Good day, everyone, and welcome to Verisk First Quarter 2019 Earnings Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Verisk's Head of Investor Relations, Stacey Brodbar. Ms. Brodbar, you may begin your conference.

Thank you, Natalia, and good day to everyone. We appreciate you joining us today for a discussion of our first quarter 2019 financial results. Today's call will be led by Scott Stephenson, Chairman, President and Chief Executive Officer, who will provide a brief overview of the business. In an effort to provide the investment community with a broader perspective on our industry verticals and to offer deeper access to our senior operating executives. Neal Anderson, President of Wood Mackenzie, will then provide an update on our Energy and Specialized Markets segment. Lastly, Lee Shavel, Chief Financial Officer, will highlight some key points about our financial performance. Mark Anquillare, Chief Operating Officer, will join the team for Q&A. The earnings release referenced on this call as well as the associated 10-Q can be found in the investors section of our website, verisk.com. The earnings release has also been attached to an 8-K 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. 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 pleased to be able to report that 2019 is off to a solid start at Verisk. The first quarter was marked by solid organic constant-currency revenue growth of 6.7%, which remains the most important measure of our vitality as an organization. Moreover, our growth was driven by continued broad-based strength across our Insurance vertical and ongoing improvements in Energy and Specialized Markets segment. This growth was a product of our continued efforts to get closer to our customers, to introduce new innovative solutions and to cross-sell existing solutions to help accelerate value creation for our customers. With regard to innovation and cross-sell, we are beginning to see early success from the integration of some of our more recent acquisitions into the Verisk family. To that end, we are leveraging technologies and capabilities across all of Verisk to deliver new innovation and leveraging client relationships to drive cross-sell. In the Insurance vertical, we are working with a number of clients in the London market to help them achieve an integrated workflow across a suite of Verisk products, helping them to be more responsive to their clients while at the same time improving the quality of their analytics. As an example, Verisk clients who ensure commercial properties are now able to leverage integrations that we have built between applications from Sequel, AIR and Analyze Re to review exposure accumulations, assess extreme event risk and determine the impact of a policy on the overall portfolio in real time during the quoting process. These integrated products enable insurers to perform such analytics in minutes, where previously it could have taken at least a day. We think this early success with clients can be replicated more broadly within London and the United States. In Energy and Specialized Markets,…

Thank you, Scott. It's a pleasure to be here this morning to talk to you about our Energy and Specialized Markets business. I will discuss the macro environment in which the energy and specialized vertical operates where the focus on higher businesses are performing. I will also highlight our recent success leveraging the expertise of our PowerAdvocate business and to the extent of Wood Mackenzie energy and mining customer base. And lastly, we'll give you an update on the customer response to Lens, Wood Mackenzie's new data analytic platform. Regarding the macro environment. As you are aware, the oil and gas industry has been through a very challenging time over the last few years due to the falling oil prices. However, the industry in 2019 is in a much better shape than it was prior to the oil price crash in 2015. The oil and gas industry responded with amazing speed and focus to the drop in oil prices, aggressively cutting costs and rebuilding balance sheets, divesting noncore assets, which allowed them to concentrate upon low-cost, long life things. In turn, free cash flow has become the key financial metric. Indeed, in 2018, free cash flow surpassed the previous peak seen in 2012 when oil prices were above $100 a barrel. In summary, our oil and gas customers are in robust health with their focus now returning to new investments. We estimate future capital investment will exceed $200 billion in the next few years. As a result, we believe the majors will deliver stronger production growth in the coming 5 years, are poised to recover stronger growth for 5 years down the pre-oil price crash. Simultaneously, our downstream and finance platforms team continued strong demand, particularly in emerging markets leading to new investment in the Middle East, Africa and Asia.…

