though you would think of subscriptions as being this wonderfully flat ride from quarter-to-quarter, even inside of our subscription businesses, when we bring on new customers, where we have some anniversary of dates, there is a little bit of an up and down inside that. So to the extent that you look at this year’s subscription to last year’s, I think that’s a good rule of thumb. If you look at it quarter-by-quarter, there’s some up and downs. I would not read anything into subscription level growth in the quarter. Everything is very solid, and everything is running as we would expect. So I will kind of reinforce Lee’s earlier comments about the subscription growth being strong and more optimistic.

Okay. Thank you.

And our next question will come from Faiza Alwy with Deutsche Bank. Please go ahead.

Hey guys. Hi, good morning. Thank you. I wanted to focus a little bit more on the insurance-specific margins. And I think those came in a lot better than what we had talked about. Because I think, previously, you had talked about those margins declining in line with year-to-date that you had seen in the second quarter. So I’m curious what drove the upside? I think it sounds like you’ve made some progress around your cost savings initiatives that you had talked about. So maybe just address how much that contributed to margins and how we should think about it in the fourth quarter. And maybe, Lee, if you can talk about if your confidence in those targets has improved as you’ve done some work around them.

Yes. Thanks, Faiza. Thanks for the question. Let me comment a bit on the Insurance-only margin for Q3. While it was a slight year-over-year decline, I think we reminded you that, that was offsetting some of the headwinds in the baseline that included the reallocation of corporate expenses from the divestitures. It included the impact of recent acquisitions, which are themselves lower-margin businesses, and it offsets our investment in cloud and the return of T&E expenses. Offsetting those, there is the natural kind of operating leverage in the business and business growth. So those things kind of offset each other. The one other thing I might call out in the quarter there is it’s also offsetting a slight decrease in the pension credit, which happened at the corporate level. And so the Insurance business had its allocation of that component. And that is expected to continue in the fourth quarter. More generally, as we look ahead to the fourth quarter for Insurance, these headwinds will continue. The impact may not be exactly linear quarter-to-quarter, so that could move around.

Yes. And what Elizabeth is describing, Faiza, is that underneath the overall margin performance, when you kind of strip away the reallocations, there is still a very strong operating leverage that is expressing itself in terms of looking at it before we look at kind of the non-operational elements. And so that’s the core of the business, and that’s how we will drive EBITDA growth ahead of revenue growth. On the second part of your question, the confidence that we have on achieving our targets is driven by a very methodical process that we’ve gone through to identify all areas of potential savings that – as we indicated on the call, that we have identified and taken actions that address over half of that target at this point. And we have line of sight on additional opportunities that we’ll be pursuing over time. Part of these will be influenced by the transitional demands of the separation of our businesses. And so we have transition service obligations for those until those businesses are separated. That’s a factor. And we wanted to see how those sorted out before we worked towards the further or the additional decisions that we need to make to achieve that. But we feel very confident in our ability to meet those expectations.

Great. Very helpful. Thank you, both.

Our next question will come from Stephanie Moore with Jefferies. Please go ahead.

Hey, good morning. I was hoping to get a bit more color on just the international business, maybe some update on how it performed during the quarter and kind of your expectations going forward. Thank you.

Sure. Thank you, Stephanie. So I would start off by saying that our international businesses and, obviously, I’m going to presume that the question is directed to our Insurance international businesses. Wood Mackenzie, of course, is an international business, but we kind of covered that in the call. But on the Insurance side, we have a variety of businesses, on the Claims and on the Underwriting side, probably, most significantly, our Specialty business services or what was formerly known as Sequel, that addresses the Lloyds non-standard market with a workflow platform and management system for that market. That continues to have great success in delivering a very compelling solution, both on the front end of business origination, pricing and rating and then, ultimately, kind of the policy management side. That has continued to drive double-digit growth. And we’ve seen similar performance from a lot of the other international businesses that we’ve had. I’ll turn it over to Mark for some additional color perhaps on the businesses other than Specialty business.

