Q4 2022 CCC Intelligent Solutions Holdings Inc Earnings Call
Speaker 1: Tell them about it in the comments…
Speaker 2: Thank you for standing by and welcome to CCC Intelligent Solutions fourth quarter and fiscal 2022 earnings conference call.
Speaker 2: At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-1-1 on your telephone. I would now like to hand the call over to Vice President Investor Relations, Bill Warmenton.
Speaker 3: Please go ahead. Good afternoon and thank you for joining us today to review CCC's fourth quarter 2022 financial results which we announced in the press release issued following the close of the market today. Joining me on the call like a test rubber mercy, CCC's chairman and CEO and Brian Herb CCC's F out.
Speaker 3: The 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 the implementation of the company's plans to vary materially. These risks are discussed in the earnings releases available on our investor relations website and under the heading Risk Factors.
Speaker 3: in our 2022 Annual Report on Form 10-K filed today with the SEC. Further, these comments and the Q&A that follows are copyrighted today by CCC Intelligent Solutions Holdings Incorporated. Annual recording, retransmission, or reproduction, or other use of the same, for profit or otherwise, without prior consent of CCC is prohibited in a violation of United States copyright and other laws. Additionally, while we've approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in that transcript. Please note the discussion on today's call includes certain non-GAAP financial measures as defined by the SEC.
Speaker 3: 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 condition and the results of operations. A 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 Gitesh. Thank you, Bill, and thanks to all of you for joining us today.
Speaker 4: I'm pleased to report that CCC delivered another quarter of strong top and bottom line performance to complete another record year in 2022. For the fourth quarter of 2022, CCC's total revenue was $204 million, up 9% year-over-year and ahead of our guidance range.
Speaker 4: Adjusted EBITDA was $80 million, also ahead of our guidance range. Adjusted EBITDA margin for the fourth quarter was 39%. Revenue for the full year 2022 was $782 million, up 14% year over year, 2% above The EBITDA was $80 million, up 14% year over year. Revenue for the full year 2022 was $80 million, up 14% year over year. Revenue for the full year 2022 was $80 million, up 14% year over year.
Speaker 4: the high end of our initial 2022 guidance range. Adjusted EBITDA for the full year 2022 was $305 million.
Speaker 4: 4% above the high end of our initial guidance range. And more than twice are 2018 adjusted EBITDA of 148 million. For a compounded annual growth rate of 20%. We believe our strong performance reflects both.
Speaker 4: the non-discretionary nature of the PNC insurance economy we serve and the durability of our business as we continue to deliver innovation and operational efficiency for our customers.
Speaker 4: Based on our performance in 2022 and the confidence in our growth trajectory, we are providing revenue and adjusted EBITDA guidance for the first quarter and full year 2023, which Brian will walk through. Today I'd like to discuss three important topics with you.
Speaker 4: CCC's focus on growth, innovation, and our industry-leading AI platform. Our customers continue to face a difficult operating environment with multiple challenges. One such challenge is a severe labor shortage of claims adjusters and insurers.
Speaker 4: and repair technicians at collision repair facilities. Another challenge is inflation across labor rates, parts prices, medical costs, new and used vehicle prices, as well as supply chain issues affecting the availability of parts. You can add to that increasing complexity of the vehicles themselves.
Speaker 4: that now require more parts and labor hours to fix, as well as diagnostic scans and recalibration of the growing number of cameras and sensors on the vehicles. The average time to get a vehicle repaired after an accident.
Speaker 4: As gone up from about four weeks in 2019 to about 10 weeks currently, a real headwind for consumer satisfaction. These are important challenges for our customers. The solutions to which require them to find ways to do more with less, while simultaneously improving their consumer experience.
Speaker 4: To solve these problems in a seamlessly integrated way, our customers are adopting a broader suite of CCC solutions. These solutions increasingly leverage CCC's AI capabilities, and the ability to use them
Speaker 4: and interconnected network to deliver operational efficiency and a more holistic experience for their customers.
Speaker 4: We are delivering solutions to our customers at scale, touching more claims with more solutions than ever before.
Speaker 4: Our insurance customers, for example, processed more claims using CCC solutions in 2022 than in any other year in the company's 42-year history.
Speaker 4: The number of claims processed by our insurance customers using four or more of CCC's AI applications.
