Q3 2023 CCC Intelligent Solutions Holdings Inc Earnings Call

November 6, 2023

Okay.

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Thank you for standing by and welcome to CCC third quarter 2023 financial results Conference call.

At this time all participants are in a listen only mode.

After the Speakers' presentation, there'll be a question and answer session.

Ask a question at that time, Please press star one on your telephone.

Please be advised today's call is being recorded I would now turn the conference over to your host Mr. Bill Warmington, Vice President of Investor Relations. Please go ahead.

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

Joining me on the call are detached remember the CCC as chairman and CEO and Brian or GCC CFO.

We're 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 release is available on our Investor Relations website and under the heading risk factors in your 2022 annual report.

<unk> on Form 10-K filed with the SEC further these comments and the Q&A that follows are copyrighted today by CCC intelligent solutions holdings incorporated any recording retransmission 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 have 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 include 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 relating to the company's financial condition and the results of operations reconciliation.

<unk> of GAAP to non-GAAP measures is available in our earnings release that is available on our Investor Relations website. Thank.

Thank you and now I'll turn the call over to detach.

Thank you Bill and thanks to all of you for joining US today I am pleased to report that CCC delivered another quarter of strong top and bottom line results, reflecting both the predictability and mission critical nature of our solutions.

For the third quarter of 2023, Ccc's total revenue was $221 million.

Up 11% year over year and ahead of our guidance range.

Adjusted EBITDA was $93 million up 19% year over year, and well ahead of our guidance range.

Our adjusted EBITDA margin was 42%.

Up 270 basis points year over year.

Based on our strong performance in the third quarter and year to date, coupled with our outlook for Q4, we are raising our revenue and adjusted EBITDA guidance for the full year, which Brian will walk through.

On today's call I would like to highlight three themes of significant importance. The first is ctc's durable business model. The second is innovation and the third is our strategic outlook for the business.

First our durable business model.

A key part of our business models durability is the diversity of our customer base and product offerings.

Over four decades, we have built one of the industry's most comprehensive platforms.

Price of a range of different solutions that bring together over 35000 participants across the P&C insurance economy, including insurers repair facilities parts suppliers automotive Oems and more.

The result is a growth algorithm balanced across a wide variety of solutions clients and customer groups. We're focused on continuing to grow our customer base, while investing in innovation that brings new high ROI solutions to the Mark.

Right.

These solutions not only drive improvements in our customers operating efficiency and consumer experience, but also serve to expand the CCC network.

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 overtime.

That support from our customers is reflected in our financial results.

In the 11 quarters.

Since becoming public we have grown our revenue run rate by roughly $250 million to more than $880 million.

An increase of about 40%.

While growing our adjusted EBITDA run rate by roughly $150 million to more than $370 million.

An increase of nearly 70%.

We believe the Digitization of the auto insurance economy still has a long way to go and can support this attractive combination of top and bottom line.

Growth well into the future.

A key driver of our durable growth model.

Is the breadth of our multi sided network.

Since our founding our network has steadily grown by adding individual participants as well as new categories of participants within the P&C insurance economy.

As the total network has grown.

So has the value of the network to each participant.

CCC is electronic parts shortage solution is a good example of how multiple participants in the ecosystem benefit from being in the CCC network, our electronic parts platform brings the relevant parties together to increase buyers visibility.

<unk> into parts availability and pricing and to help reduce errors and cycle time.

As a result.

<unk> parks platform.

<unk> helped improve operational efficiency for insurers.

The motive Oems parts suppliers and repair facilities through process simplification integration and automation.

Case in point is auto manufacturer Toyota Motor North America, we expanded their participation in Ccc's parks step work to support its Toyota and Lexus dealers earlier this year.

That in turn has contributed to strong sign ups or new dealers for electronic parts shortly.

With over half of those new dealers in the law.

Last couple of months being Toyota Lexus dealers.

We're also seeing an increase in electronic parts ordering in general.

As a wider range of dealers choose to transact on our platform.

At this point about 17% of the industry's parks volume by gross market value is being ordered electronically through the CTC network.

The second point I'd like to discuss with you today is the strong velocity of innovation in each of our customer groups. Our goal at CCC is to enable the digitization of the entire automobile claims supply chain.

From first notice of loss through subrogation.

AI enables insurers and repair facilities to automate more steps in the process based on their rules and thereby more efficiently support their customers.

In order to drive operating efficiency and a better consumer experience. We believe all members of the insurance economy insurers repair facilities parts providers and others need seamless integration leveraging AI connected networks and digital engagement.