Well, I think you had it right. I think we are seeing growth there, which is in excess of our U.S. business. What I also like to highlight, although not organic at this point, the acquisition of Opta, which is a business intelligence solution up in Canada, is a wonderful business, very much aligned with what we do. And the synergies that we anticipated are greater than we anticipated. So I think we’re making great progress there, and it’s a really nice addition to the Verisk family.

Great. Thank you so much.

Our next question will come from Andrew Nicholas with William Blair.

Hi, good morning. Thanks for taking my question. I wanted to follow-up on kind of the end-market health and the insurers profitability pressures. I understand that there are some environmental factors here that seem a bit more temporary: auto market, Florida, workers’ comp and the like. But are you seeing that lead into kind of the more kind of core traditional conversations? Has there been any impact on the sales cycle in your P&C business or the pipeline? Just trying to understand if some of these issues are truly concentrated in the items that you called out, or if there is the risk of this being a bit more pervasive. Thank you.

Yes, good question. I mean, I think you’ve read it. You’ve seen it. I mean the insurance industry is, like many, under a little bit of pressure. Inflationary costs and inflation in general is causing pain to their bottom line. The cat, along with some other cats, I mean, another big year, probably $100 billion of losses. So that creates stress and pressure on them to look at costs, look at ways. They can be more focused on underwriting and underwriting discipline. So I would tell you that we have this wonderful business that continues to have a wonderful spot inside of their key decisions. And we have not seen anybody trying to move away, but there is definitely pressure there. There is definitely people scrutinizing every purchase and scrutinizing when and how they buy. So we are seeing some of that. And we’ve highlighted some of the areas where it’s been most – fall more on the transactional side.

And Andrew, I want to extend on Mark’s comment because that near-term pressure that you’re asking too specifically is part of what we’re experiencing, but it also creates that broader opportunity because that focus on how do we address the impact of those inflationary costs, not just on our loss and loss adjustment expenses, but also on our operational efficiency and the inflation that we’re experiencing that, is driving a more robust dialogue around automation, how we can utilize data to better select risk, how we can improve the processes by creating more connections through the ecosystem to handle a lot of the steps that are probably not as efficient as we could be. So I think that while it is creating that – some of that near-term pressure, it is also bringing a greater urgency and focus, as I described, in the strategic orientation of our client CEOs around how do we solve industry problems that can create a lot of value and savings for them.

Makes sense. Thanks for the color.

And our final question will come from Heather Balsky with Bank of America.

Thanks for taking my question. I’d love to get an update from you guys on your cloud transformation and how it’s progressing. And then just any color you can give on the implementation costs and then when you kind of expect to see some savings, and what type of savings? And then just with regards to your margin expansion goals, does that incorporate the cost of implementation rolling off and those savings flowing through? Or is that incremental to that target?

Yes. Thanks, Heather. And I would – so with regard to cloud transformation, in prior calls, we identified the fact that we’re in kind of the final year of that implementation. And we have achieved – this is a very important distinction. We have achieved operating cash savings when you look at our incremental cloud expenses netted against what would have previously been CapEx expenditure in the business. And so that’s – we believe that it has delivered real cash savings to us. However, it’s important to understand that, that, from an accounting standpoint, from an EBITDA perspective, means that we have added EBITDA expense to our P&L. And so that has come on. We’ve been able to adjust that, but we’re effectively converting depreciation and amortization to EBITDA expense. That’s why you’ll hear us talk about the headwinds from the cloud and the cloud implementation. We do think that, that incremental cost is one that we are substantially through. And in addition, we have been able to take out the OpEx expense through some of the outsourcing to that third party that we described earlier in the call. All of that is included in the – in our overall margin improvement targets. So as we have realized those savings, that is factored into the margin element, particularly the outsourcing of our legacy data centers. I think that addresses the two parts of your question.

Thank you very much.

And that will conclude today’s earnings conference call. Thank you very much for participating, and you may now disconnect.