Scott G. Stephenson
Chairman, President, and Chief Executive Officer at Verisk Analytics
Thanks, Stacey, and good day, everyone. Thanks for joining us for our second quarter 2021 earnings conference call. I'm pleased to share that Verisk delivered a strong second quarter result. The strength of our business model has been on full display since the start of the pandemic and continues in the recovery. We delivered solid top line and profit growth in every quarter last year despite the weak economic environment and operating challenges from lockdowns because of the consistent and durable growth in our subscription-based businesses. As expected, we are now fully participating in the recovery as our transactional businesses are showing strong resilience and rebounding with the rollout of vaccines and global economies opening up. To be more specific, in the second quarter, Verisk delivered organic constant currency revenue growth of 6.3%, comprised of growth of 5.5% and are mostly subscription-based non-COVID-sensitive revenues, and growth of 12.1% in our mostly transactional COVID-sensitive revenues. In fact, certain of our transactional businesses have already returned to pre-COVID levels. We have confidence this general trend can continue and believe that as the COVID impacts fully abate, we can return to delivering financial results in line with our long-term model. Lee will provide more details in his financial review. These results were delivered through the hard work, dedication and consistent focus on our customers by our 9,000 employees around the globe. In many parts of the world, we've already begun welcoming our employees back to our offices, with a plan guided by our mission of protecting the health and well-being of our team members and in line with directives from local governments and public health officials. While our Global Protection Services team is keeping a close eye on developments with the delta variant, our teams are energized to work together in person again.
In fact, currently more than half of our global offices are operating in a Phase two or three format. Across the US, we have plans to return to full use of our offices in September, unless circumstances change considerably. We have implemented a return to office policy of three days in the office, four with customers and two days for both. This approach, which incorporates the best learnings from the pandemic, balances individual flexibility with the collaboration and creativity that stems from working together in person. We also believe that this flexible working policy will help to retain and attract the very best talent, as we continue to grow in what is a very competitive hiring environment. Not only are we returning to office, we are also beginning to have certain in-person meetings with our customers, including on-site training and sales opportunities. Given how effectively we've worked in a fully remote format, we have confidence that this return to office policy is the optimal design. Our computing and network capacity have consistently and comfortably exceeded what we require. And our teams have adjusted to using all the virtual collaboration tools, we have implemented enterprise-wide. On the topic of technology, we continue to make great strides on our efforts to modernize and optimize our technology platforms to always be best in class. As of today, we have effectively and seamlessly moved most of our applications off the mainframe. This has been a huge undertaking. And is a great example of true collaboration and partnership between our IT teams and business units around the globe. In total, we currently have thousands of solutions running native in the cloud, including those that were moved from prior on-premise environments, and those built native to the cloud. We are advancing our cloud-first strategy and currently have more than half of our compute environment running in the cloud.
The migration to the cloud is a multifaceted, multistage project. And we are pacing this transition in lockstep with our customers, to ensure that we are always delivering on their highest expectations. In addition, as we advance on this journey, the process is ever improving, and we are seeing real benefits in terms of pace of innovation, resiliency, security and compliance. Our ability to introduce new products and release updates to existing products in a quick and efficient manner is vastly improved, because of our shift to the cloud. We are also able to onboard new customers and enter new geographies faster and with reduced capital intensity. For example, we've successfully deployed our new cloud-based visualized ISO ClaimSearch platform, to our P&C insurance customers. This modernized version of our industry-leading ClaimSearch platform provides a more engaging experience for thousands of claim adjusters and investigators and allows us to offer new features, functionality and solutions quickly and easily to customers through this platform. In addition, our new insurance digital media contributory database will take advantage of the flexibility and efficiencies of, cloud technology to process, store and analyze claim-related digital images from more than 160 insurers. Initially, we expect to receive over 8 million digital media files per week, as these new offering ramps up to help insurers better detect potential fraud and increase settlement fee for meritorious claims. The cloud is also advancing our sales process, as we can offer customers an easy and cost-beneficial way to pilot or trial new solutions, that was previously much more cumbersome in Verisk's prior on-premise format. This allows customers to truly see in action the value of our solutions.
Our sales team can then focus on converting those customers to long-term subscriptions. The cloud has also made our solutions more resilient with less downtime, as the duration of maintenance windows are greatly reduced. We no longer must take our cloud-native solutions off-line to do things like update, or release new features, or protect them with the latest security patches and protocols. We have also constructed a cloud security program that uses artificial intelligence and machine learning to continuously monitor our entire environment, making us more secure and able to audit our entire process for full accountability. And finally, the cloud makes it easier to keep applications and data that are running in local geographies to adhere to the increasing nuances of regulatory and compliance requirements that are geographically specific. As our business expands globally, this becomes an increasing benefit of cloud. From a capital perspective, our cloud migration has reduced our ongoing need to spend on third party hardware and software. We are reallocating those savings towards internal innovation and spending more on growth capex. We are leaning into our highest growth, highest return on invested capital organic opportunities across insurance and energy. Within Insurance, we have seen great success with the development of the LightSpeed platform. This organically developed data-forward platform has automated and improved the underwriting process for our customers and is driving strong top line growth within our ISO business as we have extended it across personal and commercial lines. Specific to Commercial Lines, we've seen continued success in small commercial for business owners and commercial auto.
