Good morning, everyone, and welcome to the Verisk Fourth Quarter 2022 Earning Results Conference Call. This call is being recorded. [Operator Instructions] For opening remarks and introductions, I would now turn -- like to turn the call over to Verisk's Head of Investor Relations, Ms. Stacey Brodbar. Ms. Brodbar, you may go ahead.

Thank you, Devin, and good day, everyone. We appreciate you joining us today for a discussion of our fourth quarter 2022 financial results. On the call today are Lee Shavel, Verisk President and Chief Executive 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-K 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, including those related to our financial guidance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance is contained in our recent SEC filings. Finally, I'd like to remind everyone that the financial results for recent dispositions are included in our consolidated and GAAP results are excluded from all organic constant currency growth figures. A reconciliation of reported and 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, verisk.com. However, we are not able to provide a reconciliation of projected adjusted EBITDA and adjusted EBITDA margin to the most directly comparable expected GAAP results because of the unreasonable effort and high unpredictability of estimating certain items that are excluded from projected non-GAAP adjusted EBITDA and adjusted EBITDA margin, including, for example, tax consequences, acquisition-related costs, gain or loss from dispositions and other nonrecurring expenses, the effect of which may be significant. And now I would like to turn the call over to Lee Shavel.

Good morning, everyone, and thank you, Stacey, and thanks to you all for participating today. We've really been looking forward to this call because it's our first opportunity to reintroduce Verisk in our new insurance-focused configuration, to discuss the momentum in the fourth quarter and given all the structural changes, give you a forward view of our expected performance in 2023. We accomplished an extraordinary amount in 2022, so let me provide a brief summary. First, there's been a lot of structural change. In March, we sold 3E, our environmental health and safety business, for net cash proceeds of $575 million. In April, we sold Verisk Financial Services for net cash proceeds of approximately $500 million. And most recently in February, we sold Wood Mackenzie for approximately $3.1 billion. We've begun the process of returning a substantial majority of the after-tax proceeds of those transactions to shareholders through share repurchases as promised. Despite a challenging economic, geopolitical and financing environment, we were able to complete these transactions at attractive valuations through the strong underlying businesses, capable management teams and a well-organized sale process. Let's turn to governance change. Structural change wasn't the only transition at Verisk. We also made a number of governance changes that shareholders suggested. We are transitioning to a declassified Board with annual elections. We added four new directors with fresh perspectives and experiences: Jeff Dailey, Wendy Lane, Olumide Soroye and Kim Stevenson. We separated the Chairman and CEO role with the election of Bruce Hansen as our new Chair. I have to personally thank Bruce for his advice and leadership through my transition. As a former CEO, he's been a great coach to me as have been all of our directors. Let's turn to organizational change. Finally, organizationally, we've had substantial change. In addition to Scott…

Thanks, Lee, and good day to everyone on the call. Before I start with the fourth quarter results, I have a few reminders for everyone. First, all consolidated and GAAP numbers are negatively impacted by the dispositions of 3E and Verisk Financial Services. This effect will continue through the first quarter of 2023 when we will anniversary those transactions. Second, as we described previously, due to its materiality, Wood Mackenzie is accounted for as discontinued operations beginning this quarter. And its results are not included in our revenue or adjusted EBITDA results in either the current period or the prior period. Third, in the earnings presentation now posted on the Investors section of our website, we have included certain pro forma quarterly financial metrics, removing the operational results of all our divestitures as well as a reconciliation to our historical reported results, which we hope you will find helpful. Turning now to the financial results. I'm pleased to share that we had a strong finish to 2022. For the fourth quarter, on a consolidated and GAAP basis, revenue was $630 million, up slightly versus the prior year, reflecting growth in insurance, offset by the impact of the VFS and 3E dispositions. Income from continuing operations was $216 million, while diluted GAAP earnings per share attributable to Verisk was $1.37. Moving to our organic constant currency results adjusted for non-operating items as defined in the non-GAAP financial measures section of our press release, we are very pleased with our operating results, which demonstrated strong sequential improvement relative to the third quarter as a broad-based recovery across our business contributed to the strongest quarter of the year. In the fourth quarter, OCC revenues grew 8.1% with growth of 6.5% in underwriting and rating and 11.9% in claims. This quarter's results included $5.6…

Thanks, Elizabeth. In summary, we are excited to focus all our attention, talent and resources on the global insurance industry where we can deliver substantial value to our clients through improved decision-making and operational efficiency. We will be engaged more intensively as a strategic technology partner to our clients and the broader insurance industry to identify and develop ways for Verisk to support their objectives. With our scale, relationships and expertise, we are well positioned to help make those connections in this period of accelerated change for the industry and by extension, to the people and communities they serve. Our motivating purpose is to work together with our clients in building resilience for individuals, communities and businesses globally. Combined with our focused business model and unique market position, this is a formula that will deliver value to our shareholders through growth and returns. 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. With that, I'll ask the operator to open the line for questions.

