Verisk Statement on Long-Term Value Creation
Our strategy for long-term value creation guides all our actions. In a global environment of growing demand, we produce solutions that combine data, analytic methods for finding meaning in the data, and software for delivering data and analysis to customers’ workflows. Customers use our solutions to make better decisions about risk, investments, and operations with greater precision, efficiency, and discipline. And we help customers across the globe protect and increase the value of people, property, and financial assets. We create shareholder value by pursuing opportunities to grow our operating cash flow and generating attractive returns on capital through thoughtful investment and execution against our operating priorities.
Much of what we do frequently demonstrates two qualities:
- Our solutions often become the standard for all participants in a vertical market to perform their data and analytic work.
- Most of our solutions are ready to use and don’t require significant servicing or installation support.
As a result, our business is often characterized by high incremental and total margins and relatively low capital intensity. Moreover, we enjoy strong relationships with most, if not all, participants in the vertical markets we serve. Given those qualities, the key to long-term value creation for Verisk is organic revenue growth leading to scaled margins and better returns on invested capital. We’re in an excellent position to continue to deliver organic revenue growth consistent with our historical performance of approximately 7 percent per annum over the last ten years. In turn, organic revenue growth depends on:
- deepening the reach and quality of our analytics so that our existing solutions yield more insight and value for customers
- creating a steady stream of new solutions that meet customers’ emerging needs
- reaching new customers through geographic expansion
The company’s ability to deepen our analytics and create new solutions in ways that differentiate us from our competition is contingent on Verisk being distinctive along four dimensions:
- having unique data assets
- exhibiting deep expertise in our customers’ domains
- providing a steady stream of first-to-market innovations
- being deeply integrated into customer workflows
Much of our thinking and work goes into protecting and extending those Four Distinctives. The Distinctives tend to reside in specific verticals, supporting Verisk’s organization in the core markets of property/casualty insurance, energy, and financial services.
To amplify the Distinctives that come with being the leading provider of data and analytics to specific vertical markets, we invest in our people and infrastructure to become increasingly accomplished in four core capabilities:
Large-scale data integration: Advanced capabilities to manage and integrate structured and unstructured data sets from all relevant sources
Multitier, multispectral data capture: Advanced technologies to capture and interpret imagery, telemetry data, sensory data, and other emergent data sets in real time and at scale
Visualization of data and analytics: Superior methods to use data, visualize it, and make it meaningful—with a focus on geolocation
Predictive analytics: Machine learning methods leading to prediction in complex environments, such as natural catastrophes, insurance mitigation and loss, supply chains, and consumer behavior
In sum, our approach to long-term value creation centers on enhancing the Four Distinctives leading to differentiation, investing in our core capabilities, and deeply committing to specific vertical markets to provide scalable data and analytic solutions. We’ve added one more theme to this approach: the globalization of our business. We’ve traditionally conducted business in the United States, yet our methods are applicable worldwide. We’re thoughtfully and steadily positioning people and operations in overseas markets to create local data sets and leverage our preexisting analytic methods.
Current Trends and Their Relationship to Long-Term Value Creation
The regulatory environment remains relatively unchanged where our customers and solutions are concerned. The General Data Protection Regulation (GDPR) in Europe has more explicitly described penalties for data breaches, but our countermeasures remain strong. In 2018, we experienced an initial period of slower contract signings while European customers examined the new regulations, but the market is slowly returning to a more normal cadence. We remain committed to the full tokenization of any personally identifiable information (PII) in our custody, which is a standard of care well beyond normal efforts to encrypt data and constitutes a primary security countermeasure for us.
Two technical trends are constructive to our productivity and growth: cloud-based computing and machine-learned analytic methods. The cloud basis for managing technical infrastructure allows us to add new capacity and open new geographies quickly and efficiently and also holds the promise of better unit-cost economics than operating our own data centers. In 2018, we advanced our cloud technology initiatives with significant migrations of company systems and creation of serverless environments in key global locations. We also produced the first documented use cases of the unit-cost benefits we’ve realized. Cloud computing will steadily become a greater proportion of our computing infrastructure. Machine learning, a type of artificial intelligence (AI), increases the precision of our analyses and the productivity of our analysts. These methods will become increasingly expressed in our operations over the next five years, contributing greater value to our solutions and customers.
Verisk invests internally at a high rate—with CapEx as a percent of revenue above 9 percent at this time, resulting from the internal development of software and new solutions. Moreover, we’re at record levels of investment in our people through learning and development programs, and we’re supporting long-term wealth creation by increasing our 401(k) match and instituting employee stock purchase options outside the United States. We’re also exploring ways to increase our investment in environmental stewardship beyond the purchases of renewable energy certificates and carbon offsets that we make today, which in 2018 made us a carbon-neutral company. Our dedicated office for corporate social responsibility (CSR) recognizes that environmental, social, and governance (ESG) factors impact our long-term success. CSR leadership monitors the interests of all our constituencies, measures our progress, and directly influences executive decisions across a wide range of investment activities. All of these investments—in solutions, people, and methods—support our sustained performance into the foreseeable future.
Because of the profitability and scalability of our solutions, we’re highly capital-generative. We manage that capital carefully by identifying and prioritizing investments that will generate growth and returns and return excess capital. Our strategy for value creation includes reinvestment in our business, both for building new solutions ourselves as well as acquiring solution sets meaningful to our customers that help accelerate us to market. We also evaluate options to return capital to shareholders as an important part of our capital allocation process.
We continue to pursue a program of open-market share repurchases. In 2018, we repurchased approximately 3.9 million Verisk shares for a total cost of $438.6 million at a weighted average price of $112.97, bringing the total to $2.1 billion returned over the past six years.
We’re pleased that in the first quarter of 2019, our Board of Directors authorized the initiation of a dividend in this our tenth year as a publicly traded company. The dividend reflects our commitment to returning capital to shareholders and our confidence in the cash-generating capacity of our business.