You may recall, we added substantial development capacity in 2022 to deliver our future product roadmap.

I'm also pleased to report that we have completed substantial improvements to our multi tenant public cloud.

Infrastructure.

Which further improves seven key areas of our infrastructure speed.

Speed to market system availability performance agility, scalability security and cost structure.

This combination of development capacity and infrastructure upgrades gives us the confidence in our ability to.

To continue to scale innovation and efficiency to deliver new solutions and updates.

Over the last several years, we have also invested heavily in building AI into the workflow solutions, we offer our customers.

With insurers for example, we're seeing growing traction of estimate STP and strong customer interest in our AI driven subrogation solutions.

Last quarter, we talked about a new AI based computer vision solution for casualty claims known as impacts dynamics, which links our auto physical damage.

Our apd and casualty capabilities to predict potential physical injuries to the occupants over vehicle involved an accident.

Based on photos of the damaged vehicles.

Customers have reacted very positively to the solution and we already have a top five auto insurer contracted for it.

As a leading operating system for the collision repair industry. We believe that CCC is well positioned to continue to rollout new differentiated solutions for repair facilities that help to solve their key pain points.

As we've been doing for more than a decade.

In 2010, we had about 20000 repair facilities and CCC one at.

Only about one in 10 repair facilities used more than one product.

Today, we have over 29000 repair facilities and about two thirds of them use more than one product.

That's a nearly tenfold increase in the number of repair facilities using multiple <unk> products.

Yet we still have many new growth opportunities ahead of us.

These include expanding our network through new partner integrations.

Adding new AI solutions to prove repair facilities efficiency and lead generation effectiveness.

And introducing new capabilities to help our repair facility customers with the front and back office productivity.

In September we announced a collaboration with Google to make it easier for consumers to schedule online appointments with collision repairs that use engage our scheduling and self service lobby check in package.

Their facilities.

This collaboration.

A user friendly book online button.

To Google business profiles Sir.

<unk> and maps, helping participating repair facilities standout in search results and making it easier for consumers to schedule repair appointments.

We believe this type of deep integration across products.

<unk> improve repairs lead generation consumer experience and operating efficiency.

Last month, we announced two new AI driven solutions that help address that tight labor challenges facing repairs and writing estimates for damaged vehicles the.

First repair cost predictor is a new AI powered feature within engage that allows consumers who are shopping for a repair to upload photos of the damaged vehicle and receive it predicted range for the cost of repair in seconds.

The consumer can then book an appointment for an estimate or directly schedule their repair, giving repair facilities the ability to efficiently capture and convert digital leads even after hours.

The photos and predictions are seamlessly integrated into <unk>.

Other enhancing repair facilities ability to service their customers.

The second new AI based solution for repairs mobile jumpstart is a new feature within our CCC, one estimating IQ solution.

It helps estimators significantly reduce the time it takes to prepare estimates by leveraging their mobile phones.

Mobile adoption in the collision repair industry is high.

With about 85% of users operating the CCC mobile App daily and collectively taking over 40 million digital photos per month on their phones.

And early usage.

Mobile jumpstart is reducing the average time to complete an initial estimate from about half an hour to a few minutes or less.

This is a game changer.

And with about 45% of repair estimates written by estimators have repair facilities. We are optimistic that the combination of repair cost predictor and mobile jumpstart can have a meaningful impact on cycle time in the industry.

In addition to improving their repair operations.

Care facility customers are also asking us to deliver new solutions that enhance the front and back office productivity.

Last month we.

We introduced one such solution targeted at addressing a common customer pain point.

Digital presence.

Consumers generally expect businesses to have a modern website they can interact with.

Yet often in the collision repair industry those websites are outdated and many repair facilities do not have one at all.

Our new solution called amplify enables repair facilities to quickly and easily set up a modern professional looking website with deep integration to CCC one.

Amplify automatically pulls the relevant information.

From the repair facilities CCC, one profile into a prebuilt customizable templates and keeps it information in stake.

So for example.

When the repair facility adjust their hours of operation and CCC, one those hours automatically update on the website.

The repair facilities, new digital presence.

Also integrates seamlessly with their other CCC capabilities for example by incorporating engages online scheduling capability.

Directly into their website.

And as new CCC solutions rollout that repair facility digital presence can be continually upgraded as well.

Digital presence is just one of many front and back office solutions, our customers are looking for help in.

And with our platform network and AI capabilities, we see many additional opportunities that we can deliver in the future.

