Verisk Analytics, Inc.

Good day, everyone, and welcome to the Verisk second quarter 2020 earnings results conference call. This call is being recorded. At this time, all participants are in 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 Brodberg. Ms. Brodberg, please go ahead.

Thank you, JP, and good morning, everyone. We appreciate you joining us today for a discussion of our second quarter 2020 financial results. Today's call will be led by Scott Stevenson, Verisk's Chairman, President, and Chief Executive Officer, who will provide an overview of our business. Lee Schavel, Chief Financial Officer, will follow with the financial review. Mark Anquillari, Chief Operating Officer, Nick DeFond, Chief Information Officer, Neil Anderson, President, Wood Mackenzie, and Lisa Benally-Hannon, President, Verisk Financial, will join the team for the Q&A session. The earnings release referenced on this call, as well as the associated 10-Q, can be found in the investor section of our website, verisk.com. The earnings release has also been attached to an AK 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 Verisk'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, Stacy. Good day, everyone, and I'm glad to be with you today. The second quarter was unique as we dealt with the macro effects of the COVID-19 event, and I hope you and your families continue to stay well in this moment. At Verisk, our priorities are unchanged as we remain committed to delivering for our customers, protecting the health and well-being of our 9,000-plus teammates, and continuing to drive our innovation agenda. I'm pleased but not surprised that our second quarter results reflect the strength and stability of our business model, the mission-critical nature of our solutions, and the hard work and resilience of our teammates who quickly adapted to the work-from-home environment and have remained focused on customer needs and innovation. I'm proud of our team and want to thank each teammate for their dedication and focus during a fluid moment. Before we discuss the quarter, I want to make two related points about where Verisk stands. First, we believe that the net effect of the COVID-19 moment should benefit Verisk in the long run, given that our customers will persevere and make it through to the other side with even more focus on becoming the better digital versions of themselves. This should make our customers more capable and desirous of using our many solutions. And second, the consistent performance you see from us now and into the future is a function of our structure and position and not any cyclical or momentary effects. Our results are a function of the steady and ongoing accumulation of innovation and success with customers. Our business performed as we had expected in the second quarter. We previously communicated to you our analysis that approximately 85% of our revenues are subscription-based and subject to long-term contracts, and therefore we did not see any material impact on these revenues from the COVID-19 environment. In the second quarter, those revenues grew approximately 6.5% on an organic constant currency basis when normalized for the one-time impact of the injunction related to roof measurement solutions. Of the remaining 15% of revenues that are more transactional in nature and thus subject to COVID-19 impacts, those revenues declined approximately 20% on an organic constant currency basis in the second quarter in line with our expectations. We experienced sequential improvement throughout the quarter and into July as the underlying causal factors began to diminish, and we expect to see continued progress on that front. During March, as the extent of the pandemic became clear, we quickly moved to action and deliberately protected profitability without, and this is important, cutting investment in our business. We did this by moderating headcount growth, but without resorting to large-scale furloughs or layoffs by focusing on operational discipline, and by benefiting from the natural responsiveness of our compensation structure. Together, these actions delivered strong organic constant currency adjusted EBITDA growth. Even while delivering strong profitability, we continued to fund investments in our innovation agenda and continued modernizing our technical infrastructure through cloud migration, tokenization of key data sets, and leading edge data fabric supporting great analytics, as we have done for the last several years. Lee will provide more details on our performance in his financial review. During the second quarter, Verisk operated predominantly in a work-from-home environment, and our teams across the organization have remained highly effective. Operationally, our computing and network capacity has consistently and comfortably exceeded our daily requirements, even as demand for our solutions and platforms have increased meaningfully in this remote environment. For example, in our insurance segment, usage of our digital claim settlement tool increased over 55% in the second quarter, and we are successfully converting free trials into paid subscriptions as customers realize the benefit of this new innovative platform to help them on their journey to becoming more digitally engaged. And in the energy vertical, we saw visits to our portal grow by over 40%, as customers value our content, particularly in moments of uncertainty. We moved our innovation agenda forward, evidenced by our continued investment across the enterprise, and the use of digital collaboration tools has helped our team stay connected to develop new and updated solutions for our customers. A few examples. In insurance, we launched a new micro-business insurance program with advisory forms, rules, and loss costs, specifically for the smallest businesses. This program is designed to help insurers cover the unique risks of micro-businesses that are often part of the gig economy, often operated out of home or shared spaces, and having fewer than four employees. We also released an