Speaker 4: doubled year over year in 2022. During Q4, we also renewed one of our top 10 insurers based on direct premiums, certain for a five-year extension. Q4 also sought numerous successes delivering additional solutions to existing customers, including several insurance clients who added casualty solutions to their portfolio of existing CCC products,
Speaker 4: for the first time. Gallagher will be remains one of our biggest growth opportunities with insurers. We added over a thousand rooftops in our repair facility customer group in 2022, ending the year with over 28,000 repair facilities in our network.
Speaker 4: first time. Gallagher will be remains one of our biggest growth opportunities with insurers. We added over a thousand rooftops in our repair facility customer group in 2022 ending the year with over 28,000 repair facilities in our network. In addition, the new rooftops.
Speaker 4: We also delivered a number of incremental solutions, which were important drivers of growth for our repair facility customer group. In Q4, for example, we expanded our relationship with a leading multi-store operator, or MSO, looking to bring platform standardization across the collision, fleet, and paint operations.
Speaker 4: for an additional 400 locations. In addition, the number of shops using four or more solutions has increased by 20% since 2020. An example of an emerging solution that we believe can continue our growth in average annual revenue per repair facility is diagnostics. Today, only about 10% of industry repairs.
Speaker 4: are being scanned through integrated solutions with CCC. As adoption increases, we believe diagnostics could become a $5,200 million revenue opportunity for CCC. Our parts customer group now has over 4,500 parts suppliers in its debt work.
Speaker 4: We are still in the early stages of adoption for electronic parts ordering, but that adoption is growing quickly. The industry volume of parts ordered electronically by repair facilities in the CCC network increased from about 10% in 2020 to about 15% in 2022.
Speaker 4: We continue to believe parts is an attractive growth opportunity. Innovation, the second topic I'd like to talk to you about today has been a key factor in how we continually identify additional ways we can help our customers improve their operational performance.
Speaker 4: Each new insurance claim leads to hundreds of decisions. Our goal is to develop new solutions that help our clients bring greater efficiency to more and more decision points in the insurance claims lifecycle. Innovation is foundational to CCC's success.
Speaker 4: which is why we have invested over $1 billion in R&D or the past 10 years. But it's not just capital that has made our product development efforts successful.
Speaker 4: I believe an organization needs three things to produce innovation on a sustained basis. The first is close relationships with customers.
Speaker 4: Before we can solve our customers problems, we need to understand them. We spend a lot of time with our customers trying to understand the challenges they face at both an industry and company specific level.
Speaker 4: including consulting projects, quarterly business reviews, semi-annual advisory consults. We believe the intimacy of our customer relationships.
Speaker 4: is a part of one drive a 99% gross dollar retention and industry leading net promoter score or NPS.
Speaker 4: CCC's MPS increased from 80 to 82 in 2022, a year in which the National Average MPS declined four points.
Speaker 4: For context, an NPS of 82 is about 4.5 times higher than the insurance industry average of 18 and about 6 times higher than the software industry average NPS of 14.
Speaker 4: The second thing an organization needs to produce innovation is a technology platform on which we can develop and deliver solutions to address our customers problems.
Speaker 4: Our multi-tenant cloud architecture is highly scalable with 99.95% uptime that enables us to deliver new products and well over a thousand new releases per year quickly and cost effectively.
Speaker 4: Our sizeable R&D investment over the past decade has enabled us to build a significant lead in the development and application of artificial intelligence capabilities.
Speaker 4: The third element is a strong customer-focused culture that emphasizes innovation. Our 2022 survey results play CCC in the top or tile for employee engagement.
Speaker 4: And I believe that is an important component in how we achieve a strong network promoter score. We are focused on expanding our innovation culture by adding world-class talent across the modernization, especially in product development and product management.
Speaker 4: During 2022, we grew our engineering staff month capacity by about 20% and we view the current disruption in the technology markets as an opportunity for us to continue to attract best-in-class talent. The confirmation that our strategy around innovation is working is that in 2022, we
Speaker 4: but one third of our revenue came from products introduced in the last five years. The third and final topic I'd like to discuss with you today is our industry leading AI platform where we have put a significant portion of our R&D spend for the last 10 years. A key requirement in building large-scale AI models
Speaker 4: because we offer people the opportunity to work on industrial grade, real-world commercial AI applications that are changing how the auto insurance economy operates.
Speaker 4: As a result, we are increasingly using AI across our solution sets to help our clients make decisions faster.