Thanks, Neal. First, I would like to bring to everyone's attention that we have posted a quarterly earnings presentation that is available on our website. The presentation provides background, data, trends and analysis to support our conversation today. One change you may notice in our disclosure is that we are no longer reporting the non-GAAP measures organic or organic constant-currency adjusted EBITDA margins. As the differential between our stated and organic margins decreased and given its complexity for investors, we have decided to simplify and just provide a single total adjusted EBITDA margin. We, of course, will continue to provide organic constant-currency growth metrics for both revenue and adjusted EBITDA as we believe these are the best measures to evaluate the health of our overall business and are the metrics we use in our own compensation plans. Finally, we have adopted the new lease standard, ASC 842, in the first quarter of 2019 and the impact to our income statement was immaterial. Moving to the financial results for the quarter. On a consolidated and GAAP basis, revenue grew 7.5% to $625 million. Net income increased 1% to $134 million for the quarter. Diluted GAAP EPS was $0.81 for the first quarter of 2019, an increase of 2.5% compared with the same period in 2018. GAAP net income and diluted GAAP EPS was impacted in the quarter by increased earn-out expense for a number of acquisitions that have been performing well relative to earn-out targets. Let's now focus our quarterly discussion on our organic constant-currency results for all year-over-year growth rates and to eliminate the impact of currency fluctuations, recent acquisitions for which we don't have full year-over-year comparisons, nonoperating acquisition-related costs including earnouts and nonrecurring items. On an organic constant-currency basis, Verisk delivered revenue growth of 6.7% in the first…

[Operator Instructions]. Your first question is from the line of Gary Bisbee with Bank of America.

Now the question on the energy business and sort of a 2-parter. Obviously, great margin as you're returning the business to growth, but it also looked like costs didn't grow and that was a sharp slowdown relative to the pace throughout 2018. So is that -- was there anything going on or is that sustainable? And the sort of Part B of that is just can you give us any sense how much you're investing in the newer areas and why we wouldn't see cost growing more quickly as you expand those businesses?

Well, let -- this is Scott. Let me just give you a general characterization, then Lee, maybe you want to -- or excuse me, Neal, maybe you want to jump in with any particular comments. But the way that we are operating in that business, it's a very balanced agenda where we are actually investing a lot in the categories that we talked about before, where you've got Lens, you've got subsurface, chemicals, power and renewables. But then where the rest of the business is concerned, there's been a lot of discipline. And so this is back into say, the core of the research activities that we do and you can just see that in the way that the operation is actually moving forward. So no, it's an investment-minded agenda, but we're being selective about where we're spending. Neal, I wonder if you want to add anything to that.

No. Certainly, Scott. Also on the Lens side, the big focus of Lens is also to drive internal efficiencies, and we're really pleased to see that margin expansion as we roll out Lens.

Your next question is from the line of Manav Patnaik with Barclays.

Maybe I'll move to another segment on the financial side. I was hoping you could give us a little bit more color and maybe help quantify a little bit what the growth of the underlying businesses that are doing well is. And when do you think the EDM piece stops becoming a headwind to the overall growth?

So Lee, do you want to start with just kind of, at the results level and then I can provide a little color on the context?

Yes. Sure. So Manav, thanks for the question. We saw solid growth in that, the spend-informed analytics and fraud and credit risk management. So we described that as north of 10% year-over-year growth in that. The portfolio management was in the mid-single-digits range. That obviously is kind of the core of the business. And with regard to Enterprise Data Management, that is where we had a year-over-year decline but recognizing that, that reflects some of the implementation revenue in the first quarter. So that effect is concentrated within that sector. And it also continues to reflect across that business, the ongoing development and some of the greater choppiness associated with a new and developing business segment.

Yes. No, that's, and all I would add to that is that's one of those parts of the business where we've given real attention to try to smooth out some of the cycle that can exist there. But it is inherently a little bit lumpy year just because it's moment in time really helping our customers improve their data analytic environment.

Your next question is from the line of Hamzah Mazari with Macquarie.

I was hoping if you could sort of just quantify or give us a sense of how much elevated investment spend do you have going through your P&L and CapEx? So you talked about Cloud Migration, we talked about Geomni. Just trying to gauge longer term, how should we think about a step change in your free cash flow when this elevated investment spend sort of comes down to a more normalized level? Is there a way to think about that at a high level?

