Q3 2022 CCC Intelligent Solutions Holdings Inc Earnings Call
[music].
Thank you for standing by this is the conference operator.
Welcome to the <unk> Intelligence solutions third quarter 2020 earnings conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions. During the question you May Press Star then one on the telephone keypad should you need assistance during the conference call you may signal, an operator with pressing star in jail.
I would now like to turn the conference over to Bill Warmington.
As president of Investor Relations. Please go ahead Sir.
Good morning, and thank you for joining us today to review <unk> third quarter 2022 financial results, which we announced in the press release issued before the opening of the market today, joining me on the call our catastrophe Murthy <unk>.
<unk>, chairman and CEO and Brian Herb TTC CFO are forward looking statements. We make today about the company's results and plans are subject to risks and uncertainties that may cause the actual results and implementation of the company's plans to vary materially. These risks are discussed in the earnings releases avail.
<unk> on our Investor Relations website and under the heading risk factors in our 2021 annual report on Form 10-K filed with the SEC.
Further these comments and the Q&A that follows are copyrighted today by CCC Intelligence solutions Holdings incorporated any recording retransmission reproduction or other use of the same for profit or otherwise without prior consent of CCC is prohibited.
Elation of United States copyright and other laws. Additionally, while we have approved the publishing of a transcript of this call by a third party, we take no responsibility for the inaccuracies that may appear in that transcript.
Please note the discussion on today's call include certain non-GAAP financial measures as defined by the SEC. The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the company's financial.
<unk> and the results of operations.
Reconciliation of GAAP to non-GAAP measures is available in our earnings release that is available on our Investor Relations website. Thank you and now I'll turn the call over to get cash.
Thank you Bill and thanks to all of you for joining us today.
I am pleased to report that CCC delivered another quarter of strong top and bottom line performance for the third quarter of 2022, Ccc's total revenue was $199 million up 13% year over year and ahead of our guidance range.
Adjusted EBITDA was $78 million up 11% year over year also ahead of our guidance range.
Our adjusted EBITDA margin was 39, 3%.
Based on our strong performance in the third quarter and year to date, coupled with our outlook for Q4.
We are raising our revenue and adjusted EBITDA guidance for the full year, which Brian will walk through today I would like to discuss three topics. The first is the uniqueness and strength of the CCC platform.
Second is how efficient financial model enables continuous investment in innovation throughout economic cycles and third is the progress we're making.
On our new solutions.
Beginning with our first topic.
What makes gcc's platform. So unique is that it combines an efficient technology framework close customer relationships and a multi sided network that benefits all partners, resulting in a powerful business model.
Our technology framework is a key element of the CCC platform.
We have a long history of being at the forefront of technological innovation for the auto insurance economy.
Whether that was introducing the CCC one platform for collision repair more than a decade ago, and which today represents more than 40% of our revenue or more recently in launching and scaling several first in the world AI solutions for claims.
Innovation is at the heart of what we do.
And today are 100% multi tenant cloud architecture is scalable and enables us to rollout new products and updates quickly and cost effectively.
We are also very fortunate to have great customers, who want to innovate with us.
And to do so over the long term.
A good example of this.
Is a recent renewal with a top 20 national insurer.
This insurer extended their contract with us through 'twenty 'twenty nine.
A seven year extension versus our typical three to five year contracts alone.
And also expanded their relationship to include multiple new solutions. This arrangement underscore ccc's role as our customers long term innovation platform of choice with customers increasingly looking to the CCC cloud to help them transform.
Their business and optimize their performance.
Core part of delivering those results is how we work with customers.
Delivering solutions with significant input from our customers enables us to effectively address customer pain points and deliver near term operational efficiencies for our clients.
In many cases years ahead of others.
As a result, our solutions have high levels of customer adoption.
Why.
And renewal.
Which helps create a powerful and highly scalable business model.
Maintaining close customer relationships is a key part of Ccc's culture, and a major driver of our consistent net promoter score of 80. Our network is another key element of the CCC platform.
Network is large complex highly interconnected and generates value for all participants.
It supports mission critical processes at over 30000 companies and across more than $100 billion.
Annual transactions.
The network includes insurers repair facilities.
And part suppliers and many other members of the auto insurance economy.
With CCC, the trusted partner powering and facilitating billions of interactions.
As the CCC network has grown in both segments and participants the.
The value of the network each participant has also grown.
Classic network effect.
We believe the interconnection CCC network is an essential enabler of the auto insurance economy's transformation.
And is a great way for our customers to address the rapidly increasing complexity they face.
The second topic.
I'd like to cover today is how our efficient financial model enables continuous investment in innovation throughout economic cycles.
Our financial model is both predictable and scalable.
In terms of predictability.
80% of our revenue is subscription based under three to five year contracts.
And we have 99%.
Gross dollar retention in terms of scalability Ccc's high 70% gross margin is a product of our highly efficient.
<unk> based service delivery model I discussed earlier.