Speaker 4: Today, over 100 of our 300-plus insurance customers are actively using CCC's AI-powered capabilities. Application of Advanced Computer Vision AI for claims processing increased 60% year over year and a total of over 14 million unique claims have been processed using ACCC AI solution.
Speaker 4: with 2022 at three times the level of 2019. We are still early in the adoption cycle for AI driven solutions. These solutions are poised for even greater adoption going forward as a PNC insurance economy moves increasingly towards straight through processing.
Speaker 4: to drive operating efficiency and better consumer experiences. In a survey of over 100 insurance executives in September 2022, for example, 90% of respondents stated that implementing straight-through processing is a high priority for them.
Speaker 4: In late 2021, we introduced the auto insurance industries first AI-powered touchless estimating solution.
Speaker 4: 2021, we introduced the auto insurance industries first AI-powered, touchless estimating solution, estimate SDP.
Speaker 4: This industrial-strand AI solution can auto-generate a complete repair estimate on a qualified repairable plane in seconds without human intervention.
Speaker 4: We announced our first customer in November 2021 and have since signed up 15 insurers, including seven of the top 10 carriers.
Speaker 4: representing over 50% of US auto claims follow. Volumes are growing quickly, but still remain a small fraction of the overall claim volumes as insurers align their internal processes to leverage the new technology. Another reason the adoption of estimate STPs so significant for our customers and for CCC.
Speaker 4: is that it is an important proof point for much broader adoption of AI driven straight through processing solutions.
Speaker 4: that improves speed and consumer experience across the auto insurance economy. Increasingly, these new solutions rely on a combination of our artificial intelligence and our interconnected network to deliver results. CCC's interconnected network is large and complex and includes a growing number of participants. This is for me.
Speaker 4: including insurers, collision repair facilities, parts suppliers, lenders, OEMs, and more. Last year, our network connected over 30,000 of our customers to tens of millions of their customers.
Speaker 4: generating value for all participants and supporting mission critical processes across more than $100 billion of commerce. We believe that CCC's interconnected network is an essential enabler of the auto insurance economies, digital transformation and a great way for our customers to address.
Speaker 4: the rapidly increasing complexity they face. Let me conclude by saying that we are incredibly proud of what our team accomplished in 2022. We're excited about what we have planned for 2023, and we remain confident in our ability to continue to deliver on our strategic and financial objectives.
Speaker 4: I will now turn the call over to Brian , who will walk you through our results. Thanks, Gitesh. As we now turn to the numbers, I'd like to review our fourth quarter in fiscal year 2022 results, and then provide guidance for the first quarter in full year 2023.
Speaker 3: Total revenue for the fourth quarter was 204.1 million, up 9% from the prior year period. Total revenue for the fiscal 2022 was 782 million, up 14% from 2021.
Speaker 4: Gattesh referenced our billion dollar plus investment in our indeed that's been made over the last 10 years. We are seeing returns from that investment in innovation as our newer solutions contribute to our financial performance.
Speaker 4: Approximately one-third of our revenue growth in 2022, for example, came from solutions introduced in the past several years, confirming that a strategy around innovation is taking hold. Approximately six points of our revenue growth in Q4 was driven by cross-cell and upsell together for the first months.
Speaker 4: into our installed client base, including continued adoption of solutions like mobile, engage, and our digital solutions are on total loss. An incremental three percentage points came from new logos, mostly through repair shops and parts suppliers. There was no growth contribution in Q4 from the large expansion deal signed in the second half of 2021, as we have fully lapped that growth impact. Also worth noting is that 99% of our revenue in the fourth quarter was domestic.
Speaker 4: We believe our strong software GDR reflects the value we provide and the significant benefits that accrue to our customers from participating in the broader CCC network. Software GDR is a core tenant to our predictable and resilient business model.
Speaker 4: Software Net Dollar Attention, or NDR, captures the amount of cross-sell and up-sell from our existing customers compared to the prior year period, as well as volume movements in our Auto Physical Damage client base. In Q4 2022, FaceTime is not showing 0- vision watches as they are not only staying in the leader range, just not at the lower quality but it has increased in...
Speaker 4: software NDR was 106%. One last point to note on revenue. In Q4 we had about 2% points of contribution to total growth from revenue not included in our NDR calculation. Such as casualty parts volume in the normal year end truops.
