Q1 2023 CCC Intelligent Solutions Holdings Inc. Earnings Call

Speaker 1: You.

Speaker 1: And.

Speaker 2: Good day and thank you for standing by. Welcome to the CCC Intelligent Solutions 1st quarter 2023 earnings call.

Speaker 2: At this time, all participants are in a listen-only mode.

Speaker 2: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Again.

Speaker 2: Please be advised that today's front-con is based over COVID. I would like to hand the conference over to your speaker today, Bill Warmington, Vice President.

Speaker 2: of investor relations. Please go ahead.

Speaker 3: Good afternoon and thank you for joining us today to review CCC's 1st quarter 2023 financial results, which we announced in the press release issues following the close of the market today.

Speaker 3: Please chairmen and CEO and Brian Herb, CCCCFO.

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 in our 2022 end.

Speaker 3: use of the same for profit or otherwise without prior consent that CCC is prohibited and a violation of the United States copyright and other laws. Traditionally, while we've approved the publishing of the transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in that transcript.

Speaker 3: Please note the discussion on today's call includes 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 condition and the results of operations.

Speaker 3: A reconciliation of GAP 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 Gatesh.

Speaker 4: Thank you Bill and thanks to all of you for joining us today. I'm pleased to report that CCC delivered another quarter of strong, top and bottom line results reflecting the predictability and profitability of our business.

Speaker 4: In the first quarter of 2023, CCC's total revenue was $205 million, of 10% year over year and ahead of our guidance range. Adjusted EBITDA was $79.5 million, also ahead of our guidance range, and our adjusted EBITDA margin was 39%. On today's call, I'd like to highlight three things that underpin our performance. The first is CCC's durable business model.

Speaker 4: The second is innovation, and third is a growing adoption of CCC solutions.

Speaker 4: First, our durable business model.

Speaker 4: Our clients in the P&C Insurance Economy are increasingly focused on the need to manage the business through two powerful mega trends.

Speaker 4: accelerating operational complexity, and rising consumer expectations.

Speaker 4: Last year, auto insurers in the United States paid out over $200 billion in claims indemnity and spent about $25 billion on administrative expenses to handle those claims.

Speaker 4: known as loss adjustment expense or LAE. Increasing operational complexity and consumer expectations are raising those costs even further.

Speaker 4: At CCC, we are focused on developing tools to help our clients increase efficiency and customer satisfaction while simultaneously overcoming headwinds from labor shortages, inflation, supply chain issues and regulatory changes.

Speaker 4: We do this through innovation, specifically by developing new solutions that leverage our industry-leading focus on AI and our interconnected industry network. One of the main drivers of increasing operational complexity is the growing sophistication of the vehicles themselves, whether that is the sheer number of parts on the cars, the introduction of advanced driver assistance systems known as ADAS.

Speaker 4: or the expansion of electric vehicles or EVs. Increasing vehicle complexity has been and continues to be a major factor in rising loss costs.

Speaker 4: A-DES modules range from automatic braking to lane departure warnings and leverage a wide array of sensors and cameras.

Speaker 4: Repairing these systems typically requires more parts and more labor hours per repair as well as diagnostic and calibration services.

Speaker 4: contributing to an increase in the average total cost of repair.

Speaker 4: during this period.

Speaker 4: As vehicles become even more intricate, we anticipate the P&C Insurance economy needing increasingly sophisticated tools to manage this change. While EVs are still a very small percentage of cars in the world, less than 1% of vehicles in operation,

Speaker 4: a highly digital, simplified, personalized, fast, empathetic, and available at all hours. The leading consumer facing companies that have metasized expectations have essentially set the standard for interactions across our lives. The good news is that CCCAI technology enables our customers to meet the standard by streamlining and digitizing the P&C claims journey. According to a CCC survey,

Speaker 4: 84% of policyholders prefer a digitized claims process. And CCC solutions are a key enabler of that shift. Whether that is enabling the submission of an auto claim via photos on their phone, instantly booking a repair appointment, or even resolving an injury claim digitally, our customers are deploying CCC solutions to help them deliver these digital experiences. This brings me to the second point I'd like to discuss with you today, innovation. CCC's business, which began with a single product, vehicle valuations, sold to one customer group, insurers.

Speaker 4: has been our commitment to innovation and for the last several years, a major pillar of that innovation has been artificial intelligence. Today, more than 14 million auto claims have been processed using a CCC deep learning AI solution, generating tangible real world impact for our customers and significant direct revenue for CCC. Underpinning these advances are not just cutting its technology, but over a trillion dollars of historical data as well as deeply embedded workflows.

Speaker 4: that enable our customers to seamlessly deploy these innovations at scale. One example of our commitment to continuously expanding the scope of our AI-enabled innovations is our acquisition of Safekeep in February last year.

Speaker 4: addressing a key pain point for our insurance customers. Subrogation is the process of insurance companies attempted to recover dollars from other parties who are at fault for a claim. It affects tens of billions of dollars in claims, costs insurers over $2 billion in estimated administrative expenses annually, and is a highly manual and time intensive process. This sizing subrogation is a natural extension of plans to address the indices vision of straight through processing. This in turn creates additional network benefits.