In addition, we have an efficient go to market model, because we already have broad customer coverage with our growth increasingly coming from existing clients. These efficiencies allow us to continually reinvest in our state of the art technology stack over the.
Long term innate.
Enabling rapid deployment to customers.
During the pandemic for example, we continued to invest aggressively in developing new solutions, such as estimate STP diagnostics and payments.
These investments combined with decades of previous investments are positioned CCC at the heart of a major digital transformation of the auto insurance economy.
We think a good analog is how the great financial crisis of 2008 2009 accelerated the digital transformation of the financial services industry in the decades that followed.
We believe the pandemic illustrated to auto insurance economy participants the need for new tools to improve their consumer experiences and operational efficiency.
We believe this industry is in the early innings of this transformation.
These forces of change will underpin our growth for the next decade.
The third topic I'd like to talk about today is the progress we are making on some of our newer solutions.
We have a long history of developing solutions, combining software hyper local data and our interconnected network to solve problems for our customers.
Today, our customers problems include labor shortages and supply chain challenges inflation lack of repair facility capacity and rising sumer expectations.
All compounded by the increasing complexity of vehicles.
<unk> of the ecosystem itself.
So far in 2022 for example.
<unk> costs are running over 12% higher than the same period in 2021.
And then third quarter 2020 to the National average scheduling backlog for auto accident repair as reached four eight weeks.
More than twice the previous peak of 2.2 weeks in the first quarter of 2017.
And those figures are.
Are all before the impact of Hurricane Irma.
Customers recognize that investing in digital solutions is the best way to counteract the negative impact of the macro challenges we are facing.
This morning.
I wanted to give you an update on to offer solutions that are helping to do that.
We discussed these last quarter.
Estimate STP and diagnostics estimate STP is our AI based system that can write line item insurance claim estimates from photographs with little to no human involvement based on carrier configuration.
We now have 14 clients an estimate SDP up three from the 11, we mentioned on our last earnings call in August .
We now have seven of the top 10 insurers representing over 50% of the industry claim volume running estimate STP and we are excited that clients are starting to roll it out nationally.
The absolute volume levels.
Are still a tiny fraction of the potential.
But they are growing quickly off that small base.
In September the number of claims being processed through estimate SDP.
It was several multiples of the number of claims processed in January .
I also wanted to mention <unk>.
Ccc's, Mark Red flag Cross carrier.
In the context of estimate STP as well as the broader straight through processing opportunity.
CCC Smart Red flag Cross carrier is an AI powered fraud detection system that leverages to claims data of the participating insurers on the CCC cloud.
Five weeks ago, we announced that Geico is the FERC auto insurer to join.
And since then.
Eight additional carriers have signed up.
These non carriers include.
Three of the top 10 and represent about 30%.
It'll market coverage.
We believe smart Red flag Cross carrier is an important digital enabler for the auto insurance economy.
Because it helps increase trust and the digital claim system.
As the velocity of auto claims increases.
The second solution I'm going to talk about is diagnostics.
Garza getting safer.
But all of these safety features are also making cars more complex.
As a result diagnostic scans are getting more and more important because damage is not always visible to the naked up five years ago. The number of repairable appraisals that included the scan was about 3%.
Today that figure is about 50%.
Over the past few years, we've built out a robust network of leading providers of diagnostic services, such as Aztec airflow Opus and Honda in.
In fact last week, just before a large trade show in Las Vegas.
We launched a new optional add on package to CCC diagnostics, our diagnostic solution for repair facilities.
Add on enables repairs to simplify the administration of diagnostics, creating more consistency in reporting improving verification of scans and increasing transparency between repairs and insurers.
We have also received strong endorsements from OEM.
Automotive customers, who see this capability as being very helpful to repair quality and safety.
The new CCC diagnostics add on.
As part of the previously defined 50 to 100 billion dollar revenue opportunity for diagnostics and is another example of the central roles Ccc's plain and digitizing the auto insurance economy.
Before concluding my remarks.
I would like to welcome Mike Soma.
To our executive team at <unk>.
<unk>, new chief commercial and customer success officer.
Mike has run multibillion dollar U S and the international operations at companies like Microsoft IBM, Unitedhealth and most recently Salesforce.
And best of all it represents the core values, we look for in our leaders.
Mike also has direct industry experience, having started his career as.
A claims manager at Chubb insurance.
His deep experience with enterprise level sales and SaaS.
<unk> and AI.
Cross insurance financial services and other industries.
I have high confidence in Mike's ability to help our customers improve their operational efficiency and consumer experiences.
Mike It's great to have you as a part of our team.
I will now turn the call over to Brian who will walk you through our results.
Thanks catastrophe.
As we now turn to the numbers first I would like to review our third quarter 2022 results and then discuss our updated guidance for the fourth quarter and for the full year 2022.
Total revenue for the third quarter was $198 7 million.
13% from the prior year period.