Speaker 4: This offset the two points of headwind from Q4 2021 that we've been referencing in the prior earnings call. Now I'll move to the income statement in more detail. As a reminder, unless otherwise noted, all metrics are non-gap. We've provided a reconciliation of gap to non-gap in our press release. A justed gross profit in the quarter was $157 million.
Speaker 4: with an adjusted gross profit margin of 77%. That's down from 79% in the fourth quarter of last year, which included the benefit of higher non-recurring revenue in Q4 2021. Adjusted gross profit in the fiscal year 2022 was $605 million, with an adjusted gross profit margin of 77%, down slightly from 78% in the fiscal year 2021. Thank you.
Speaker 4: We feel good about the operating leverage and scalability of our business and be able to deliver against our long-term target of 80%. In terms of expenses, adjusted operating expense in Q4 2022 was 81.8 million, up 5% year over year.
Speaker 4: Adjusted operating expense in fiscal year 2022 was 324.8 million up 9% year over year. In Q4, growth in these expenses were largely driven by headcount addition and to a lesser extent, recovering travel and other discretionary spend that have now mostly normalized.
Speaker 4: On the head count point, we are pleased with the progress made to advance both operational capabilities and capacity for new product innovation. We added key positions across the company, including increasing our staff month capacity and product development by approximately 20%. We feel we are in a strong position.
Speaker 4: to continue to deliver ongoing innovation to the market and execute against our strategic agenda. Adjusted EBITDA for the quarter was $80.1 million, up 6% year-over-year, and an adjusted EBITDA margin of 39.2%.
Speaker 4: Adjusted EBITDA for the full year 2022 was 305.4 million, up 17% year over year, with an adjusted EBITDA margin of 39. This is another year of 100 basis point plus margin improvement, and an increase of 900 basis points over the last three years. Now turning to the balance sheet in cashflow, we ended the quarter with 324 million in cash and cash equivalents.
Speaker 4: and $792 million of debt. At the end of the quarter, our net leverage was approximately 1.5 times a justity but da. Free cash flow in the quarter was $72.4 million, compared to $17.3 million in the prior year period. Free cash flow for the fiscal year 2022 was $152 million compared to $89 million in fiscal year 2021. For the fiscal year 2022, we converted approximately 59% of our adjusted ebita into unleavored free cash flow.
Speaker 4: If you adjust for the interest rate cap, the completion of the headquarters build out, and a termination and buyout of a real estate lease at year end, are adjusted on levered free cash flow would have been in the mid 60s range for the full year 2022, which is consistent with historical results. I'd like to finish with guidance beginning with the first quarter of 2023. 2023.
We expect total revenue of $202 to $204 million. This represents 8 to 9% year over year growth. We expect adjusted EBITDA of $76 to $78 million, which represents a 38% adjusted EBITDA margin at the midpoint. For the full year 2023, we expect revenue of $842 to $850 million, which represents 8 to 9% year over year growth. We expect adjusted EBITDA of $330 to $338 million, which represents a 39% adjusted EBITDA margin at the midpoint. Three points to keep in mind as you think about our first quarter and full year guidance. The first is our emerging solutions contributed about one point of growth in 2022, with diagnostics being the largest contributor.
We do expect this set of solutions to be a more significant contributor in 2023. The second point is that we expect to just at EBITDA margin in the first half of 2023 to be constrained by the reset of employee-related expenses and multiple clients and internal events. We expect most of the year-over-year margin progression to take place in the second half of 2023. As we lap the higher end we did in the second half of 2022 and we benefit from continued operating leverage in the business. The third point is that we will continue to focus on investing in innovation to support our growth ambitions.
while at the same time progressing towards our long-term target of mid-40s adjusted EBIT down margin. Overall, our guides reflect our confidence in the underlying momentum of the business. The combination of our advanced AI capabilities in our interconnected network puts us in a unique position to help our customers improve the speed and accuracy of their decision-making. Support cost efficiency across their operations.
and their overall customer experience. We believe we have many shots on goal across our solutions set. This includes solutions that we've had in the market for some time like casualty and repair shop package upsells. And solutions that have launched in the past few years that are contributing to growth like mobile and engaged, as well as our new set of emerging solutions such as diagnostics, estimates, TPP, and subrogation.