For my third and final point.

I would like to discuss our strategic outlook for the business.

We recently completed our five year strategic planning session.

And as a very long term shareholder and CCC, perhaps the longest shareholder in CCC I wanted to say that this is the most excited I've ever felt about our long term opportunities.

As you all know our industry as serious secular challenges.

In all the years of talking to our customers I have never seen more determination to deal with the biggest challenges facing the industry.

Labor shortages rising vehicle complexity persistent inflation.

Creasing consumer expectations.

Challenges that are reflected in over 2 billion days of cumulative annual cycle time for automotive claims.

I believe these forces are driving a once in a generation digital upgrade cycle.

Across the auto insurance economy.

And that CCC is uniquely positioned to help our clients navigate this transition.

We put a lot of time and effort into understanding our customers' businesses and their pinpoints, we hold advisory council meetings for our client groups multiple times per year and conduct deep business reviews with many individual clients quarterly as a result.

This deep understanding of the auto insurance economy, we are able to build novel mission critical solutions with high ROI and short time to value that leverage our multi sided network. These solutions drive billions of dollars of impact to customers annually.

In our central to improving the consumer experience and support our 98% plus retention rate and 82 net promoter score.

We feel good about the business and I am very encouraged by our pipeline of solutions, both recently introduced and in development.

Our new solutions increasingly combine our multi sided network and artificial intelligence to help our clients improve their operating efficiency and consumer experience in.

In addition, I believe we will continue to have opportunities to develop new solutions for our clients to help them deal with the growing technological and other complexities facing their businesses.

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

Thanks catastrophe as it gets.

Test highlighted our balanced growth algorithm, the multi sided network and velocity of innovation are driving positive momentum across the business.

Reinforcing our confidence in our long term growth outlook. We are pleased with our top and bottom line performance, which reflects a balance between investment and growth initiatives and margin discipline.

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

Total revenue for the third quarter with $221 1 million up 11% from prior year period.

Approximately eight points of our revenue growth in Q3 was driven by cross sell upsell and adoption of our solutions across our client base, including the Upsells repair shop packages.

Continued adoption of our digital solutions and the ongoing momentum in casualty and parts.

About one point of the eight points came from catch up revenue on a subscription contract.

An incremental three points of growth came from new logos, mostly with our repair facilities and part suppliers.

I also want to highlight that we saw about one point of contribution in Q3 from our emerging solutions, mainly diagnostics and estimate FTP.

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 Q3, 2023, GDR was 98%, which is down modestly from 99%.

Last quarter. This is the result of rounding.

Since the first quarter of 2020, GTR has been between 98, and 99% and rounded up or down driven primarily by industry churn.

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 CTC network, our strong GDR as a core tenant of our predictable and resilient revenue model.

Software net dollar retention or <unk> captures the amount of cross sell and upsell from our existing customers compared to the prior year period as well as volume movement in our auto physical damage client base in Q3, 2023, <unk> was 107%.

<unk>, which is consistent with 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 provide a reconciliation of GAAP to non-GAAP in our press release.

Adjusted gross profit in the quarter was $172 1 million.

Adjusted gross profit margin was 78% up from 77% last quarter and flat to the third quarter of last year.

The flat year over year adjusted gross profit margin, primarily reflects operating leverage on the incremental revenue being offset by the higher depreciation expense from capitalized projects recently released to the market while the associated revenue from these emerging solutions.

It's 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 margin target of 80%.

In terms of expenses adjusted operating expense in Q3, 2023 was $89 4 million up 8% year over year. This was driven by the impact of head count additions.

And higher.

Cost.

<unk> two system migration.

Adjusted EBITDA for the quarter was $92 9 million up 19% year over year with an adjusted EBITDA margin of 42%.

Now turning to the balance sheet and cash flow, we ended the quarter with $449 million in cash and cash equivalents and $786 million of debt at the end of the quarter. Our net leverage was one times adjusted EBITDA.

Free cash flow in the quarter was $46 million compared to $17 million in the prior year period.

Unlevered free cash flow in Q3 was $57 million.

Sure.

Approximately 61% of our adjusted EBITDA.

While our level of free cash flow can vary quarter to quarter based on seasonality.

<unk> or one time items.

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

I'd like to finish with guidance beginning in Q4 2023.

We expect total revenue of 221, five to $223 5 million, which represents a 9% to 10% year over year growth.