Approximately 10% of our revenue growth in the third quarter was driven by cross selling upsell into our installed client base, including continued strong adoption of our digital solutions.
About one percentage point of the 10% came from the large expansion deals that we closed in the second half of last year.
We've been talking about over the last several quarters and.
An incremental 3% came from new logos, mostly repair facilities and part suppliers.
I'd also note that 99% of our revenue in the third quarter was domestic.
Turning to our key metrics software gross dollar retention or GDR captures the amount of revenue retained from our client base compared to the prior year period.
In Q3, 2022, GTR was 99%.
System with last quarter.
We believe our software GDR reflects the value, we provide our customers and the stickiness of the network effect.
Software GDR as a core tenant to our predictable and resilient revenue model.
Software net dollar retention for and Dr. Captures the amount of cross selling upsell primary existing customers compared to the prior year period as.
As well as volume movements in our auto physical damage client base in Q3, 2022 software MBR was 110% which is above our historical average.
The consistently strong and Dr performance in recent quarters reflects the success, we've been having with our cross sell and up sell opportunities across our client base, including the large expansion deals signed in the second half of last year.
<unk> is a core driver in our business and we have excellent opportunities to execute against this for the foreseeable future.
Now I'll review the income statement in more detail as a reminder, unless otherwise noted all metrics are non-GAAP and we've provided a reconciliation of GAAP to non-GAAP in our press release.
Adjusted gross profit in the quarter with $154 1 million with adjusted gross profit margin of 78%.
Which is consistent with the third quarter of last year we.
We feel good about the operating leverage and scalability of our business and being able to deliver against our long term target of 80%.
In terms of expenses adjusted operating expenses were $83 1 million, which grew 11% year over year.
Growth in these expenses was driven mainly by headcount additions and to a lesser extent an increase in discretionary spend as these expenses are largely normalized.
On the head Count point, we're pleased with the progress made to advance both our operational capabilities and capacity for new product innovation by adding key positions across product management and product development. We feel we are in a strong position to continue to deliver ongoing innovation into the market.
And executing on our strategic agenda adjusted EBITDA for the quarter was $78 1 million with a 39, 3% adjusted EBITDA margin adjusted EBITDA grew 11% year over year with a slight margin decline of 40 basis points compared to Q3 of last year.
The modest margin decline reflects operating leverage of our revenue growth being offset by investment in resources to support our long term growth initiatives.
As an example year to date, we have increased our product development staff months capacity by approximately 20%.
Now turning to the balance sheet and cash flow, we ended the quarter with $248 million in cash and cash equivalents and $794 million of debt.
At the end of the quarter, our net leverage was approximately one eight times adjusted EBITDA.
In an effort to proactively manage our interest rate risk during the third quarter, we put in place a 4%.
Three year interest rate cap on $600 million of our floating rate debt.
Going forward the interest rate on our debt will continue to flow based on a one month LIBOR, but approximately three quarters of our debt will be subject to an interest rate cap of 4%.
Free cash flow in the quarter was $17 4 million compared to $25 million in the prior year period year to date, we've converted approximately 43% of our adjusted EBITDA into Unlevered free cash flow adjusting.
Adjusting for the timing of customer receipts, which were collected in October the interest rate cap and the headquarter build out.
Adjusted Unlevered free cash flow would have been in the low <unk> range year to date consistent with historical results.
Now I'd like to finish with guidance beginning with the fourth quarter.
We expect total revenue of 200 million to $202 million. This represents 7% year over year growth at the midpoint.
We expect adjusted EBITDA of 77 million to 79 million, which represents a 39% adjusted EBITDA margin at the midpoint.
For the full year 2022, we expect revenue of $779 million to $781 million, which represents 13% year over year growth at the midpoint, we expect adjusted EBITDA of $302 million to $304 million, which represents a 39%.
Adjusted EBITDA margin at the midpoint.
Three points to keep in mind as you think about our fourth quarter and full year guidance. The first is that we have now lapped all of the large expansion deals that we signed in the second half of last year.
These deals contributed 5% of revenue growth in the first quarter of 2022 four points in the second quarter and one point in the third quarter, we will receive no benefit from these deals in the fourth quarter.
The second point is that we had a two percentage point contribution from nonrecurring revenue in the fourth quarter of last year.
This creates a two point revenue headwind for us in the fourth quarter.
Which means the implied fourth quarter guidance of 7% to 8% revenue growth without the two point headwind would be 9% to 10% growth in the fourth quarter.
The third point is that we are raising our adjusted EBITDA margin forecast for the full year based on the operating leverage of our revenue performance in Q3 and year to date, we expect adjusted EBITDA margin will be up approximately 80 basis points for the full year 2022.
To about 39%.
This represents about 900 basis points of margin expansion since the end of 2019.
Continue to be focused on investing in innovation to support our growth ambitions, while at the same time progressing towards our long term.
<unk> adjusted EBITDA margin targets.