Speaker 4: for insurers using CCC and extends the CCC cloud into lines of insurance outside of auto.

Speaker 4: We have spent the time since the acquisition integrating SafeKeep into the CCC cloud.

Speaker 4: So that CCC is more than 300 insurance customers will have the opportunities to take advantage of the capability Would direct times to the CCC solutions they already have in place

Speaker 4: We have made significant investments to expand Safekeeping's product functionality and are very pleased with a level of customer engagement and real-world results delivered by the solution today. We are also continuing to make substantial investments.

Speaker 4: in AI across the entire CCC product line.

Speaker 4: including new computer vision applications in our casualty business, as well as ongoing enhancements to update plus our industry-leading CRM solution for repair facilities that uses semantic AI to help repair facilities sort and respond.

Speaker 4: to consumer queries.

Speaker 4: throughout the repair process.

Speaker 4: In the 12 months ending March 2023, over 80 million messages have been sent by Update Plus by email and tax to over 17 million unique consumers.

Speaker 4: We remain tremendously excited about long-term opportunity to digitize the PNC insurance economy by applying industry-leading AI to existing highly embedded workflows across the CCC connected network. My third and final point is a growing adoption of CCC solutions. The first solution I will cover is Estimate SDP, our AI-based system that can pre-populate a complete line-level repair estimate on a qualified claim in seconds. The total number of claims processed through Estimate SDP

Speaker 4: continues to grow as we onboard new customers and as existing customers increase their claim volumes by activating more collusion categories, geographies and vehicle types.

Speaker 4: of auto claims processed by Estimate STP in March 2023 was over $1 billion. This is more than 10 times our run rate in March of 2022. While this is still less than 1% of our current annual auto physical damage claim volume, the rate at which customers are moving towards Estimate STP is very encouraging. In diagnostics, we continue to grow both our network and the volume of scanned vehicles being verified on our platform.

Speaker 4: The first quarter of 2023, about 3,800 repair facilities ran a scam through one of CCC's diagnostic service partners.

Speaker 4: more than double the volume in the first quarter of 2022. As a reminder, the solution is designed to help improve consistency and transparency of scans and collaborations between repairs and insurers. CCC engage our solution which enables consumers to schedule estimate and repair appointments online with participating repair facilities is currently eliminating 50,000 phone calls from repair facilities every month by facilitating integrated scheduling.

Speaker 4: for insurers direct to consumers who have been in an accident.

Speaker 4: The online process eliminates the need for the consumer to physically drive to the repair facility to obtain an initial estimate, reduces interruptions for the repair facility's estimators, and helps insurers improve their customers' experience. We continue to see opportunities for product adoption across both our repair facility and insurance customers. We previously highlighted a cross-selling momentum in repair facilities where the number of customers using four or more solutions can be identified.

Speaker 4: has increased over 20% since 2020. And the average revenue per repair facility has increased 30% during that time.

Speaker 4: in relation to the aggregate annual amount insurers spend on claim payouts, including indemnity and LAE.

Speaker 4: Today, CCC's insurance revenue represents a very small percentage of these expenditures.

Speaker 4: about two-tenths of one percent or less than 20 basis points overall. Yet, our solutions are helping insurers manage hundreds of billions of dollars of costs. We believe that the continued focus on digitization by carriers and the expanded plan from emerging solutions provides a path.

Speaker 4: to growing our share of a growing market. Let me conclude by saying that we are excited about what we have planned for 2023 and remain confident in our ability to continue to deliver on our strategic and financial objectives.

Speaker 4: I will now turn the caller over to Brian , or walk you through our results in more detail. Thanks, Ganesh. As Ganesh highlighted, we are seeing good traction in the business, supported by both innovation and the growing adoption of solutions by our customers.

Speaker 5: A key component of our durable business is our highly efficient, predictable, and scalable financial model that enables us to balance investment in innovation and also drive operational efficiency throughout economic cycles.

Speaker 5: As we now turn to the numbers, I like to review our first quarter 2023 results and then provide guides for the second quarter in full year 2023.

Speaker 5: Total revenue for the first quarter was $204.9 million, up 10% from prior year period.

Speaker 5: Approximately six points of our revenue growth in Q1 was driven by cross-cell, up-cell, and adoption of solutions across our installed client base. Including the up-cell over-pair shop packages and the continued adoption of mobile and other digital solutions.

Speaker 5: Within the six points, about one point came from casually volumes.

Speaker 5: An incremental four points of growth came from new logos, mostly repair facilities and parts suppliers.

Speaker 5: I also want to highlight that we saw more than one point of growth in Q1 from our emerging solutions.

Speaker 5: mainly diagnostics and estimate STP. Now 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 Q1 2023, GDR was 99%.

Speaker 5: This is consistent with all of 2022. We believe our strong software GDR reflects the value we provide and the significant benefits that are crude or our customers from participating in the broader CCC network. Software GDR is a core tenant.