We expect adjusted EBITDA of 92 to 94 million, which represents a 42% adjusted EBITDA margin in Q4 for the full year 2023, we expect revenue of $859 million to $861 million, which represents 10% year on.

For year growth, we expect adjusted EBITDA of 345 to 347 million, which represents a 40% adjusted EBITDA margin and a year over year improvement of about 120 basis points at the midpoint.

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

The first is we feel good about our ability to deliver the position for the year. We've raised our revenue guidance in 2023 by $7 million at the midpoint on the momentum in the business and the durable revenue model that provides good visibility from a long term subscription contracts.

This has moved our revenue guidance range from 9% to 10% growth for the full year.

The second point is that while the midpoint of our Q4 revenue and adjusted EBITDA guidance implies strong year over year growth.

Revenue and adjusted EBITDA are relatively flat sequentially on a dollar basis.

This is the result of the quarter to quarter comparison created by the $2 million in revenue catch up we recognized in Q3.

The third point is that we expect adjusted EBITDA margin to expand about 260 basis points year over year to 42% in Q4 at the midpoint as we benefit from operating leverage on the incremental revenue as well as lapping last year's second.

<unk> head count ramp.

Given the seasonality in our adjusted EBITDA margin, we think of the starting point for next year's margin expansion.

At the full year 2023 target of 40% versus our Q4 target of 42%.

Overall, the strong trends, we're seeing in renewables relationship expansion and new solution introductions reinforce our confidence in the underlying strength of the business. The combination of our durable business model advanced AI capabilities, the interconnected network and the broad.

Solution set puts us in a unique position to help our customers in the P&C insurance economy reduced cycle times and administrative costs, while improving their customer experiences 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 40 <unk> as we continue to execute on our strategic priorities. We believe we will generate significant value for both customers.

And our shareholders.

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

<unk>.

Thank you again, ladies and gentlemen can I ask a question. Please press star one on your telephone again to ask a question. Please press star one one we do ask that you. Please limit yourself to one question and a follow up.

One moment please.

One moment for our first question.

Our first question comes from the line of Gabriela Borges of Goldman Sachs. Your line is open.

Hi, This is Kelly will empty on for Gabriela great to hear about the long term.

It will damage customer, adding impact dynamics as its first casualty solution.

Do you expect to see more deals like this is a result of impact amex.

Yes, that's our belief that this is a unique game changing solution.

That really takes the physics of the auto accident and the AI capabilities.

And we think this is applicable in a very broad.

Across the board.

Thank you and then for Brian just as you look at planning for 2024.

Is there any like specific dynamics investors should be aware of that could be different next year versus this year and then how are you expecting emerging products should contribute next year.

Yeah.

Yeah sure Kelly.

So maybe I'll start with the emerging solutions and then we can talk to the broader guide so emerging solutions contributed one point of growth in the quarter. That's approximately what it has done throughout the year. So year to date emerging solutions is about one point of growth we have highlighted over time that we.

We'll move to more like 3% to 4% of the total growth coming from emerging solutions, but thats going to be over a multi year journey going from the one point today, two 3% to four points in the future.

So that's how to think about emerging solutions as far as the guide we're not putting anything specific out there.

We would just highlight that we point towards the long term guide of seven to 10 organic we do see really good momentum across the business from the broad set of solutions and a lot of opportunities to grow.

And there is good momentum in the business. So we feel good as we exit the year and come into next year will.

It will be more specific on the guide as we get into next year and talk about Q4.

Great. Thank you and congrats on the quarter.

Thanks, Kevin Thank you.

Thank you one moment please.

Yeah.

Our next question comes from the line of Dylan Becker of William Blair. Your line is open.

Pardon me Dylan Becker from William Blair. Your line is open.

One moment please.

Our next question comes from the line of Matt Paluch.

Bank of America. Your line is open.

Hi, yes, thanks I'm on for Mike Thanks for the question.

My question is on estimate SDP.

I was hoping you could maybe walk us through the progression of one of the companies more mature estimate STP customers at a high level.

How quickly are the volumes and revenue contribution ramp.

At the highest and most enthusiastic adopters and then how might you expect this to trend over the next 12 months. Thanks.

Yeah, maybe.

Thanks, Matt just a couple of broader perspective, if you recall last quarter. We said we have expanded the AI capabilities from not just the mobile channel today, the mobile channel.

For an auto claim is about 30%.

Another 2045% are to the repair facilities and another 25% of claims come in where staff appraiser goes and looks at the claim and we have now expanded the AI capabilities across all of these channels back to your second broader point I'd make is that we've also now expanded the number of <unk>.