Overall, our guidance reflects our confidence in the underlying momentum of the business and we feel good about the strategic position of the long term opportunities in our product portfolio.
We believe we have many shots on goal.
Two of which were highlighted today with estimate SPP and diagnostics, but we have many other exciting opportunities across both our emerging solutions like segregation and payments as well as our more established solutions like casualty repair shop package Upsells and engage.
The need for Digitization across the TNC insurance economy continues to accelerate and CCC is well positioned to drive durable growth in revenue and profitability in the near and long term. We are confident in our ability to deliver on our long term organic revenue growth targets.
Up 7% to 10% next year and beyond.
As we continue to execute on our strategic priorities. We believe we will generate significant value for both our customers and our shareholders with that operator, we're now ready to take questions. Thank you.
Thank you.
We will now begin the question and answer session.
And the question queue you May Press Star then one on your telephone keypad and.
You will hear a tone and acknowledging your request.
Using a speakerphone please pick up your handset before pressing any key.
Does it drive your question. Please press Star then two.
Yes, all analysts to limit themselves to two questions. Each thank you.
The first question comes from Gabriela Borges of Goldman Sachs. Please go ahead.
Hi, Good morning, Thank you for taking my question.
Thanks, Brian and good cash, Brian Brian you talked a little bit about the puts and takes the four key guidance cash you talked about some of the.
Longer term secular tailwind you're seeing post COVID-19.
I thought I'd ask about the long term growth rate for the 7% to 10%.
Give us a little bit of insight.
What would drive you to be at the low end of that range versus the high end of that range in any given year and any early visibility into 2023, and how we should be thinking about that thank you.
Brian you want to take the first part Gabriele overview and I'll take the second part of your question.
Yeah, So I'll start morning Gabrielle.
To start.
I think about Q4 and the range, we put out so we talked about 7% at the midpoint and 8% at the high end range remember within there there is two points.
Of headwind that we're facing so when you normalize that that 9% and then 10% at the high end range.
I think that's a good way to think about how we're going to end the year and then stepping off point into next year.
When you think about what will drive the high end of the range.
It's certainly going to be one of the key factors will be the adoption of our newer solutions and how those track and so when we think about what will push us to the high end or beyond its really going to be the progress of those new solutions that we're rolling out and the adoption of them.
Cash if you wanted to add some additional color.
Yes, Gabriele one of the things that we have focused on is having a very very scalable and modern cloud architecture.
So as we deliver new solutions, our ROI tends to be very quick.
We're talking about 90 days.
Typically from.
Timely rollout a product or a solution. So as a result, we have high adoption and as an example, I mentioned estimate STP and if you look at even just over a quarter. We have added three large clients and as we rollout.
Existing products as we rollout our newer solutions. We're also continuously developing our new products. So I would say adoption.
As well as the pipeline we have.
New solutions is what gives us confidence and most importantly, we've had number of meetings with our customers and they all have indicated a very deep propensity to continue to roll our solution. So that's what gives us confidence in our growth.
That all makes sense. Thank you as a follow up congratulations on hiring Mike maybe give us a little bit of a preview a couple of key projects that Mike will be working on and what are some of the areas, where you think you can really move the needle.
Sure.
Mike.
Is primarily focused on first and foremost making sure. It has an extraordinarily deep understanding of our customers our products and solutions as we built all of these over the long run.
And Mike's primary focus is working with our customers and to really rollout. Many of these newer solutions a whole range of solutions.
Talking with our teams and that Mike has deep experience in go to market rollout of new solutions and Thats I would say a big focus for Mike.
I appreciate the color.
Alright, thank you.
The next question comes from Dylan Becker of William Blair. Please go ahead.
Hey, guys. Good morning, Congrats on the quarter I guess, maybe starting with get cash the idea you touched on on STP playing out around claims automation, obviously, some some solid early traction there, but as you think about the idea of rounding out the broader kind of touchless claims opportunity I think that there.
Probably other components that you could build out right. So speaking to that innovation piece you touched on smart enabler.
It would just understand.
How the early traction you're seeing maybe gives you and the market confidence in claims automation capabilities and how youre thinking about rounding out that suite in the future innovation cadence there.
Okay. Thanks.
Thanks for the question Bill and here's what we're seeing.
We started to do first and foremost was when we started rolling out estimates STP.
People started testing estimate STP in a handful of geographies people were tested I misstate, maybe two states, maybe three states and just by way of background.
Prior to estimate S&P, we had rolled out smart estimate, which was our AI solution, which were being used by thousands of adjusters. So people get really comfortable with the ability of the AI and its fundamental capabilities. So as we move to estimate STP, what we're now seeing client.
Our going from one or two or three states to in some instances.
I have got.
Gone to all 50 states and and that volumes are still very tiny.
But as we tune the models.
Add more customers and people are rolling up more states, we see tremendous opportunities for estimate SPP to continue to rollout across our client base now just as a reminder, estimate SDP is part of a much broader view that we have around SPP.