Speaker 5: to our predictable and resilient revenue model. Software net dollar retention or NDR captures the amount of cross-down upsell from our existing customers compared to the prior year period, as well as volume movements in our auto-physical damage client base. In Q1 2023,

Speaker 5: software NDR was 106%.

Speaker 5: NDR was 106%, consistent with Q4 last year.

Speaker 5: Now, I'll move to the income statement in more detail. As a reminder, unless otherwise noted, all metrics are non-GAAP , and we provide a reconciliation of GAAP to non-GAAP in our press release. A adjusted gross profit in the quarter was $156.6 million.

Speaker 5: a Jessica's profit margin with 76%. This was down from 78% in the first quarter of 2022.

Speaker 5: The lower adjusted gross profit margin primarily reflects higher depreciation expense from capitalized projects recently released to the market, while the associated revenue from these emerging solutions are still in the early stages of scaling.

Speaker 5: Overall, we feel good about the operating leverage and the scalability of the business model and our ability to deliver against our long-term adjusted gross profit target of 80%.

Speaker 5: over year. Growth in these expenses was largely driven by headcount additions that were onboarded in the second half of last year. Regarding the headcount ads, we are pleased with the progress made to advance both our operational capabilities and our operations.

Speaker 5: and capacity for new product development. We feel like we are in a strong position to continue to deliver ongoing innovation into the market and execute against our strategic agenda. Adjust the EBITDA for the quarter was 79.5 million, up 8% year over year, and adjusted EBITDA margin was 39%.

Speaker 5: Now, turning to the balance sheet and cash flow, we ended the quarter with 338 million in cash and cash equivalent in 790 million of debt.

Speaker 5: At the end of the quarter, our net leverage was approximately 1.5 times adjusted EBITDA.

Speaker 5: Free cash loan in the quarter was 18.5 million compared to 32.6 million in the prior year period.

Speaker 5: Unlevered free castellan Q1 was 28 million, or about 36% of our adjusted EBITDA.

Speaker 5: Q1 is seasonally our lowest free cash flow quarter because of the payment of our annual won't Clear not so sure.

Speaker 5: When you normalize for these payments, Q1 on-levard free cash flow would be in the load in mid-60s range. While our level of free cash flow can vary quarter to quarter based on seasonality or phasing or one time I dumped.

Speaker 5: It should average out to the low to mid 60s over time. I'd like to finish with guidance beginning in the second quarter of 2023.

Speaker 5: We expect total revenue between $207.5 to $209.5 million.

Speaker 5: This represents 8 to 9 percent year-over-year growth.

Speaker 5: We expect adjusted EBITDA of $76.5 to $78.5 million, which represents a 37% adjusted EBITDA margin in Q2. For the full year 2023, we expect revenue of $844 to $850 million.

Speaker 5: which represents 8-9% year-over-year growth.

Speaker 5: We expect a jessity betta of 332 to 338 million, which represents a 40% of jessity betta margin at the midpoint. We expect a jessity betta margin at the midpoint.

Speaker 5: Two points to keep in mind as you think about our second quarter and full year guidance.

Speaker 5: The first is that we feel good about our ability to deliver our position for the year.

Speaker 5: While we did see some incremental benefit from higher volumes related to casualty in Q1, we are not factoring this trend to continue through the balance of the year. We have raised the low end of our guidance based on the momentum in the business and the durable revenue model that provides good visibility to our long-term subscription contracts.

Speaker 5: The second point is that we expected just the beta margins to step up in H2 from the low point in Q2, which will be impacted by seasonal expenses such as the annual payroll step up our annual customer conference.

Speaker 5: and the year-over-year effect of the second half of last year's headcount ads. Also in Q2, we have approximately $2 million of non-recurring, dual-running hosting costs related to the migration from private to public cloud.

Speaker 5: We believe we have many shots on goal across our solution sets.

Speaker 5: This includes solutions that we've had in the market for years.

Speaker 5: as well as our new set of emerging solutions that we've recently released to the market. The need for digitization across the P&C insurance economies continues to accelerate. And CCC is well positioned to drive durable growth in both revenue and profitability in the near.

Speaker 5: With that, operator, we are now ready to take questions.

Speaker 2: Thank you. Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced.

Speaker 2: To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Speaker 2: questions, please press star 11 again. Please stand by while we compile the Q&A roster. One moment please.

Speaker 2: Our first question comes from the line of Michael Funk of Bank of America. Your line is now open.

Speaker 3: Thank you very much. A couple for you, Gitesh, if I could. And thank you again for all the commentary about growth and demand for F2N FTP and then diagnostics as well and quantifying that for us. Can you help us think, though, about the quantification, for example, 2X increase in diagnostic, and

Speaker 3: to increase in growth in GWP.

Speaker 3: across insurance from the U.S. after a low point, I think, in 20. How does that potentially impact your revenue or growth trajectory if at all?

Speaker 4: Thanks for that question. I'll take the last part of your question first. I think this is really one of the reasons I've given that small stat at the beginning, or somewhere in the middle, where we are now roughly 2.1% of the entire spend. And spend correlates very closely to DWP.

