Q2 2023 CCC Intelligent Solutions Holdings Inc Earnings Call

August 1, 2023

Yeah.

Good day, and thank you for standing by and welcome to the PTC Intelligence solutions second quarter fiscal 2023.

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Please be advised that today's conference is being recorded I would now like to hand over to Bill Warmington.

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Thank you operator.

Good afternoon, and thank you for joining us today to review <unk> second quarter 2023 financial results, which we announced in the press release issued following the close of market today joining.

Joining me on the call our catastrophe Murphy, Gcc's, chairman and CEO and Brian heard CCC CFO . 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 implementation of the company's plans to vary materially. These risks are discussed in the earnings release.

This is available on our Investor relations website and under the heading risk factors in our 2022 annual report on Form 10-K filed with the SEC.

Further these comments and the Q&A that follows are copyrighted today by CCC Intelligence solutions Holdings incorporated any recording retransmission or reproduction or other use of the same for profit or otherwise without prior consent of CCC is prohibited and a violation of United States copyright and other laws. Additionally, while we.

We've approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracy that may appear in that transcript.

Please note that the discussion on today's call includes certain non-GAAP financial measures as defined by the SEC. The company believes that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends related to the company's financial condition and results of.

<unk>.

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 particularly cash.

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.

Afflicting, both the predictability and mission critical nature of our solutions.

Second quarter of 2023, Ccc's total revenue was $212 million up 10% year over year ahead of our guidance range.

Adjusted EBITDA was $81 million.

Also ahead of our guidance range.

Our adjusted EBITDA margin was 38%.

On today's call I'd like to highlight key themes that underpin our performance.

The first is ccc's durable business model.

Innovation and third the growing adoption of CCC solutions.

First our durable business model.

As you know from previous earnings calls and media reports the auto insurance economy is being impacted by multiple headwinds, including staffing shortages inflation supply chain issues, increasing vehicle complexity and rising consumer expectations.

Yes.

These challenges are being compounded by claim counts have rebounded significantly from the pandemic and are now less than 10% below 2019 levels.

That result of these trends has been a significant increase in repairable.

Loss and casualty cycle times we.

We recently did a deep dive into our metric we first discussed back in 2021.

The accumulative days of cycle time for automotive claims in a year.

And by cycle time, I mean, the number of days from a claim being open to a claim being closed by.

Back in 2019, the cumulative days of cycle time for automotive claims in the U S was more than $1 billion days per year.

Staggering figure.

The accelerating macro pressures facing the industry. However, in 2022 that figure rose to more than $2 billion days to put that in perspective 2 billion base as more than 70000 human lifespan.

This increase of 2 billion days underscores our claims in the P&C insurance academies knee to address operational efficiency.

We are uniquely positioned to help because our multi sided cloud native network with dozens of solutions links together companies across the entire auto insurance ecosystem.

The breadth of our network is unmatched with over 35000 customers consisting of over 29000 repair facilities over 4500 parts suppliers more than 300 insurers and 13 of the top 15 automotive Oems.

But connecting these companies and digitizing processes across the ecosystem or platform increases their ability to be productive reduce inefficiency and improve communications throughout the claims process, which ultimately can result in claims being resolved faster.

Estimate STP, our AI based estimating solution for insurers that can pre populate a complete line level repair estimate on a qualified claim in seconds using photos from a mobile phone is a great example.

Of how our solution speed time to resolution.

Today, a repair estimate prepared manually by an adjuster can take hours or even days to schedule an incomplete.

Which can negatively impact customer satisfaction as well as costing the insurer over $150 a claim.

It also typically involves driving on the part of the consumer and or the adjuster as well as plenty of paper forms.

Estimate stp's multiple AI models by contrast can prepare their fair estimate in seconds or minutes, 100% digitally, thereby reducing the cycle time administrative expense in the environmental impact of the claims process to date information to prepare repair estimate.

S is collected through three channels known in the industry as method of inspection or <unk>.

Roughly 30% of claims are inspected by consumers by the mobile phone self service channel, but 45% are inspected repair facility and approximately 25% are inspected by insurance staff in the field.

While estimate Stp's initial application was using photos from our consumers mobile phone to prepare an estimate.

We want every inspection channel to be able to take advantage of this groundbreaking technology.

Towards that end, we are working to expand our estimate STP solution and to inject AI based computer vision technology.

Into the repair facility and field adjusters channels using these technologies to assist consumers repair technicians and field appraisers with inspection has the potential to reduce cycle time and estimate preparation and improve operating efficiency across.

A much larger set of claims.

We believe our decades long track record of helping clients with their mission critical operations is a cornerstone of our durable business model and why customers typically adopt more of our products over time.

A great example of this was a recent win with the top line insurer.

<unk> a longtime CCC customer was only using our casualty solutions and not our auto physical damage our Apd solutions.

Last month this customer agreed to add our full suite of <unk> solutions, including estimate STP.

This client will be transitioning services from multiple vendors to the CCC platform.

We've begun the implementation planning for the migration and expect this new Apd relationship to start contributing revenue in the first half of 2024.

This is a great example of the significant opportunity in numerous ways, we have to expand our solution set with the country's largest insurers.

The second point I'd like to discuss with you today is innovation.

While we are proud of the network and portfolio of solutions, we have built today.

We're still in the early innings of this industry transformation and remain committed to investing in innovation that will increase the value we deliver to clients.

A good example is the investments we have made in recent years in our casualty solutions, which we believe can be a major growth opportunity for CCC.

We recently rolled out a new AI based computer vision technology for casualty claims that can predict potential physical injuries for the occupants of a vehicle involved in an accident based on photos of the damaged vehicles.

This use case links our APB and casualty capabilities and enables insurers contracting for both sets of solutions to analyze claims early in the process using multiple AI models.

<unk> insurers more efficiently and effectively identify risk reserve appropriately and guide claims through the claims process.

We have a long history of helping our clients improve their operating efficiency through early analysis of claims.

The initial determination of likely total loss versus repair for example.

And we're now bringing that capability to our casualty claims as well.