Our straight through processing.
So this ability to demonstrate and very tangible terms immediately.
Estimate STP can deliver gives our customers a lot of confidence and we are working at designed levels with many of our customers across the much broader STB, which basically starts all the way from consumer all the way from settlement and takes advantage of the network of <unk>.
Estimates rehab across insurers repairs barge providers, because they have to bring all of these pieces together truly pull off straight through processing.
That's very helpful. Appreciate the color there.
Maybe switching over to the repair facility side as well too.
Yes.
Consolidation.
Playing out in the space, you've got a healthy share here.
And I would assume that most of your customers tend to be the consolidators you touched on a lot of macro impacts, but maybe how they're prioritizing investment in efficiency too to address again growing backlogs material labor challenges everything you've talked about thanks.
Yes in fact I was at our trade show just day before yesterday talking to many of our repair customers.
What we see.
Across the board is just as a reminder, we also have a lot of independent customers repair facilities as customers. So when we say we have 27500 plus customers. It is made up of multi store operators. It's made up of independent so it's a pretty large share of both.
That are there.
What we are seeing is that the pressures that they have in terms of.
Labor shortage inflationary costs and many of the things that we pointed out.
We're looking to save time.
Time is the one thing that if they can have technicians and others be highly productive.
So part of our solutions eliminates simplifies things. So as an example, CCC one all of the capabilities of CCC, one streamlines the operation not only multi store operators, but also independent repair facilities and as we add functionality like diagnostics.
Diagnostics has a dramatic impact on on.
On improving the entire flow between OEM procedures to connecting to insurers. So what we're seeing across the board as people are seeing volume come back but at the same time the drive for more digital capabilities more efficiency.
We're hearing that across the board.
From a repair customers as well.
Very helpful. Thanks for taking the question guys and congrats.
Thank you.
Yes.
The next question comes from David Kelley of Jefferies. Please go ahead.
Hey, good morning, and thanks for taking my questions and thanks for all the color on the lapping of your large expansion deals from last year, but maybe regarding the new top 20 expansion deal you announced this morning, how should we think about contribution from the new <unk>.
Deal going forward and also curious if theres any other major contracts potentially up for renewal in the coming months that we should be considering.
Yes, Hey, David it's Brian I'll take that.
So within the deal I mean, we highlighted a top 20 renewal within that renewal we had several products.
That were included as a cross sell.
We highlighted it also because of the term right.
Seven year term and really highlights the commitment this carrier has for CCC.
You think about that in just our normal step up of growth sequentially. So when you look at our absolute dollars you see each quarter. It's building, it's going to be part of just that natural step up of cadence.
And nothing in particular to highlight on this deal within the guidance that we're saying for Q4 and when we talk about the guidance for next year.
We are always working with our clients.
On cross sell and expanding their their bundles and so that's just the natural cadence and we will continue to do that as we think about next year and our growth will be always cross selling and up selling into our client base. So it's kind of standard operating procedure.
<unk>.
The way, we work with our clients.
Okay got it thank you and and then we're starting to see used vehicle values soften from really high and frankly record levels. This will have implications for vehicle total rates and clearly your repair facility customers.
I was hoping maybe you could walk us through how this trend.
Impacts CCC and clearly.
Not nearly to the extent given your recurring revenue stream, but high level. How do you think about a market where used vehicle values are starting to correct from really robust post COVID-19.
Supply shortage driven levels.
Sure. So first and foremost what I wanted to make clear is that we have deliberately designed our business model so that we.
Half our goal for our clients is to give them, but the correct answer every single time.
So it's very important that whether vehicles should we repaired or vehicles should be totaled it's important to make the act what is the accurate decision for that particular vehicle with that said.
As repair as total loss prices have come down in fact total loss valuation at a $16000 peak.
Just a couple of months ago.
So.
Over a period of 20 years total losses had gone from.
<unk>.
Roughly $6700 and 1000 over 20 years and then the last two years. We went from 10000 to 16000. So we've seen a significant bump what were seeing very very recently literally in October September into October .
Total loss percentages coming down from the 20% range closer to 18% and that is directly related to the softening of used car prices.
The impact it has for a repair customers is that as a total loss.
It's really starts even at these high levels it increases the amount of repair but for the CCC business model. It is.
Implications whatsoever, one way or the other.
Okay got it thanks guys.
Okay.
Thanks, David.
The next question comes from Scott <unk> from Barclays. Please go ahead.
Okay, Great Hey, good morning, guys and thanks for having me on the call here.
Good morning, Thanks, Hey, good morning detached maybe for you.
Great to see the 14 carriers on estimate FTP.
I was wondering what do you think is there a catalyst to accelerate that adoption and from Ccc's perspective, do the economic scale is that adoption increases maybe you could just talk about that broad brush.
Sure.
So.
When you look at it from a customer standpoint.
There's a number of factors that people are dealing with one vehicle complexity is increasing pretty substantially.
