Verisk Analytics, Inc. Q3 FY2025 earnings call

• Organic revenue growth driven by strong subscription growth, with strategic engagement with clients leading to more pipeline opportunities. - AI enhancements like XactXpert and XactAI are embraced by clients, and Verisk's proprietary data is valuable with increasing AI utilization. Clients are contributing more data and supporting new contributory data sets. - AccuLynx transaction: FTC approval delayed with a second request, and no material benefit expected in 2025, so removed from guidance. - Reimagine program on track to deliver 20 planned releases in 2025, enhancing value for clients. - Extreme Events business using AI to simulate global atmospheric perils and correct biases in climate model output.

Verisk delivered organic constant currency revenue growth of 5.5%. Subscription revenue, comprising 84% of total revenue, grew 8.7% on an OCC basis. Transactional revenue, making up 16% of total revenue, declined 8.8% on an OCC basis. Within subscription revenue: Forms, Rules and Loss Costs continued innovation via the Reimagine program with new modules launched, driving price realization. Extreme Event Solutions saw double-digit subscription growth through contract expansions, solid renewals, and new client additions. Anti-fraud business achieved strong price realization and outsized growth with noncarrier clients. Specialty Business Solutions and Life Solutions also had double-digit subscription growth. Transactional revenue declined due to lower transactional volumes in Property Estimating Solutions business, attributed to historically low weather activity with third quarter weather events tracking significantly lower than previous years.

• Consolidated revenue expected in the range of $3.05 billion to $3.08 billion. - Adjusted EBITDA expected to be between $1.69 billion and $1.72 billion, with adjusted EBITDA margins remaining in the 55% to 55.8% range. - Net interest expense expected to be in the range of $165 million to $185 million. - Tax rate still expected to be in the range of 23% to 25%. - Diluted adjusted earnings per share expected in the range of $6.80 to $7.

• FTC approval delay for the AccuLynx transaction, with the review ongoing during a government shutdown, which may impact the timely closure and financial benefits of the deal.

Q: Manav Patnaik asked about the AccuLynx deal, including what's in question and the relation to ServiceTitan.

A: Elizabeth Mann said the FTC is reviewing the deal and working with them through the government shutdown, and ServiceTitan is a partner through the Property Estimating Solutions business but not the main competitor of AccuLynx.

Q: Toni Kaplan asked about the competitive landscape regarding AI startups.

A: Lee Shavel said general AI companies are looking to apply models to data sets, but without Verisk's proprietary content and insurance industry expertise, it's hard to deliver value, so Verisk is in a strong position.

Q: Faiza Alwy asked about future pricing opportunity.

A: Lee Shavel said there are opportunities through AI enhancements adding value, integrating data sets for incremental value, and strengthening products with AI leading to pricing opportunities.

Q: Andrew Steinerman asked about auto underwriting solutions revenues.

A: Elizabeth Mann said the business isn't linked to premiums, shopping activity is in line, and LightSpeed's value of real-time bindable quotes continues; Lee Shavel added rate adequacy improvement has lessened non-rate action opportunities.

Q: George Tong asked about the guide reduction due to AccuLynx.

A: Elizabeth Mann said they don't break down the guide reduction into organic and M&A related.

Q: Ashish Sabadra asked about fourth quarter comps from hurricanes and sales momentum.

A: Elizabeth Mann said the fourth quarter will comp strong hurricane impact from last year, and sales momentum will continue into next year.

Q: Gregory Peters asked about cash flow and free cash flow.

A: Elizabeth Mann said there was a cash tax benefit and better collections, with free cash flow growth roughly in line with EBITDA growth.

Q: Kelsey Zhu asked about competitive pressure in auto underwriting.

A: Elizabeth Mann said it's nothing new, focusing on product side and client feedback for competitive differentiation.

Q: Jeff Silber asked about industry premium growth and Verisk's revenue growth.

A: Lee Shavel and Elizabeth Mann said industry premium growth is normalizing to low to mid-single digits, and Verisk's revenue growth is tied to value delivery and data/analytics adoption, with AI as an accelerant.

Q: Alex Kramm asked about M&A outlook and client workflows.

A: Lee Shavel said focus is on AccuLynx and SuranceBay deals, and clients want connectivity and efficiency, with SuranceBay providing regulatory element value.

Q: Russell Quelch asked about carriers leveraging AI and contributory databases.

A: Lee Shavel said clients use AI on existing data, but Verisk's data sets enhance benchmarking and internal analysis, making connectivity and enhancement relevant.

Q: Scott Wurtzel asked about AccuLynx integration during delay.

A: Elizabeth Mann said they can't do anything from an integration perspective as they need FTC approval to operate as one company.

Q: David Motemaden asked about OCC growth deceleration.

A: Elizabeth Mann said there's quarterly variability, and Lee Shavel said subscription growth remains strong underpinning long-term growth model.

Q: Andrew Nicholas asked about client dialogues on AccuLynx deal.

A: Lee Shavel said clients are interested and have endorsed the strategic merits, and Elizabeth Mann added high-level positive feedback but no specific discussions yet.

Q: Jeffrey Meuler asked about mapping headwinds to subs and transactional.

A: Elizabeth Mann confirmed the government headwind is in subscription and weather/auto headwinds are primarily in transactional, with subscription growth absorbing headwinds.