Customers that are rolling out estimate SDP to where we now have over 20 customers who are now rolled out so that number continues to increase.

So specifically to individual customers. What we have seen is that customers start out in two or three states expand to about 10 or 15 States go out broadly to about 30, 40 states and we have customers who are now.

Pretty much every state.

And then as they fine tune their processes, they start adopting more and more of the capabilities.

And to give you kind of a perspective on the range of customers, we have some customers who are.

Who are in that who use these capabilities.

In.

The mobile capabilities and the estimate STP capabilities.

At a pretty high percentage in somewhere at very low percentage.

But we are very encouraged overall would be with the rollout of customers and the adoption that we're seeing Brian in terms of the actual dollars of revenue and how that's flowing through do you want to add anything to that.

Yeah, we're not breaking out estimate STP as an individual item we talk about it just within the overall emerging solutions that we've already highlighted emerging solutions estimate STP along diagnostics.

Adding about one point of growth for the quarter. So I won't give more specific I would just say to get to ask this point, we are seeing good traction and momentum we are still very much in the early innings and even the more advanced users of estimate at CP are still sending through smaller portions of their overall claim volume.

So we.

We see adoption continuing to go and feel really good on where it's headed and the traction that we have against the product.

Excellent thanks very much.

Great. Thank you.

Thank you one moment please.

Our next question comes from the line of Alexia <unk> of Jpmorgan. Your line is open.

Hello.

This is I'd like to take up a lot from JP Morgan.

I Wonder if you could update us.

Uh huh.

Total estimate SVP volume of claims.

How much.

It is either in percentage terms or in absolute terms on total volumes.

Hey, Alex say, what we're seeing is that in aggregate estimate SDP is still under 1% of claims. So it's still in the aggregate in terms of straight through processing of claims it is still under 1%.

What we are seeing is that estimate STP as our customers have rolled out and adopt it.

Is now capable of handling around 10% of all repairable claims. So when you look at our customers who are using estimate STP that is the broad range, we're seeing and different people or different stages, but the aggregate number.

Under 1%, but we really like the way it is developing and how people are starting to.

Adjusted our processes to be able to put this in Brooklyn.

Thank you.

A quick follow up on that subrogation, how will this fit into SPP ecosystem and have you tried to calculate ROI benefits for your customers versus manual processes.

Yes, what we have now started testing our subrogation solution with a number of customers, where we've taken customers closed files.

And we are seeing is we're seeing really two primary benefits with customers first and foremost the AI that is underneath our subrogation platform is able to scan and go through.

A ton of pages documents photos, and then really zero in on what customers, which files should be subrogate. It what the our people should adjust the inputs based on what the AIA is seeing so we're seeing.

A tremendous.

<unk> and comes up to speed it is providing onto subrogation side and then what we're also seeing for customers who are testing. It is the lift that we're seeing versus manual methods in terms of the return on the Rois specifically that they see is significant.

So we are very encouraged with the fact that we have both an inbound and outbound subrogation solution.

And the results that our customers are seeing are also very promising.

Thank you catastrophe shape it.

Thanks Aleksey.

Thank you.

One moment please.

Our next question comes from the line of Shlomo Rosenbaum.

At Stifel. Your line is open.

Hi, Thank you for taking my question. So it's been a lot of questions about estimate STP and wanted to ask a little bit about.

Some of the other ones that are out there like or was there any movement in terms of traction.

On the payment product and how is that going out in the marketplace.

Yes.

Payments has.

We continue to see opportunity in payments.

Fact, there are more use cases that we're seeing every day both from.

Not just insurers paying repairs repairs painting parts providers. So every day, we keep seeing more and more use cases and opportunities with that said.

We will have.

We're still I would say in the earlier stages of rolling that out and it is.

Compared to a.

Solutions like the subrogation payments will be a slower adopter than a solution like subrogation or estimate SDP.

Yeah, I would just add that it is generating revenue today.

But.

I said, it's in the early innings, and we expect it to scale over the next.

Several years.

Okay, great. Thank you and if I could just squeeze in another one can you talk a little bit about the catch up on a subscription contract for like $2 million. We could you just give us a little more detail exactly what that was.

Yeah.

Happy to.

So we we highlighted it because it drove about one point in the quarter.

It's also.

Play into the sequential Q3 moving into Q4.

And so that's why we called it out there was some specifics to the dynamic of the deal we were not recognizing revenue consistently over the period for this subscription contract.

Caught it up in Q3.

