Verisk Analytics, Inc. ($VRSK)

All right. Good morning, everyone. Welcome again to the [indiscernible] talking about what you believe were the most important takeaways from the day before we get into some questions around the business.

Yes. Thanks so much, Scott. And thanks, everyone, here for joining and being inside with us here on what looks to be another beautiful day in New York. Yes, we are just fresh off of our Investor Day last Thursday. If you haven't seen it yet, I encourage you to look at the slides as a great intro for Verisk. I would say the three main takeaways, I'll start with the financials because this group cares about that. From a long-term financial targets, we essentially reiterated long-term financial targets for the next 3 years that are consistent with the ones that we stated 3 years ago and over delivered on for the past 3 years. And so we have consistent targets going forward. How we're going to get there is probably going to be a little bit different in a changing environment. So that takes me to the second point, the theme that you heard really throughout our business presentations. As you've noted, AI is obviously a hot topic and a hot question in info services these days. From our perspective, we see it as an opportunity, not a threat. AI is useless without quality data to train on. And we believe we are -- that we house the largest, most comprehensive, most granular, most meaningful data set in the industry or for the industry. And for ways that we spent 3 or 4 hours articulating last week, we believe that is difficult to replicate. That still puts a great obligation on us to continue to modernize, to invest to make that data accessible to the industry in new ways of working and potentially to partner with others to do that, and we're committed and excited to doing that.

Got it. That's very helpful. And I have a few follow-ups on the Investor Day. But maybe if we go back a few -- a couple of weeks before that, you guys reported 4Q earnings a few weeks ago, and the results were, I think, better than expected, at least from the Street view, particularly, I think, on the underwriting OCC revenue growth. So maybe can you talk about the trends that you saw during the most recent quarter and some of the key assumptions underpinning your guidance for 2026?

Yes. Yes. So there are -- as we move from Investor Day and the long term, the strategic positioning for Verisk to just some of the near-term quarter in, quarter out, there have been some headwinds on near-term revenue. The primary driver of that really being kind of the light weather season that actually the U.S. experienced over the past year. So that is the primary driver for the headwind. Even despite those -- and that will persist into the first quarter because of the momentum dynamics in the business. That said, there were some real areas of strength in the fourth quarter. There was our extreme -- our catastrophe and risk solutions did very well the catastrophe models, both from a new subscription and new customer standpoint as well as it was -- the fourth quarter was yet another quarter of very strong securitization market. As a reminder, the securitization market tends to be the most active in the second quarter of the year, followed by the fourth. So that strength is probably not likely to continue in the first quarter, though it may show up again for us in the second quarter. There were some other areas of strength in our subscription businesses, the Life business, the Specialty Business Solution that we talk about and some good and actually some good transactional outcomes on our property data side. So there were some pockets of strength in the business even despite the weather headwinds. From what I highlighted, some of that may be -- may or may not recur in the first quarter. So taken all that together, we said at the time that we expect the first quarter to be the trough, both in terms of reported dollar revenue and growth rates as opposed to the fourth quarter. But that said, but you were asking about opinions -- assumptions underpinning 2026. We're excited for 2026. Obviously, we reiterated our -- we gave the specific guidance range and reiterated our long-term targets. So we expect it to be another year yet again in line with the long-term targets. There are going to be some headwinds in the first quarter, maybe into the second -- into the first half. But going forward from there, we continue to see strong opportunity.

Got it. Got it. Now I guess going back to the Investor Day now, I think at least on the underwriting side, you discussed some of the results of like your Core Lines Reimagine program and how that has transformed your underwriting solutions business. So can you maybe go over what has changed over the last few years in your Core Lines and how you believe that division is sort of positioned going forward?