The need for digitization across the P&C insurance economy continues to accelerate, and CCC is well positioned to drive durable growth in both revenue and profitability in the near and long term. We are confident in our ability to deliver against our long-term target of 7 to 10 percent organic revenue growth and adjusted EBITDA margins expanding into the mid-40s. 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. As a reminder to ask a question, you will need to press star 11 on your telephone. Again, that star 11 on your telephone to ask a question. You will be limited to one question and one follow-up. Follow-up.
Please stand by while we compile the Q&A roster. Our first question comes from the line of Gabriela Borges of the Goldman Sachs. Your line is open Gabriela. Hi, this is Callion for Gabriela. I can go up on the corner. First one for me is just you talk about one of your focus areas within payment as the carrier to repair.
year to repair there's a lot of complexity there so people are excited about that. We also expect that our payment solutions will generate revenue and we are finding broader applications. So it's coming along. Thank you and then as I follow up how is progress run with subordation?
Is there any difference in how you're pushing the go to market with that product and how is it kind of trying to enroll into a financial application? Sure. So we've done three things on the subregation front. First and foremost, we have substantially upgraded some of the technology underpinnings in terms of platform and architecture from the acquisition.
So that work, that development work is complete so that we can actually execute that scale. So that's gone really well. The early conversations with customers in terms of pilots capability, product expansion, those are going well, the integration is going well. So we feel good about.
the strategic direction as well as the work to date to integrate subjugation to be a key part of our offering. Thank you. Our next question comes from the line of Dylan Becker of William Blair. Your question please Dylan. Hi, this is Faith on for Dylan. I know you guys touched on the estimate SCP but you elaborate on that journey and what the typical world outlooks like as you have like a large share of the DWP customers but there's.
relatively low overall penetration. So how you guys thinking of that value realization driving the ramp towards greater wallets share over time? Yeah, so here's how the solution itself is developing. As you recall we said, you know, we delivered the product after many, many years of R&D in the November of 2021 and we started working with early customers who wanted to test these capabilities and see how it works. And what we have really seen is that the ramp follows really three particular
ways, three particular ways. So first, people test the solution for accuracy, capability, because this is again the first of its kind. So before people are willing to make a commitment, that testing can take a fair amount of time. So we're truly excited that today, as of today, 15 of our customers have selected, including, as you pointed out, some of the top 10.
The second thing people do once they feel very comfortable with the solution is to start rolling it out in limited geographies. So people might start in one state or two states or three states and then and as people get more comfortable make the adjustments.
start rolling it out in about all 50 states. Third, we've been very careful and very thoughtful in terms of which claims qualify for estimate STP and the AI. And so the third step is to now...
to have what, you know, the percentage of claims that go through estimate STP start to gradually increase as this thing applies to more and more qualified claims.
So those are really the three metrics, three ways in terms of adoption. And it's not really very different from adoption. We've seen over many, many years what many other products, where people start out and then continue to expand over time. And but the early design wins, if you would, with customers making decisions on the.
and how the data that can't lay in structure and the overall complexity differs from, you know, other aspects of your business and what it takes to build out that piece of the claims equation. Sure. You know, we have been delivering casualty solutions for, say, I would say almost a decade now.
in a medical or casualty claim. So we have a number of solutions for medical bill review, a number of workflow solutions, a couple of mobile solutions to work directly with consumers, both in first party, which is the claimant of the insurance company, or third party, which is
the policyholder of the car on the other side. So we built a number of solutions over there. And we've also spent a fair amount of R&D and capability in upgrading these platforms over the last several years.
and we are now starting to see the benefit of customers adopting more casualty solutions. One metric to keep in mind is that while we have 300 insurance customers, we only have about 50 casualty customers as of now. So that's why we view the growth opportunity as significant.
Thank you. Our next question comes from the line of Michael Funk, a Bank of America. Please go ahead, Michael.
Yes, that's thank you for the questions tonight. Couple of I-Tune. So first, very high level. Any change in spending plan through activity from your customers? You know, look, we are monitoring the macro environment very, very carefully.
And we have not seen a material change, and I would attribute part of that.
to really a handful of things. One, what we deliver is mission critical.
And as we talked about the operational efficiencies to really address inflation, to address labor shortage, to address vehicle complexity, our solutions deal directly with these solutions.
And I think the other thing that helps to some degree is that the ROI for these solutions is very tight. We can get, we can deploy a solution and our customers can see the impact literally in 30, 60 or 90 days. So it does not require a multi-year forklift big upgrade of platform.
