Q3 2024 CCC Intelligent Solutions Holdings Inc Earnings Call
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Speaker Change: Good day and thank you for standing by and welcome to CCC Intelligence Solutions 3rd Quarter Discworld 24 Ernest Call. At this time all participants are in a listen-only mode. As a speaker's presentation, there will be a question and answer session.
Speaker Change: Task the question during the session, you'll need to press star 1, 1 on your telephone.
Speaker Change: You would then hear all the made and methods of advising your hand is raised. So, draw your question, please first start with one again.
Speaker Change: Thank you, operator. Good afternoon and thank you all for joining us today to review CCCC in third quarter 2020, fourth financial results, which we announced in the press release issued following the close of the market today.
Speaker Change: Joining me on the call, our Detest from Amurthy, CCC's Chairman, CEO, and Brian Herb, the CCC CFO.
Speaker Change: The forward-looking statements we make today about the company's results and plans, are subject to risks and uncertainties that may cause the actual results and the implementation of the company's plans to vary materially.
Speaker Change: These risks are discussed in yearnings releases available on our Investor Relations website and under the heading risk factors in our 2023 energy report on Form 10K filed with the SEC.
Speaker Change: Further, these comments and the Q&A that follows are copyrighted today by CCC Intelligent Solutions Holdings Incorporated.
Speaker Change: 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.
Speaker Change: Additionally, while we will provide a transcript of portions of this call and we've approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in the transcripts.
Speaker Change: Please note that the discussion on today's call includes certain non-GAAP financial measures as defined by the SEC.
Speaker Change: The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the company's financial condition and the results of operations.
Speaker Change: A reconciliation of GAAP to non-GAAP measures is available in our earnings release that is available on our Investor Relations website. Thank you. And now I'll turn the call over to Gitesh.
Gitesh: 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 financial performance.
Gitesh: In the third quarter of 2024, CCC's total revenue was $238 million, up 8% year-over-year and slightly above our guidance range.
Gitesh: As a reminder, in Q3 of last year, growth benefited by 1% from incremental one-time revenue on a subscription contract.
Gitesh: Adjusted EBITDA for the quarter was 102 million, 9% year-over-year and ahead of our guidance range.
Gitesh: Our adjusted EBITDA margin was 43% up approximately 60 basis points year over year.
Gitesh: Our solid performance in Q3 and year-to-date demonstrates our durable revenue growth and margin expansion.
Gitesh: driven by multiple new business wins, renewals, and contract expansions across our customer groups.
Gitesh: While we are pleased with their consistently strong financial performance, we are even more excited about the value creation customers are realizing from our next generation of solutions.
Gitesh: This is the foundation for the next leg of growth for CCC.
Gitesh: In today's call, I would like to cover three themes.
Gitesh: The first is how paradigm shifts, step change improvements in technology capabilities propel transformation across the PNC insurance economy.
Gitesh: The second is why CCC is uniquely well-positioned
Gitesh: to power the next transition.
Gitesh: and third is the adoption of CCC's new generation of high-impact solutions.
Gitesh: When looking back over the company's history, a key tenet of our durable growth model has been our ability to identify, invest ahead of, and capitalize on technology paradigm shifts across the PNC insurance economy.
Gitesh: Twenty years ago, our investments in Internet and cloud-based architectures preceded and helped enable the industry's transition to platforms and dramatically more dynamic and connected operations.
Gitesh: The subsequent rollout of CCC1 for Collision Repairers also helped to power the emerging class of multi-store operators who have benefited over many years from the scale of our highly integrated, best-in-class platform.
Gitesh: Over the past decade,
Gitesh: Our investments in advanced solutions on top of these architectures enable customers to realize further game-changing improvements in efficiency and customer service. For example,
Gitesh: Our investments in mobile ahead of COVID-19 made it possible for the industry to keep processing claims and repairs when remote work became essential.
Gitesh: and today over a hundred insurers and thousands of collision repairers use these tools in their daily operations.
Gitesh: and critically, we have consistently helped our customers navigate these transitions through already established CCC integrations and workflows without having to replace their existing systems.
Gitesh: I believe we are at the beginning of an even more transformational shift that we call Intelligent Experience.
Gitesh: or IX for short, that combines artificial intelligence and event-based architecture and the connectivity of our multi-sided network to help our customers achieve a step change improvement in operating performance and consumer experience.
Gitesh: We believe macro-industry forces make adoption of an IX-based approach by the PNC insurance economy essential for two primary reasons.
Gitesh: The first is the pervasive and accelerating amount of complexity facing the industry.
Gitesh: whether that is vehicle complexity, data proliferation, changing consumer expectations, or other forces.
Gitesh: These dynamics are impacting all participants in the PNC insurance economy and challenge even the most experienced professionals.
Gitesh: The second is industry-wide labor shortages that are being made even more acute by the ongoing retirement of the industry's most tenured people.
Gitesh: As a result, every month, the burden on an already strained industry and your workers grows.
Gitesh: We believe this trend is unsustainable and can only be solved by embracing new iX-driven approaches to technology that deliver a transformational impact.
Gitesh: As in previous waves, we have been investing ahead of the curve in key technologies that are essential to the IX era, over $150 million in R&D annually and well over a billion dollars in the past decade.
Gitesh: The first of these technologies is AI.