Then going forward, it's going to be spread more evenly. So it's just the dynamic of the catch up that we wanted to call out because there's a bit of lumpiness in the quarter.

Okay. Thank you.

Thank you one moment please.

Yeah.

Our next question comes from the line of Dylan Becker of William Blair. Your line is open.

Hey, guys can you hear me all right this time.

Yes, we can handle and have perfect are awesome.

Congrats guys nice job here.

I think you mentioned in your prepared remarks about again the development capacity the data scale over the years, how does this kind of fuel new innovation and value for customers I.

I wonder how youre thinking about how that evolution has trended over the past several years and how you think about the opportunity set to potentially accelerate that cadence.

Shapes up that way as you think about again, the innovation funnel going forward and the opportunity to capitalize on this digital digital investment capacity.

Thanks, Dylan when you look at it at a macro level, what we are seeing in all of our conversations with our customers. In fact, we just finished our trade show and at Sema last week, and we had over 600 customers. One night for our event what do you hear consistently.

Cross the board with customers is a need to move faster and to rollout more solutions and we see this as a once in a lifetime opportunity to really leverage this and we started to see this actually a couple of years ago. So if you recall in 2022, we added substantial development.

So we added to the tune of 20% developing capacity in 2022 and right now we're still adding developing capacity, but not at that same rate. So we feel very good about our development capacity the engines and what I talked about and Brian I just covered in the call today.

Is a number of new solutions that are now coming out that are a direct result.

This enhanced and increased the open capacity that we put in.

The other thing we've done to get ready to really capitalize on the opportunity and frankly, what our customers need is that the transition we made to the public cloud.

As also enabled a substantial capabilities.

Capability strategic capability and our ability to deploy.

Software releases speed to market reliability scale, a number of things. So we feel good about the tech stack that we have the infrastructure we have.

The Tech stack is running so we do think.

We prepared ourselves and put ourselves in a place where we can work closely with customers and hence you're seeing in the call a broadening of and not just a number of solutions new solutions. So we're coming out with.

Got it that makes a ton of sense Super helpful.

Brian maybe on year end, two I know you called out the 17% spend a little bit of a step up on the parts side of the equation, but as we reconcile that back to kind of a 70% to 80% of claims volume you guys seen across the network how should we expect.

Those two metrics to converge.

A benefit of the scale and growth in the ecosystem across partners, but any reason why we wouldn't see similar adoption rates understanding that it was going to take time to get there.

Yeah, No we feel really good on the parts opportunity I mean, there's two ways that we're going to continue to grow. It I mean, one is we are adding new rooftops each month and so the footprint continues to expand and then we're just seeing additional adoption of online and moving to electronic parts ordering so.

Does that natural volume of people moving from offline ordering to online ordering gives us.

Strength in momentum and so as we build out the footprint, we do see.

17% expecting to grow parts is growing faster than the rest of the business and will be a growth contributor going forward. So yes, we feel really good about the opportunity in front of us.

And just to add to.

Throw one more data point in which is in 2020 that number was 10%.

Right. So you can see it went from 10% to 15% and 22 and is now continuing to grow past that.

Got it Super helpful. Thanks, again, guys and congrats on a nice set of numbers here.

Great. Thanks, John.

Thank you.

Again, ladies and gentlemen, if you'd like to ask a question. Please press star one wanting your telephone again to ask a question. Please press star 111.

One moment for our next question.

Our next question comes from the line of Kirk Attorney of Evercore. Your line is open.

Yes, thanks very much.

I was wondering just based on your comments on sort of the challenges facing the industry right. Now can you just talk about how sort of the cohorts are sort of progressing as it relates to sort of going from pilot projects to production, meaning as more and more of your clients start playing around with your newer products whether it's.

Subrogation or estimate that CP have you seen the clients that are sort of trying it out today being able to move through sort of pilot projects that are at a little bit of a faster pace I realize you have a very methodical customer base. So I was just kind of curious if the external pressures are maybe helping them move along at a faster pace.

Hey, Kurt Thanks for the question I would just say broadly this is kind of what I was talking about can be.

Earlier in the call is that we have multiple customer segments. We are working with we're working with insurers and even inside of insurers. The team that handled subrogation is different from the team that handles appraisals from the team that handles total losses and then on the repair facility side, we're not only dealing with the core.

Core aspects of helping them repair the vehicle right. The estimates are also helping in the front office the back office so and.

We really feel good about is the breadth of the solutions, we have the breadth of the customer base, we have and they are all at various stages of adoption and you know I was actually standing on the show floor.

