Verisk Analytics, Inc.

Good day, everyone, and welcome to the Verisk first quarter 2020 earnings results conference call. This call is being recorded. At this time, all participants are in a listen-only mode. After today's prepared remarks, we will conduct a question-and-answer session. For opening remarks and introductions, I would like to turn the call over to Verisk's Head of Investor Relations, Stacey Bradbar. Ms. Bradbar, please go ahead.

Thank you, Operator, and good morning, everyone. We appreciate you joining us today for a discussion of our first quarter 2020 financial results. Today's call will be led by Scott Stevenson, VAERS Chairman, President, and Chief Executive Officer, who will provide a brief overview of our business. Mark Anguillari, Chief Operating Officer, will then provide an update on our insurance segment. Lastly, Lee Shavel, Chief Financial Officer, we'll 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 Investors section of our website, Verisk.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 VAERSC's future performance, including, but not limited to, the potential impacts of the COVID-19 pandemic. 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, and good morning, everyone. I'm very glad to be together today. We are in the midst of a challenge that is impacting each one of us. The outbreak of the coronavirus is above all a health crisis, and we hope that you and your families are doing what is necessary to stay safe. Our thoughts and prayers go out to those who have been directly affected by the virus and to the healthcare community and essential personnel working heroically to help us all overcome it. Today, I'm pleased to discuss how Verisk has responded to the COVID-19 event and give you a view of our plans and priorities for the company. I have really been looking forward to this meeting. Along with Mark and Lee, we will describe for you three things. First, our actions in response to the COVID-19 outbreak with a focus on protecting our employees and serving our customers. Second, an update on our current operations and the role we are playing to help our customers and communities navigate COVID-19. And third, our long-term priorities and plans for Verisk. Given our presence in Beijing, Shanghai, and Singapore, the COVID-19 event began for us in January. Our global crisis management team immediately began pandemic planning under our business continuity policy. Under the strong leadership of our Asia Pacific team, we followed government guidance and moved into a remote work mode with zero interruption in delivery for our customers. When local guidance modified, we moved to a hybrid mode, with teams making use of our facilities on an every-other-day basis in order to keep density down. Again, movement into this work mode was seamless. When a second wave of infection appeared in Singapore, we successfully returned to the remote mode. All of this experience was invaluable as January turned to February to March, and it became clear that the coronavirus was not a regional but a global event. Combining our experience in Asia Pacific with our long-standing plans for ensuring business continuity, we engaged in large-scale pressure testing of our remote work capabilities in North America, Europe, and India. And we did this weeks in advance of any government restrictions on movement. I was pleased, but not surprised, at the result. We moved our roughly 9,000 colleagues into a full remote mode with no interruption of operations or service to our customers. We remain in that mode today. Our primary goal was and continues to be the safety of our colleagues. Because of the essentially digital nature of what we do and our strong movement toward enabling technologies such as cloud computing, we knew that we could protect the well-being of our team without sacrificing service to our customers. An interesting fact about Verisk is that only about 100 people, or roughly 1% of the team, have a specific and regular need to enter our facilities. Despite the increased need to communicate digitally with one another and customers, our computing and network capacity have consistently and comfortably exceeded what we require. To highlight the relative ease of the transition, one of the more custom responses to the COVID event has involved our software developers and data scientists. In the office, they are accustomed to having two, sometimes three, large monitors running simultaneously at their workstations. Lacking these at home, we arranged to have the equipment sent to their residences to help these valuable colleagues remain productive. While we look forward to all being together again in our offices, our business continuity planning and the nature of our operations enable us to continue to serve our customers and drive our innovation agenda forward in a work-from-home mode while also flexibly following the lead of government officials about when it is safe to return. We have also significantly increased communication with daily updates to our global workforce, which we call the Daily Dose. We have held frequent worldwide town halls and have provided the team access to our COVID-19 Resource Center, which updates teammates with our leading research on the pandemic, as well as helpful personal advice on staying healthy and productive. Finally, we began by holding daily meetings of our global executive team and have modified that rhythm as the stability of our operations has been clear. We are now holding regular update calls with our executive team as well as with our board of directors. That's the journey we've been on up to this moment, so where do we stand? First, our teams remain highly active and productive. Sales calls are up versus prior years. Email traffic is greater than it