[Operator Instructions] Our first question comes from Toni Kaplan with Morgan Stanley.

Congrats on the results today and particularly, I think your progress on the margin front. You talked about hitting 53% to 54% margin in '23. And as you mentioned, that will essentially be at the low end of the '24 target range. Does this change your strategy around investment, meaning does this allow you to go more aggressively after growth opportunities, just given that your margin is in a really solid place?

Thanks, Toni. I'm going to hand it over to Elizabeth to start.

Thanks, Toni. I don't think it changes our overall strategy. We are committed to the targets delivering in '24. We're happy to be in the low end of that range already ahead of schedule. But we'll maintain that level of focus on margin while still maintaining investment in the business as we have been balancing so far.

Yes. And Toni, I'll just add, I think we're very comfortable in our ability to meet those targets, to build on that while still continuing to support the growth objectives that we have for the business.

Our next question comes from George Tong with Goldman Sachs.

You've reaffirmed your commitment to deliver 300 bps to 500 bps of EBITDA margin improvement from a normalized base of 50% to 51% in 2021. Recently, you restated historical financials suggesting an insurance-only Verisk has normalized EBITDA margins of approximately 52%. Can you discuss upside potential to your 53% to 56% 2024 target for EBITDA margins?

Yes. Thanks. We remain committed to that range. Right now, I'm here talking about 2023, I think there's been some headwinds in '22 that we've talked about previously as well as some benefits to the business. So on balance, we're committed to the range.

Our next question comes from Heather Balsky with Bank of America.

I'll continue the streak of margin questions on the Q&A. And just ask, if you could help us just bridge a little bit more what gets you to 53 to 54, what's coming from the savings? What's sort of the impact from the stranded costs and some of the other chunkier lines that kind of get you from '22 to '23?

Yes. Let me talk a little bit about that. If you start with the baseline '22 of 52% that pro forma, that already includes the headwinds from stranded costs, and it includes most of the headwinds from recent M&A. As we move forward on that, there is still a little bit more headwinds from those previously identified items in our baseline, call it, about 30 basis points collectively from ongoing impact of the T&E normalization, the cloud and technology investments, including some of the financial and capital systems that we talked about. So all those investments, 30 basis points. There's probably still 30 basis points of headwind also from the pension credit, which we know today based on current assumptions will be -- will continue to be a drag in 2023. Offsetting that, you'll see -- so that's about 60 basis points. Collectively, that's offsetting about 150 basis points to 250 basis points of sort of core operating leverage. I haven't broken that down between operating leverage, gross impact and the cost savings target, but those are all included in that 150 basis points to 250 basis points, bringing us to the net of 100 basis points to 200 basis points margin expansion.

Our next question comes from Ashish Sabadra with RBC Capital Markets.

Changing gears and moving to the top line, really strong OCC growth in the quarter. I was wondering for your 2023 guidance, what is the organic constant currency assumption for that guidance range? And then as we think about a quarterly cadence, I was wondering if you could provide any color on that? And any color on the puts and takes as we think about auto underwriting coming back, worker comp improving as well as any color on pricing trends and comping some of the Florida insurance headwinds. So any incremental color.

It’s like a four-part question. So let's choose -- I would consider that multiple choice. So…

I'll try to hit the main points there. So on the OCC revenue growth, we haven't given that on a forecasted basis. We will report that out as the quarters develop. The one piece of slice for you, for 2023, the acquisitions that roll in from inorganic to organic are not -- don't create a major swing in the growth rates. And obviously, FX is -- we're not predicting. In terms of -- you asked about the quarterly cadence of how that plays out, there's nothing that we see here today that would imply a meaningful swing in the quarters from a financial perspective. If you look at the OCC comparability results to 2022, those could have some swings just based on the swings in '22.

Our next question comes from Stephanie Moore with Jefferies.

This is Hans Hoffman on for Stephanie. Congrats on a strong quarter. Just wanted to talk a bit about your strategy within insurance, specifically internationally and just how organic growth is trending there? And then just kind of maybe as part of that, are there any acquisitions in the international pipeline that could help you gain further critical mass therein going forward?