Yes. We're really excited about it. So the Core Lines Reimagine program is kind of our marquee reinvestment in our largest business, which is our forms, rules and loss cost business in the underwriting subsegment. That business goes back over 50 years to a consortium of the U.S. insurance industry who were contributing data to help build the insurance forms and the loss cost, the actuarially designed averages for what should be -- what is an expected loss across 32 different lines of business and a number of different sublines and regulatory filings in 50 states. That business -- we asked ourselves about 5 years ago, what should that business look like today in a modern data-first environment, technology-enabled environment. And we came up with all the things we needed to do, which we put under the umbrella of Core Lines Reimagine. Now there were 20 different projects going on in there and 20 different work streams, which involved everything from -- well, starting -- before we started Core Lines Reimagine, we had moved the entire proprietary database to the cloud throughout the late 2018. So we were -- now based on the cloud, what could we do with this data set? We were going to make it easier for customers to contribute data to us. We were going to speed the refresh and the analysis cycle on that data, and we were going to completely revolutionize the way that customers interacted with that data and consume the content from us. So if you think of the before era was -- well, way back when we used to mail people 300-page circulars, before Core Lines Reimagine, we had at least evolved to kind of PDFs that were downloaded from the web. But even 5 years ago, that was pretty antiquated. And so we've moved it to a much more workflow-agnostic way for the customer to access our data. If they still want to download PDFs and there are still customers that do that, that's okay. But for those who are moving into the -- moving with technology, you can get it via API, you can get it plugged into whatever policy administration system you have. And so you can imagine -- so it's just the next step of that of, okay, you can have your agentic AI talk to it. So that's -- those are the modernizations that we've been doing. We've been going through it line of business by line of business, and we've launched now over 40 modules on a single platform. The end of the scope of that investment will finish by the end of this year, but we continue to see wide open opportunity for how we can continue to make it more easy and now more enabled for customers to interact with that content.

Got it. Got it. And then on the claims side, one of the topics we thought that was interesting from the day was your expansion of your partner ecosystem and your goal is to continue adding new partners in the coming years. So maybe can you give a few examples of the types of partners you've added to the claims ecosystem and how that helps better serve your customers?

Yes. We're super excited about this, and I'm super excited. I had a chance to spend some time in it in the last 6 months I was serving as Interim President of the Claims business. We now have a fantastic new President, Steve Kauderer, who just joined us at the Investor Day. But I got a chance to see kind of firsthand what some of those partnerships mean and look like and how important we are to the partners that are working with us. I'm going to give you two examples because the power of the ecosystem really applies in the two largest businesses in claims. And starting with the property and restoration solutions business, they've had a history of partners, but we've significantly expanded it over the last 3 years. They now have 140 ecosystem partners on the system. As I said, we were at the conference for that business, Elevate was in February near Salt Lake City. I saw that. But the best example I see of an ecosystem partner is one where you can -- there's -- so the idea of the ecosystem is it's bringing new capabilities to customers that vastly increases what they can do on our platform. So one great example is a tool that turns a photo scan of a room directly into an estimation, like a sketch, an architectural sketch off of which they build the estimate. So you can have -- so a property is damaged with a tree falling on the roof, you can have the adjuster and the contractor who are going to do the work. They go on site. They take an iPhone scan of like there's the broken window and the wall damage, and it will automatically turn it into a sketch. We now have AI-based tools. So our newest, but we've talked about the different evolutions of that from machine learning and rules-based tools to XactAI, which can then automate that photo of like here are the contents of the room and here are some pop-up options for how much those costs from a replacement value perspective. And now we have XactGen, which is an agentic AI tool to turn that sketch directly into an estimate for review by the individual.

Got it. Got it.

Actually, that's just one example, but I'll let you move on. You can ask me afterwards for the example in the anti-fraud space, which is very cool also.

Yes. And I guess if we take a step back here and kind of move to more broader insurance industry dynamics, I mean, one of the main questions we get from investors is around net written premium growth and how that has an impact on Verisk's organic constant currency revenue growth. And as we move from maybe a harder market in the last few years to some people say soft market, some people say more normalized growth. Can you just talk about the different puts and takes there, the overall health of the industry and how you would expect the changes in premium growth to translate to demand and overall revenue growth at Verisk?

Yes. So the good news is we think the health of our end market and our industry is very strong. That's always a good thing for us. The insurance industry had in the, call it, early '20s, '21, '22 had severe challenges on profitability, which is what led to the very high premium growth environment as they needed to reachieve profitability in their books. They now -- I think, broadly speaking, most would say they've achieved rate adequacy, meaning they're charging enough for the policies that they want to write. And they're moving to a world where they want to grow. They want to do more business. They want to write more policies, and that makes them more competitive on the premiums that they're writing. If you want to be more competitive on premiums, then you want to price most accurately and you want to make sure you have the best data and analytics to figure out what's the right price to charge for the premium that you're bidding. You don't want to charge too much or you're going to get competed against. You don't want to charge too little or you're going to be writing unprofitable policies. So ongoing need for data and analytics in this environment. More specifically, I know a number of people have focused on the stat we've quoted 20% to 25% of our revenues are on a contract that has an input from the premium growth of that carrier. That was set up many years ago when we separated out, we became an independent company no longer owned by the industry. And we set a pricing model for some of those products where we would grow as the insurance industry continued to grow. We think that's a good thing because at the end of the day, it ties us to a healthy growing market and gives us an input from growth, from premium growth, which we continue to see growing at the mid-single digits. It doesn't need to be at the double-digit premium growth that it's been over the last year or 2. The final point I'll say, even those contracts, the premium growth is an input. It is not the sole determinant of that growth, and that's how we've achieved the consistency and stability of revenue growth that we have over time.