Speaker 4: and the DWP has continued to increase.

Speaker 4: continue to increase our...

Speaker 4: a CCC's spend as a percentage of revenue has actually gone slightly lower, even though we've added more solutions and everything else. So we feel very, very good about continuing to deliver more solutions, because at the heart of it is really the dollars we're managing. As longtime hypersecurity deliverynet to

Speaker 4: compared to say the dollars we were managing even three years ago, that has increased, that's almost doubled in the last three, four years, partly because of inflation and everything else.

Speaker 4: Now, as you know, our revenue model is primarily subscription based, so it doesn't really vary that much, but the need for solutions to manage more components of claims and other components of insurance increases significantly.

Speaker 4: So that's some kind of the last piece of your question.

Speaker 4: And then in terms of modeling, I'll make a couple of comments on estimate STP and diagnostics before I turn it over to Brian on the actual modeling.

Speaker 4: So if you look at estimate SDP, the macro thing is that we delivered the solution in November of 2021.

Speaker 4: And in less than a year's time from March of last year to where we are today, we're at an annualized run rate of a billion dollars of estimates and repair going through. Still very, very small number relative to CCC overall.

Speaker 4: make our diagnostic solutions provide a lot of clarity, verification, scans upfront in the middle of the process and after. So Brian , I'll turn it over to you if you want to hit any of the modeling questions for Michael. Yeah, sure. Thanks, Kitesh. Hey, Michael. So when we talk about the emerging solutions, we kind of look at...

Speaker 5: about 20% of growth coming from new logos, and 80% coming from our existing clients. And then we broke it down further and said, ah, that 80% of growth. Half of it will come from products that we've had in the market for several years. And half of it will come from this new cohort of emerging solutions.

Speaker 5: So that's the way to think about the long-term guide on the impact of the emerging solutions. I mentioned for Q1 we had over one point of growth. For the emerging solutions, you think about that's where we are today as a run rate and moving to the three to four points of growth.

Speaker 5: Based on that long term guide.

Speaker 3: That's great color, guys. Thank you so much.

Speaker 3: Yeah, absolutely.

Speaker 6: Thanks, Bhakir. Thank you. Thank you.

Speaker 2: Thank you. Please hold for our next question. One moment please. Our next question comes from the line of Zakhet Kaliya of Barclays.

Speaker 3: Your line is now open. Okay, great. Hey, Gitesh. Hey, Brian . Thanks for taking my questions here.

Speaker 3: Hey, Gitesh, maybe just to start with you, I wonder if we could just double click a little bit on the casualty business. It was mentioned a little bit more in this script. I was just wondering, can we just maybe take a stab at roughly how big that is as a percentage of revenue? And more importantly... We'll get you a little better soon. Thanks.

How do you sort of think about the drivers of growth there over the next couple years? Sure, I'll give you some overall thoughts.

So when you look at casualty, out of every five auto claims, roughly one auto claim results in a casualty exposure, a medical claim associated with it. So one in five.

Yet the dollar spent on physical damage, which means either repairing a vehicle, totaling a vehicle, call that X, and then the cost of the medical claim is roughly in line with what is spent on auto physical damage.

So dollar for dollar, it is approaching very similar kind of overall numbers. So it's sizable numbers. So when you look at why we are in this business and why it makes a lot of sense for us, the upfront part of an auto claim is very similar to what we are seeing in the business.

right when an accident happens, there's a number of decisions and a number of insights that come out of the physics of the accident, including some of the AI work we've been doing from photos that has a significant bearing downstream in terms of what is paid out for that collision, for that claim, for that auto claim.

And hence, it lends itself to many of the things we would like to accomplish through straight through processing, even though the Calculate claims are one in five.

Hence, it lends itself to many of the things we would like to accomplish through straight through processing, even though, the Calculate claims are one in five. Another macro point.

is that as inflation hits casualty and other things, scientific precision and a more scientific rigor around really how you look at the accident, how you look at the physics of the accident, what you pay, there's a very substantial amount of work that is being done.

And when you look at our customer base, roughly 300 insurance carriers in the United States are customers for our autofysical damage product.

The number of customers that are our customers in the casualty business is a very small fraction of that. So therefore, we see the ability to continue to expand in casualty.

Over the last three plus years, we have invested substantially in the platform, casualty platform itself in terms of its core capabilities, and we're starting to see the benefits from customers.

Brian , do you want to add anything to that or Saket, did that answer your question? Yeah, I would just add one data point. Saket asked specifically the size today. It's about 10% of revenue today. Saket, if we have the same market share as our APD business at scale, it could be a $300 million business over time.

I think you mentioned, apologies if I missed the exact number, but it sounded like you mentioned some dual costs specifically in Q2. Can you just talk about how those are going to trend in particular as we think about the margin expansion in the second half?

Yeah, happy to second. Yeah, so when we look at Q2, the margin, there's a couple things happening when you look at the Q2 position. The first is we onboarded a meaningful part of our hiring plan last year in the second half. So we are seeing that margin pressure run through the first half of this year.

