Verisk Analytics, Inc.

Good day, everyone, and welcome to the Fairway's third quarter 2019 earnings results conference call. My name is Jay, and I'll be your conference operator for today. At this time, all participants have been placed in mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star, then the number one on your telephone keypad. We ask that you limit yourself to one question. I would now like to turn the call over to Verix Head of Investors Relations, Ms. Stacey Broadbar, for opening remarks and introduction. Ms. Broadbar, you may begin your conference.

Thank you, Jay, and good day to everyone. We appreciate you joining us today for a discussion of our third quarter 2019 financial results. Today's call will be led by Scott Stevenson, Chairman, President, and Chief Executive Officer, who will provide a brief overview of the strategic direction of our business. Mark Anquilari, Chief Operating Officer, will then provide an update on our insurance segment. Lastly, Lee Shavel, Chief Financial Officer, will highlight some key points about our financial performance. The earnings release referenced on this call, as well as the associated 10Q, can be found in the investor section of our website, Veris.com. The earnings release has also been attached to an 8K 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. Finally, as set forth in more detail in today's earnings release, I will remind everyone that today's call may include forward-looking statements about VAERS' 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. Now, I'll turn the call over to Scott.

Thanks, Stacey. Good morning, everyone. I'm pleased to share that Verisk had another strong quarter of growth fueled by our market-leading innovation and continued focus on delivering an exceptional customer experience. Verisk reported organic constant currency revenue growth of 7.6% and organic constant currency adjusted EBITDA growth of 7.7%. This growth was driven by strength in our insurance segment and solid improvement in energy and specialized markets. On the innovation front, I'm especially pleased to see strong revenue growth tied to the investments we have made in platformed analytic environments. Such environments include our visualized claim search for fraud fighting and claims adjudication, our touchstone platform for catastrophe modeling, X1 for global property estimating, LENS for energy analytics, and our power advocate platform for ingesting and understanding supply chain costs in the energy space. These platforms take the level of intimacy with our customers and their workflows to a whole new level and deliver enhanced growth and operating leverage. Specifically at Wood Mackenzie, this month, we released the second module to Lens called Global Upstream Valuations, which expands screening and valuation capabilities across the whole world. This solution enables our customers to analyze and interact with our comprehensive global upstream data set to make faster, data-driven commercial decisions. We continue to be encouraged by the early results of Lens, but equally important is the fact that having a new and unique product in the marketplace has really energized our sales teams. This has translated into improving sales of our core research as well as strong growth in our breakout solutions, including subsurface, chemicals, and the energy transition practice. Our energy transition practice was previously known as power and renewables, and this shift reflects our commitment to helping our clients cope with changes in the energy markets. In our power advocate business, we are experiencing strong growth as we are helping our energy customers use data to more effectively spend their capital and save costs. We see opportunities to leverage the C-suite relationships from Wood Mackenzie to introduce Power Advocate at an enterprise-wide level, and also to help bring our spend and cost solutions. One of my leading indicators of the health of our business is how we are doing with the new disruptive players in our verticals, as well as the largest and most established players. We are doing well on both fronts. We continue to win new business with InsurTechs as they find value in our full suite of solutions. And we continue to see progress in the cross-selling of even more valuable solutions to the established leaders in all three of our verticals. I spent several weeks in Asia recently visiting with client leaders across our verticals, from Saudi Arabia to India to Japan. What struck me was how alert the CEOs of the leading companies around the globe are to data analytic innovation and their extreme interest in Verisk solutions. We see this driving an increasing level of inquiry and a growing pipeline of opportunities for our products. I'm also pleased with the progress we have made with respect to our infrastructure and analytic methods over the past 90 days. We continue to make steady progress in moving our computing infrastructure to the cloud. In the past, you've heard me talk about how cloud capacity grows in a linear fashion, whereas on-premise computing gets retired episodically at what I call shells. Because of the great work of our team, we have now reached the first of those shells and are seeing the expected efficiencies. We will continue to pursue these infrastructure improvements and savings persistently, business by business, product by product, over the next few years. The global expansion of our data science team is coming along nicely, and we are delighted with the quality and capacity of our emerging data science team in Krakow. We are now out in the market with industry standard insurance solutions that incorporate machine learned methodologies, which take the world of regulatory ready methods to a whole new level. On the strategic acquisition front, our focus continues to be on adding valuable data sets within our existing verticals that can be leveraged across our enterprise to drive high returns on capital. Genscape and Buildfax represent opportunities to both extend their businesses and enhance our existing products and relationships. Genscape is a market leader in sensed data for the power, oil and gas, and maritime end markets. Genscape uses a network of sensors to gather proprietary data that is real or near real-time. We believe we can create value by combining Genscape's real-time, short-term data set with WoodMac's longer-term asset valuation data sets. We plan to develop new analytics solutions based on these combined data sets and ultimately see the data set incorporated into the Lens platform so that it can be seamlessly integrated into customers' workflows. We also see opportunities to cross-sell and expand into new client segments, as there is limited customer overlap. Ultimately, we believe that Genscape, as a part of Woodmac, will bolster our journey as the energy mix shifts toward more of a balance between molecule-based and electron-based. BuildFacts is a leading provider of proprietary condition and history data with a blue chip customer base that is now part of our ISO underwriting business. We are excited to incorporate BuildFax's data to enhance our existing property data and analytic solutions and see opportunities to develop new solutions as we partner with our insurance customers to help them drive their underwriting process to become quicker and more precise. We also see real opportunity to expand distribution and cross out BuildFax's core products across our customer base. Finally, I'd like to take a minute to clarify developments in the imaging space. In connection with the jury verdict and associated injunction related to the Geomany roof report business, we have recorded a $125 million legal reserve. We were disappointed in the verdict and plan to appeal once we receive final judgment. With respect to the current operations, the ruling pertains to only some of what we do in our Geomany unit, and our roof report business represents about 1% of our annual revenues. We are energetically working to develop a non-infringing alternative method to the current technology. We're also working toward adjusting the cost structure over the next few quarters in light of the injunction. To that end, we are taking aggressive steps to minimize the negative impact on profitability and cash flow of the roughly $7 million in lost quarterly revenue and should see sequential progress over the next several quarters. Perhaps the most important thing to note about our imagery business is the asset we have built in our image library and our image capture program. We now have a distinctive data asset on a national scale. We continue to believe strongly that the combination of automated measurement through remote imagery and automated estimation can create great value for our insurance customers, for Verisk, and for our shareholders, and remain committed to and as excited about these technologies as ever. Having gone through a number of specifics, let me give you my overall assessment of where we stand. Our verticals are in great shape, with a notable achievement of energy and specialized markets exceeding insurance's organic growth rate for the first time, thus expanding our sticky recurrent subscription revenues. Our technical infrastructure is becoming more efficient in real time, and the technical talent of our team has grown through tapping new talent sources. We've supplemented our data sets with two acquisitions that we can leverage across our enterprise. While we have lost the contribution to revenue growth provided by 1% of our revenue, we exit the quarter stronger than we entered it. And now I'll turn the call over to Mark to provide some insights on our insurance segment.