Got it. That's helpful. We'll talk about some of the different moving parts on sort of the claims and transaction revenues next. But I guess subscription organic constant currency revenue growth continues to be, I think, a bright spot for the company, pretty healthy high single-digit growth in recent quarters. So could you maybe talk about what's been driving that growth between pricing, new logos, new products with existing clients and the different puts and takes there?

Yes. Thanks. Yes, we're very proud of our subscription growth. We've generally done in the high single digits range. I think the Investor Day, the 3-year average of it was 8.4%. That's been good. And we think that's a testament of the value that we're bringing to our customers. I think some of it is the impact of the Core Lines Reimagine investment and reinvestment that we talked about. We were able to show our customers significant investment and significant value and efficiency opportunities for them in interacting with content that they've worked with for several years. All of a sudden, they could get it much more easily. They could work with it in much more easy ways, and they themselves were saving a lot of time. That was basically monetized through price. And so I mentioned at the Investor Day that we overdelivered on our pricing targets. We had previously targeted kind of 3 to 4 percentage points average pricing growth over that 3-year cycle. We delivered a little north of 5%. And so that's coming in on those subscriptions as we're seeing greater traction with customers. It's also coming from greater market -- greater go-to-market and sales and customer engagement. And then finally, there's also a slide in our investor deck that shows our product penetration by size of customer. And you can see there an inflection in the growth rate. So the number of products per customer accelerated during that time period.

Yes. Makes sense. And then I guess on the claims side, I mean, you touched on this a little bit during your discussion around guidance and the shape of the year. But just wondering if we can kind of maybe click into that a little bit more and talk about how we should think about the trajectory of claims revenue in -- throughout 2026, given some of the different moving parts, the impacts from the storms of 2 years ago, combined with lower weather from last year and how that all kind of fits in.

Yes. There's no question, the claims business has some tough headwinds. Everyone was expecting them in the fourth quarter. Those definitely continue into the first quarter to first half of the year as the prior year had fairly elevated weather in the first half and continue. There was still 1 year ago, now there was still work and reconstruction being done in the aftermath of Hurricanes Helene and Milton. So tough comps in claims from that time a year ago. There was also very strong subscription growth across the portfolio. I think we had double-digit subscription growth in the first quarter of 2025. We love to do that. It's part of the strong growth that you've seen. We'll do that any time we can. But we did say at the time that we didn't expect double digits to be the long-term subscription growth rate. So that also presents a tough comp around the business.

Got it. Got it. And then if we kind of go over to like the go-to-market selling environment, I think your sales commentary as of late has been pretty positive. I think even if we go back to the 3Q earnings call, you guys were talking about surpassing your quota for the second straight year at that time of the year. So maybe can you talk -- just discuss the overall go-to-market approach across the business and the overall state of the selling environment and any highlights from the Investor Day as well. I know that was part of the discussion, too.

Yes. So we go to market -- we have a sales force in each of the different respective businesses that focuses kind of specifically product by product and then supported by kind of a large customer, a client strategy group and supported by -- Lee has talked a lot about strategic engagement with the C-suite and with major customers. It's not just him. It's all the way -- our business leads are very actively involved with customers. So a ton of customer outreach. I think continued opportunity and may even be an area of investment to expand some of our sales force or some of our coverage. We have focused over that last 3 years with Lee's focus on the senior level strategic engagement, starting with our top customers. We think there's more opportunity, and we can bring more and better coverage to kind of the mid-tier, maybe customers 26 to 50, 26 to 100 are very active customers, and we think we can see more engagement there.

