Verisk Analytics, Inc. (VRSK) Earnings Call Transcript & Summary

All right. Good morning, everybody. We'll keep this on time. Thank you for being here, Day 2 of our Global Financial Services Conference. For those of you who don't know me, my name is Manav Patnaik. I cover business and information services for Barclays. One of the companies under our coverage is Verisk. And we're very pleased to have Elizabeth Mann, the CFO, back with us here again. So thank you for being here, Elizabeth.

Thanks so much, Manav, for having us, and thank you all for coming.

So I thought the best way to start would be to just talk about current trends implied in your guide, the long-term guide. But maybe before that, let's just knock the question around the AccuLynx deal out of the way, just the kind of the latest update with the situation there?

Yes. So I think we've announced the AccuLynx transaction, which had been under litigation. We have appealed the decision now, and so that is under appeal. The hearings would start in late October. So it is continuing to be handled on an expedited basis as the original trial was.

Got it. Okay. Fair enough. So maybe just getting back to this year's guide, maybe just remind us how the first half performance was and then kind of the implied second half guide in there.

Yes. Thanks a bunch. Yes. So our revenue for the year, the first half had been impacted by some near-term revenue headwinds that we've talked about. I'm sure we'll get into that. Short-term factors, the weather impact being the most significant and primarily on the transactional revenue growth side, which is only -- which is 17% of our revenues. Our subscription growth at 83% of our revenues continues to perform well. We've also -- and then to your question on the second half, we've continued to say our expectation is that those short-term factors are -- we are working through them and working past the time that they would have an impact. So we expect to see continued accelerating growth into the second half of the year with an expectation that we deliver within our "long term" or Investor Day guidance range of 6% to 8% organic constant currency growth. We expect to be in that range in the second half of the year. And we've also said we are confident to deliver another year in that range, meaning the full year '26 to be in that range.

Got it. Maybe just first follow-up on the subscription side of the business. I mean the first half of the year, the numbers actually got better despite some of what we thought were probably tough comps heading in. So what are some of the drivers of that slight acceleration in that subscription growth?

Yes, I think we continue to see good outcomes and good interest from our customers on the value that's being delivered across the platform. And it's not just one business or one upgrade, it is really across our largest businesses. Our forms, rules and loss costs business, which is our largest business, continues to see the benefit of Core Lines Reimagine and the significant technology investments that we've put into our core products, including AI-based innovations. So that continues to express itself in the subscription growth there. Our Catastrophe and Risk Solutions business just saw the launch of Verisk Synergy Studio, the new platform there as well as the new model for hurricane for U.S. Hurricane Risk. So that's seen strong subscription growth as well.

Got it. And I guess on both of those, I mean, it sounds like you have a new platform and then Core Lines Reimagine is also new capabilities. So is there a scope for further acceleration driven by those 2? Like, I guess, how early, meanings are beyond those 2 contributors?

Yes. I think we will continue to see the benefit of those out over a long term, meaning a couple of years. Both of those businesses as some of our largest businesses have very long-term contracts with customers, meaning 3 years to 5 years for some of the largest customers. And so the benefits and enhancements that we've built in are being monetized in the subscription renewals. And so we do anticipate continued strength. .

Okay. And so I guess -- but it's also fair to say that the current elevated or higher growth rate that subscription is sustainable? And then as the contracts come up for renewal, I suppose you can keep adding on more of the value in there. Is that fair?

That would absolutely be the intention. We don't give specific guidance by subscription or transactional revenue. We're targeting the total. Yes, absolutely, we do continue to see positive engagement with our customers. .

Got it. And then maybe just touching on Core Lines Reimagine, it was obviously a heavy lift for 4 to 5 years for you guys. I guess what is the -- never ends, but what is the end outcome today where we stand? And like what's the runway of the potential for going through this effort?