So Hamzah, thanks for the question. I think there is a way to think about it and it is, it revolves around CapEx. And so a lot of our investment takes the form in, of internally developed software and so that's captured in CapEx. And as we had discussed previously, a lot of the acceleration was associated with the ramp-up of Geomni and the purchase of planes and sensors to build scale in that business. And while we continue to invest in that business, it is at a lower level on, proportionally relative to revenues than it had been in the past. And hopefully, as you saw in this quarter, the capital intensity, in other words, the CapEx as a percentage of revenue, showed a decline relative to that level. And you saw in terms of the absolute growth rate a slower level of growth. And so I think that is one way to think about the level of capital intensity within the business. Beyond that, we have OpEx expenses associated with a number of our breakout initiatives and we expect that to continue to grow as we fund these new breakout initiatives across the business. Some of them are profitable, some of them are at an earlier stage where they may be lower-margin or not profitable yet. But across the board, we would expect that investment to continue to expand at a reasonable pace and scaled against our overall operating margin expansion that we seek to achieve.

Your next question is from the line of Toni Kaplan with Morgan Stanley.

Toni, are you there?

Can you hear me?

Yes.

Energy and specialized saw the highest organic growth rate in 3 years and Neal, you talked about how you see stronger growth in the coming 5 years. The data source that I use for industry CapEx trends has been revising down sort of growth rates in the next couple of years. So I wanted to sort of get a sense of, if you have any color on how you're thinking about -- are you outperforming the market because of the products that you're providing? Is your pipeline strong because of your sales process or products? I guess just what's the disparity between maybe some of the data sources and what you're seeing.

Neal, do you want to take that?

Yes. No, absolutely, Scott. I think first of all, we see modest growth on investment of our key customers over the next 5 years, Toni. As I mentioned in the introduction, folks are now starting to look more at investment rather than being prudent on the cost side, which is a great operating environment for Wood Mackenzie. And as you know, the traditional strengths of Wood Mackenzie is the credibility with the market, our unique data sets, and then we're adding to that in terms of a really intuitive data analytic platform in Lens. And as I mentioned in the introduction, the launch of that in the fall of last year, we already have 29 paying customers. We continue to see that growth going over the medium term.

Hey, Neal, just a thought or really a question for you at the contextual level, is there also some effect in the Lower 48? Maybe it's not so much about CapEx intensity as it is about kind of operating agility and the ability to rebalance your operations very quickly in the unconventionals. I wonder if there's just a little bit of a mix shift there also. Toni is looking at macro data sources. Maybe a little bit of the rebalance towards Lower 48. Maybe that's in the CapEx number a little bit also?

Yes. No, absolutely, Scott. Toni, I was referring to global CapEx. Scott is absolutely right. What we're starting to see is a little bit more discipline coming into the operators' plane in the Lower 48.

Your next question is from the line of Tim McHugh with William Blair.

Just wanted to ask on the insurance side. Maybe can you elaborate a little bit more on the claims side of the business? I noticed -- I guess given the tough comp, it seems like Xactware still grew even despite the comparison. So can you talk a little bit about what's driving the growth there? And I think this is one of the first times you, at least in the presentation, you've highlighted remote aerial or kind of remote imagery solutions. So have you seen a noticeable kind of pickup in adoption of that amongst the client base?

Mark, do you want to take that one?

Sure. So I think you've captured many of the themes. So first of all, I will let you know that across all of the businesses, that would be the Xactware business, where the repair cost estimate continues to be very robust and strong. There was a little bit of storm-related revenue back in 1Q of '18. So we kind of grew over that. Our ClaimSearch or claims analytics business continues to be very well penetrated but very nicely growing. We continue to add new customers outside of insurance as well as some of the analytic solutions. We signed a lot of very large contracts last year, which spurred growth. So those are onboard this year and we continue to do well with those customers. And thirdly, inside that category, Geomni is clearly a contributor to growth from an organic perspective, and we continue to do well in taking customers and expanding the breadth of Geomni in the aerial imagery. So strength across the board.