Third, since we're already integrated deep into people, into our customers, platforms and systems, additional functionality is also easier to deploy in terms of training and rolling it out. So I think those things are helping, but I would say the single most important thing is that this is mission critical.
And we are monitoring the situation carefully, but have not seen any material changes. Right, thank you. And then you mentioned AI earlier in your script. Modest for your massive data set, strong adoption to date, STP, for example. But can you talk more broadly about the opportunity longer term incorporating AI?
maybe quantifying the potential market there for you looking forward? Yeah, we have not actually publicly quantified the market across the board, but one specific thing that Estimate SDP has done.
is this is actually one of the most complex applications of artificial intelligence. Because you're taking pictures around a car and understanding the three-dimensional spatial structure of the vehicle, the damage to the vehicle, what parts are damaged, different color combination, cars, pickup trucks, and the like. So it requires an extraordinary level of complexity and many, many layers.
of neural networks that you have to build. And by deploying this solution first and dealing with that complexity, we also feel it's given us a lot of credibility with our customers to be able to go to really what we think is a much bigger and broader application of artificial intelligence.
That is straight through processing. Yeah, straight through processing. Sorry, Clay. No, no, no, I'm sorry. I cut you off, apologies. Yeah. So straight through processing is a much, much broader application. So straight through processing, the way we think about it applies everything from.
First, when you report a claim, what should I do with this vehicle? To routing, to scheduling, to parts ordering, to repair, to which claims do you subrogate, which claims do not subrogate? What do I send to salvage? And then on the repair side, artificial intelligence supplies.
extensively because you know you may be seeing as a repair technician you might be seeing a car for the first this particular car this particular damage for the first time.
But any, you know, a car might have, you know, 20, you know, 20,000 plus parts might have complex repair procedures, paint techniques.
So we think AI applies in those areas, it applies, you know, a very, very broad range.
So the heart of it is really two things. One, continue to make sure our data set is really good, that allows us to rev.
hundreds of AI models, and second, deploy that in line inside the workflow that we are already in.
No, thank you for the questions.
Thank you for the questions. Thank you for joining.
Thank you our next question comes from the line of Arvin Remnattie, a Piper Sandler. Your question please, Arvin.
Hi, thanks for taking my question. You know, I just wanted to ask you about some of the investments you are making. I mean, you know, you talked about the roughly 100 bits margin expansion this year and, you know, kind of 900 bits of margin expansion over the past several years. With that said, like, I just...
I'm just trying to get an understanding of this AI and automation opportunity that lies in front of you. Would it make sense to double the efforts and making investments in that regard? Yeah, maybe we'll handle it in two parts with me and Brian jump.
the ability to rev models, the ability to deploy models. And that actually build a lot of talent, right, with people with the doctors and everything from neural labs to AI and machine learning. So we build, we feel we build a lot of those capabilities.
And what we are doing is being fairly judicious in terms of applying AI to a number of use cases. And one of the things, you know, as I mentioned earlier in my call, we have a network motor score of 82. So if you get to a network motor score of 82, that means...
You have to be very judicious about the quality of what you deliver and the speed and rate of adoption. So AI will be deployed across the board because we see this as a secular opportunity of the mess many, many years. But there's a certain rate at which you invest or the money is wasted.
So we're being very balanced and very prudent Brian if you want to jump in Yeah, I would just echo get gettesh's points mean we remain super focused on on a balanced approach So investing in innovation and at the same time driving operational efficiency
And we believe we can do both. I mean, you highlighted the points you made, or we made about 900 basis points of improvement over the past several years. At the same time, we referenced putting a billion dollars into R&D. We talked about adding 20% of capacity and headcount focused on product development.
So we believe we can do both. Continue to put significant investment in the business and really drive the AI capabilities at the same time continue to progress margins and move to our long-term targets of margins in the mid-40s.
I think that if you know the chat GVT is sort of like kind of rage everyone is talking about chat GVT and generative AI but I guess one of the limitations is that the data that the data that's available is you know only on e
available until 2021. Your data is like a lot more real time, right? Like talked about inflation and some of the kind of more repair shops and the delayed in getting automobiles repaired and stuff. Your data is a lot more real time. Are you able to kind of talk?
a little bit about how real-time is it? Is it still like three months dated or is it real-time as in like every day it gets updated? And any kind of commonalities or differences between generative AI? Yeah, I'll take your question in really two parts.