Yes, absolutely. So we -- Core Lines Reimagine was reimagining the benefit and really primarily the delivery mechanisms and the underlying infrastructure for our forms, rules and loss costs business, really reinvesting in a product that had been deeply embedded in the insurance industry, but maybe hadn't gotten an overhaul in quite some time. And so that was a 5-year scope. We started it in '21. By the end of the year, we will have delivered the full program that was envisioned then. And most of the new and newly rebuilt content is available on core.verisk.com. We continue to turn things on module by module and line of business by line of business. The end of '26, it will all be available on core.verisk.com, and you won't have a need to go back to the old [ iSONEP ] platform. There may be some customers who prefer to use it that way, but we will be pushing hard to shift them over to core.verisk.com.. So that will be kind of the -- we will draw a line under the completion of the original scope of Core Lines Reimagine. It has been such a benefit and such a success. When that was designed in '21, it was -- we were doing a lot of machine learning. We were doing a lot of AI, but it wasn't in an environment where everybody was talking about generative AI. We've brought some of those elements into our platform already. But I think where we stand now, we will continue to see benefit. We're not going to stop investing in the product. The investment scale may taper a bit, but we continue to see significant opportunity and significant client interest in what can be done off that core content that is so valuable to that.

And maybe just a few examples on that because part of -- I think what you described felt almost like a necessary modernization of the way you have the data, the delivery and the platform. So now that you have that, can you talk about whether that helps innovation, helps companies, use some examples there.

Let me give some examples. So the right -- so the product there is the fundamental -- it is the loss cost, meaning the industry average wide expected loss on a particular type of risk with deep granularity, not just by class of insurance, general liability, but by business type, say, commercial -- small commercial, by state and by type risk. So it's not just commercial liability for a restaurant. It is separated out into 13 different grades of restaurants by state. So very granular views of risk based on the industry-wide average and/or industry-wide views of the risk, and really no one carrier has enough penetration or season enough data. That's the core value of the product. The delivery method was where, as we talked about, it had maybe been underinvested. And so if you go back before Core Lines Reimagine, those loss costs were primarily delivered by PDF, a table that customers would deliver -- would download and probably manually key in into their own internal systems or into their own workflow. That was not to work should take place in the 2020s, even before anyone started talking about AI interaction with it. And so rebuilt the platform. We've rebuilt the underlying data. I should say this was all enabled because in the [ 2018 ], we moved that core data set to the cloud and on modern database infrastructure. So that was almost that 0 of Core Lines Reimagined in the 2017 to 2021 era. So we've got our database, our industry-wide data house and manipulated in modern data method. Of course, this was also an important prerequisite in being able to use and handle that data with AI and other modern methods. So delivery mechanism is more modern, customers only download the PDF if that's still how they want to consume it. They can now access the data of via API. They can access it through accelerators and integrators into their policy administration systems like a Guidewire or Duck Creek. Today, they can -- if they choose to, they can interact with that data via an MCP using Claude. So those are some of the different delivery mechanisms. The content, the forms content, the policy language that is so crucial for carriers. Insurance, each policy is a legally binding contract with language that really matters. It matters first because it has to be approved by the regulator on every line of business in every state that you're doing business in annually, your policy form has to be approved by the regulator, updates and changes to it, also need to be approved. And then it matters also because that language is court tested, it sets policies, it assesses -- it governs the liability for what carriers are exposed to, on what risk. And so this is very legally sensitive language. It remains legally sensitive. What hasn't changed on our rules business is the number of actuarial experts, legal experts, local legislative experts that we have that is giving input into that form language, which is far more efficient for us to do one versus each carrier in the industry doing that analysis and hiring those people themselves. That hasn't changed. What has changed now is the ability to interact with the forms language in much more modern ways, not -- again, not just working with the PDF, actually built a data structure underlying those forms and that policy language years -- a couple of years ago before -- again, before at ChatGPT and other things. So we have a modular data form underlying the forms and the policy language, which enables much easier and better interaction with that form. And so you were asking for specific examples, how does this save time? It used to be, even 5 years ago, if an underwriter at a carrier was taking a look at this year's policy. They said, "Okay, I read there was a legislative change in Illinois." It's going to change my commercial property form language. They would download this year's form. They would have to search through and find the relevant paragraph and figure out how the language has changed. Now it is much more digitally intractable. You've got a map, you've got legislative monitoring. You can click on a state what legislative changes were made, click through what policies have changed, click-through actually had these policies changed in other states and where has it changed my exposure. So that's -- those are all the things that are enabled now in the forms business. That have been enabled by Core Lines Reimagine, and you can easily imagine and extrapolate from that how carriers might use GenAI to interact with that to build their own modifications on top of our forms or to create their innovations on forms language. To be clear, any innovations that they make with those forms, number one, will need to be also filed and approved by the regulator. They can do it themselves from [ batch ] but that would mean taking legal liability on the full form. It would mean having that infrastructure to build the full form, and it would mean full regulatory review of that new policy, or they can start with the industry-wide gold standard starting point. They can download that. They can say, "I've tweaked it in these 3 places." Because of our infrastructure with Core Lines Imagine, it's much easier to identify where those 3 places are that they may want to tweak, and they can file that for approval and get reviewed just on those 3 modifications as opposed to the full form from scratch.