Gitesh: where over the past decade we have built deep expertise in building and deploying AI solutions for high-value, mission-critical use cases.
Gitesh: These solutions leverage hyperscale, hyperlocal data, and can be seamlessly integrated into our customers' existing workflows.
Gitesh: They've also been tested at scale by some of the world's most sophisticated customers when it comes to performance.
Gitesh: We believe that we are still just scratching the surface of what is possible from deploying AI across all aspects of the PNC insurance economy.
Gitesh: The second key technology we've been investing is our new event-driven architecture powering the CCC-IX cloud.
Gitesh: Think of this architecture as the distribution system for AI-enabled workflows.
Gitesh: The architecture can handle massive amounts of data from multiple sources in real time.
Gitesh: It uses a publish and subscribe model, which enables everyone in our 35,000
Gitesh: plus company network to set up notifications for relevant business events and also to configure actions based on those events using AI.
Gitesh: Important business event notifications might include, depending on the customer and their place within the PNC Insurance Economy, Estimate Complete, Parts Ordered, Vehicle Ready for Pickup.
Gitesh: Today, these notifications may take place ad hoc, through bilateral connections, or even by phone or email.
Gitesh: With the CCCIX Cloud, they can take place instantly and simultaneously across our connected ecosystem.
Gitesh: The CCC-IX Cloud is a powerful accelerant for clients to achieve a step change improvement in speed, efficiency, and performance.
Gitesh: Implementation of the event-based architecture is streamlined because it is an internal layer that overlays onto existing CCC cloud applications, customer workflows, and integrations with customer and partner systems.
Gitesh: IXcloud enables customers to deploy CCC solutions
Gitesh: faster and easier and increases the number of ways customers can use multiple CCC solutions together.
Gitesh: This further extends the value of the CCC network to our customers.
Gitesh: Whether that customer is an insurer, collision repairer, auto manufacturer, parts supplier, dealer, medical provider, among others.
Gitesh: We have been supplementing these technology investments with additional activities that increase our ability to support customers on their transformation journey.
Gitesh: These include the completion of our transition
Gitesh: to the public cloud, as well as changes we've made to streamline our customer-facing organizations so we can be an even stronger partner to our customers as they deploy our high-impact solutions and transform their operations.
Gitesh: I would like to turn next to the progress of our newer products.
Gitesh: remain very excited about the growth opportunity from our emerging solutions.
Gitesh: and this portfolio of products continues to be the fastest growing part of CCC.
Gitesh: with additional customer contract wins and momentum each quarter.
Gitesh: While the pipeline for these solutions continues to build, backed by strong, demonstrated ROI and feedback from customers,
Gitesh: The velocity of revenue conversion from these new solutions remains slower than anticipated.
Gitesh: consistent with what we described last quarter as clients continue to navigate their internal change management processes to fully realize the benefits of these transformative solutions.
Gitesh: The main reason customers are enthusiastic about our innovation portfolio is the bottom line ROI these solutions deliver. And I thought I'd share some select examples of how we're doing that by bringing intelligent experiences to life for customers.
Gitesh: I'll start with first look.
Gitesh: our AI tool for claim handlers.
Gitesh: As a reminder, First Look applies a variety of AI models to photos that insurers receive from consumers, repairers, and a variety of other sources.
Gitesh: One top ten insurer piloting First Look has been using it to improve claims triage. For example, by more quickly identifying likely total losses sitting at repair facilities.
Gitesh: Early results for this insurer have shown an average cycle time improvement of three days to redirect such claims.
Gitesh: reducing rental and storage fees, freeing up space at the repair facility for repairable vehicles, and overall providing a faster and more satisfying resolution for the consumer.
Gitesh: We're also seeing strong early results from intelligent reinspection.
Gitesh: which uses AI to help insurers streamline the review of incoming repair facility estimates.
Gitesh: Insurers receive millions of such estimates each year and intelligent reinspection
Gitesh: helps reinspectors review increasingly complex estimates quickly.
Gitesh: shortening the time to approval. We have multiple top 20 insurers piloting the product and the results show a substantial increase in operating efficiency.
Gitesh: rounding out insurance, our AI-powered subrogation solution continues to build on the momentum from previous quarters.
Gitesh: with double-digit percentage increases from Q2 to Q3 in the number of files reviewed and in customer value delivered from the tool.
Gitesh: Our pipeline in subrogation is strong, and the feedback from contracted customers has been very positive. For repair facility clients, we are seeing increased adoption of our intelligent estimating solution for shops.
Gitesh: Mobile Jumpstart
Gitesh: About 45% of repair estimates are written by technicians at repair facilities.
Gitesh: Jumpstart uses AI to dramatically reduce the time it takes technicians to generate an initial estimate.
Gitesh: from half an hour to about 90 seconds.
Gitesh: We now have thousands of repair facilities generating hundreds of thousands of estimates using JumpStart. This is helping labor-challenged collision repairers get vehicles repaired and back on the road faster.
Gitesh: providing a win to repair facilities, consumers, and insurers, and also helping to positively impact the approximately 2 billion days that elapse every year between auto claims being opened and closed.
Gitesh: On our last earnings call, I mentioned the recent launch of CCC Bill Sheets.
Gitesh: This solution helps repairers more precisely identify the vehicle and also reduces manual effort resulting in fewer parts ordering errors and shorter cycle times.