And this is actually one of the most fundamental questions some of our customers are asking. In fact, we had a customer just last week in the office, and this was actually one of the key things. And I think your point becomes extraordinarily relevant if you look at one data point, for example, of this big one. The price of use cars has increased.
by almost 50% in the last 18 months or so. It goes up, sometimes it goes up significantly, and then sometimes it goes down and then goes back up. So used car pricing might literally change on a week-to-week, month-to-month basis. Same thing with parks prices and so on.
So, one of the benefits we have is that on any given day, the scale of transactional data
repairs, estimates, supply chain information flowing through a network is massive.
So even if you build an AI model, that currency and the speed at which you can rev these models.
We learned how to do that with software releases. We did over a thousand software releases last year and maintained a network our uptime of 99.95. So we had to do the same thing with AI and we can literally rev some of the models on a monthly basis. Some of this get updated.
And not only do Rev and update these models, there's also an important element of AI called drift that you have to manage.
So drift is the difference between what your initial AI model is seeing and what you're seeing in practical and real times. And monitoring that drift also governs the frequency with which your models are updated. So all of these capabilities.
take enormous amount of time, compute power, and the ability to scale and deploy, especially across a large customer set.
So you're absolutely right. That currency we think is critical. And then the second part of your question regarding ChatGPT, ChatGPT today relies on a lot of public data.
A lot of data that's in the public domain, and it's web data, etc. Even if the data goes from, and we are actually quite excited about the technology and we'll deploy it in probably some pieces of where it makes sense.
But much of the data sets that we're talking about are changing on a very deep and real-time basis that unless you're deep in the middle of these transactions.
You don't actually see this data set. Does that help fire in terms of the questions?
process and consumed data in real time. I mean, I think that seems to be even more relevant in an environment where prices are moving, which is set up and down a little bit more dramatically than in the past.
Yeah, I mean, we lost you for a few seconds. So I didn't know whether you had a question or a comment. I was just thinking it was helpful because it just makes me realize that your solution is a lot more relevant in this environment where prices are moving up and down. And so it becomes a lot more compelling to use a solution that you can get more real time data.
So I would just think it just thinks. Thank you.
Our next question comes from the line of David Kelly of Jeffries.
Your question, please, David. Good afternoon, guys, and thanks for taking my question. I was hoping you could talk a bit more about the MSO relationship expansion that you announced that I guess from our end of 400 location additions, you'd like a nice add-on for quarters.
I curious how impactful those MSO contract expansion tend to be for you, particularly as we step back and think about those customers continue to consolidate the repair facility sector at their level.
Yeah, David, it's Brian . Yeah, so we certainly, the MSO relationships are a meaningful part of our business and we continue to build those out. If you step back and look at our metrics on the new logos.
You know, if you go back five years, we've been adding about a thousand new rooftops per year. And certainly the MSOs and the expansion of those relationships have contributed to that. And we feel really good about where that's going as well as we look forward. The 400 that we talked about didn't necessarily play much into this year.
because we signed it at the end of the year and the onboarding. We'll bleed into next year, but it will be part of our new logo growth in the repair facilities into 23 and we feel really good about kind of continuing the cadence of adding, you know, a thousand shops a year.
And the next year, Brian , I think Ben 23.
Yeah, I'm sorry, yeah, 23. Okay, got it. That's super helpful. And then appreciate the color on the diagnostics ramp within that emerging solutions contribution. You mentioned, I guess we expect diagnostics will again be, let's call it like a leading driver of emerging growth and into.
they're looking to adopt that sort of solution set.
Yeah, so first and foremost, what's been happening over the last several years is that as the vehicle mix changes, any cars that have really come in almost the last decade or so require a scan of some kind to understand what sensors are broken.
what sensors need to be read on. So typically the scans take place before and after. So that has been increasing. And there's been a lot of inconsistencies in the market by way of how scans are done. And what we did was to bring a level of order and in a-
the amount of diagnostic scans going through our platform is still a relatively small low number. I don't know if you've probably published the amount of what percentage of repairs are going through diagnostics, but still not a big number. But what we are seeing is that
across the board by integrating the most popular diagnostics providers into CCC1. It is provided at a level of transparency and a seamless level of integration. So we do think this will continue to grow very nicely over the next several years. But again, we see diagnostics as one element.
of a much broader portfolio of solutions that we are bringing out to the marketplace. Thank you. Our next question comes from the line of Chris Moore of CJS Securities. Please go ahead, Chris.