This is another example of our AI model development and deployment capabilities, which on a combined basis represent one of ccc's sustainable competitive advantages.

In terms of model development.

Over a trillion dollars of historical accident data, which is continuously updated on a real time hyper local basis across tens of millions of repair estimates annually.

In terms of model deployment.

We are already deeply embedded in the work streams of many of our customers across the auto insurance economy.

Enabling seamless deployment of our AI solutions with a minimum of effort. We continue to see a large growth opportunity for CCC in casualty.

The insurance industry pays out the same amount and indemnity payments for casualty and auto physical damage each year.

With a revenue opportunity in each market being roughly equal as well.

Today, only about 50 of our more than 300, Apd or auto physical damage customers also use our casualty solutions and our revenue from Apd is four times that from casualty.

Delivering a growing set of casualty solutions into our Apd customer base. Therefore represents one of our biggest growth opportunities with insurers.

We're seeing early proof points that our strategy for casualty is working.

In Q2 for example, we added and expanded relationships with multiple new and existing customers.

We believe our investments in innovation combined with our ability to integrate our data and solutions on the <unk> side of the business <unk>.

Positioning us to continue to drive growth in casualty.

For my third and final point, the growing adoption of CCT solutions I'd like to highlight our parts offering.

While our parks is currently only about 5% of revenue.

Is growing significantly faster than CCC overall, and we believe it represents a large opportunity for us.

Last year, the collision repair industry spent about $18 billion on parts.

Based on our existing business model, we believe parks represents a multi hundred million dollar annual.

Revenue opportunity for CCC or more than five times, our car parts revenue.

Today, only about 15% of industry parts volume is ordered electronically to the CCC network.

We believe that CCC has the opportunity to increase that percentage over time, because our electronic parts ordering solutions.

<unk> improve.

Operational efficiency for automotive Oems part suppliers repair facilities and insurers through process simplification and integration and automation.

Our parts platform brings relevant parties together.

Increased visibility to buyers into parts availability and pricing, making the entire parts procurement process faster and more transparent.

Surprisingly a meaningful portion of parts are still ordered manually by fax machines and phone calls, which is obviously slow and inefficient.

Error prone.

And emblematic of what needs to change.

<unk> that 2 billion days of annual cycle time.

In a world where supply chain disruptions are a regular occurrence.

Knowing supply and availability at the time of parts selection is critical in managing cycle time, and total operating efficiency.

Longer cycle times can mean high railcar costs and lower customer satisfaction.

Lower shop, and labor utilization or repair facilities and the lower volume of parts sold for parts suppliers.

This quarter, we further grew our parks network by expanding the participation of two leading automotive Oems and signing a multi year extension with one of the leading aftermarket parts suppliers.

We are pleased with how our parts platform is scaling and are confident that a growing portion of the industry parts procurement will take place electronically on our network in the years to come.

Let me conclude by saying that we are proud of what we achieved in the first half of 2023 and are excited about what we have planned for the second half of the year and.

And we remain confident in our ability to continue to deliver on our strategic and financial objectives.

I will now turn the call over to Brian will walk you through our results in more detail.

Thanks catastrophe.

Detached highlighted we are seeing strong momentum across our business in terms of innovation and adoption of solutions by our customers a key component of our durable business is our highly efficient predictable and scalable financial model that enables us to balance investment.

<unk> and innovation and also drive operational efficiency throughout economic cycles.

As we now turn to the numbers I would like to review our second quarter 2023 results and then provide guidance for the third quarter and full year of 2023.

Total revenue for the second quarter was $211 7 million up 10% from prior year period.

Approximately seven points of revenue growth in Q2 was driven by cross sell upsell and adoption of our solutions across our client base <unk>.

Including the up sell of repair shop packages.

Continued adoption of digital solutions.

And the ongoing momentum in casualty.

An incremental three points of growth came from new logos.

With our repair facilities and part suppliers.

I also want to highlight that we saw more than one point of growth in Q2 from our emerging solutions, 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 Q2, 'twenty three GDR was 99% this is consistent with last quarter and with all of 2022.

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 tenet to our predictable and resilient revenue model.

Software net dollar retention or and Dr captures the amount of cross selling upsell from our existing customers compared to the prior year period.

As well as volume movements in our auto physical damage client base.

In Q2, 2023 software and Dr was 107% this is up modestly from 106% last quarter.

Now I'll move to the income statement in more detail as a reminder, unless otherwise noted all metrics are non-GAAP . We've provided a reconciliation of GAAP to non-GAAP in our press release.

Adjusted gross profit in the quarter was $162 million.

Adjusted gross profit margin was 77% flat.

<unk> flat with the second quarter of 2022 and up slightly from 76% last quarter.

The flat year over year adjusted gross profit margin, primarily reflects operating leverage on incremental revenue.

Offset by the higher depreciation expense from capitalized projects recently released to the market.

While the associated revenue from these emerging solutions is still in the early stages of scaling.

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%.

In terms of expenses adjusted operating expense in Q2, 2023 was $90 2 million up 10% year over year.

Expense growth reflects the impact of the head count additions in the second half of last year that crew staff month capacity by close to 20% year over year.

The quarter also included the nonrecurring IP migration costs that we highlighted last quarter adjusted.

Adjusted EBITDA for the quarter was $80 9 million up 10% year over year and adjusted EBITDA margin was 38%.

Now turning to the balance sheet and cash flow, we ended the quarter with $404 million in cash and cash equivalents and $788 million of debt at the end of the quarter. Our net leverage was approximately one two times adjusted EBITDA.

Free cash flow in the quarter was $55 million compared to $30 million in the prior year period.

Unlevered free cash flow in Q2 with $65 million or about 80% of our adjusted EBITDA.

While our level of free cash flow can vary quarter to quarter based on seasonality phasing or one time items.

We expect it to continue to average out to the low to mid 60% of adjusted EBITDA over time.

Normalized for the bonus payment in Q1 <unk>.

The year to date conversion of our adjusted EBITDA into Unlevered free cash flow would be 67%.