Gitesh: Since the product was introduced in July, we have signed up over 2,000 repair facilities, the fastest adoption rate of any repair facility product in CCC's history.
Gitesh: We also recently launched another exciting product extension.
Gitesh: CCC Parallel
Gitesh: This solution further expands the breadth of CCC1 as the operating system for repair facilities.
Gitesh: By extending our traditional strengths in the front office and repair operations.
Gitesh: to the back office.
Gitesh: CCC1 already calculates.
Gitesh: Billions of dollars of gross pay
Gitesh: for hundreds of thousands of collision repair employees each year.
Gitesh: And with CCC Payroll, we have established a complete end-to-end payroll solution for the collision repair industry.
Gitesh: This differentiated solution addresses piece rates, commissions, incentives, and other factors inherent to the collision repair industry and is fully integrated into CCC-1.
Gitesh: The product is now live with 100% of our early pilot customers converting to paying customers.
Gitesh: and we also see potential for a variety of other new category extensions.
Gitesh: Beyond Payroll, moving forward.
Gitesh: We believe that the next paradigm shift of technology transformation for the PNC insurance economy has begun and that CCC is well positioned to help our clients navigate this journey.
Gitesh: By combining our multi-sided network with our AI capabilities and IxCloud platform, we believe we can continue to deliver high ROI solutions for our customers that solve their most pressing problems.
Gitesh: and we are investing accordingly to capitalize on this generational opportunity.
Gitesh: Well, the velocity of our new product's contribution to revenue
Gitesh: is taking longer than we initially expected.
Gitesh: We believe this is a timing issue.
Gitesh: driven by the pacing of each client's
Gitesh: Digital Transformation Journey.
Gitesh: and we remain confident.
Gitesh: in our ability to deliver.
Gitesh: are strategic and financial objectives over the near and long term.
Speaker Change: I will now turn the call over to Brian, who will walk you through our results in more detail.
Brian Herb: Thanks, Gitesh. As Gitesh highlighted, we continue to see strong client engagement across our broadening solution set, and we are pleased with our solid revenue growth, margin expansion, and the free cash flow generation of the business.
Brian Herb: which reflects a balance between investment and growth initiatives and ongoing march and discipline.
Brian Herb: Now, as we turn to the numbers, I'd like to review our third quarter 2024 results and then provide guidance for the fourth quarter in full year 2024.
Brian Herb: Total revenue in the third quarter was $238.5 million, up 8% from the prior year period.
Brian Herb: In the third quarter of last year, we had a one-percentage-point benefit from one-time revenue on a subscription contract. Adjusting for this benefit, year-over-year growth, in the third quarter of 2024 would be 9%.
Brian Herb: Approximately five percentage point of our growth in Q3 was driven from cross-sell, up-sell, and the adoption of our solutions across our client base, including repair shop upgrades and the continued adoption of our emerging solutions and the ongoing strength in casualty and parts.
Brian Herb: That said, we have seen some softness affecting claim volume across 2024.
Brian Herb: Approximately three points of growth came from our new logos, mostly in our repair facilities and parts suppliers. About one point of growth in Q3 came from our emerging solutions, mainly diagnostics, estimate STP, and new adjacent casualty solutions.
Brian Herb: Run rate from emerging solutions overall was about 3% of total revenue in Q3 of 2024, as these solutions continue to be the fastest growing portion of our portfolio.
Brian Herb: 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.
Brian Herb: In Q3 2024, our GDR was 99%, which is in line with the last quarter.
Brian Herb: Note that since the first quarter of 2020, our GDR has been between 98% and 99% and is either rounded up or down, driven primarily by repair shop industry churn.
Brian Herb: We believe our GDR reflects the value we provide and the significant benefits that accrue to our customers from participating in the broader CCC network. Our strong GDR is a core tenet of our predictable and resilient revenue model.
Brian Herb: Software Net Dollar Retention, or NDR, captures the amount of cross-sell and up-sell from our existing customers compared to the prior year period, as well as volume movements in our auto physical damage client base. In Q3 2024, our NDR was 106, down modestly from 107 in Q2 2024.
Speaker Change: Now, I'll review 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 metrics in our press release.
Speaker Change: Adjusted gross profit in the quarter was $186 million.
Speaker Change: Adjusted gross profit margin was 78%, which was flat sequentially and year-over-year. Overall, we feel good about the operating leverage and the scalability of our business model and our ability to deliver against our long-term adjusted gross profit margin of 80%.
Speaker Change: In terms of expenses, adjusted operating expense in Q3 2024 was $95 million, which is up 6% year-over-year. This was mainly driven by higher IT-related expenses and the timing of professional services costs.
Speaker Change: Adjusted EBITDA for the quarter was $102 million, up 9% year over year, with an adjusted EBITDA margin of 43%. Q3 adjusted EBITDA had some phasing benefit.
Speaker Change: as some expenses shifted from Q3 into Q4. Now turning to the balance sheet and cash flow, we ended the quarter with $286 million in cash and cash equivalents and $778 million of debt. At the end of the quarter, our net leverage was 1.3 times adjust the EBITDA.