And with literally hundreds and hundreds of models and variations where artificial intelligence can do is provide a capability that starts taking the photos and we collect over 500 million photos, a year and really collect translate that into how should what should be the repair estimates of this week.
So we produce all the way down to align level estimate and thats customers have started using it. They are finding substantial use cases in terms of speed in terms of reducing complexity in terms of jumpstarting estimates for their own staff and sending a person out.
To go look at the vehicle can cost as much as $200.
So these tools are not only having a significant impact on that but it also dramatically improves the consumer experience.
Because of the speed with which you can deal with this.
So that's really what we see.
For us in terms of CCC as the scale.
When we look at the next $24 36 months, we see estimate STP continued to rollout very very nicely.
And as that scale increases in their rollout increases.
Revenue.
There is.
Revenue increases commensurate with those Rollouts is it take place and again, even though as I mentioned in my call that from January .
Through September we have seen in <unk>.
Multiple increase in the number of estimate S&P claims on an overall basis for this year, it's still a very small number. So we are excited about.
What it can do for our clients and we also believe very strongly this will be a revenue driver for us.
Got it got it very clear Brian maybe for my follow up for you Greg.
Great to see the software and Dr continue sort of at that 110% range.
Particularly given given the tough compare from the big renewables last year can you just kind of dig into what drove that and I know, we don't guide to software engineer, but how do you sort of think about that ebbing and flowing in sort of the coming quarters.
Yeah.
Yes, absolutely.
Yes, so we feel good about the <unk> 10 that we posted in the quarter. When you look at that versus historical levels historical levels have been more of 106, 107%. So.
Feeling good on the trend and the traction.
Three things I would highlight that really underpin that metric.
One we do see continued strong growth contribution from our digital solutions mobile AI engage some of the digital tax in fee solutions for total losses.
So thats certainly playing through the number we also see continued strength in our up sell at the repair facilities.
And that is trending higher than our historical levels.
And then the third piece is the large expansion renewals is still in the metric. Although it is tapering off for Q3, but that also was part of that.
That will go away in Q4, but as you think about the go forward position the guidance I would give you is about.
Over time, we will see about 80% of our growth coming from our existing installed base.
So you think about that over the long term that will fluctuate quarter to quarter, but that should give you.
How to think about MBR in the overall growth equation.
Got it very helpful. Thanks, guys.
Alright, thanks, Thank you.
Your next question comes from Kurt return of Evercore ISI. Please go ahead.
Yes, thanks, very much detached maybe following up a little bit on <unk> question. When we think about adoption of STP by your customers.
How much of it is sort of a business process challenge for them to start integrating it into their.
Existing business processes and is this something that has to happen from their perspective on a state by state basis or once they sort of do a proof of concept. The adoption can take place at a rate maybe not as linear I'm just trying to get a sense on how you all see it for the adoption is a nice steady sort of push higher.
Or are there opportunities for it to kind of go a little bit more exponential.
Yeah. So first of all there is zero need to actually go state by state. It is more in terms of tuning.
There are literally hundreds and hundreds of parameters from an AI standpoint that have to be June .
And every carrier has unique needs in terms of how they would like to do the tuning and we work with them on the tuning. So once you plug it in we can literally roll this out across our entire platform across all our geographies. So it's not a technology issue. It is not a training.
So it's relatively quick.
And because our customers are deeply integrated into into the CCC platform with their systems and our systems.
When we rolled out mobile search.
Several years ago, almost all our customers are using our mobile capabilities in fact, the adoption of mobile and the industry is literally gone from zero to 30% of all mobile claims are coming in through the mobile channel that means a consumer simple link consumer takes pictures.
AI starts to work. So we are already so that part of the funnel is already built for consumers.
So the entire workflow of the processes already in place and what this does is.
There are some adjustments to the operating process and its more of people getting comfortable with it that's why we're so excited to see that.
We had 11 customers.
Last quarter, we have added three more customers and.
Does that help.
Okay.
Thats very helpful. Yeah, I was just trying to get at Samsung weather.
Whether they are sort of gating factors for adoption, but it turns out there is.
Brian just on the.
The big renewal this quarter, great obviously to see your customers. So committed to CCC in terms of seven years can you just remind us are there any sort of asset pricing escalators built into contracts, maybe not this contract specifically, but in general yes.
Inflation goes up or is it basically just still volume based and I was just trying to get a sense that there's any sort of pricing uplift over a pair over a period of a contract like that.
Yes.
Good question I mean, we are always looking at our strategic pricing and tuning so like many SaaS providers will look at the packaging we will look at.
The value, we're driving for our clients and we will look to then make sure we're getting.
Appropriate value back to us.
Bringing that solution to our clients and so I'd say, there's nothing new that we're doing on the back of inflationary.
Challenges, we're continuing to just look at our pricing in a strategic.
Strategic way as we have historically, so that's the way I would I would leave it.
Okay. That's great. Thank you guys.
Alright, thank you.