I'd like to finish with guidance beginning with Q3 2023.

We expect total revenue of $215 million to $217 million, which represents 8% to 9% year over year growth.

We expect adjusted EBITDA of 86 to 88 million, which represents a 40% to 41% adjusted EBITDA margin in Q3.

For the full year 2023, we expect revenue of 851 to 855 million, which represents 9% year over year growth.

We expect adjusted EBITDA of 337 to 341 million, which represents a 40% adjusted EBITDA margin at the midpoint.

Two points to keep in mind as you think about our third quarter and full year guidance.

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

We've raised our revenue guidance for 2023 by $5 million.

Based on the momentum of the business and our durable revenue model that provides good visibility driven from our long term subscription contracts.

This has moved our revenue guidance range from 8% to 9% to 9% growth for the full year.

The second point is that we expect adjusted EBITDA margins to step up from 39% in the first half of 2023% to 41% in the second half.

As we benefit from operating leverage on the incremental revenue and also lapping last year's second half head count ramp.

Overall, the strong trends, we're seeing in renewals and their relationship expansion reinforces our confidence in the underlying strength of the business and our guidance.

The combination of our durable business model advanced AI capabilities interconnected network and broad solution set puts us in a position to help our customers in the P&C insurance economy reduced cycle times and administrative costs.

While improving the consumer experience throughout the claim process.

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% organic revenue growth and adjusted EBITDA margins expanding into the mid Forty's.

As we continue to execute on our strategic priorities. We believe we will generate significant value for both our customers and our shareholders.

With that operator, we're now ready to take questions. Thank you.

Thank you.

At this time, we'll be conducting the question and answer session as.

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Our first question comes from the line of Kirk <unk> of Evercore ISI. Your line is now open.

Yes, thanks, very much and congrats on a nice quarter.

I was wondering if you could talk a little bit more about the opportunity for estimate STP outside mobile and self service I think before you guys were thinking only about 30%.

The market was sort of available that PPA that would seem to expand the Tam pretty dramatically. If you can go through other channels.

Our other claims are now eligible to you.

Talk about that a little bit and how that maybe changes either your thoughts on attach rate or the Tam.

Yes sure.

Thanks for the question first and foremost.

Our mobile clients are continuing to adopt and rollout.

Estimated STP and we've got different states kind of continuing to move more clients continue to adopt <unk>.

And just as a reminder, we have mentioned in the past that our total estimate STB volume, while it is still a little over $1 billion still less than 1% of our total volume. So I just wanted to make sure you understand that part.

We have been testing this capability out with insurance staff Adjustors, who also will need this capability and the receptivity has been terrific. So it does expand the Tam 225, and the additional 25% that's insurance staff.

As we've continued to work with repair facilities, which is 45% of all inspections. We've been testing this capability with repair facilities and we're seeing some real benefits in the ability for a repair facility to get not only get the photos from consumers, but also get a sense for what the repair.

With cost and what that estimate would look like that provide some real efficiencies. So very early stages on the second two use cases, we talked about but it does expand our Tam and it's also a reminder, that estimate STP as part of a much broader straight through processing solution for us.

Alright, that's super helpful. And then Brian just thinking about it correctly as we go into the back half of the year in terms of net retention.

Can you just sorry.

Sorry, you had net dollar retention should we be expecting it to remain around this like 107 range kind of how should we I know you don't guide specifically, but any changes we should be expecting on that front. Thanks.

Yes, absolutely, yes, if you look historically, we've been around 106 is kind of a steady state position. We did 106 last quarter. We did 106 in Q4.

Obviously, we did 107.

This quarter, we feel good on the 107 and the overall momentum and progress in the business. So.

I think it's going to be in that range 106 107 it.

It will move around a bit quarter to quarter.

But that's how we think about it certainly as we go longer term, we have highlighted that we've seen cross sell and up sell will move more like 80% of total growth and new logos will be 20%.

But thats medium to longer term as we step towards those growth rates.

Great. Thank you I'll congrats on the quarter.

Thank you.

Thank you. Please standby as can pile that next question.

Our next question comes from the line of <unk> Becker of William Blair. Your line is now open.

Hey, guys. Congrats on the results here maybe starting.

On the AI kind of theme you talked about casualty detection capabilities, you announced the partnership with.

With various for fraud detection.

I Wonder how you think about.

The potential for AI and automation to change the core kind of underwriting workflows and decisioning process for carriers, and maybe effectively digitizing existing but also unlocking entirely new capabilities new shares of premiums how should we think about that potential.

The short answer is that over the long term. It does open a lot of other avenues and capabilities, especially if you look at the.

What happened with the P&C insurance right in 2022 for example.

The P&C insurance had a combined ratio of 102.

And auto personal auto had a combined ratio of 110, which has been pretty challenging.

So over the long term, we do think there will be other use cases, but we are not focused.

Very deliberately on those use cases right now for example, the ability to when you when you insure a car to be able to take pictures around the car and look at the damage on the vehicle to get fraud checks and other things.

When you underwrite that vehicle.

<unk> is absolutely applicable, but over the long term, but that's not.

What we're focused on today.

Okay that makes sense.

And then and then going back to kind of that 2 billion cumulative days metric, which I mean, I think it's fairly mindblowing.

We've talked about complexity in the past, but maybe maybe touching on frequency and severity.

Perception that maybe I don't know even EV brings that down over time I think some of that released that points to the contrary there I guess, how youre thinking about the trend line of not only frequency and severity as it pertains to evs, but then the positioning of repair facilities.

To actually address.

This growing mix of work because again it doesn't seem like one.

One going to two there's room for that number to continue trending higher thanks.

Yes, sure. So first of all from a frequency standpoint frequency has been coming up a little bit, but still below 2019 levels, probably 7% to 10% below 2019 levels, but what has happened is that the complexity of repair has increased significantly let me give you a couple of stats.

To illustrate this point.

So if you look at if you look at the repair costs.

75% of the increase in repair costs between 2018, and 2022 came from really two categories.

The number of parks in the vehicle.