Then the third point, which you alluded to, is we do have this non-recurring one-off dual running cost, and we highlight about $2 million, and it's related to cloud migration. So we're moving from one cloud provider to another, and that's driving some one-time costs, which is about $2 million in the quarter.

So all those are running through. We then get to the second half of the year and we do see expansion. So we're modeling out expansion in the second half and we get to a full year and we're forecasting margin about 40% for the full year. So that's how it kind of plays through from Q1 performance into Q2 where we have some the headwinds.

Got it. Very helpful guys. Thanks.

Got it. Very helpful guys. Thanks. Thanks, Zach.

Thank you. Please hold for our next question.

Thank you. Please hold for our next question. One moment please.

Our next question comes from the line of Kirk Materne of Evercore ISI. Your line is now open. Yeah, thanks very much and congrats on the quarter. Gitesh, I was wondering if you could just talk about sort of the AI boom we've had in terms of the democratization of the topic and how that's maybe influencing your conversations. I realize you guys are perhaps been ahead of the wave that we've seen over the last few months but.

that as there is much more press around AI in general, you can't literally can open a paper or an article without reading about AI. It is in general, increasing visibility awareness. And so that actually is a very positive trend for us.

As you know, we have been at this for seven, if not almost nine years, of building very sophisticated models.

And if you look at a couple of the core advantages we have is hundreds of models and an enormous amount of depth driven by about a trillion dollars of historical data and daily data that comes in. Right on a daily basis, we're literally seeing hundreds and hundreds of millions of dollars.

of real-time data coming in through. So the feedback loops for the models is enormously powerful. I would say one other thing that is super helpful for us that our clients really appreciate and appreciate it more is that we are in line in the existing workflows.

So we are not applying AI separately, we're applying the AI in existing workflows so it is very seamlessly integrated into existing paths and the way it works.

So what we are seeing is really three dimensions where we're continuing to add customers for pilots, additional customers, and the customers that we brought on board for some components, they're expanding to more markets, more states, more geographies.

We've also added more comprehensive vehicle types. And so it is actually nice to see the market. We were very early in this process and it's exciting to actually see the market now and the press and everything else around it is actually very helpful to the cost.

Yeah, in terms of customers. You guys are definitely earlier on on that trend. And then just one quick thought for Brian . Brian , just on the head count editions over the course of the years, there anything we should keep in mind in terms of how that'll play into the margin ramp and the back after here? I guess are you on track with what you want? Would there any, you know, just where are you? I guess on head count editions, relative to your plan for the year. Thanks.

Yeah, absolutely. Yeah, so we had some catch up headcount that we put in play last year and it was, it was weighted to the second half of the year. Beyond that, you know, we are continuing to add heads. But nothing significant to call out that would distort any of the quarterly phasing.

So we see kind of just normal progress as we go forward. Again, we're highlighting some margin pressure in Q2, but then we see the expansion in the second half, and we're guiding to about 41% margin in the second half to get us to the bottom of that.

40% for the full year, so our operational plan and our hiring plan is consistent with those assumptions.

Thank you. Please hold for our next question.

One moment, please. Our next question comes from the line of Samad Samana of Jefferies. Your line is now open. Our next question comes from Samad Samana of Jefferies.

Hi, good evening. Thanks for taking my question. So, I had a follow-up question on the AI side, and as I think about estimate, SDP and the other products that are powered by AI, how should we think about the usage increasing so dramatically, and maybe where does that flow into the cost in the short term? And is that part of the reason why you're...

changing to a different cloud provider. I just wanted to maybe explore that topic a little bit more. Samad, first of all, welcome to CCC. I think this is your first call. Thank you for joining. We really look forward to working with you all and continuing to get to know you better.

So first and foremost, you know, the again, as I mentioned, it is still less than even though the expansion has been substantial. We talked about a 10X increase in the estimate STP component from processing on an annualized basis, you know, from going from 100 million in March of last year run rate, annualized run rate.

to a billion this year, it's still less than one percent. So I would say some of the what we did, so that is not really.

In any significant way, it's still a very small number, but it's super exciting to see the growth, the way customers have been piloting it, testing it, deploying it, lots and lots of work done between us and our customers. And that gives me enormous comfort and confidence.

about the path we're on and the feedback we're getting. So we feel very good about that.

I'd relative to your question on the hosting cost, what we really did in the quarter was to get a small component of our hosting. And we moved a small component of hosting that we're doing from one provider to another provider. So there's a little parallel running, a couple of million dollars in the quarter, and that should be over this quarter.

So then really the two dots are not connected. Does that answer your question, Smad? Absolutely. I appreciate the thoroughness. And then maybe just, how does the company think about the type of seller or the sales organization and how they're going to market today versus...

increasingly having to sell maybe solutions that have more of a technical element to it. Does it change the nature of the sales cycle or the nature of the type of seller that you have and how are you thinking about that from an evolutionary standpoint with the sellers you have today?