Yes. Thank you for the question. Let me try to address the components of that. So I think I outlined in my comments the general strategy where we are looking to make investments in data or technology that solve industry problems that we can monetize across that industry. And that strategy really holds across the business. Internationally where we've had a very solid success of finding businesses that have established products in international context, and I'll use our acquisition of Sequel as an example, we have taken that business. We have found ways to support that with addition of other components such as a rate-making component or a binding component in that business that add value to the total offering for our business, thereby integrating components for the market participants in that ecosystem. We will continue to look for opportunities to leverage those types of additions as well as data sets and functionality that we have within the U.S. business. We recently made an acquisition in Sweden, and you may be familiar with both our acquisitions of ACTINEO in Germany and Opta where we're deploying similar strategies. And generally, across our international businesses, we have been able to deliver growth faster than our overall rate and generally in the double-digit range because of the penetration opportunities we have within those marketplaces. So hopefully that ties together with our general strategy and how it applies internationally and the contributions to growth from each of those elements.

Our next question comes from Jeff Meuler with Baird.

I want to ask about the pickup in claims underlying growth normalized for the discrete storm revenue. I mean, it's a pretty big step-up. So I'm just trying to understand were there any other like onetime benefits in the quarter? Is this mostly about COVID recovery because the factors you cited were things like recovery in international travel, workers' comp or what I'm really looking for, was there like a pickup in like cross-selling and upselling trends in the business, and the stepped-up growth rate could be sustainable?

Thanks, Jeff. So I would say the general dimension has been that it has been the normalization of activity across the business in a couple of fronts, driving activity being one of that. I think that has had a positive improvement in some of our antifraud categories. Elizabeth made reference to some of the return to growth in our workers' comp businesses. And I think on the property estimating side, I think we've seen higher and more normalized levels of activity. Some of that -- well, excluding the actual storm revenue, I just -- I think we have seen more activity. I'd ask my colleague, Maroun Mourad, who leads our claims business if there's anything that he'd like to add to that, the general pickup that we've seen in the claims business.

Thank you. Thank you, Lee. Thank you, Jeff, for the question. We've been experiencing overall healthy growth across the different claims businesses that we've got. So in addition to the comments made by Elizabeth and Lee around property estimating solutions as well as the casualty workers' comp business, we continue to see the customer engagement that is resulting in very healthy growth activity across our antifraud suite of solutions. Thank you.

Our next question comes from Andrew Steinerman with JPMorgan.

This is Alex Hess on for Andrew Steinerman. I want to ask maybe a bit about retention rate and the pressures you saw from Florida? And then as a sort of second part to that question, any sort of operational or balance sheet efficiency statistics you can provide for the standalone insurance Verisk? So to that Florida question, maybe what are -- what was your retention rate in '23 and then -- in '22 and what was it sort of ex Florida?

So, Alex, thanks. I would say we are experiencing continued high client retention rates. And I think what we talked about, there's been one liquidation in Florida. And so that's something that we have called out. But I don't think -- and I look to my colleague, Neil Spector, here to see if there are other than that situation, whether we have seen any changes in our overall retention on the underwriting side of the business. So I think those remain very solid. We're watching it carefully because of the risks in Florida. But to date, I think we've only had one liquidation. Neil, anything you'd like to add?

Thanks, Lee. No, I think you summarized it well. I would just say that while there are potential for liquidations down there, there's also new formations of companies that come into the market because there's need for coverage, which gives us opportunities. So just -- it isn't a one-way flow of businesses exiting, there's businesses entering as well, which helps offset some of that.

Thank you. And the question, I don't know on the operational and the balance sheet. Elizabeth, I think, can respond.

Yes. Thanks for that, Alex. We haven't -- I don't have any specific stats pulled out on that right now. But I think in general, the insurance business is the most cash flow generative and sort of the most capital efficient of our former businesses. It generates strong free cash flow, negative working capital characteristics and high kind of yields on EBITDA.

And when I think about balance sheet efficiency, Alex, I think the most striking thing is that with these dispositions, we have released a lot of capital that was not generating as high a return as in our core insurance businesses. And so I think you will see that in the return on invested capital, particularly as we utilize the proceeds to repurchase shares. That's probably the most significant balance sheet efficiency in my mind.

Our next question comes from Greg Peters with Raymond James.

Lee, in your comments, you acknowledged all the changes that the company has gone through over the last year. Now that you're laser-focused on the insurance piece, can you talk about how you're tracking customer satisfaction? Specifically, is there something like a comprehensive customer survey that you're using, where you can collect unfiltered feedback rather than just looking at retention numbers and feedback you get at conferences?