And the amount of labor hours and our vehicle debt accounted for 75% of the increase so in 2021, we saw a repair cost increase of 11, 5% and 22, we saw repair cost increase of 13, 5% and that has abated somewhat.

Underlying this was really the fact that in 2018, we had pinpoint one parts FERC collision repair and.

And then 'twenty two that had increased to $13 one parks. So in other words every repair every collision repair.

Just over that four year timeframe.

Got 30% more parts going in.

With inflation coming in.

And you also have more specialized labor.

Coming in so labor hours had gone from about 24 hours to little over 27 hours. So when you take these two things all of these factors in this is what we've talked about is the growing complexity of repairs the growing complexity with Evs Evs are still.

$35 40, plus percent more expensive to repair.

And since we see a very decent volume of EV going through our platform. It's still only 1% of claims even though EV sales are now around 6% of sales. We see this growing fundamental growing complexity is really what we're trying to address.

And hence the number that we see going from 1 billion days to 2 billion days and part of it is also due to supply chain issues, which are starting to normalize but underneath all of this is really complexity that we need to help every single one of our customers.

Manage.

Got it thank you guys.

Thank you.

Thank you. Please standby for your next question.

Our next question comes from the line of Gabriela Borges from Goldman Sachs. Your line.

<unk> is now open.

Good afternoon. Thank you for the question, Brian we talked about.

And the door a variety of cost in that business model every quarter sorry.

Is it reflective.

Year to date.

What is the price you where are you seeing things that maybe are more technology adoption until the upside is there anything that surprises to the downside so a little bit of reflection mom habanero bottlers.

A key our internal plan.

Yes, maybe Gabriel I'll take that first and maybe Brian you can add to that.

No part of having done what we've done for a fairly long time.

Is that our business.

Fundamentally it tends not to have too many surprises.

Which means many of the trends that we're seeing either in terms of technology or things that we're able to see with the visibility of the data that comes through the platform.

We're able to see that with this.

One thing we are seeing I would say at a macro level is that when we talk to our clients across the entire economy, whether it is Oems car companies parks providers insurers repairs.

The general sense of leaning in.

To use technology more aggressively than they were in the past.

Improve efficiency and to solve for shortage of labor.

That is one that we are consistently seen across the board again, it doesn't necessarily change.

Things on a week to week or month to month or quarter to quarter, but having seen this for a long time, we are seeing much more acceptance of being able to deploy process efficiencies and tools to deliver a differentiated customer experience.

I don't know, Brian if I wanted to add anything to that.

No I think I think you've covered it well I would just also highlight to see clearly at the macro there is a lot of it's a dynamic marketplace. We are operating in that said, we have really good client engagement.

And overall.

A lot of positive feedback from clients and how we're engaged with them. So I think that's just another important.

Thing Thats happening with our business in a dynamic marketplace.

Good to hear.

My follow up is on the casualty business I believe last quarter, you talked about casualty volume impacting about one point on the NRI, how should we think about casualty volume on a quarter to quarter basis in any volatility in that metric and as you gain momentum in casualty would love to hear what you're seeing in terms of competitive response from the one or two.

Incumbents will have good questions. Thank you.

Yes.

Yes on the casualty add maybe like detached talk around the competitive point I would just say from a.

Our revenue performance.

Q2 came in line with with expectation.

And performed well, we're happy with the overall performance of casualty, we're happy with the momentum.

That we're seeing across casualty and the ongoing strength and so we feel good on where we landed with Q2, we feel good on whats ahead of us in the second half of the year, maybe one small point of clarification, we talked about the casualty impacting Q1.

Casualty is not in our <unk> calculation Gabriella.

As a point of clarity.

When we referenced it in Q1. It was it was in reference to total growth and the over performance in Q1. So just.

A small little mechanical point there.

Yes, Gabriele regarding the second part of your question.

We never underestimate.

What others are doing.

We do have history.

And whether it is in the repair facility side of the business or the auto physical damage side of our business with insurers of really focusing on incredible innovation and differentiation in terms of what results we can deliver.

And so much of the work we've done over the last several years to position our casualty platform, including some of the AI examples.

You talked about earlier, we think those are really helping to differentiate us.

And also remember that many parts of the system, where the processing is still manual and a lot of manual handoffs and other things taking place.

A lot of bills coming in are still paper coming in so there's just a lot of opportunity there as well.

Thanks for that.

Thank you Gabriel.

Thank you. Please standby for your next question.

Our next question comes from the line of sight get Calia of Barclays. Your line is now open.

Okay, Great Hey, guys. Thanks for taking my questions here.

Natasha <unk> just to start with you.

I was wondering if you could just talk about the new top 20, <unk> Apd win here.

In the quarter, great to see because I think you've already got the majority of the top 20, but maybe the question is.

Premier discussions with the customer what do you think prompted them to move to CCC and are there other opportunities for cross sell like this within the casualty business because that makes sense.

Yes, absolutely let.

Let me clarify one thing to start with right we've said.

On the we said this was the only customer.

That was using in the top 30.

The only customer.

That was using CCC port casualty, but not using us for auto physical damage.

So this customer so every other customer we have in the top 30.

Use of CCC for auto physical damage and occasionally for casualty casualty represent a much smaller customer base across the top.

Largest customers.

So is that is that clear. So this customer now will not only absolutely casualty customer, but it will now also use our full suite of auto physical damage.

I think what through the evaluation process and where they were they saw I would say a handful of benefits.

First and foremost.

The breadth and depth of our network and our ability to deliver differentiated performance given we have the widest network of parts providers repair facilities and the like sex.

I would say is that very unique.

Innovation.

That we have put in place the innovation for example, with.

Estimate STP and a number of areas.

Single platform you can get.

All of these components connected together and delivered.

And third and I would say last but not least as you know when you have a net promoter score of 80, plus which is industry leading.

That also lends itself to fantastic references from other customers who are using the platform.

Nothing equals having great references for what you do for our clients.

Absolutely absolutely congrats congrats again on the win.

Brian maybe for you just just to stay on this topic.