Got it. Got it. And then I guess more broadly, shifting over to kind of industry competitive dynamics, how do you feel about just your positioning across the key areas of the business, whether it's the core P&C underwriting, property estimating business, the cat modeling, auto side. I guess what in your mind sets Verisk apart from competitors? And then also, are there specific areas where you may be looking to improve your offering suite to most of your competitive position in other parts?

Yes. Look, I think Verisk is unique. And the way I like to think about it, I mean, the whole is and can be greater than the sum of the parts. And as we have different competitors, they are -- they compete with individual parts of our business. We don't see anybody that has the breadth of data that we have across our business. And so we think that gives us an opportunity to be differentiated even in each of those individual competition areas. One great example is property data. We focus on property data in the forms, rules and loss costs business covers property. The anti-fraud business covers property. But our underwriting data and analytics solutions has the world's leading commercial property database for insurance purposes, which is different from ones for real estate or valuation purposes. The catastrophe modeling business at the end of the day is really about property risk primarily. And then -- and obviously, our property and restoration solutions business spends a lot of time going in there, getting hands on, being deeply involved in property repair. And so that gives us a uniform view around properties that -- and candidly, historically, I'm not sure we invested too much time in really bringing all of these data sets together. But as we focus on it and as the ability to invest and work with data becomes more efficient with AI, we think we can bring differentiated insights at the property level that, say, a competitor in our catastrophe and risk solutions business or a competitor in our property and restoration solutions business couldn't do on their own.

Yes. That's a great segue because it wouldn't be an info services fireside chat without AI questions. So can you talk about just the different risks and opportunities with AI across the business? And when we think about it internally, do you see it as more of an efficiency driver or revenue growth driver? Just how you see it impacting the business more broadly?

Yes. We see it -- first and foremost, I think we see it as a revenue growth driver. The opportunity to create new products, to create new products quickly and to bring them to market and the ease with which our customers can interact with our data will only drive usage over time, we believe. Now there's an adoption rate for the insurance industry. And remember, this is a very heavily regulated industry. And so the regulators also need to be comfortable. There needs to be auditability and traceability of analysis being done. We think we actually have a differentiated ability to work with the regulators and kind of those relationships to help people get comfortable with the use of the data. So primarily revenue and product opportunity. Will we use it internally for efficiencies? Absolutely. We think we can drive our own internal operational efficiency with it. We already are fortunate to start off with pretty high margins. So it's not like we have huge pockets of people doing inefficient and manual analysis. So it's more that it will take the insight that we have and enable it to be more effective and get more quickly at data patterns, insights, building new products and things like that. So for us, the efficiency gains, we think, will be significantly repurposed and reinvested into the business to focus on the revenue growth opportunities we were talking about. And all of it would be netted together in the expected margin expansion opportunity of 25 to 75 basis points annually.

Got it. Got it. And then just as a follow-up, I mean, just on like the data side, right, because that's a big question that we do get from investors is around proprietary data and how it's differentiated in terms of warding off some of these threats. So maybe can you talk about how you believe your data is differentiated? I know you guys put some numbers around it at the Investor Day. And then maybe talk a little bit more about those industry dynamics given like regulatory considerations with the industry such that I think in our view, it gives you guys a healthy moat for AI. I would love to hear your thoughts on it.

Yes. So look, the heart of our data moat would be the contributory data which is contributed to us by the industry. I think we said in there, we have over 2,000 data sets contributed to us by industry participants. And it's not just that they kind of download it to us and somebody else could come in and like digitally ingest all of that. It comes to us in wildly different formats and wildly different and completely not uniform architectures and underlying projections. Like for example, when we were at the Investor Day, we were talking about the property that we were in was a hotel, and it had been -- hypothetically, it could have been underwritten by three different carriers. One of them would classify it as a hotel. One would classify it as a hotel with a conference center, one would classify it as a mixed-use entertainment building. They each might underwrite the policy with three different deductible levels. And then they each put on their own limitations, endorsements, coverage levels. So those three policies, same underlying asset are not at all uniform. You couldn't have some big tech provider ingest all of that and decide what was the loss cost, what is the average? Like how do you uniformize those policies. So that's the big part of it. Another -- I think we said another 20% of our revenues is based on proprietary data that we generate and build in-house based on our industry insights and based on, in some cases, physical field reps going on site and inspecting buildings at the invitation usually of our clients. So that is also difficult to replicate. And then there's other elements that are proprietary analytics that are built on the underlying data set. So if you don't have the data, you can't -- I guess you can make the analytic, but it would be -- it wouldn't spit out a meaningful answer without the data to build or train it on.