Sure. So first and foremost, we have a full complement of people that have been with us for a long period of time and we cover all our customers. At the heart of it, we have a full complement of people that have been with us for a long period of time and we cover all our customers.

While all our solutions have a very deep amount of technology behind them, what we're really delivering to a customer are really two things. Operational excellence, the ability for them to improve operational performance, and an ROI associated with it.

So we've been in the business of delivering operational performance and ROI in a very short period of time over literally the last 20 plus years.

So that core ability to deliver operational improvement and ROI, that hasn't changed. But where needed, we have absolutely added specialists from product development, product engineering, sales engineering and other components.

It's more augmentation as needed. So it's not really a major lift and shift for us. Thank you. Please hold for our next question.

One moment, please. Our next question comes from the line of Dylan Becker of William Blair. Your line is now open. Your line is now open.

Hey guys, thanks and congrats. Maybe get Tesh going back to the AI piece too. You guys have spent a lot of time investing in R&D capabilities. You've got that massive differentiated data set. I would love to understand how you think about allocating resources as we think about kind of…

stakeholders in the broader ecosystem, right? So going deeper in CAI capabilities kind of for the core customer base, customer segment and workflows today, obviously expanding SDP versus again, I think go back to that like dark blue and light blue slide you guys had out of the IPO, but being able to address more of those kind of potential customer segments or integrations across the ecosystem as well. So maybe deeper versus wider. Hey Dylan.

You know, if you look at the heart of what we've really learned of doing this over the last, you know, almost almost a decade is We have really built an extraordinary amount of very deep expertise from the very early days when we were buying Nvidia CUDA engines to build graphics.

to build basically our AI models a long time ago to where we are today. So we have built and developed a core set of capabilities where we can look at a problem and say AI would be super helpful for this or

a more traditional algorithm would be really super helpful for this. And there's also a lot of side effects, second order effects, about either drift, in terms of confidence levels, what we've also learned is the governance around this is super important to our customers.

Meaning, what is the confidence level, what's the accuracy level being super transparent about all of that?

So the learning we've had in terms of our core people and our capability, we have a substantial amount of engineering talent now capable of building AI and models across any faster business. What we've also done in our tech stack

is to make sure that our AI models can be deployed quickly and seamlessly across the tech stack.

So if you look at Estimate SDP, great example of using AI there. We talked about engage where we're using semantic AI. We talked about, you know, subrogation where we're using AI models for subrogation. AI will be applied to parts ordering. And...

So we've actually made sure that we keep enhancing our tech stack so that the ability and speed at which we can deploy the AI to different vertical problems. So every one of our newer and emerging solutions as well as some of our, what I call our classic products, classic solutions.

they're also using AI. For example, the simple ability to decide between a repair and a total loss. We're applying AI to even that process. Yeah, that's helpful. Yeah, and obviously a lot of optionality there. So very exciting and encouraging. Maybe if we switch over to the diagnostic side.

It seems like there's a couple drivers on that opportunity as well. So how should we think about maybe not only the opportunity for just like a pure kind of career post-repair scan tied to the vehicle upgrade cycle, but also the opportunity maybe for more in-process scanning capabilities or calibrations, obviously, if there's more

because at the heart of all of this is really increasing vehicle complexity.

So what happens is vehicles become more complex and newer vehicles come in. The need to scan the vehicle at the beginning, sometimes in the middle, and sometimes at the end, so you know exactly what is wrong with the car, what needs to be reset.

So that's a component. And as you rightfully pointed out, as the car part continues to get newer, a new car starts to keep coming in, scanning becomes an extraordinarily important part of repairing the car accurately.

One other element that our solution provides that is very unique is that the ability to verify that the scan was actually completed on the car, a pre scan, a post scan, so that there's complete transparency between the carrier, the repair facility, the provider.

That's a very important element of it because it's now standardized that process and provides transparency through all of these capabilities and then that also extends to calibrations. And then of course as you know we mentioned we have wonderful partners who are actually providing the connectivity into the scanning solutions and our partners have been fantastic at this.

And so we have, as I think I mentioned in my prepared remarks, we have seen literally a doubling of the number of scans from Q1 of last year to Q1 of this year. With that said, it's still early days in terms of scanning.

Thank you. Please hold for our next question. One moment, please. Our next question comes from the line of Chris Moore of CJS Securities. Your line is now open.

Hey, good evening guys. Thanks for taking a couple of questions. So I thought that the conversation, that 20 basis point metric was a really interesting way to look at it.

understanding that the total cost of claims is going to keep on going up, is there a target in terms of this 20 basis that you guys think about? I mean, someday it could be 50 basis points or that's not part of the process. You know, Chris, thanks for joining. We don't really have a target.