When are we expecting this top 20 win this year I know I know, it's not going to contribute to revenue more meaningfully until the first half of 'twenty four but can you just maybe talk about how big this contract could be and whether it's contributing at all to this year's increase in the guide.

Yeah.

Hi Tech and how are you.

Yes.

Deal had been in the pipeline as you would expect for a while so we have visibility.

That this was coming and we are not expecting any revenue to contribute this year on this deal. So none of the date on the guide reflects this deal coming in we expect it to start to contribute in the next year.

Talk about the specific economics of any individual deal I would just say, it's certainly going to have it as part of the guide for next year, we're not going to give specific guidance, but we are continuing to reiterate the 7% to 10 as our long term guide and we feel that this will help contribute to the guidance.

The next year.

Awesome, Congrats again guys.

Thank you <unk>.

Thank you.

Please standby for our next question.

Our next question comes from the line of Michael Funk of Bank of America. Your line is now open.

Yes, thank you for the questions guys.

First one just kind of longer term revenue growth target of 7% to 10% that you provided that for some time. So thank you.

But looking at the growth drivers in this quarter, you said seven points cross sell up sell three.

Three points, New logos signed you gave incremental color on the one point sorry more than one point for emerging solutions.

Contributing to that yes.

Thinking about emerging solutions like <unk> TP to larger Tam potential there have you had discussions about increasing that longer term growth target.

If not why.

Yes happy to take it.

Ryan, Yes, so the 7% to 10, we set out as a long term guide.

One that we feel comfortable that we can deliver over time and do that at scale. We have been highlighting these emerging solutions and how they'll play into the guide we do expect the emerging solutions to contribute.

Within the guide.

And so it gives us confidence that we can deliver the guidance over time the way we framed it as we've said over time cross sell up sell will be 80% of the total growth new logos will be 20% of the total growth and that these newer emerging.

<unk> will make up about half of the 80% so think about that 3% to four points of growth will be coming from the emerging solutions.

That said, we certainly think about our business as a broad set of solutions and have many opportunities to win and to grow the business. So again, we really think about this is how we think about the confidence of the guide and our ability to deliver it over time.

Sure.

Thank you for the color and one more if I could last quarter you gave some detail on how youre thinking about deploying and rolling out estimate FTP and a very deliberate.

And can you give us any more color on the roadmap for deployment.

Should we think about.

Scaling that deployment and potential for revenue ramp.

Through estimate FTP and other AI related products.

Sure you know.

One thing that you might find interesting is that.

When we look at mobile and really estimate STP and AI on the self service channel, we have customers who are using that capability.

At 90 plus percent of the time and we have customers who are using that capability, 5% of the time, so there's a wide range.

And as different customers have different business models and different needs.

We are seeing really two dimensions.

Two dimensions one.

More customers adopting these solutions as each week and each month goes by.

The customers that have adopted it are tuning testing their processes to take advantage of these capabilities unusually start in one state or two states or group of states and some customers are all the way up to 49 states and some customers are at one or two states.

And we have been very very deliberate and thoughtful to make sure that the early experiences the accuracy.

All of that continues to be rock solid and having delivered a lot of products to the industry over a very long period of time, maintaining an industry, leading NPS of 80, plus is super important to us and so we think we feel good about how the.

The first.

Large.

More and more clients continued to use it.

So we think that will continue to move and then I'm sure. Brian would give you. This answer which is that we've included all of this in our guide.

7% to 10% when we give you that guidance.

Great. Thank you both the time and the questions.

Youre welcome.

Thank you.

Please standby for our next question.

Our next question comes from the line of Tyler Radke of Citi. Your line is now open.

Yes, Thank you and good evening I wanted to ask you about the parts side of the business you talked about how it is growing significantly faster than the overall CCC business.

Just help us understand kind of the pathway to.

To get to the 100 million plus.

Potentially you reference is that mostly existing products today or talk about kind of some some new opportunities youre seeing obviously, a lot of talk around inflation and supply chain being potential catalysts, but maybe just expand a little bit more on how you see that opportunity playing out.

Sure Tyler I'd give you a quick update just from a macro standpoint right. When you look at.

The number of dollars of parts that are ordered by the collision repair industry in the U S.

Were between 18 and 19.

Sorry, 18 and $19 billion.

<unk> parts that are ordered.

And the other thing that you probably heard from an earlier staff. It does a number of parts.

It's gone from about 10, one to about $13 one over the last four years. So a number of parts of increasing supply chain complexity is increasing especially as you add evs and other things.

And act and so therefore, if you really want to manage cycle time.

Understanding availability of parts in that particular, geography, and a hyper local geography, let's say I am in Macon, Georgia, and I need to know the parts availability in that area for that vehicle on that particular day. So I can make the right decisions, but which parts to you.

Use those decisions.

Become increasingly complex and have an impact on cycle time as everyone's trying to reduce it. So we think we are roughly at about 15% adoption, 15% of GMB going through the CCC parts platform.

We have a pretty broad network of parks providers.

OEM providers. These are the car companies.

Aftermarket providers, including one we just extended our contract with <unk>.

And what we're seeing with that is that with specific Oems are running specific programs on the CCC platform at the same time, our insurance customers are also very keen on having transparency into parts and the deployment of parts. So it's really a.

Combination of that transparency between parts providers car companies.

Repairs and insurers, providing one common platform across the board. So it does not involve us radically rebuilding or rethinking our parts solution, but continuing to do extensions and hence.

What we did a couple last year. If you remember when we did the earnings calls for a few quarters ago, we kept saying we've added 20% development capacity and that developing capacity was deployed in a number of areas, including expanding and enhancing our parts operation. So it does not require <unk>.

Article change in our approach and strategy.

But more it would come from increasing adoption.

And Tyler.

Just to add to that point, it's Brian just on your market sizing, Matt we talked about the parts being about 5% of revenues say $40 million and its get Tad said about 15%.

He is running through our platform. So if you just extrapolate those two out.

Where you get the sizing of the opportunity.

That's helpful framing.