updated cyber risk modeling platform and launched Life Risk Navigator, our cloud-based stochastic risk modeling platform that offers in-depth portfolio analytics which can enhance risk selection, quantify changes in mortality rate, improve hedging strategies, and drive better financial decision-making for our life insurance customers. In our catastrophe modeling business, we have released version 8 of our Touchstone platform, which includes timely updates for many of our models in the US, Australia, and the Caribbean, and continues to fulfill our innovation promise. In energy and specialized markets, we continue to push forward with our differentiated analytic platform called LENZ and are on track for further releases in the back half of the year related to upstream portfolio optimization, renewables, and carbon emissions. Despite the softness in the energy market, we continue to see demand from our customers for LENZ, which is reflected in both adoption and constructive pricing. Also within our energy segment, we launched a solution in April which analyzes pandemic-related supply chain risk and allows our energy customers to anticipate potential disruptions in their business operations. We are currently enhancing the existing solution by adding data sets from across Ferris that address additional elements of supply chain risk, such as vulnerability of suppliers to extreme events, the environmental, social, and governance risk factors that suppliers may pose, and movements in commodity markets impacting supplier costs. And in financial services, our loan loss forecasting model called Look Ahead is gaining momentum with customers as it helps them understand the changes to their anticipated loan loss curves related to government stimulus programs, trends in unemployment, and COVID-19 generally. This solution is unique to the marketplace given that it is founded on the total customer wallet view data set, which is proprietary to various financial services. On the sales front, our teams have adjusted nicely to a fully digital sales model. To help our sales force adjust to the virtual environment, we developed a series of trainings for best practices to use virtual tools, including Skype, Zoom, Teams, and Prezi. These sessions were very effective in making our sales teams comfortable with the new formats. Outreach to our customers is robust, and with customers in their home offices, we have found they are often more reachable than ever. As a result, calls with customers increased over 50% in the second quarter versus the prior year. In addition, we successfully converted most of our scheduled in-person customer events to virtual events. Virtual events have enabled us to increase reach and attendance, including at our signature London-based InsurTech event in June called Barrisk Vision, which saw a 63% increase in attendance this year versus the prior year's in-person gathering. Additionally, we hosted 48 webinars across our insurance segment in quarter two and had over 8,000 customers in attendance, which is more than a doubling versus last year. In energy, we hosted a number of virtual events throughout the second quarter, delivering thought leadership and content to more than 3,000 clients and prospects. We continue to invest in the virtual space and make enhancements to our platform. We've decided that all events for the remainder of the year will be virtual, and we're making plans accordingly. Virtual engagement with customers extends to the executive level. It is clear from these discussions that the pandemic has heightened the recognition among our customers that they need to become more digital and more automated, and to do so at pace. At the CEO level, I have also been pleased to maintain a steady and high degree of contact with our customers' CEOs in the virtual moment. Like me, our customer CEOs are highly focused on the well-being and productivity of their teams and consider the further digitization of their companies to be a highest priority. I continue to receive feedback along two lines. One, Verisk is a unique and differentiated partner. And two, our customers look to us for a steady stream of innovation to help them on the journey to becoming more digital and more automated. Even with a video screen between us, the depth of alignment and degree of mutual respect is as high as ever. The net result of all this activity across all levels is that sales opportunities and our pipelines continue to grow as we capitalize on this structural growth trend. We are experiencing a modest lengthening of our sales cycles across our businesses as compared to historic norms. We are managing this closely and view this more as a timing issue and a function of the complexity of bringing stakeholders together and closing deals in a remote environment. While we have been successfully executing in a work from home format, I'm pleased to share that we've begun to open some of our global offices for a safe and phased return to office for those employees who would like to work from the office. In fact, we have opened more than 50 of our global locations in a phase one format over the past few weeks, including our headquarters in Jersey City. I'm hosting this call from our offices, and it feels great to be back in the office. Additionally, as the stay-at-home restrictions have been lifted across the U.S., we have seen our field force return to a five-day-a-week schedule so that they can begin to work on the backlog that built up when entering commercial buildings was restricted. I also want to note how pleased we are with the integration and sales momentum of our recent acquisitions, including FAST, BuildFax, and Genscape. While still early, we are realizing both revenue and cost synergies consistent with our expectations at the time of those deals. We're monitoring these acquisitions carefully and supporting the management teams to ensure that we are generating a solid return on invested capital. With that, let me turn the call over to Lee to cover our financial results.