The way we think about this is that when you connect this to the TAM that we've laid out in our public documents,

This is why we remain confident about a multi-billion dollar TAM. And when you connect it to what, you know, the less than 20 basis points we get today, and this is what gives us enormous confidence in the TAM that is available. And so we just kind of wanted to share that as a basis point. But the way our products are built, the way our products are consumed by our customers.

small float and things like sponsor or not shares there could be some added volatility as the stock ultimately moves back into the teens and beyond. Obviously your focus is on the fundamentals, you'll be rewarded as you deliver there. But I just thought it would be worth discussing kind of longer term equity incentives of management and

how they were impacted by future stock prices. My understanding is that a $25 stock price is an important target for lower-term management incentives and just wanted to kind of hear your thinking there.

Sure. One of the things that's always been great about what we've done is that

we have always wanted our leadership team to act as owners, not just in terms of equity and options and grants and the like, when actually owning stock and having significant ownership, we believe that really drives ownership behavior. So if you just look at the last two years.

that we've been public, right? Eight quarters, going from first quarter of 2022, 2021, to where we are today, literally eight quarters later. We've added about a third in revenue growth on a run rate annualized basis, roughly 200 million.

We have increased earnings by about a half. And we've delivered $200 million of additional cash flow in that timeframe. So we feel very good about the value we are creating for our customers.

the operational performance. And we think over the long run, your points about the float and the float that we have on the stock, we think we will power our way through these things provided we continue to deliver and execute. And remember, many of our leadership team, our top leaders, all our employees.

is actually going to do. Very helpful. I will leave it there. Thank you.

Thank you, Chris. Thank you. One moment for our next question, please.

Please stand by. Our next question comes from the line of Tyler Radke of Citi. Your line is now open. There is no eviction.

Hey, thanks for taking the question and good evening. You mentioned in your scripture test about obviously the increase in electric vehicles on the road. I was wondering if you could just share some.

data points on what you're seeing in terms of maybe repair shops that are more focused on electric vehicles. Would there be any common customer behavior in terms of increased monetization rates, better product uptake just given they are most likely dealing with higher claim ticket prices? So presumably if you get a better…

great. Just any comments on kind of how that's impacting the fundamentals of your company just based on what you see at those customers? Yeah, hey Tyler, great to have you on the call. I would say maybe two or three points. First, what we're seeing is that even though

Sales last year was 6% of all vehicles sold on EVs. Only what we're seeing is literally only 1% of that is actually translating. I mean that corresponds to the installed base of vehicles, still at roughly 1%. But to my point that I was making earlier, which is the average cost of repair for EVs are today 50% higher than non EVs.

And the complexity around those vehicles is a little higher. When you have to disengage an 800 volt rail or deal with different voltage subsystems and electrics. So additional things like diagnostics become really important. The ability to have more accurate repair procedures on how you...

disable voltage or where you cut the vehicle for a weld. All of those things become important. So we are also seeing some degree of specialization because of the capex required by some of the repair facilities. And so it is tending towards the larger repair facilities and the more sophisticated repair facilities.

doing more of this work, but we think over time this will balance itself out because what you're dealing with in a collision repair is not the underlying subsystems like the motors or the gearbox or any of those things. In an ICE vehicle or an EV vehicle you don't have those.

but you're dealing with the exterior panels, the cameras, the calibration devices, and the exterior of the vehicle. And we think that process will get democratized as more and more electric vehicles get on the road. And as we talk to OEMs, they would like to see that as well.

Sounds like a long-term tail end for the business. Yes, and helping our customers with the complexity.

One for you. So you called out some elevated casualty volumes in the first quarter, I guess, and not to be too nitpicky here, but I think everyone's wondering about the macro environment. If I go back a year ago, I think you raised the high end of your guidance by two million coming out of Q1.

I think this quarter you just took up the low end of the guidance and again no one's gonna gonna fault you for not being aggressive in this environment. But just curious if there's anything to call out maybe any incremental conservatism that you're applying to the pipeline just as you give the updated guide here.

which didn't increase on the high end despite the strength of the quarter. Thank you. Yeah, absolutely. So, as you remember, 80% of our revenue is subscription based and less than 20 is transactional. Part of the overperformance that we saw in Q1 was related to higher volume for casual.

have on the 80% that's subscription based and under long term contracts we did raise the low end of the guide and that also pushed up the mid point of the range. And so we're happy with the performance and the momentum in the business. We are comfortable on the position for the year.

That said, it is early in the year and we are operating in dynamic markets. Thank you.

It is early in the year, and we are operating in dynamic markets. Thank you. Please stand by for our next question.

One moment, please. Our next question comes from the line of Gabriela Borges of Goldman Sachs. Your line is now open. Good afternoon. Thank you. You are one of the few companies that has shown resiliency throughout the macro volatility

Following up on that last question, I'm curious, what kind of data on macro environment would make you incrementally more nervous about the pipeline or about Elon getting sales cycles or essentially seeing a more negative impact on your business from macro volatility?

Hey Gabriella, thanks for joining. As you know, we've operated this business for...