Follow up question I, just wanted to ask you about some of the highlights and momentum you've seen just customer conversations post your user conference you talked a lot about kind of the future of the industry, particularly as it relates to generative AI.

How has your conversations with customers tracking.

Any anything you've observed in terms of pipeline growth or.

Deal activity.

Thank you.

Yeah.

No.

I would not say that there's been a substantial change other than.

As you know as I mentioned in the call.

We have expanded the use of generative AI from self service channel.

<unk>.

Other channels for example, or staff or repair facilities, and we expanded that capability too.

Casualty.

I would say across the board the interest level remains very high.

And we've had it.

Tons of conversations since the conference and.

A lot of the conversations tend to be around not y, but how and when and trumps so usage deployment and the like.

Thank you.

Thank you Donna.

Thank you.

Please standby for our next question.

Our next question comes from the line of Jeremy <unk> of Jefferies. Your line is now open.

Hey, guys. This is Jeremy on personalized manav. Thanks for taking my question.

So first another question on parts.

So you guys recently announced that Toyota selected CCC promote parts of marketing in the U S. Dealerships I guess can you talk about maybe what is the uplift of a win like that and kind of what are the economics, when a customer chooses to add that CCC promo module.

Sure well first of all we don't comment on any particular customer or the economics from any one customer.

And so I'll give you kind of at a macro sense. So we have a number of Oems that are actually customers on our platform.

And what they what they do is that they make.

They make pricing that provide simpler capabilities.

In terms of.

How their parks program can be more streamlined and adopted by repair facilities, who are buying the parts and for insurance. So they might put packages together. So essentially we work with all Oems in some way shape or form.

<unk> is one where we happen to actually make a formal announcement, but there are several others that we actually work with us well.

Okay got it and then someone else mentioned it was good to see that kind of growth of our emerging products I guess.

How should we think about maybe the incremental investment required whether thats kind of the develop these products further or to take them to the market.

Yes, I would say.

This is what we saw if you roll the clock back I would say four quarters right. So if you roll the clock back four quarters, we started to see that we have some unique competitive advantages regenerative AI with the platform with the network and so we started increasing our develop.

<unk> spend.

Starting about four quarters ago.

20% more capacity and the beauty of that is a lot of those people are now up to speed contributing very productively.

And so so so this capability is being applied and really a whole range of areas for example in subrogation in diagnostics and.

In broader STP and casualty, so we're really starting to see that ability come on stream.

And.

If you look at second half of the year. The goal is not to add that kind of capacity because we now need to digest and make sure. These releases are being used by customers and tested and the like and we feel very good about that.

Pasty and the capability we have.

Got it thanks for taking my question.

Welcome.

Thank you.

Please standby for our next question.

Our next question comes from the line of Chris Moore of CJS Securities. Your line is now open.

Hey, guys. Thanks for taking our questions.

So you had mentioned this in your prepared remarks, you touched on it a few times also but.

You're talking about.

CCC expanding the use case for <unk> AI based computer vision technology into their repair facility.

Or is it just your channels can you maybe talk a little bit more about how that works and how soon.

Products would actually come to market there.

Sure I would say we are in testing and all of those.

Market services.

That's where we are we've done a fair amount of work in these areas.

And the way it would come to market is that.

Or staff adjusters that would essentially be.

A package or a component to be added inside of insurance.

Components that insurance customers are buying and then on the repair facility side, we haven't fully sorted out exactly.

From a revenue model, but it would be included in some one of our repair packages, but more fundamentally though what we're excited about is that there's a huge shortage of estimate or some staff on a repair facility side of the business.

And what customers are Super excited about is the ability for the AI to take consumer photos and generate a predictive estimates so someone can look at it.

Hey, do I have capacity to take this car.

When can I schedule. It provides a lot of downstream benefits.

And it's also integrated deep inside the <unk> platform.

And we probably end up so that's really how we see from a deployment standpoint.

Does that answer your question, Chris Yes got it no. That's perfect. Thank you very much yeah. Most of my others were answered I will leave it there. Thanks guys alright. Thank you.

Yeah.

Thank you. Please standby for your next question.

Our next question comes from the line of carrier <unk> of Barrington Research. Your line is now open.

Hey, good afternoon, Ritesh and Brian .

A question on the parts.

Procurement business.

What drives.

The adoption of using an electronic means of ordering parts does that come from the insurance companies.

Kind of demanding that it be done or you're just having a better mousetrap, where the repair facilities to order parts and a more efficient pace.

I would say.

Good to hear from you Gary I would say fundamentally it's from a repair customers. So.

It's really the repair facilities, who are ordering the parts.

You have to remember insurance companies do not order parts is that repair facilities that in the process of repairing a vehicle.

The parts list is generated by the estimate so when you have an estimate coming out of <unk>.

13 point of one parts of that.

Specific parts of this that need and then.

You can because it's integrated into CCC. One you can go click click click choose your provider at your supplier again, we're not dictating any of those mechanisms. The repair facility is setting up their favorite providers there.

Their parts participants, they're making the selection and what we're doing is streamlining the entire process and the accuracy of getting the right part into the repair facility getting the electronic invoice from the parts provider reconciling that into their system.

Those are the things we're doing so I guess simple answer to your question is.

A very clean and easy to use solution, which provides big benefits of the repair facility market mix is really what drives us.

So in the repair shops or entities that I've been in I mean as.

As you say Theres a lot of this is done on the phone does your system electronically have the ability to with artificial intelligence to say if a car takes a hit on the rate front quarter panel youre going to need a rightful quarter panel, but 90% of the time and maybe the sensor or something what can it automatically recommend that and say hey.

Would you need a sensor for this.

Trying to trying to increase the total value of the order.

Well again, our focus is not to increase the total value through order our focus is to get it as accurate as possible. So to that degree what we do is.

We take pictures of the vehicle and because we have more.

Millions literally hundreds and hundreds of millions of photos.

You're asking some estimates and the like we.

We can actually look at this front right.

<unk> hit what this particular.

Vehicle and say with this level of depth of damage. We also have <unk> mapping and the like so we can tell how deep the damages and actually.