was prior to remote work. the use of collaborative digital platforms has increased substantially. And from a Pulse survey of just a week ago, employee engagement is actually up at this moment relative to our customary high levels. And our customers continue to engage with our analytics and insights, as visits to our portals across our three segments have increased as well. Second, we've been active in bringing new value to our customers in the COVID-19 moments. In the insurance space, we have provided an innovative platform to claims departments, allowing them to settle claims in direct collaboration with the insured without requiring physical presence. We made this platform free of charge as a form of support and look for it to become another subscription offering with high acceptance across the industry over time. Our pandemic model, a part of the AIR suite, has drawn intense interest. and slices of the output from the model have been made available to customers, again at no cost. In financial services, we have created a COVID-19 dashboard for our banking customers to help them see precisely the real-time changes in spending across industry categories, thereby helping them anticipate movement in the creditworthiness of their commercial customers. And in the energy vertical, through a hurry-up six-week effort, our customers can now examine the vulnerability of their supply chains in light of a geographic analysis of where the virus has had its greatest impacts. I'm very proud of the work of all my teammates. Third, we've analyzed all our solutions and services to assess the impact of COVID-19 on our revenue streams. We have not identified any material impact of COVID-19 on approximately 85% of our revenues at this point, as much of these revenues are subscription in nature and subject to long-term contracts. We have also identified that COVID-19 is impacting about 5% of our people who have seen their work curtailed to some degree in the following categories. Our survey teams, which diligence the engineering features of commercial buildings for the purpose of supporting commercial property underwriting, have not been able to enter most commercial buildings during the lockdown, and even with repurposing their time, remain at the moment less than fully utilized. Our consulting teams across the company, and especially in the energy vertical, have seen some reductions to their current and projected billable activities for the immediate term. And our team focused on supporting auto claims adjusting in the UK has seen claims volumes drop as fewer miles are driven in the lockdown period. Across these few places in the company where the macro environment has reduced the workloads, we are working to reallocate these resources to other growing areas of the business. When necessary, we are using a combination of four-day work weeks, moderate trimming of team size, and a small amount of furloughing to keep the work and team in balance. And finally, we continue to make good sales progress as we have adjusted quickly to engaging digitally with our customers. The rate of sales closure has slowed modestly, though pipelines remain strong, implying that we could experience some timing effects measured in weeks to months for new sales. Despite the distractions of COVID-19, I want to note our ongoing focus and progress with the integration of several recent acquisitions, including Genscape, Fast, BuildFax, and the 3E acquisition of SAP's content-as-a-service business. We are very pleased with the integration momentum, synergy realization, and early business results we have achieved at these entities, consistent with our expectations and supporting solid returns on the capital we've invested. For the balance of today's call, we will focus on our long-term priorities and plans for Barrisk. Mark and Lee will take you through our view in detail, but let me paint the general picture for you. Our priorities for investing in our business and our people are unchanged, evidenced by our reiteration of our CapEx budget for the year. We are continuing to drive our innovation agenda and invest in our business while also advancing on our move to the cloud. With respect to performance, we expect to realize the benefit of four key features of our resilient business model. First, continued growth in data sets and demand for analytics from our clients that remains unchanged in the long term and continues to drive our performance. Second, a high proportion and broad diversification of subscription revenues that provide exceptional stability to our revenue. Third, operations that provide significant flexibility in managing our expenses. And fourth, strong free cash flow generation and access to capital, which enable us to continue to invest in our business and return capital to our shareholders. On that topic, I'm pleased to report that our Board of Directors has approved a 27-cent per share dividend for the second quarter to be paid in June. Our business model has proven its resiliency in the past, delivering stable performance through the financial crisis and the last oil price shock. We realize that no two events are the same, but we have confidence that we can deliver growth again through COVID-19. And while there may be some short-term headwinds to growth, We believe our performance will reflect our long-term goal of growing EBITDA faster than revenue. Finally, on a personal note, I sympathize with the small businesses that are unable to operate during these challenging times, and every one of our customers in this situation can expect the full support of our company. I also feel extremely fortunate to be a part of Verisk's business model. Now, I will turn the call over to Mark to walk you through developments in our insurance verticals.