Yes. Great. Thank you very much. And you really touched on something that we -- I think we have a good system. We undertake a survey and an NPS scoring twice a year. In 2022, that is in the mid-40s, which is consistent with where we've been before the pandemic and through the pandemic. And I think we saw an increase in that during the pandemic as a function of kind of a general lift from working from home, from our clients, some of the features that we offered through client experience that were well received but still a very solid number. So we undertake that, but we also have customer experience unit that is always looking to gauge the feedback that we receive from our clients on product experience. So at that level, we're trying to provide a number of means for them to communicate anonymously their level of satisfaction. I would also say anecdotally, we have intensified our efforts to engage at a senior level, particularly at C-suite with how we are providing value and solving problems for them. The feedback of knowing of -- their feedback to our renewed focus on just the insurance industry has been very positive. The outreach from some clients, where we haven't had a strong relationship, has been very positive, and we've actually seen a higher level of engagement from them as a result. So we're looking at that across at different layers. And so far, I think the response has been positive, and we'll continue to build on that.

Our next question comes from Andrew Jeffrey with Truist Securities.

I appreciate all the sort of succinct summation of the changes you made in your business. And the guidance, I agree, that's really helpful. We also appreciate all the callouts of the business drivers. Now that you're a pure-play, can you -- are there some areas where you think Verisk has particular ability to focus and accelerate growth? I'm thinking about life or extreme event modeling as we think more about climate change. I just wonder if there's more of a laser focus on areas we think Verisk has the ability to really leverage assets and potentially accelerate top line.

Yes. Andrew, thank you very much for the question. And I will -- I'll do my best to address it here. But I think we're really excited about drilling into that at Investor Day. So forgive me for another advertisement for Investor Day, but I really think that it will be a great opportunity for you to hear not only what I have to say strategically, but also hear it directly from the business and the investments that we're making. So I'm going to try to limit it to three. The first is, as you referenced, in new areas for us like life insurance and in marketing that are current needs for those businesses that we have the opportunity to penetrate the existing insurance industry or segments of the insurance industry that we have not served before are already delivering significant growth that enhances our overall growth rate. So we will continue to look for those opportunities. The second level is internationally, as we've described, also a penetration opportunity where our international businesses are growing faster. They represent an opportunity for us to deliver some of the data, the analytics and technology into those markets as well as developing new solutions. And so the success that we've had in UK we hope to follow up with success in Canada and in Continental Europe with some of our work there. And that's not just acquisition-driven. It's also integrating some of the features and products that we have in the U.S. And the third element that I would just point to is I think that we have a broader opportunity based upon the conversations that we've -- that I've had with other CEOs and other C-suite clients around the opportunity to improve the efficiency of the broader insurance industry. I think to my earlier point, I think we've been great on the products that are focused on specific underwriting or specific claims applications, but our ability to tie those solutions together, potentially find shared services or more automated solutions to address the hundreds of billions of dollars of expenditure by the industry is an area that has a very strong reception from the clients we've dealt with. One element that I'll tease that has gotten a lot of interest is our ability to digitize more of the forms elements and the standard policy language, which, as you can imagine, can sometimes expand exponentially with tweaks to that language. Being able to manage and track that on a digitized basis is part of the investment that we're making in our core lines reimagine. Those are the types of solutions where we can, given our centrality, given the data sets that we have really revolutionize the way that, that process is being handled, creating efficiencies across the industry as a whole. So that hopefully gives you a little bit of a start in terms of where we think we can find new areas to potentially expand that growth rate.

Our next question comes from Jeff Silber with BMO Capital Markets.

I wanted to focus on your auto underwriting and marketing that you talked about, actually a two-part question. Can you just remind us what your exposure is there? What it was as a percentage of revenues pre-pandemic, what it is now? And what gives you the confidence that these companies can really reset premiums within the next six to 12 months?

Yes. So one, I'm going to address the second part first. And then just also ask Elizabeth or Stacey to kind of refresh me on the overall exposure element. But I think we're confident because we are already seeing in a number of regulatory areas that those rate increases are being approved. There was a -- previously a bit of a delay, I think, because of elections that probably created some delay from a regulatory standpoint. We're now seeing those begin to emerge. I think a recognition that the inflationary costs that the auto insurers have borne is something that is legitimate needs to be factored into overall pricing. There are some areas that I think we're concerned about, particularly in California and approvals on that front. But I think we're getting a sense of momentum in those rate increases. And from an overall exposure standpoint...