Speaker Change: Free cash flow in Q3 was $49 million compared to $46 million in the prior year period. Free cash flow on a trailing 12-month basis was $200 million, which is up 4% year-over-year. Our trailing 12-month free cash flow margin
Speaker Change: as of Q3 2024 was 22%, down modestly from 23% as of Q3 a year ago. We did have some modest impact with the timing of receivables for a few of our larger clients. The significant balances have already been collected in October.
Speaker Change: Unlevered free cash flow in Q3 was $61 million, or approximately 60% of our adjusted EBITDA. While our level of free cash flow can vary quarter to quarter, we expect it to continue to average out in the low to mid 60% range of our adjusted EBITDA on an annual basis.
Speaker Change: I'll now discuss guidance beginning in Q4 2024. We expect revenue between $242.5 million to $246.5 million, which represents 7% growth year-over-year at the midpoint.
Speaker Change: We expect adjusted EBITDA of 103 to 105, a 43% adjusted EBITDA margin at the midpoint.
Speaker Change: For the full year 2024, we expect total revenue of $941 to $945 million, which is 9% year-over-year growth and is unchanged versus our previous range.
Speaker Change: For our Jessedy Badaw, we are raising the full year 2024 range to $394 million to $396 million, a $2 million increase at the midpoint.
Speaker Change: The midpoint of our new guidance range represents about 110 basis points of year-over-year expansion in adjusted EBITDA margin to 42% for 2024.
Speaker Change: So, three things to keep in mind as you think about our Q4 and full year guidance of 2024.
Speaker Change: The first point is, as we mentioned in our call in February of this year, Q4 2023 revenue growth had about one point of benefit from one-time items in year-end true-ups above our contractual commitments on subscription contracts.
Speaker Change: which gives us a more difficult year-over-year comp for us in Q4 of this year.
Speaker Change: The second point is, as I referred to earlier, we have seen some softness in claim volume during this year. About 20% of our revenue has transactional volume components.
Speaker Change: Year-to-date through September we estimate claim volumes are down approximately 6% year-over-year, implying about a one-point headwind of revenue growth, though that can vary depending on solution and client mix.
Speaker Change: The third consideration is that the midpoint of our updated guidance implies a necessity but down margin of about 43 percent in Q4.
Speaker Change: and about 42% for the full year 2024. Consistent with our past performance, we expect Q4 to represent the peak margin for the year. As such, we expect the starting point for next year's margin expansion will be on the full year 2024 margin of 42%.
Speaker Change: Also, as a reminder, in Q4 2023, we benefited from a $3 million one-time insurance claim reimbursement, which we expect to create a 1 percentage point margin impact as we lap this in Q4 of this year.
Speaker Change: So, as we wrap up...
Speaker Change: I would highlight our continued confidence in our ability to deliver our long-term target of 7-10% organic revenue growth.
Speaker Change: and mid-40s adjusted EBITDA margin as we continue to execute on our strategic priorities and generate significant value for both our customers and our shareholders. With that, operator, we're now ready to take questions.
Speaker Change: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11. Please stand by while we compile the Q&A roster. And we do ask that you limit yourself from one question to one follow-up.
Speaker Change: And one moment for our first question.
Speaker Change: And our first question comes from Kirk Maturne from Evercore ISI. Your line is now open.
Kirk Maturne: Yeah, thanks very much and congrats on the quarter. Githesh, I was wondering, can you just talk about what you think needs to happen to sort of unstick the bottleneck in terms of some of the adoption of your newer products? Is there anything either at a macro level or industry level that needs to happen or are there things that you can do to sort of grease the skids, if you will, just if you're thinking, you know, as we start thinking about, you know, 2025?
Speaker Change: Sure. Hey, first and foremost, you know,
Speaker Change: If you look back over the last 20 plus years, we've rolled out a billion dollars of product, which is essentially new, right? So we've been through waves of adoption, and it almost always comes down to three very specific things.
Speaker Change: First and foremost, it takes a substantial amount of energy from our customers to pilot, to look at new workflows, to put these new solutions in play, make sure they're being tested.
Speaker Change: compute, calculate the ROI of these solutions, and then think through what does it take to really implement them. And on that score, when I look at those three metrics for all of these new solutions, we're making very, very good progress.
Speaker Change: And I think what we see is as customers start to roll out, like, for example, when you look at, you know, even solutions like Estimate STP that we've talked about before.
Speaker Change: We've gone from 3% last quarter to 4% adoption. So I think this is So it's the consistency of working through those
Speaker Change: And we are, you know, very engaged, very focused with each of our customers in multiple pilots, just working through it.
Speaker Change: Yeah, go ahead.
Speaker Change: I was just going to say as a
Speaker Change: Sort of a follow-up for Brian or Githesh, just on the softness and claim volume this year, you know, one of the things you guys have talked about historically has been that, you know, while claims can go up and down, the cost per claim is going up due to the complexity of vehicles.
Speaker Change: Does that factor in at all as you talk to customers going forward, meaning if claim volume were to remain a little bit depressed, is there an opportunity to go back to talk about the broader value as contracts renew, just to get away from some of the variability of that?
Speaker Change: Sure, so first of all, you know, we've seen these cycles go up and down.
Speaker Change: And as we talk to a lot of our customers, what we're seeing is that the number of, you know, if you look at vehicles, miles driven, you look at the number of accidents, we don't think there's a material change, or at least more importantly, our customers don't think there's a material change. What is happening...