The next question comes from Tyler Radke of Citi.
Please go ahead.
Good morning, I wanted to follow up on the questions around the large renewal can you just remind us are typically these large renewals within insurance carriers a catalyst it.
For them to take on more products.
Or do the expansion is kind of happen independently and then.
As you look out over the next 12 months, how does that renewal pipeline look relative to.
2022.
Are you expecting things to step up just based on the timing of some of your contracts. Thank you.
Brian if you'll take the second part I'll take the first.
First one so when you look at.
So first and foremost.
Whether people add additional components of our solutions or not.
It's really independent of whether we are renewing their contract or not so because the platform is already in place as we bring new solutions on board.
As an example to 14 clients for estimate STP.
That can those solutions can be added to any.
Regardless of what the contract chrome soft now interestingly enough when people do renew and when those things would take place.
There is an opportunity for both the customer and for US as we look at the next several years in terms of adding additional functionality. So I would not say that there is anything unusual about.
Contract extensions.
Having a link through rolling out additional solutions and.
Brian you want to take the other part.
No I would just iterate the same point I mean, we look at our opportunities.
In different ways I mean, some will be a renewal will be a catalyst to expand the broader bundle, we'll sell into that broader bundle and do a renewal is get test said, sometimes we will just to add a product schedule within an existing.
Contract and there won't be a renewal others. These product extensions will be a driver to extend and drive at renewal. So they kind of work in all different ways. When we look at our pipeline, we feel really good about.
The opportunities we have in front of us, both with adding new product capabilities and renewing key deals.
As we go into next year. So so we feel really good about where we sit with our clients and the renewal cadence and the cross sell upsell opportunities.
And remember many of our customers are working with us for several decades.
Yes.
Definitely.
Where that can see that with.
The high retention.
Strong relationships over time.
Brian maybe for you the second question.
How are you just thinking about the hiring environment here.
I think PTC has had typically less.
Churn certainly at the senior level.
Tricia perspective employee attrition.
Peers.
Have you noticed any changes for better for worse in the hiring environment and just how are you thinking about kind of the expense growth and head count growth into next year.
Yes.
So I would maybe I'll start with the second will come back to the hiring.
Part.
<unk> as well I mean, we remain extremely focused.
On balancing both our investment and funding our strategic innovation to really underpin our strategic agenda.
And so we remain very focused on that at the same time focused on margin progression.
So because we're fortunate to have a very efficient business model. We can do both we can put the funding that we need to drive the strategic initiatives and also C.
The margin progress over time, and we saw that this year as we move from 38% margin to 39% margins and we see that that going forward I also highlighted in our prepared remarks that we are seeing.
Good progress in hiring we added about 20% of capacity and our staff months.
On a year to date basis, so thats starting to show we are adding the necessary.
Capacity to fund the innovation.
We are not seeing anything dynamic or dramatic from changing in hiring we are able to continue to make the key hires that we need we're also seeing good.
Low churn and attrition and our teams in managing high retention. So so overall, we feel good where we are we feel good as we go into next year and having both the capacity.
And the skill set that we need to set us up for the long term.
I don't get attached to that.
Yes, I'd just add that look historically we've had.
Very low churn and that continues but most important I would say two specific areas that the vast majority of the 20% capacity increase is really coming through two areas first and foremost in engineering.
Where are we have full stack developers, where we have AI capabilities, we're continuing to add top talent into engineering as we roll these products out.
As well as product management, so I would say that the vast majority of our recruiting.
And.
We're able to recruit across geographies and if anything.
Becomes.
Here in the last few months.
Great. Thank you.
The next question comes from Gary <unk> Barrington Research. Please go ahead.
Thank you and good morning all.
Hey, Jerry I, just want to how are you.
Good.
Alright.
I wanted to ask this with this.
STP estimate FTP that you have out there.
As insurers sign up for this are there adjacent products that you're offering.
That are really must haves to work with estimate.
Estimate STP, maybe on the repair side, maybe on the reinsurance side wherever so.
It just adds to the potential growth that you foresee from this product.
Gary the answer is yes.
In fact, the estimate FTP is really important to establish when we look at the broader concept of STP our straight through processing.
So that has implications on many many facets of the claims process, where we can apply artificial intelligence and other capabilities. Since we are already deep into workflows with customers. So we are working with repair facilities.
<unk>.
Various types of facilities.
So that.
From engaging all the way from the consumer.
Even though we're adding components to our engage product that's in the repair facilities. So we have work going on over there we have work going on in everything ranging from subrogation, where we had done acquisitions.
So thats. Another example of an adjacency we've got work going on in.
At first notice of loss, but youre exactly right that as people try to test us and see a significant impact.
This is why we remain so excited about the broader straight through processing opportunity.
Ross our entire customer base.
Great. That's good to hear and then just a quick one for Brian with the nonrecurring deal that you had last year. In Q4, you said it was a 2% contribution to revenue.