Yes, we've said that the auto -- exposure to the auto industry is about 10% of our total insurance revenue.

And that's what it was or that's what it is now?

In general.

It has been at that level consistently. It hasn't changed materially.

Our next question comes from Manav Patnaik with Barclays.

And first, thank you so much for the guidance details and providing that. I just had a question around the pricing environment. If you could just talk about what pricing -- how pricing fared, I guess, this year and then looking out into '23, if you should expect any incremental improvement versus that?

Yes. Thanks, Manav. So as you can appreciate, we have hundreds of products. And so each has a different pricing dynamic reflecting what we view as the demand elements for that, the value that we provide. And first and foremost, our primary pricing philosophy is driven by the value of the product and what it's delivering. And so we are often trying to calibrate pricing to be a fraction of the value that the client received. And when we think about our growth from pricing, it is primarily a reflection of our ability to deliver value to clients. Now we also recognize that there is an element in our pricing that is tied to net premium growth. We are -- that is a factor. It has been a decreasing factor over time as other products not tied to that have grown faster. But that is an element where we are expecting some lift, given generally stronger premium growth as we've seen in different part of the businesses. And then finally, I would say going into 2023, reflecting somewhat of the higher inflationary environment and the imposed costs on us from a compensation standpoint, we have included a somewhat in certain instances, a higher inflationary component to reflect that reality as we think most of our clients have done in similar situations. So all of those factor into the guidance from a revenue standpoint as it relates to pricing. I would say, however, that while pricing and particularly the value-added element is the most important component, we do also expect contributions from new customers, from upsell with existing products, from growth from our new initiatives and our higher growth to contribute a like amount to our overall growth rate.

Our next question comes from Andrew Nicholas with William Blair.

I wanted to ask just in terms of kind of the top and bottom end of revenue guidance. Is it fair to say that the recovery of some of the headwinds you've called out the past couple of quarters on auto underwriting, marketing solutions and the sort are the primary drivers to the top and bottom end? Or are there other kind of puts and takes to call out that underlie the '23 guidance range?

Yes. Good question. Yes, as you flagged kind of one of the swing factors between the top and bottom end would be the recovery of some of the more sensitive -- macro sensitive parts of our business like auto. In general, with the 80% subscription revenue, there's a lot of stability in the overall. One or two other environment-related factors that I would point out that could contribute to the difference in that, the top and bottom end of that range as you say, the amount of storm-related revenue is inherently unpredictable, obviously. We have included some assumptions for that in the budget but a sort of moderate assumption in there. And then there's one or two other sort of macro-related factors like the level of cat loss activity and other things that could contribute to that range.

Our next question comes from Alex Kramm with UBS.

Quick clean-up question, and sorry if I missed it, I dropped earlier. But I don't think you guided on interest expense, and you gave us a couple of pieces here in terms of paying off some of the debt already in February. So can you just be a little bit more specific on what we should be expecting there? Because I think some people are struggling getting from your EBITDA guide to EPS.

Yes, it's a great question. We're not giving a specific number on interest guidance, but I can give you some dimensionality to it. I think if you look at our fourth quarter interest expense, that was obviously higher than it was kind of on a run rate basis for the full year. I think for 2023, we would assume that the interest expense is slightly less than it was in the fourth quarter annualized but higher than it was for kind of the full year of '22 or between those two factors.

Our final question comes from Faiza Alwy with Deutsche Bank.

And I just want to say congratulations on executing all the changes in 2022, and thank you from me also on providing guidance. Today, I wanted to just go back on margins and specifically about the 2024 goals. The range is still pretty wide. And wanted to get a sense of what are some of the factors that would take you to the low end of the range versus the high end of the range?

Yes. Thanks, Faiza, for the question. Really, we're here today to talk about the quarter and the 2023 view. So sort of longer-term discussions, we'll talk about at Investor Day.

Yes. And Faiza, I would just say, look, we clearly an objective of delivering on that, and we want to demonstrate our ability to improve that margin. Longer term, I think what we'll talk about are the trade-offs between investment and margin and the value that the investment can deliver in terms of growth and returns. I think that's not a new dynamic. That's something that we have always worked to try to find a balance to demonstrate margin strength, but also not at the cost of delivering where we think value is created most significantly, which is through growth and returns. But we are fully committed to delivering on the guidance that we set initially of that 53% to 56% range, and we're working to deliver a strong result as we possibly can.

There are no further questions at this time, which concludes today's conference. Thank you for attending today's presentation. You may now disconnect.