Speaker Change: is that if you look over the last 18 months or so, as cost of insurance, the premiums have gone up,
Speaker Change: substantially higher than CPI. Whether you take CPI or core CPI, cost of insurance has gone up significantly and there's a certain amount of reluctance to file claims that says
Speaker Change: Hey, I could get a price increase or something.
Speaker Change: And we think we're about 18 months into that cycle, and at least the belief from our customers and what we see is that will even itself out as you go forward in another quarter or two.
Speaker Change: So, we are not factoring any material increases in claim frequency.
Speaker Change: And, you know, the most important thing for us is really the breadth of the solutions we have, because every claim has many different components to it, and so it's the breadth of the solutions that we're delivering that we're focused on.
Speaker Change: Thank you all.
Speaker Change: And thank you. And one moment for our next question.
Speaker Change: And our next question comes from Michael Funk from Bank of America. Your line is now open.
Michael Funk: Yeah, thank you all for the questions tonight. One for you, Gitesh, along the lines of the first question.
Michael Funk: Are you contemplating or planning any changes in how you...
Michael Funk: either sell to your customers or help them with onboarding to increase the conversion rate of the emerging solutions, or would that not be impactful in your view?
Speaker Change: What we are doing is we've aligned our client-facing organizations to put a little more energy in terms of the number of pilots and the number of solutions we're working with customers.
Speaker Change: It is, we believe it's a matter of time as these solutions get rolled out. We're seeing that with early customers who are seeing tremendous ROI.
Speaker Change: And, you know, we're working closer with customers, but at the same time, I would just say that the volume of pilots that we're experiencing across all our new solutions is significantly higher, and so we feel very good about the pipeline of customers.
Speaker Change: Thank you. Thank you.
Speaker Change: It is customer specific. It's not a macro issue in any way, shape, or form.
Speaker Change: And that's my second question, Gitesh. I've heard from a number of partners and resellers that there's some caution or pause in front of the election. Any sense that there's any pause in your customers in front of the election, given some of the uncertainty around tax and other factors?
Speaker Change: No, we don't believe it's a macro issue. We don't see any macro issues. In fact,
Speaker Change: Many of our customers that report publicly.
Speaker Change: are seeing the highest levels of profit and they also know that this is the time to really prepare to put the next generation of solutions in place.
Speaker Change: As, when you look at the insurance industry, over any period of time, these cycles can be very, very tight. You can have a cycle where things are looking very good, and then you can have a cycle where profitability is under a lot of pressure.
Speaker Change: And our customers are in this for the long haul, and we don't see any macro issues whatsoever.
Speaker Change: Great. Thank you, Gitesh.
Speaker Change: And thank you. And one moment for our next question.
Speaker Change: And our next question comes from Dylan Becker from William Blair. Your line is now open.
Speaker Change: It feels like that has the potential to be a notable amplifier of kind of that value proposition for some of these customers that are running these pilots.
Speaker Change: So, I guess, how are you thinking about that impact and that dynamic on ROI versus kind of the change management and the internal focus that might be a little bit less out of your control as you've kind of talked to as well here?
Speaker Change: Yeah, so what we are seeing is with IXcloud, customers are looking at sometimes multiple solutions at the same time.
Speaker Change: For example, a customer might be putting in First Look, Intelligent Re-inspection, Sub-Row,
Speaker Change: and Casualty in different parts of the organization, piloting multiple solutions at the same time.
Speaker Change: And there's an efficiency that comes about when you do multiple solutions, and exactly as you pointed out,
Speaker Change: The interoperability of these solutions is super helpful. So I would say it varies client to client in terms of
Speaker Change: the value, but at the heart of it.
Speaker Change: You know, we look at the ROI for every individual solution.
Speaker Change: and we look at the aggregate ROI.
Speaker Change: and so far the results that we see are absolutely been terrific.
Speaker Change: And I look at this from a 20 plus, you know, 20 plus years of delivering solutions to this industry, and we feel very good about the value that's being delivered.
Speaker Change: Okay, great, that makes sense.
Speaker Change: And then if we think about it from like an industry perspective as well too, Gitesh, a question I get somewhat frequently as well too is on the impact of, with this kind of hardening environment, the impact and shift from...
Speaker Change: towards total loss from repairs. Can you kind of walk us through the nuance maybe relative to those two? It feels like it kicks off in and of itself additional kind of workflows and processes, maybe brings other solutions to the conversation that weren't as readily addressable on the repair side. But how should we think about kind of that trend of what we're seeing relative to total loss versus the repair side? Thank you.
Speaker Change: Yes, sure, let me comment on that. So at the peak...
Speaker Change: I would say about, you know,
Speaker Change: That is the cost it takes to settle a total loss, peak at a little over $16,000, $16,500 or so.
Speaker Change: What we have seen since then as used car valuations have dropped, we track this very, very closely because of the accuracy we need to maintain, we're seeing used car valuations and therefore total loss values are now down in the 14% range.
Speaker Change: So what this has meant is that there's been a slight increase in the number of vehicles that are totaled.
Speaker Change: and so we've seen a small shift in that going to probably like a 76, you know, 24
Speaker Change: But at the same time, there's two or three other variables that come into play, which is newer vehicles, as they come on stream, are also a lot more expensive to repair.