Hey Gabriella, thanks for joining. As you know, we've operated this business for several decades and have seen...

various economic cycles. And the only time where we saw a decrease in claim frequency was during the first year of COVID.

various economic cycles. And the only time where we saw a decrease in claim frequency was during the first year of COVID. And

because of the underlying nature of the business being mandatory insurance, and people need to drive, so that underlying architecture of the business itself

means that our business over the last 20 plus years is really not.

been changed in any way. There's not been any cyclicality in the business. It's been more steady. And if you look at claim volumes in general, over many years, they tend to trend up a little bit over time as population increases. And, you know, I would, you know, we have. So this is one of the reasons why we have architected our business.

to be able to deliver an ROI in 90 days. That means when you deploy our solution, it's not a multi-year implementation. It is a relatively quick implementation. Being on the cloud is super helpful. So all of these are incremental solutions with incremental, very quick ROI.

that our customers like to test. So the answer to your question of, we're monitoring the macro environment very carefully and cautiously, but our observation over the last many years has been...

you know, the approach we've taken has worked. Thanks for the call.

the approach we've taken has worked. Thanks for the call. Thank you.

Please hold for our next question. One moment please.

Our next question comes from the line of Gary Prestapino of Barrington Research. Your line is now open. Hi, good afternoon everyone. Hey, Gitesh, wanted to just get back to this estimate STP. Last time we spoke, you had said you had just done a selective roll out, even though you have a number of insurance companies.

Our next question comes from the line of Gary Prestapino of Barrington Research. Your line is now open. Hi, good afternoon, everyone. Hey, Gitesh, wanted to just get back to this estimate STP. Last time we spoke, you had said you really hadn't, you had just done kind of a selective rollout even though you have a number of insurance companies. Bye, Gries.az Dickens.

that have uptaken this product. Have you, and I think it was selective rollout in a couple of states, have you expanded that any? I mean, to me, only if one percent of your claims volume is going through and this is such a much more efficient process, how do you get more insurance companies to use it, I guess is the question too that I would have. Hey, Gary. I would say a couple of things. First and foremost, it also, you know, as we started working with clients...

We wanted to be extremely careful that people were actually seeing really great results.

And so we limited the number of vehicle types. So we've slowly expanded the number of vehicle types the solution is available to. So that we've expanded that. And also we were encouraging early customers to actually limit the geography. So we can actually test, pilot and make sure we work carefully in their particular environments.

What we have seen is really an expansion of both, that we now cover a very broad range of vehicles. And we have some customers who have gone out to, you know, pretty much nationwide, but they're still, we're limiting the number of actual claims that go through this process with very high degrees of confidence.

So as that confidence increases, we want to be very thoughtful and very careful in the early days of implementation. But we feel very good about what we're seeing, both in terms of people adding additional states, tuning processes.

as well as additional clients wanting to pilot the solution. Do the repair shops have to do anything to work with the insurance companies that are using this estimate STP? Is there any capital threshold for them? The short answer is no.

there is no need for the repair facilities to actually change anything from their process standpoint. And because of the network effects that we have between the insurers and the repairers, the transition of the photos, the estimate,

even the estimate is produced can be edited and changed by repair facilities. So that's very easy to do and we'll also be delivering other solutions for repair facilities.

Thank you. Please hold for our next question.

One moment, please. Our next question comes from the line of Alexei Gogolev of JP Morgan. Your line is now open. Your line is now open.

Hello everyone and thank you for taking my question. Could you elaborate on the traction of your payments business? There appear to be quite a lot of applications to that product within your ecosystem. So maybe you could talk about which of those applications you are using.

could potentially drive most upside to your revenue. Alexei, first of all, welcome to CCC. I think this is your first call with us. Thank you for joining.

And I would say, you know, on the payment solution, we see the payment solution as a horizontal solution, in the sense that it applies to all forms of payments across the network. Payments to medical providers, payments from repair facilities to parks providers.

insurers, repair facilities. So we've built a generic payment solution that works across the platform. And what we have been working with customers is really the early use cases. And we do have some revenue starting to flow through, but we are primarily

seeing more opportunities across the ecosystem. So it is not in any one particular application. OK, perfect. And then could you maybe elaborate on the adoption of mobile? How has it been increasing and what is currently the share of claims now settled through the mobile channel? So what we have seen is...

from almost a dead center start of zero, of very, very little mobile at the start of January of 2020, right before COVID, we are now hitting a threshold of about 28.5%, slightly under 30%.

And so that number steadily continues to increase because of all the benefits and efficiencies it provides to the consumer. And we have continued to also enhance that solution substantially. So not only can you take guided photos of the accident, we can help you schedule a repair, you get updates throughout the repair process.

As I mentioned, the Engage solution has a fundamental ability for consumers to take pictures and get estimates from repair facilities, whether it's insurance paid or self-paid. So we've brought a lot of mobile capabilities over the years to collision repairs, both in terms of tablets, mobile phones, and linking to consumers. Thank you. I would like to turn it back to Gitesh Ramamurthy, CEO and Chairman of the Board, for closing remarks.

Thank you all for joining us today.

I'd like to thank our customers, our CCC team members, and our shareholders for a great start to 2023. The durability of our business model 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.

We look forward to talking to you again in early August , when we report our second quarter results, if not sooner. Thank you so much for your continued trust in us.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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