I kind of looked at that so that's about $4 million of revenue is that correct and would most of that are flowing directly down to EBITDA.
Yes that is.
Gary So last year, we had two points of nonrecurring impacting Q4, and we called it out at the time.
And that did flow.
All the way through and you've seen it.
Through in our gross profits of gross profit in Q4 of last year was slightly elevated at 79%.
And that was part of the flow through but yes, you are looking at that correctly.
Okay. Thanks, a lot guys I appreciate it.
Thanks Darren.
The next question comes from Arvind <unk> of Piper Sandler. Please go ahead.
Hi, Thanks for taking my question I wanted to ask you about.
It's a broken company.
Shorter view on CCC break but.
It had been around dream.
Kind of theaters.
Got it tough macro.
I know this kind of like these.
These macro headwinds there are different than prior.
But just in the macro environment can you maybe walk us through some of the puts and takes on alright.
Business.
Yeah.
Assuming the macro stuff.
In 2000.
Thank.
You anticipate from a business impact.
Hey, Irvin.
You broke up a little bit, but I think that would give you a couple of thoughts on the macro environment.
So first and foremost Youre dead right, we have been through.
Several decades of various environments.
For example, during the dotcom crash of 2000, we invested heavily to build and rollout our web based solutions for the insurance market and then during the 2008 2009 financial crisis, we actually invested heavily in building out the CCC one platform that generates almost.
If our revenues today and then what we saw in 2020.
<unk>.
With really with Covid is our customers need a dramatically different ways of connecting to the consumers, which really led to the adoption of investment in mobile and AI and other capabilities. So we have a history of actually understanding and dealing with all of these environments.
<unk>.
This is why we continue to maintain our close working relationships with customers that gives us an advance view of the challenges that they have.
And we continue to build solutions and having a very efficient financial model allows us to weather through this but with all that said, we continue to monitor the environment pretty closely.
And that's really so we've learned a lot from the history of how we've operated through various cycles and.
And we keep all those lessons learned very close to heart.
Okay.
Perfect.
I appreciate that perspective, right. If I can ask a follow up like how does the macro.
Back to your business like in the sense that.
And that's the.
Especially in environment.
Yeah.
Does that benefit.
And what was the benefit you had what piece of it.
Our persistent macro headwinds to your core business.
Yes, when you look.
Deep down.
When you look at our clients' businesses.
The fundamental nature of what we do is mission critical and when you look at our customers' business auto insurance because of mandatory product.
People.
That is really the route and the fundamental thing that is.
But you have to look at.
So.
People continue to drive auto insurance is mandatory while prices go up.
<unk>.
The accident has continued to be.
So the claim volume continues to be.
It continues to go up gradually from pre Covid levels. So I'm not sure that there is.
It's a much deeper answer, but the fact that our business is rooted in an industry in an environment, which is not discretionary.
Yes, maybe just one other thing to add it Brian you also look at our revenue model is very resilient and very predictable we have the vast majority of subscription base.
Its re occurring and so you have to think about that as well and when you think about kind of the macro environment.
Perfect. Thank you.
Great. Thanks.
Thanks Herman.
Once again, if you have a question. Please press Star then one.
Your next question comes from Michael Funk of Bank of America. Please go ahead.
Okay.
Thinking about economic sensitivity understand the resiliency of the business model.
Are you seeing any elongation of the sales cycle or change in purchasing behavior amongst your customers.
Okay.
No nothing material.
That we're seeing.
Okay.
Okay, and then maybe just one more if I could.
Thinking about <unk>.
Longer term.
The longer term.
There how much of that will be driven by existing solution penetration versus developing new solutions to sell into the base.
Yeah, Mike, It's Brian I'll take that so yes, when we've laid out the long term model. We've highlighted as we go forward about 80% of our growth will come from our installed base of cross sell up sell 20% from new logos within that 80% we've highlighted them.
About 50% of it so half of that will come from the more established solutions and the other half will come from these newer initiatives that we've been we've been talking about so.
Diagnostics.
The STP the estimate ftp's, so about half of it will come from these newer digital solutions.
Thank you for the time.
Yeah, absolutely. Thank you.
There are no more questions from the phone line.
This concludes the question and answer session I would like to turn the conference back over to detach Raymond Murphy for any closing remarks.
Well, thanks, everybody for joining us today.
We are proud of our performance to date in 2022 for which I'd like to thank our customers our CCC team members and of course our shareholders.
We remain confident in our ability to continue to deliver on our strategic and financial objectives and the durability of our business model continues to come through as we deliver innovation and operational efficiency.
For our customers and we look forward to talking with you on our fourth quarter call in early March if not sooner and again. Thank you very much for your continued interest and on behalf of all my colleagues.
Thank you and a big shout out to all our CCC team members will make <unk> a great place every single day for our customers and for ourselves. Thank you.
This concludes today's conference call you may disconnect your lines.
Thank you for participating and have a pleasant day.
Yeah.
Okay.
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