Hey, good evening guys. Thanks for taking a question. First, the real-time conversation you just had a few minutes ago was fascinating, very helpful.
Just trying to get a little better handle on the evolution of the CCC model. So at this stage you talk about growth coming roughly 20% from new logo, 80% crossover upsell. Historically that had been more like one third, two third. So is that current level something that will change over time or more likely it's just a mix?
one-third new logo to two-thirds cross-sell upsell of our installed base and moving to 20% new logo and 80% upsell cross-sell. That shift is happening and we saw progress against that in 22 and will continue to move in that direction. We've given further color as you break down the 80% of cross-sell upsell to the base.
And we've said over time about half of that will come from existing solutions that have been in the market for the past several years. And half of the growth will come from these newer emerging solutions that we've more recently brought into market, such as diagnostics, such as S-M-S-T-P in subrogation. So we do think we'll have a meaningful impact from these newer set of solutions.
but that will build out over time. Got it, helpful. And maybe my follow-up. Brian , you may have touched on this, but I came in a little bit late. You went through the kind of the free cash flow dynamics for 22. Did you talk at all in terms of expectations for 23? No, I didn't specifically guide to
to the mid-60s, which is consistent with our historical performance. That is a good benchmark as you think about modeling going forward using low-to-mid-60s as a cache conversion metric. I will leave it there.
Thank you. Our next question comes from the line of second Kalea of Barclays. Please go ahead.
Okay, great. Hey guys, thanks for taking my questions here. Jumping between a couple calls to apologies if these questions were asked, but get attached maybe for you.
was great to see the commentary on on casualty. I was wondering if you could just remind us who is CCCC usually displacing in a casualty in a casualty type of sale. And you mentioned I think it was 50 insurance customers that are using casualty right and of course they're using the
Yeah, sure, second out. You know, I'll have Brian take the second part of your question.
The first part of your question is that when some of our casualty solutions are solutions that don't exist. For example, our mobile capability, and I think we had a press release on this thing with the client, where our mobile capability that allows you to engage directly with the consumer and handled many of these things.
Those are like new to the industry capabilities. Certain capabilities, we might be, you know, there are multiple providers of different casualty solutions. So we might go up against different players. And again, we don't generally go into the specifics of the who and what and where, but there are multiple providers.
And our real differentiation is the analytic capabilities, the integration into a single platform. Those are the capabilities we bring. In terms of dollars and impact, then, you know, the addition it does. I think, Brian , if you want to pick that up and comment. Yes, sure. So seconds is from a sizing perspective. Clearly, we'll...
those can be the same size in magnitude. So you think about the opportunity that casually provides is really for them to move up and look like more of the size of our APD client base. So there's 30% of revenue opportunity as those balance out over time. And that's probably the best way to think about the overall opportunity.
Inside the in for casualty yeah G that's that's really helpful Brian maybe maybe for you I think you touched in this earlier with just the you know the 80 20 kind of you know thought on on growth from existing versus new but maybe I'll just ask the question a little little little differently as as you look to two thousand and 20 three you know anything to note just on on net dollar retention expectations and.
22 results, we are more like 25, 75, 75 percent from cross-cell up-cell. So again, it's showing that progression and that will continue as we go into 23. So you can look at those ratios and then can look at it relative to the guide.
of 8 to 9% for the full year. And if you use those metrics, I will give you kind of a rough way to frame out the NDR impact into 23.
Thank you. At this time, I'd like to turn the call back over to Contesh, Rememurthy, for closing remarks, sir.
Thank you all for joining us today and I'd like to thank our customers, our CCC team members and our shareholders for a great 2022.
We are excited about what we have planned for 2023. The durability of our business pilot continues to come through and we remain confident in our ability to deliver on our strategic and financial objectives while helping our customers and investing in future solutions.
On behalf of all my colleagues at CCC.
We look forward to talking to you again in the early May when we do our first quarter, not sooner. Thank you so much for your continued interest and your trust in CCC. This concludes today's conference call. Thank you for participating. You may now disconnect. Connect.
The conference will begin shortly. To raise and lower your hand during Q&A you can dial star 1.
You.
The conference will begin shortly. To raise and lower your hand during Q&A you can dial star 1-1.
You.
The conference will begin shortly. To raise and lower your hand during Q&A you can die. El Star One.
You you follow way.
The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star one one.
I I you.
I.