Speaker Change: So we have seen a slight increase in total losses and maybe a slight decrease in repairables, but by and large
Speaker Change: This is where customers, you know, solutions like First Look become extraordinarily important because you don't want a vehicle that is a total sitting at a repair facility too long. You need to be able to take that out pretty quickly using photo and AI.
Speaker Change: So the accuracy of making these decisions becomes even more critical.
Speaker Change: So some of our solutions like our first notice of loss, our predictive analytics tool at the front end.
Speaker Change: that helps you decide which way to go. So it is causing customers to really think through holistically how you look at all of these pieces together as opposed to because of this dynamic nature.
Speaker Change: Okay, great. Thanks, Githesh. Appreciate it.
Speaker Change: And our next question comes from Gabriela Borges from Goldman Sachs. Your line is now open.
Gabriela Borges: Hi, good afternoon. Thanks for taking the question. Brian and Githesh, I'm trying to reconcile your comments on emerging solutions adoption and ARR.
Gabriela Borges: with some of the defoliation that we're seeing more broadly in the business.
Gabriela Borges: If we look here, there's about a three-point deceleration in total growth for CCC.
Gabriela Borges: There's about a one-point impact of Best We Can Call from NRR.
Gabriela Borges: So it looks a little bit like the new business dynamics are slowing as well. So maybe just talk to that a little bit. Are you seeing a slowdown in new business dynamics? And how do you think about that piece of the business, given all the commentary you already provided on the crosswalk piece? Thank you.
Speaker Change: which is in the range at the high end of our long-term range. When you think about the point you're making around what growth has done, there's kind of three factors that are playing into the second half and into Q4.
Speaker Change: that we highlighted in Q3. There's another point in Q4 that we highlighted that the headwind, so we are facing into tougher comps in the second half. The second point is the volume that is, we're seeing softness. We talked about volume being down about.
Speaker Change: Six points on claim volume overall, and that drives about a point of headwind for us as well.
Speaker Change: And then the third point I'd highlight.
Speaker Change: But just to give some sizing, when you look at Q4 and you think about sequential growth over Q3,
Speaker Change: We're looking at about two and a half points of growth.
Speaker Change: And you compare that with the last two Q4s, so what we did in 23, what we did in 22, and it's broadly the same. It's been around 2.5 or 3 points of growth. So just sizing the Q4 in kind of sequential growth is broadly consistent.
Speaker Change: Got it. Thank you for the detail.
Speaker Change: Absolutely. And thank you.
Speaker Change: And one moment for our next question.
Speaker Change: And our next question comes from Josh Bayer from Morgan Stanley. Your line is now open.
Josh Bayer: Thank you. One for Githesh, one for Brian. Githesh, just hoping you could take us through a typical timeline for a customer that was an early adopter of like estimate STP or some of your other AI products that's already made it through the piloting, the testing, the implementation, like hoping to generalize how much time
Josh Bayer: Will it take from this building pipeline to really convert over to revenue?
Speaker Change: Yeah, so for estimate STP in particular, there's a slight difference. Because for the first...
Speaker Change: six or eight quarters. We were very deliberate in that we only allowed you to process front-end hits.
Speaker Change: It wasn't until about four or six quarters ago that we opened the door and said, you know, SUVs, you can process every type of vehicle. So, if you look at the true starting point for Estimate SDP, call it four or six quarters ago,
Speaker Change: We have customers who range from about, I would say, you know, three, 4% using PhotoAI and EstimateSTP to some customers who are as high as 60%.
Speaker Change: and so there's a broad variation as people get comfortable, test this out in various locations, make sure that the accuracy, the performance is there, so we see a pretty wide range.
Speaker Change: I think last quarter we highlighted that one customer would roll out a top, you know, top 10 carrier to now to 20 plus percent of their claims.
Speaker Change: In their case, you know, after it was in full production, it took them about three, four quarters to get fully up, ramped, and comfortable to roll it out.
Speaker Change: So, it varies. Non-standard customers tend to move faster than standard insurance customers. So, that's what we see in the data. So, it varies by solution, but on general, a couple of quarters.
Speaker Change: Okay great and then Brian just wondering like we had the implied Q4 guidance from last quarter so Q4 was was lowered by about two and a half million just wanted to clarify was that like first 90 days ago was that all the the softness and the claims that you're talking about or were there any other changes that popped up in the last 90 days?
Brian Herb: Yeah, hey Josh, I mean for the full year we kept the guide at the full year position from where we were last time to 9%. So we had a similar range of 941 to 946.
Brian Herb: That's consistent. Yeah, there's been just as I highlighted to the previous question, there's just some moving parts as we think about the year end and how that's going to play through. You have the true ups
Brian Herb: which are harder to forecast. We talked about the harder, more difficult comp that's playing through. We have the volume weakness that's been moving around quarter over quarter, and then there's just the deal flow. What's going to close off the pipeline this year versus
Brian Herb: falling into next year. So all those are factoring into the guide, but I would put a point back to the full year position is consistent with where we've been when we talked 90 days ago.
Speaker Change: Okay, thank you
Speaker Change: Thank you. One moment for our next question.
Speaker Change: And our next question comes from Samad Samana from Jeffreys. Your line is now open.
Samad Samana: Hey, good evening. Thanks for taking my questions. Maybe first Appreciate the color on the on the claim volume and kind of the the related sensitivity Could you just maybe help us think about are you expecting volumes to kind of persist?