Sima last week.

And to see our repair customers for the first time use jumpstart, which allows them to take photos and to be able to pre populate and start the estimate it can write a pretty large chunk of it.

Exclaimed, Oh my God this is gonna be unbelievable.

This is going to save me a ton of time, because I have such a shortage in terms of labor.

Individual conversations when you see the result of several years of development.

You know what we really love is when customers see those aha moments that can have that kind of an impact.

It is translating into adoption pilots.

More breadth.

Yes.

We're seeing that enhance our focus on continuing to build out a broader solution set.

Yep.

This is Brian on the Thanksgiving and Brian on the sort of the.

The early look at the adjusted EBITDA for next year mix, 40% still an amazing sort of level to get to any specific expenses or I guess investments rather that you guys are focusing on for next year that that serve them.

Keeps you in that range versus what you sort of end the year at or is there. Some one timers in back half of the year.

That influences that as well.

Yeah, it's a.

A good question I mean, we're really happy with where the margin is in the second half of what we delivered in Q3 what were guide.

Guiding for in Q4, and just ending the half at 42% we are suggesting the point of movement from 40% is where the margin progressions can it bill there is a couple of things that are playing through that I mean, one is just.

Kind of seasonal.

Reset on payroll taxes Merit comes in at the beginning of the year, we have our customer conference which is in.

An investment Thats in the first half of the year.

We'll be putting in additional head count adds.

And to the business going forward. So it's those type of things that will naturally come in in the first half of the year and.

That's why we're suggesting moving off the 40% margin and not not using the 42% exit margin.

Perfect. That's helpful. Thank you all.

Okay.

Thank you one moment please for our next question.

Our next question comes from the line is the key Kalia Barclays. Your line is open.

Okay, Hey, guys its socket from Barclays. Thanks for taking my questions here and Echo a very solid quarter.

Thanks, guys catastrophe sure detach maybe for you maybe just expand on our part.

And I'd love to dig into the parts business, a little bit more maybe more strategically.

The question is what do you typically replacing there when customers are not using the network and do you see anything on the horizon that can help accelerate the adoption of parts network networks like CCC, obviously, it's I mean, it's grown quite a bit over the last couple of days.

Thanks.

And what you think can accelerate that adoption.

Hey, Thanks for the question I would say to start with the most fundamental question is that a lot of parts are still handled through phone calls where you have a a part number. So what we've seen is if you look back a few years ago.

So people are putting roughly.

Eight nine parts per repair today people are putting 13 parts complexity has increased so this process of E. Mails phone calls is for the most part that's really what we're replacing with a seamless electronic system, where once you <unk>.

The estimate you can just go click click click.

Into things.

Set up your suppliers.

Electronically send out the order get the invoice back and reconcile so really that's really what we're doing.

And we have seen that.

<unk>.

In the earlier years as we've been building the parts business, we needed to build out the geographies you needed to maximize the suppliers and say the Pacific northwest or the or the southwest today, we have the vast majority of the suppliers boat Oems recyclers aftermarket.

We have the suppliers. So it is now really continuing to work with our customers.

On much more of an adoption curve.

And we are seeing the chat.

Challenges people are having from a labor standpoint, so if I can say 10 minutes on a park shorter or get it right. The first time.

It will are willing to adopt more and more of these electronics.

Electronic parts solutions from us because it's integrated and it saves a lot of time and improves the accuracy.

Okay.

Got it.

Brian maybe for you for my follow up.

Can we just dig into the revenue acceleration a little bit this quarter I know you called out the $2 million in subscription catch up there were a couple other moving parts there as well I think the other revenue line in the income statement, that's a little bit higher than what it's been historically can you just sort of.

Unpacked that acceleration a little bit.

For us.

Yeah.

Happy to.

11% totals, we had 8% from cross sell and up sell within our existing clients.

Within that we had about a point of casualties have casualty had a strong contribution.

At three points from from new logos as well.

I would say it's accurate.

It was broad based.

I wouldn't highlight kind of one specific area of the business that really drove the growth performance. We did 10% growth in Q1, we did 10% growth in Q2. This was 11, we called out that one point on catch up.

And when you kind of unpack it below that it is really kind of a broad based set of <unk>.

Performance, where we're really happy across the product set so I don't theres not wanted to really highlight that really drove the performance. Besides just kind of just general momentum across the business.

Got it makes a lot of sense. Thanks, guys.

Yes. Thanks, Thank you.