Predict a lot of the parts are pretty accurately and oftentimes the minor parts you might be missing a 15% clip.

Might be missing six clips, which might be a total of $3 out of a $5000 repair and that could delay the repair by days so getting somewhat.

More of the completeness and actually have a big difference. So we are able to do that but right now.

That capability is not deploy that is what I talked about estimate STP being deployed down the road.

That's what we're testing to deploy with a repair facility customers.

Okay. Thank you.

Yes.

Thanks, Gary.

Yeah.

Thank you. Please standby for next question.

Yeah.

Our next question comes from the line of Artisan Romani Piper Sandler Your line is now open.

Hey, thanks.

Most of my questions have been asked but.

I wanted to follow up on on some of the color you gave on AI and.

Some of the kind of areas are using it.

From a financial model perspective, there are you starting to see some of those benefits is it like is it like already kind of improving the revenue growth or margins or is that still something thats, probably like a year or two out.

We are starting to see materials material improvement.

Brian everyone take that one yeah, absolutely Harriman.

We're seeing it.

Estimate STP as an example, where AI is in production being used in generating revenue today.

So that's an example of AI being used and getting rolled out and we've talked about estimate CP and how it's contributing to growth to one of our emerging solutions we highlighted.

Emerging solutions contributed one point of growth in the quarter.

So that's one example, where we're driving.

That is being rolled out used by clients and generating revenue when we think about the other AI. Examples detached referenced casualty example, in his prepared remarks again that will be a revenue generating solution.

Other products like subrogation will be using AI or have AI embedded as well and another another area of revenue generation. So revenue will be the solution rollout and revenue generation will really be the driver.

For AI going forward.

Great and just if I can follow up on that.

Sort of direct.

Kind of contributors.

Is this sort of indirect contributor that sort of informs your win.

When rates.

Conversion rates, our ability to kind of just kind of keep your rates.

Your bill rates at a particular level.

I mean, I know that may be hard to sort of.

Fully quantify it, but but I am starting to see some of those benefits even quantitatively.

That is kind of innovative solutions are driving conversion.

Yes, I'll just make one macro point.

Yes.

As we work with our customers for a very long period of time right. If I look back at just the 10 quarters that we've been public 10 quarters we've.

Added solutions to our existing customer base on a pretty wide variety of fronts revenue in the last 10 quarters has gone from a run rate of about $632 million to a run rate of about $848 million, which is an increase of about 200 plus million EBIT does increase by from 220 <unk>.

<unk> raised about three <unk>.

Plus in run rate and this has come about not from any one particular solution or any particular modeling, but the fact that we have delivered new products solutions innovations with very specific ROI two different components of the process for insurance.

And for different components of the process for repair facility different components of the process for parts providers. So at this stage, it's really a portfolio and the mix of what we have.

And in things like sub rural we're doing things that are fundamentally new and first of its kind.

There are very very unique and we're seeing a lot of engagement so arvin.

So it's hard to.

<unk>.

That particularly quantified answer other than we have a long track record even just the 10 quarters that you've seen are public numbers.

Our growth has come.

Similarly through new.

<unk> and introducing solutions that deliver benefits to customers.

Perfect. Thank you.

Thank you.

At this time I'm seeing no further questions. So at this time I would now like to turn it back to management for closing remarks.

Well, thank you all for joining us today.

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 also helping our customers.

And keep investing in future solutions.

This week marks our two year anniversary.

Returning to the public markets.

A very interesting milestone in our journey as a public company and most important I'd like to take this opportunity.

Thanks, first and foremost our customers for their tremendous trustworthy place in CCC every single day I also wanted to tax the CCC team for tremendous execution and dedication and of course last but not least I'd like to thank our shareholders.

Your ongoing trust in CCC.

We look forward to talking to you again in early November when we report our third quarter results.

Thank you so much we're continuing to do what they.

<unk>.

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

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Good day, and thank you for standing by and welcome to the CCC intelligent solutions second quarter fiscal 2023.

At this time all participants are in listen only mode. 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 one one on your telephone.

<unk> automated methods advising you hand, it straight to restart your question. Please press star one again please.

Please be advised that today's conference is being recorded I would now like to hand conference over to Bill Warmington.

Please go ahead.

Thank you operator.

Good afternoon, and thank you for joining us today to review <unk> second quarter 2023 financial results, which we announced in the press release issued following the close of market today.

Joining me on the call on catastrophe Murthy, Ccc's, Chairman and CEO and Brian heard CCC CFO are forward looking statements. We make today about the company's results and plans are subject to risks and uncertainties that may cause the actual results and implementation of the company's plans to vary materially. These risks are discussed in the earnings release.

Leases available on our Investor Relations website and under the heading risk factors in our 2022 annual report on Form 10-K filed with the SEC.

Approved the publishing of a transcript of this call by a third party, we take no responsibility for in accuracies that may appear in that transcript.

<unk>.

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 get cash.

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.

Afflicting, both the predictability and mission critical nature of our solutions.

Second quarter of 2023, Ccc's total revenue was $212 million.

Up 10% year over year and ahead of our guidance range.

Adjusted EBITDA was $81 million.

Also ahead of our guidance range.

Our adjusted EBITDA margin was 38%.

On today's call I'd like to highlight three themes that underpin our performance.

The first is ccc's durable business model.

<unk> is innovation.

Third the growing adoption of <unk> solutions.

First our durable business model.

<unk>.

These challenges are being compounded by claim counts, but have rebounded significantly from the pandemic and are now less than 10% below 2019 levels.

Net result of these trends has been a significant increase in repairable total loss and casualty cycle times.

We recently did a deep dive into a metric we first discussed back in 2021, the accumulative days of cycle time for automotive claims in a year.

And by cycle time.

The number of days from a claim being open to a claim being closed.

Back in 2019, the cumulative days of cycle time for automotive claims in the U S was more than 1 billion days per year.

Staggering figure.

With the accelerating macro pressures facing the industry. However, in 2022 that figure rose to more than $2 billion days to put that in perspective 2 billion days is more than 70000 human lifespans.