Samad Samana: at this, like, tracking down six percent.
Samad Samana: levels going forward? Are you expecting them to rebound? Like, what have you embedded in?
Samad Samana: I know it's a couple months away from 2025, but are you thinking that we should think about volumes at this kind of like lower level, or are you expecting a rebound? Just maybe help us understand how we should think about that.
Samad Samana: Yes, sure. Hey, Samad, it's Brian. So the way that we're looking at forecasts for claims, they have been bouncing around a bit. Q1 was soft. Q2 improved a bit. And then Q3 was softer again, which gets you to the...
Samad Samana: 6% down year-to-date.
Samad Samana: Based on what is driving the claim or our view of the claim fluctuation this is not a permanent trend and we do think it will
Samad Samana: It will change over time. That said, we are not changing, because we don't know when that recovery will happen. We're not changing our forecast. We're not assuming that claims get softer, but we're also not assuming.
Samad Samana: that they're going to recover. So Q4 is factoring in similar levels, and then we're factoring in similar levels in 25 at kind of a baseline level. So that's how we're thinking about the claim volume and how it will play through the forecast.
Speaker Change: Great and then maybe just you know as a follow-up when you when you guys made the changes to the kind of the customer service organization or customer facing side of the organization like how have you thought about the impact of that and how should we think about that maybe flowing through to the business as we look forward?
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: and the NRC. Thank you very much. Thank you. Thank you. Thank you.
Speaker Change: Yes, it's Brian. I'll start and let Githesh add some color. So, you know, clearly we're setting the organization up for
Speaker Change: what we believe will be...
Speaker Change: successful and the best way to engage with our clients. And so having one customer facing organization.
Speaker Change: bringing both client services and our sales organizations together. We think we'll give a more seamless interaction with our clients. We do believe
Speaker Change: It will improve the velocity of our sales. We also have brought in product sellers, which was a recent investment that we brought into the organization.
Speaker Change: especially to help with these newer solutions with people that have expertise in these areas. And they're certainly having an impact as we build the pipeline in our engagement with clients. But that's how we're thinking about the organizational changes and the setup for next year.
Speaker Change: Yeah, fundamentally what we're doing is to make sure that our organization reflects the product architecture that we talked about
Speaker Change: And that's really what we're doing because more and more of these solutions are deeply interconnected with each other. And that's why we're making these changes.
Speaker Change: Great, appreciate you taking my question. Thank you. Thanks so much and thank you.
Speaker Change: And one moment for our next question.
Speaker Change: And our next question comes from Saket Kalia from Barclays. Your line is now open.
Saket Kalia: Okay, great. Hey guys, thanks for taking my questions here. A lot of my questions have been answered, so I'll keep it to one. Brian, maybe for you, you know, I've gotten the question from a couple investors on just the impact of hurricanes here.
Speaker Change: Now, you know, of course, that's going to be much more impactful to home insurers.
Speaker Change: Unfortunately, those events tend to also have a lot of auto claims during those big storms. So just to make sure the question is asked in the wake of some of these storms recently, can you just talk to us a little bit about what sort of impact that sort of...
Speaker Change: that is having this year, if any, and maybe just give us some historical perspective to it as well as we just think about this kind of going forward.
Speaker Change: Sure.
Speaker Change: Yeah, I can take a second. So as a reminder, when you think about our revenue streams, 80% of the business is subscription, and 20% is transactional or has volume based. And it really comes into three places, the volume. So one is our casualty solutions.
Speaker Change: there's a part of our or component of our parts business that's that's transactional and then there is a portion that relates to our oil physical damage client base
Speaker Change: But those, for the most part, are going to be your smaller regional carriers that are paying volume versus the large nationals.
Speaker Change: So that's how the revenue breaks out. As far as the hurricanes, the volumes we have seen today have not been material and are not really moving the number. It really matters on the client mix.
Speaker Change: Some of our clients are in all-you-can-eat flat fees, and so the excess volume doesn't necessarily play through their numbers.
Speaker Change: Others, it will play through depending on if they're paying transactional or have transactional components of their agreement. So mix really matters as well. But I would tell you to date the hurricanes that we've seen, although significant for the carriers.
Speaker Change: and impact have not been a material part of what we're seeing in our volumes.
Speaker Change: Super helpful. Thanks, guys.
Speaker Change: Also, historically, because it really does affect people locally in each region, but when you look on a national basis,
Speaker Change: It's still a relatively, you know, it doesn't shift the overall national posture.
Speaker Change: Thanks again, guys.
Speaker Change: All right. Thanks, Zach. Thank you.
Speaker Change: Thank you. Barely one moment for our next question.
Speaker Change: And our next question comes from Alexi Gugulov from JP Morgan. Your line is now open.
Speaker Change: Hi, thank you. This is Elise Tanner on for Alexi Gogolev. My question was, could you elaborate on why SBC as a percentage of revenue grew slightly sequentially to 18% and can you reiterate what the outlook for SBC as a percentage of revenue is for next year?
Speaker Change: Yeah, this is Brian, happy to do that. Yeah, so it was 18% in the quarter, which is broadly consistent with where it was in Q2, which is slightly down from where it was in Q1.
Speaker Change: The big driver we're seeing run through is there is a modification in the TSR.
Speaker Change: And that modification had a P&L charge of about $70 million. Most of that is running through 2024. So it's got about 6% of impact into our percent share base.