Got it.

Sorry for that long answer, but I wanted to put some light what is one of our -- really our core businesses and our core value proposition and what we continue to provide to the industry that is still valuable even in this world.

Got it. One of the other initiatives you mentioned briefly, there was kind of MCP delivery of data. So can you just help us appreciate like how much of the data that you guys have today is available through that? And what the strategy of MCP is going to be going forward?

Yes. The MCP that we have today is for convenience on the part of our carriers. What they see is the loss cost, which is the table, the industry-wide average. It is what we would call -- that is what we would call the output. You could -- maybe you would call that an analytic, but based on the internal raw data that has contributed across the industry. So they can see. They can interact with that loss cost data, same thing that they get access to in their core subscription, but now they can ask questions of it, "Why were loss costs trending down in Florida over the last couple of years?" It's because of regulatory reform. But so they can ask business-related questions. They can integrate it into some of their other things. But I think the key thing to know is that's the loss cost table that is our IP that is created and being monetized and access through the MCP connector. It is not the raw data that's contributed across the industry.

Got it. So when you say for convenience, I guess, it's just another delivery mechanism, but there's no uplift in pricing or some kind of a premium attributed to accessing that data.

At the moment, no, we are looking -- we are assessing the value that is created for the industry in accessing the data in that way and interacting with the data in that way. And if we believe there is value that's being created as they use it and interact with it, we will charge for it, and we will monetize that.

Okay. And then maybe a couple of examples of AI. I think on the call, you mentioned XactAI. So what is the uplift or what is the use case of that?

Yes. So the new features on XactAI AI is a number of AI tools that is add to the core software XactAnalysis or XactMate. That's the software in our property and restoration solutions business. It's used by the carriers themselves and the contractors or third-party adjusters to develop an estimate and prove an estimate for property repair associated with an insurance claim. So a tree falls on a house, maybe in a hurricane, maybe not, the contractor goes on site, the insurance adjuster goes on site, and they build an estimate. They say, "Okay, here we assess the damage, let me take photographs of the damage and then I build an estimate, and it's going to take -- it was 3 windows that were broken, I need this much wood for frames. I need this many panes of glass. The labor, which is a very hard part to develop pricing on, it's going to take -- this is John, that's going to take 3 people, 6 hours of work each, and here's the cost of that in this region at this moment in time. . So it is both the software that develops that estimate. It is pricing data, both material and labor, that populates the estimate. And so that's what has the contractor, the adjuster develop the estimate. It goes to the carrier. The carrier approves it, the carrier assesses in line with my rules and policies and compliance, is this an appropriate estimate in this region and for this type of work? The AI features enable the process and the development in those processing of that estimate much more quickly. So now if you take a photo, it can auto populate, "Oh, I see, it's this type of window with this type of grass," and it will suggest this is what you're going to need, and here's the price from the pricing estimate. Obviously, that gets reviewed and adjusted. But compare that to -- it saves a significant amount of time for the adjuster versus taking a picture going back, having to look at a price list, having to look at trying to assess what each element in that photo is, maybe for getting a couple of things and having to go back to it later.

Got it. Maybe just one moment to go back to the cat Synergy Studio. I mean one of your main competitors is also introduced or have introduced one platform. Is there a trend in the industry? Is it just AI capabilities allowing for this platform? And then also just for you, how should we think about whether that starts creating uplift in that specific business?

Yes. So the platform -- our platform or our competitors' platform were not designed as AI-specific innovations, but they will have -- they already do and may have further AI enhancements or obviously, AI was used to develop the platform. I think it was more that they were built and created to have more modern and much more powerful infrastructure on which to run the catastrophe models. So it used to be the catastrophe models were run on-prem, access platform that was an on-prem build. Now it is -- now it is truly SaaS and can use as much power or compute as you might want. So an industry standard is to be to run 10,000 pas on a Monte Carlo, but if you want it, if it's appropriate to have a more robust view, you can now run 100,000 views of risk. You can take and modify each of the parameters associated with the risk or with the portfolio that you have. So it's much more interactable and can kind of take your own view on risk. And we can say, well, our expectation for the assumptions that you should use are that, but you can kind of take and modify those platforms.