Thank you one moment please.

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

Hi. This is we'll go there for Chris Moore can you talk a little bit about annual price increases and how they're embedded or not embedded into your revenue growth target.

Yes, it's Brian we have not we don't embed and have a specific call out within the seven to 10.

Our organic guide, we don't call out specifically kind of what price drives.

We continuously look at pricing and make sure that we're pricing the products for the value that is being driven from our customers and think about pricing in a strategic way.

But theres not a specific metric to highlight within the guide to call out.

Alright. Thank you Super helpful. And then just one more.

CCC payments as an important long term opportunity and what are some critical milestones that we should be thinking about in 2024.

I would say for 'twenty four is just continuing to expand the solution set and making sure that the customers that are.

Starting to pilot are feeling good about expanding on the pilot and starting to roll that out as well as expanding the solution set itself that we offer. So we don't have specifically in February this needs to happen and we do have a bunch of internal milestones.

But by and large that's kind of the overall pattern.

Alright, that's great. Thank you for taking my questions.

Thank you one moment please.

Our next question comes from the line of Amit <unk> nominee.

Stanley Your line is open.

Oh, hi, thanks, Thanks for taking my question.

Phenomenal set of results.

Had a question on.

Some of the progress we are making both both across here.

New logos as well.

Like some of the cross sell of existing.

No.

Who are you replacing.

These both cohorts, both existing as well as new logos.

Yeah.

Well, yes.

I can start and then <unk> you can add the color I would say on the new logos are and if you look at the three points.

It's largely going to be in the repair facilities. That's the biggest contributor of our new logos.

And it will be replacing other solutions that are in the market. Some will be smaller shops that hadn't used electronics software for estimating are now moving from Penn.

Pencil in clipboard to software.

Is a combination but.

Out of the new logo, the repair facilities and the largest part and then the second is the parts suppliers and then we do have some smaller insurance more kind of small regional players that we do.

And under new logo as well so it is it is broad based.

And just to remind you also.

Most of our focus is really.

On delivering a lot of new solution story existing customers, that's what drives.

80% plus of our growth over the next several years.

Perfect and then.

Yeah.

These new products.

Or even take existing products and.

It's kind of an NSAID.

Taking value your gen.

Generation for our clients and some of that.

My.

Sort of like Oh.

Okay.

Deciding how much value do occur to your clients and how much of value.

You guys have by by increasing prices.

How has the calculus on that.

If you're adding 100 points of value together too.

To your customers.

Do you kind of just give or give up all the value to them or they will keep some sort of pricing power as you come a bit more.

Innovative solutions.

Particularly that's built around AI.

Yeah, I would say for the most part our focus has really been for every new solution. The ROI needs to stand alone. So that's really what we look at right. So every new solution that comes out it adds a tremendous amount of value I'll give you.

A very small example, it takes something like engage.

That solution is used by one third roughly a third of our repair facilities.

Two thirds of our repair facilities have not adopted the engage solution.

So by adding Google appointments, and adding other capabilities other functional capabilities to engage.

Where people can.

Drop in an appointment.

Of ours that just drives the adoption of engaged from about makes it even more palatable to those customers as we enhance that package you'll be able to go from one third of our repair facility customers to address the other two thirds were not using engage so that could drive a significant amount of growth.

And then.

Look at something like subrogation that has its own very specific value propositions. It delivers in terms of.

Financial return to the customer.

<unk> savings and we look at that that's new to the market and entirely new opportunity and we will look at that in terms of what is fair and what is right.

From a from a customer standpoint to deliver that ROI.

So that's.

That's a good looking at this yes, that's a good summary, the thing I would also just add as a general point Arvin is in general we do look across our products and think about kind of a five to one ratio.

So that is just a kind of a principle based some will be higher some will be lower but on average we think about pricing our product with a five to one return.

Perfect.

A really great and a phenomenal execution this quarter.

Thank you all right. Thanks I appreciate it.

Thank you.

Im showing no further questions at this time I would just turn the call back over to CEO Curtis Robert Murphy for any closing remarks.

Thanks, everybody for joining the CCC call.

And we really are proud of the performance year to date in 2023 and I'd like to thank our customers our CCC team members and our shareholders.

And I hope.

To give you an update Bryan and I in February when we report.

The fourth quarter, and just add that we remain confident in our ability to continue to deliver our strategic objectives and durable business model. We have thank you for joining the call today.

Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect have a great day.

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Q3 2023 CCC Intelligent Solutions Holdings Inc Earnings Call

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