Got it. And then I guess we move on to capital allocation. On 4Q earnings, you guys announced and I think recently completed that $1.5 billion accelerated share repurchase plan. So I was wondering if you can maybe talk about your broader capital allocation strategy here as we think about the near term and then as well over the course of the medium term on what you guys -- the guidance you kind of gave at your Investor Day.

Yes. I think -- so our primary priority for capital allocation is organic investment in the business. We continue to see a ton of opportunity, and have been investing on the CapEx side to continue to build that out. Second is selective M&A. And then third is return of capital to shareholders. I think at the Investor Day, we had a slide that over the past 3 years, we -- of our capital generated for shareholders, I think 15% of it went to the organic M&A -- sorry, organic investment, 10% on M&A and 75% on return of capital to shareholders. That's probably a reasonable balance. I don't know that it's going to be exactly like that going forward, but some breakdown like that.

Got it. And then I guess on the M&A front, I mean, what are -- when you talk about selective M&A, what types of assets are you guys typically looking for? Is it capability expansion, geographic expansion? How do you guys sort of view the M&A market and what you're sort of looking for?

Yes. I would say our M&A strategy focuses on three priorities. The first is either acquiring new or enhancing our own proprietary data sets. So we are a data-first company, and that will be kind of our first priority on M&A. The second priority is on expanding our knowledge of different or growing emerging risk areas or moving into new customer segments. And so particularly, the customer segment can refer to international expansion, which we've had some international acquisitions or it can get us into -- get us positioned into new and growing areas within the insurance industry. So the important thing to know is that from a customer standpoint, we serve the insurance industry, but the carriers are not our only customer type. I think today, it's about 70% of our revenue coming from carriers. But there's a ton of interesting growth in brokers, reinsurers, managing general agents, claims professionals like independent adjusters. So as the carriers change their business model and in some cases, outsource or create independent providers for different parts of their business, like you can think of the MGA trend as one like that, that creates new opportunities for us to service those pockets, and we can continue to do some of that organically, or we can -- or we may make acquisitions that puts us into new parts of the business. And then finally, the third priority of those is efficiency, automation and workflow tools for our clients. Essentially, that is kind of almost a delivery mechanism for probably something of strength in the first two.

Got it. Got it. And before we get to our last question, I just wanted to just sneak one in on margins. And when you look at the medium-term guide, you guys reiterated your targets for 25 to 75 basis points of margin expansion. But I think over the last cycle, there was some outperformance. But for this cycle, you talked about really kind of being in that range given you will be investing back into the business. So can you maybe talk about some of those top investment priorities for the company over the medium term?

Yes, happy to. And at the last -- in the prior 3-year cycle, we had a margin target, at least for, I think, 2 of those 3 years, that was sort of agreed -- stated before the Investor Day. So we had a more aggressive expansion target in part to deliver on that. Now we think we've delivered -- we think we have demonstrated that we can be efficient growers. And so we're going to take the opportunity to invest in the business. It is primarily on projects like the Core Lines Reimagine, AI tooling for our -- for the full employee base as that continues to expand, could be a cost there, something we're investing in and we'll get efficiencies out of as well. And then I mentioned the sales force and expanding coverage, that could be an area that we might invest more.

Got it. Got it. And then just to wrap up here, if we were to be back sitting here 12 months from now and discussing what a successful year it was for Verisk, what would be the top 3 things you would point to that you would have achieved throughout 2026 that would make it successful?

Yes. I think, two or three things. One is we would like to see the adoption curve for AI in the insurance industry continue to expand and for us to be active participants in that and to drive growth from some of our new and AI-enabled products. I think that's probably first and foremost. Obviously, we are not going to control the weather, but we do think from a transactional and environment standpoint, we could start to see more normalization of that growth. And then finally, on our -- in our catastrophe and risk solutions business, we have a major product launch midyear. And so we're excited to bring Synergy Studio to market and have the client receptivity of the real enhanced capabilities of that tool.

Got it. Well, Elizabeth, thank you very much. I think we'll call it there. We will have PayPal CFO coming up in about 5 minutes. Thank you very much.

Thank you so much, Scott. I appreciate it, thank you, all.