With LightSpeed, we have augmented our AI and machine learning capabilities, introducing image analytics that will help present a holistic view of risk at the point of quote and ensure that small business owners get the coverage they need. We've also expanded our entity resolution and benchmarking data and analytics to help our diverse client base scale and increase their speed to market. We are also accelerating our customers' journey towards zero application questions, helping drive speed and efficiency. With over 80 traditional and insure tech customers leveraging LightSpeed commercial, we are enabling the industry to free-up underwriting talent to focus on more complex risks and helping our customers become the carrier or managing general agent of choice in this fast-moving and profitable space. Within energy, our internally developed cloud-based Lens platform is transforming the way customers interact with Mackenzie data, as we are integrating our complex data sets seamlessly into their workflows. We have greatly reduced our research cycle times from days to hours, allowing us to commercialize solutions more quickly and update data in existing solutions more frequently. This empowers our customers with the data necessary to make timely and well-informed decisions about commodity markets around the globe. We are seeing strong value-based price realization and revenue growth, resulting in solid returns on capital for this platform. The capital management discipline is also evidenced in our acquisition strategy. While interest and valuations for data analytic assets are high, we've been very selective and focused our attention only on assets where we can create incremental value by combining data sets for new solutions, leveraging our infrastructure or improving sales and distribution through our strong customer relationships and industry scale.
Our recent acquisition of FAST is a great example of how we are leveraging our relationships across the industry to accelerate the adoption of FAST software, driving strong returns on invested capital. On the engagement front, even in a mostly virtual mode, we continue to get ever closer to our customers. This engagement starts with the C-suite and runs through all levels of the organization. This is evidenced by increasing frequency of meetings, better attendance at our virtual events and increasing interest from customers to work with us as development partners. In fact, we recently announced two key development partners for our Lens Power solution, namely Vestas and Quinbrook. It has also translated into building sales pipelines and more sales opportunities. And we're having great success converting these sales opportunities into new contracts, as we benefit from our ability to bundle our broad offerings to meet our customers' unique needs. This is particularly evident with our fastest-growing customer segment in insurtech customer companies. On the innovation front, we recently launched the Cyber Risk Navigator, our cyber loss modeling application. This release represented a year-long effort, to redevelop the platform from an on-premise solution to cloud-native SaaS solution. Given the scalability of the cloud, clients are now able to run analyses in minutes that used to take hours. It also provides us the ability to bring new features and model updates to the market quickly, rather than being tied to annual software releases, which is essential for a rapidly changing risk such as cyber. We also made great strides in advancing our offerings in the telematics space, with the introduction of the DrivingDNA Score. This enhanced solution is powered by the unique data from Verisk Data Exchange, that includes 260 billion miles and growing of robust driving behavior data from 8 million connected car drivers.
The Driving DNA Score enables our customers to enter and expand to the rapidly growing usage-based insurance market, and is another key addition to our whole suite of telematics solutions. Finally, I'm excited to share about the progress Verisk has made, on our environmental stewardship commitments. We recently completed our 2020 greenhouse gas emissions inventory. And I'm pleased to report that, for the fourth straight year, we balanced 100% of Verisk's reported Scope one, Scope two and Scope three, including business air travel emissions, through a combination of purposeful reduction initiatives and investments in renewable energy certificates and carbon offsets. We remain focused on implementing meaningful physical and operational changes that will reduce our greenhouse gas emissions over the long-term. Those include the consolidation of multiple Verisk offices, in Boston and London into new energy-efficient business centers as well as the continuing strategic realignment of our data management activities to take advantage of the major efficiencies presented by cloud computing. Building on the progress we've already achieved to-date, I'm also pleased to share that Verisk has committed to an absolute 21% reduction in our Scope 1 and Scope two greenhouse gas emissions by 2024, compared with the 2019 baseline. In developing the targets, Verisk collaborated with Ecometrika, an accomplished leader in the field of sustainability metrics, software and services. The resulting targets incorporate the latest science-based targets guidance, aligned with the 1.5-degree Celsius global future. I look forward to updating you on our progress, as we remain committed to addressing the very real impacts of climate change today and for the benefit of future generations. I have great confidence, that our focus on innovation and serving our customers will help us deliver on our long-term growth objectives, creating lasting shareholder value. As our business recovers from the short-term impacts of the pandemic, we continue to actively study the signs of resilience, across the different parts of our company. Our dynamic capital process is designed to ensure that our capital is deployed into the highest-growth and highest-return opportunities.
With that, let me turn the call over to Lee to cover our financial results.
