We called out through 2023 the elevated weather patterns that we were seeing. And so that could be a headwind this year. Securitization activity was very strong last year in extreme events. So that’s one that we are also waiting to see. So between those different areas, that’s something we’re looking at. I think this quarter is a demonstration of the power of the business model and the bulk of our revenue coming in that subscription revenue, which continues to show very healthy signs of strength — shows the strength that we can deliver, even compounding those tough comps.
Operator: Your next question comes from the line of Manav Patnaik with Barclays.
Manav Patnaik: I guess, I’ll just ask on capital allocation. It sounds like you guys are starting on the ASR, so that seems to be the priority. But maybe what is the small- to medium-sized kind of M&A pipeline looks like, some of the stuff that you’ve been doing over the last couple of years?
Lee Shavel: Thank you, Manav. I think I heard that. I think the focus is on capital allocation and how does the outlook for small- and medium-sized M&A opportunities. I would describe them as they are out there, that I think that valuations remain really high for those entities. Our focus is always on how can we add value with our distribution, our data, our relationships. That has been a good equation for us. And valuations kind of continue to make that challenging for us to generate attractive returns. But we are very engaged in that market and always looking for products that have achieved traction with the industry where we think we can accelerate the adoption and deliver value, both to our clients and to our shareholders.
Operator: Your next question comes from the line of Surinder Thind with Jefferies.
Surinder Thind: Just a question around the internal investments. So when we think about the Core Lines Reimagine or replatforming or AI, how should we think about the absolute level of investment from the perspective of how much of this is part of a normal spend cycle? And then maybe how much is maybe a little bit elevated and perhaps how we might expect CapEx to evolve, so far, whether it’s this year or the next couple of years?
Elizabeth Mann: Thanks — yes. Thanks, Surinder. I can’t break it out numerically. I would say that there are — we’ve talked about the various projects that we are investing in now. Those are finite projects, which we will finish, and we’ve talked about the time lines for each. There are some elements of those projects that is fixing or reinvesting in technology that has maybe been overdue. And so I would talk about our internal ERP systems as an area of that. Some of the places where we are doing tech replatforming would be those areas. And so those — that level of investment may be elevated, and we may not need to continue going forward. I would say there will — we will always be investing in our products to maintain sort of their cutting-edge status. So after we finish Core Lines Reimagine, we will continue to invest and evolve in new projects that we may not know exactly what they are today.
Lee Shavel: And I think what I would add to that, Surinder, is, I think, the short answer is that the ability for us to integrate generative AI technology as an expansion of a new form of artificial intelligence within the existing products is something that our businesses are effectively absorbing into their current financial models and thinking about where they’re deploying capital within their own businesses. There have been, and there may be in the future, areas where we have decided that — or we have determined that there is a really interesting application in a new product upside that we want to invest heavily in or we want to accelerate, and that will be an opportunity for us to provide a focused amount of capital or investment.
At this stage, I think there were a couple of opportunities that we evaluated, and we determined kind of just maintaining our natural organic level of investment is the right path at this point. That may change in the future. But I think Elizabeth’s comments, I would just reinforce by saying, right now, we’re finding a way to integrate this investment into the businesses and also recognizing that we are making a heightened investment on an ERP upgrade that we think will drive operating efficiencies and informational advantages for us over time. And that will be one that, as we’re going to finish that level of investment, may free up space, if there are good opportunities for us to invest. Otherwise, we’ll return that capital as we always do with our discipline.
Operator: Your next question comes from the line of Russell Quelch with Redburn.
Russell Quelch: You mentioned in the opening remarks, Lee, that you’d rolled out the next-generation nat peril model. I wondered if you could articulate what the additional upside opportunity for Verisk is there given you’re already seeing strong subscription revenue growth in the extreme events business. And I just wanted to check as well. You mentioned on pricing that you had been able to realize more pricing on renewals due to the product upgrades. Is that already — is that as expected and therefore already factored into your guidance for ’24? Or does it present a potential upside opportunity on the guidance?
Lee Shavel: Yes. Thank you, Russell. So first on the Next Generation Models, I think that this is a major upgrade in terms of the sophistication of the models, allowing our clients to better estimate and quantify the uncertainty of their losses across the industry. And given — you think about the Next Generation Models, it is taking a variety of the environmental, physical weather risk related and then translating into what are the real costs associated with damage, restructuring and the rest. And so we can take this and apply it to all of our perils and all of our geographies. So it is a major enhancement to our portfolio of products, and it’s also increased the sophistication of the ability to support complex insurance policy structures and deal with the new terms and conditions that weren’t previously effectively captured the model.
It also is an important step for us to the SaaS model. Getting the next-generation financial model in place was critical, and what we heard from our clients is what they wanted to be addressed first. And now we can improve the functionality and the efficiency of that. So we do think that this is a substantial opportunity for us to deliver more value to our risk modeling clients. And certainly, our expectations are reflected within our guidance in that regard. But it does, I think, open us up to continue to expand what we do for clients on that front. With regard to your question on is the pricing upside, that is reflected within our guidance. We’re pleased with the progress that we’re making in the reaction to — from our clients to the investments that we’ve made in a variety of our products.
And that’s reflected in the guidance that we have put forward.
Operator: Your next question comes from the line of Alex Kramm with UBS.