Your next question is from the line of Jeff Meuler with Baird.

So as I think about Lens or, I guess, previously WoodMac 2.0 and what was talked about at the time of the acquisition originally, I think part of it, and I think you were referencing this, Neal, was related to the way that data is aggregated and automating that process. So I guess where are you in that journey? Have you largely automated the data aggregation process from the large energy companies that are supplying you with data? And then related to that, are there new fields of data, additional data that you're getting now that the process is aggregated, or is automated?

Neal, your favorite topic. Have a go.

Thank you, Scott. Absolutely a big win this year in terms of margin expansion was that automation that you referred to. We began the rollout of Lens, which is a truly end-to-end process of reimagining which data sets we want to secure, how we automate the capture and the transformation of that data and then for our analysts in turn to add their interpretation and produce the products for clients. We started an onshore U.S., Lower 48, exploration and production. And we're currently in the process of rolling that out to the global upstream this year. And the second part of the question, we're always looking for new data sets. But the wonderful thing about this automation and bringing on a new Chief Data Officer, Nabeel Azar, is he is tirelessly looking for new data sets, be them in the public domain, be them through partnerships or indeed, other routes.

Your next question is from the line of Andrew Steinerman with JPMorgan.

It's Andrew. Lee, Verisk score reported margin expansion in the first quarter and obviously, you're still investing in key growth initiatives. Higher levels of investment spending was accomplished in 2018. Lee, with that in mind, is Verisk placed to have reported margins to be up directionally this year?

So Andrew, I appreciate the question. Again, looking for guidance on margin. We are striving every quarter to increase our revenues at a higher rate than EBITDA. We achieved that this quarter despite investments and we'll continue to work to deliver on that. I think certainly as we said, the growth in this quarter was impacted by some tougher year-over-year comparisons, which I think diminish over time and so that certainly creates an opportunity for us to show some improvement ahead if we're successful there.

Your next question is from the line of George Tong with Goldman Sachs.

The underwriting and ratings revenue piece of the insurance business grew 6.8% in the quarter, which was slightly slower than claims revenue growth and this is pretty typical. Underwriting typically grows at a slower rate than claims. Can you discuss internal initiatives that maybe accelerate the pace of growth for underwriting to the point where it could potentially surpass the claims growth?

Mark, do you want to take that one?

Sure. So I first need to highlight the -- what we will refer to as our business focused on the pricing and underwriting and its -- the forms and coverage. That's a business that is kind of the foundation of Verisk for many, many years. It provides a very, very solid base. But at the same time, we're well penetrated and it's difficult for that business to grow all that dramatically. So what we've been trying to do is grow around that, and we have added many new products and tried to go international to accelerate that growth. And in those areas, we are seeing very high double-digit growth to accelerate the overall growth of underwriting and rating. So we're pleased with the investment that's being made. We're very pleased with the progress that's happening. But to answer your question, international is kind of one way we're going to try to extend and expand analytics beyond those core solutions, very important. And as I described, inside this category, in the quarter, cat bonds and the cat bond market was a little slow. But nonetheless, our catastrophe modeling continues to, on a baseline, grow nicely with some of those efforts. So I hope I provided you with a little bit of the portfolio and how we think about it to answer your question.

Your next question is from the line of Joseph Foresi with Cantor Fitzgerald.

This is Drew Kootman on for Joe. You guys mentioned that the integration, you guys have been having a lot of success on recent acquisitions. I was hoping you could highlight just a couple of those and discuss the pipeline you're seeing moving forward.