This increase of 2 billion days underscores our claims in the P&C insurance economies need to address operational efficiency.

We are uniquely positioned to help because our multi sided cloud native network with dozens of solutions links together companies across the entire auto insurance ecosystem.

The breadth of our network is unmatched with over 35000 customers consisting of over 29000 repair facilities over 4500 parts suppliers more than 300 insurers and 13 of the top 15 automotive Oems.

Of how our solution speed time to resolution.

Today, a repair estimate prepared manually by an adjuster can.

Take hours or even days to schedule, an incomplete, which can negatively impact customer satisfaction as well as costing the insurer over $150 a claim.

It also typically involves driving on the part of the consumer and or the adjuster as well as plenty of paper forms.

This is collected through three channels known in the industry as method of inspection or <unk>.

Roughly 30% of claims are inspected by consumers by the mobile phone self service channel, but 45% are inspected repair facility and approximately 25% are inspected by insurance staff in the field.

While estimate Stp's initial application was using photos from our consumers mobile fall to preparing to estimate.

We want every inspection channel to be able to take advantage of this groundbreaking technology.

Towards that end, we are working to expand our estimate STP solution and to inject AI based computer vision technology.

Into the repair facility and field adjusted channels using these technologies to assist consumers repair technicians and field appraisers with inspection has the potential to reduce cycle time and estimate preparation and improve operating efficiency across.

A much larger set of claims.

A great example of this was a recent win with the top line insurer.

<unk> a longtime CCC customer was only using our casualty solutions and not our auto physical damage or <unk> solutions.

Last month this customer agreed to add our full suite of <unk> solutions, including estimate STP.

This client will be transitioning services from multiple vendors through the CCC platform.

We've begun the implementation planning for the migration and expect this new Apd relationship to start contributing revenue in the first half of 2024.

This is a great example of the significant opportunity in numerous ways, we have to expand our solution set with the country's largest insurers.

The second point I'd like to discuss with you today is innovation.

While we are proud of the network and portfolio of solutions, we have built today.

We're still in the early innings of this industry transformation and remain committed to investing in innovation that will increase the value we deliver to clients.

A good example is the investments we have made in recent years in our casualty solutions, which we believe can be a major growth opportunity for CCC.

This use case links our apd and casualty capabilities and enables insurers contracting for both sets of solutions to annualized claims early in the process using multiple AI models.

<unk> insurers more efficiently and effectively identify risk reserve appropriately and guide claims through the claims process.

We have a long history of helping our clients improve their operating efficiency through early analysis of claims.

The initial determination of likely total loss versus repair for example.

And we're now bringing that capability to our casualty claims as well.

This is another example of our AI model development and deployment capabilities, which on a combined basis represent one of ccc's sustainable competitive advantages.

In terms of model development.

Over a trillion dollars of historical accident data, which is continuously updated on a real time hyper local basis across tens of millions of repair estimates annually.

In terms of model deployment.

We are already deeply embedded in the work streams of many of our customers across the auto insurance economy.

Enabling seamless deployment of our AI solutions with a minimum of effort. We continue to see a large growth opportunity for CCC in casualty.

The insurance industry pays out the same amount and indemnity payments for casualty and auto physical damage each year.

With a revenue opportunity in each market being roughly equal as well.

Today, only about 50 of our more than 300, Apd or auto physical damage customers also use our casualty solutions and our revenue from Apd is four times that from casualty.

Delivering a growing set of casualty solutions into our Apd customer base there.

<unk> represents one of our biggest growth opportunities with insurers.

We're seeing early proof points that our strategy for casualty is working.

In Q2 for example, we added and expanded relationships with multiple new and existing customers.

We believe our investments in innovation combined with our ability to integrate our data and solutions on the <unk> side of the business positioning us to continue to drive growth in casualty.

For my third and final point, the growing adoption of CCC solutions I'd like to highlight our parks offering.

While our parks is currently only about 5% of revenue it is growing significantly faster than CCC overall, and we believe it represents a large opportunity for us.

Last year, the collision repair industry spent about $18 billion on parts.

Based on our existing business model, we believe parks represents a multi hundred million dollar.

Annual revenue opportunity for CCC or more than five times, our parts revenue.

Today, only about 15% of industry parts volume is ordered electronically to the CCC network.

We believe that CCC has the opportunity to increase that percentage over time, because our electronic parts ordering solutions help improve operational efficiency for automotive Oems part suppliers repair facilities and insurers through process simplification.

<unk> integration and automation.

Our parts platform brings relevant parties together to increase visibility to buyers into parts availability and pricing, making the entire parts procurement process.

<unk> and more transparent.

Surprisingly a meaningful portion of parts are still ordered manually.

Fax machines and phone calls, which is obviously slow and inefficient.

Error prone and emblematic of what needs to change to reduce the 2 billion days of annual cycle time.

In a world where supply chain disruptions are a regular occurrence.

Knowing supply and availability at the time of parts selection is critical in managing cycle time, and total operating efficiency.

Longer cycle times can mean high railcar costs and lower customer satisfaction.

More shop, and labor utilization or repair facilities and the lower volume of parts sold for part suppliers.

This quarter, we further grew our parts network by expanding the participation of two leading automotive Oems and signing a multi year extension with one of the leading aftermarket parts suppliers.

We are pleased with how our parks platform is scaling and are confident that a growing portion of the industry parts procurement will take place electronically on our network in the years to come.

Let me conclude by saying that we are proud of what we achieved in the first half of 2023 and are excited about what we have planned for the second half of the year.

And we remain confident in our ability to continue to deliver on our strategic and financial objectives.

I will now turn the call over to Brian will walk you through our results in more detail.

Thanks catastrophe as detached highlighted we are seeing strong momentum across our business in terms of innovation and adoption of solutions by our customers 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.

As we now turn to the numbers I would like to review our second quarter 2023 results and then provide guidance for the third quarter and full year of 2023.

Total revenue for the second quarter was 211 7 million up 10% from prior year period.