So Neal talked about some of the ways that we've been able to get the cost intelligence side of the business and the supply side and demand side of the business all synchronized in the marketplace. So that's kind of the view on the energy front, and we also talked about how we pulled together LCI and Argus data sets in order to work on some of the more fraud and bankruptcy-related topics that you got in Financial Services. Mark, anything you want to -- do you want to talk a little bit more about sort of the trifecta, Sequel, AIR and Analyze Re?

Yes. I mean referenced kind of in a high level. From an international perspective, I think we found some very nice opportunities in the U.K., specifically in the London market. We are seeing customers who kind of see the vision, like the ability that consumer analytic and data in a way they see most comfortable, but know that we are behind the scenes seamlessly integrating it, which has created an opportunity to walk into a customer, talk about a suite of solutions and them coming to us and saying, Geez, don't you also have this product? Wouldn't that fit in? And in a surprisingly and very good way, contracts and opportunities are growing, and I give a lot of credit to the team in the UK and how all of our business have really thought about a way to satisfy our customers. That has been reassuring and it continues to show a lot of promise.

And Mark, we said it but just adding on to this. The Sequel tools which relate to understanding exposures and their accumulations, that is sold almost exclusively in Europe today. Yet the integration that you're talking about ties it in with AIR, where a very strong part of our AIR franchise is in the United States. So there's a real pull together there.

The opportunity is not just the UK

Your next question is from the line of Oscar Turner with SunTrust.

So my question is on Lens. I was wondering, what's the go-to-market for that product? Has the focus been on cross-selling to existing customers? And then can you give some color into what aspects of the product customers have been most excited about?

Neal, do you want to take that one?

Yes. No, absolutely. And it's a dual track. We're really excited about Lens both in terms of cross-selling into our existing customer base, and also we've had huge interest from new clients, new logos to Wood Mackenzie. So it's certainly been both. And the feedback that we've got from Lens, and it ranges very much customer by customer, some really love the user experience, how intuitive it is, that they can use it on their laptop, iPhone, iPad. Other folks love the dynamic nature of it. So we have put in various assumptions with our unique data sets. And if they want to change, then they can change that on the fly and recalculate valuations which would have taken minutes before in a matter of seconds. And then other folks really value that true integrated approach along the value chain, which we will continue to build and build and build over time.

Neal, maybe you comment also on just kind of the, it's the same sales force that is taking Lens out to the same customers that is already taking all of our other solutions out to market.

Yes. No, absolutely. This is just one other avenue for sales force in terms of how they can support and service our customers.

The point being that there's leverage here.

[Operator Instructions] Your next question is from the line of Bill Warmington with Wells Fargo Securities.

So I wanted to ask about the two motion partnership. Basically, how does having a smartphone telematics platform impact your product capability? And does it let you expand your addressable market? Can you go after segments that you couldn't go after before?

Mark, that's something for you.

Sure. So let me try to, so reminding you, what we have done is we've partnered with a lot of the OEMs, Honda, Hyundai, GM. And from the vehicle, we've harvested data. We're up to 5 million cars, 90 billion miles, and that is helping our insurers do either modeling themselves or use our programs to understand behavior of those drivers so they can get a better price with regard to insurance. There's also some insurance claims use cases where we can help get assistance and actually initiate a claim. What we're trying to do is provide this consortium of all data available around the vehicle to help our customers understand the risk and price it better. So what the mobile devices do is they can provide that same type of information with, by the way, consent from users, so that we have information about distance traveled, information about the quality of the driving, all of that about both the vehicle connected to the driver. In some cases in idea identified ways; in other cases, we know the vehicle. So it is a part of a broader strategy to aggregate as much information about a vehicle and about a driver to help the assessment of that risk. So hopefully, you can understand the expansive nature of what can be involved with telematics from the standpoint of the mobile phone as well as telematics from the vehicle itself, harvesting from OnStar, as an example.

There are no further questions.

Okay. Well, thanks, everybody, for joining us. We appreciate the continued interest and support. And as you know, we'll be following up with a number of you. So have a great rest of the day.

Thank you.

Thank you all.

This concludes today's earnings conference call. Thank you for your participation. You may now disconnect.