Speaker Change: comp percentage. So that's the real kind of one time driver. There was no additional units.
Speaker Change: that were attached to the modification.
Speaker Change: and the modification is detailed out specifically.
Speaker Change: in the proxy. When you think about next year, this modification is largely ran through in 2024. There's a small tail that's in Q1 of 25, but it's not that material. We think about 2025 being more in the 12 to 14 percent of revenue, and that's the way to think about the model for next year.
Speaker Change: Got it. Thank you. Very helpful. And then as a quick follow-up, what are the key challenges you're facing that prevent you from full rollout of outbound subrogation? And are you seeing elongated decision-making even around inbound subrogation product adoption?
Speaker Change: Yeah, I would say inbound subrogation is a lot easier because of all the existing integrations that are already in place.
Speaker Change: Outbound requires a little more complexity, a little more integration.
Speaker Change: So we have been more focused on inbound subrogation across the board
Speaker Change: And we're seeing significantly increased volumes, like we said from, as we went from Q2 to Q3, we've seen a double-digit increase in the number of files processed, a pretty large pipeline of customers.
Speaker Change: and we are focused much more on inbound subrogation first and in the early stages of implementation for outbound. Outbound does have a little more complexity.
Speaker Change: Got it. Thank you so much.
Speaker Change: Thank you. And thank you. And bear with me one moment for our next question.
Speaker Change: And our next question comes from Chris Moore from CJS Securities. Your line is now open.
Chris Moore: Hey, good afternoon guys. Yeah, most most answer to just wanted to from a modeling standpoint Obviously you guys unusual model. You're able to continue to invest heavily in R&D still expand margins
Chris Moore: You know, it's been roughly, R&D roughly in the 20% range this last few quarters. Is that, you know, a reasonable place to be, you know, moving forward into 25 or just how should I be thinking about that?
Chris Moore: Yeah, hey Chris, it's Brian. Yeah, so R&D is an area that we've put significant investment in. We've added a lot of capacity over the last couple years.
Chris Moore: really to make sure that we could support the innovation pipeline. So there's a significant amount of capacity that's been built into the system over the previous two years.
Chris Moore: We do expect R&D to continue to grow, but at a more moderate rate.
Chris Moore: but that is an area that we continue to invest and invest heavily so I think as a proxy your percent of revenue is reasonable for going forward and it will it will grow consistent with what it has been this year so yes it's a good modeling assumption.
Speaker Change: Perfect. I will leave it there. I appreciate it, guys. All right. Thanks, guys, too. Thank you. One moment for our next question.
Speaker Change: And our next question comes from Slow Mo Rosenbaum from Stiefel. Your line is now open.
Speaker Change: Hi, thank you for taking my questions.
Speaker Change: Hey Githesh and Brian, I was just wondering if the volumes, could it all be attributed to market share gains amongst the client base or, you know, in specific?
Speaker Change: progressive, I believe, has been investing throughout the period, the last
Speaker Change: know, couple years or so, in terms of getting new clients, whereas a lot of the other insurance companies were not as aggressive because of the rate issue that we've had in all various states.
Speaker Change: I was wondering if you are hearing any of that amongst your clients as one of the reasons why the volumes might be pressured this year. And after that, I have one more question.
Speaker Change: Sure, when you look at the top ten carriers, most of them, almost all of them are customers, what we are seeing is that
Speaker Change: Some of some top 10 customers of ours have gained market share Some have lost market share. So in aggregate, we don't think it's a material difference
Speaker Change: When you look at the industry numbers in terms of what we see There are always some puts and takes but nothing significant
Speaker Change: Thank you.
Speaker Change: But we think the more of the issue on claim frequency is really more consumer behavior is what we're seeing more than anything.
Speaker Change: Thank you.
Speaker Change: Okay and then can you give me another just an example when you talk about you know potential extensions of the payroll system product that seemed very interesting we had seen it at your conference and some of the you know did demo of that and I was just wondering if you could talk about where else you could extend that to
Speaker Change: I think so, first of all, when you look at the repair market
Speaker Change: You know the payroll in the repair facility market is in the tens of billions of dollars probably somewhere between 30 and 40 billion dollars
Speaker Change: and, you know, so we are very focused.
Speaker Change: on that, but we also...
Speaker Change: see several other back-office solutions that are on the pipeline that, you know, we don't plan to discuss right now.
Speaker Change: But, you know, just as we entered the front office, then we focused on the repair process itself, the back office represents another large opportunity to help streamline.
Speaker Change: Thank you.
Speaker Change: but we haven't detailed those out.
Speaker Change: other than pay, okay?
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Gary Prespozino from Barrington. Your line is now open.
Gary Prespozino: Hi Brian and Githesh. A couple of questions here. First one and then a follow-up. Do you find that
Gary Prespozino: With these new products that you've launched, particularly I'll just point out Buildsheets, which I think should save insurers a ton of money given all the different trend levels that cars have. With these newer solutions, since they're driving more efficiencies, are you able to price at a better than 5 to 1 ratio that you'd often cited as how you price your products?
Brian Herb: Yeah, hey Gary, it's Brian.
Brian Herb: Yes, so a lot of the 5 to 1 ratio, I mean, we based
Brian Herb: the products and insurers very clearly on an ROI basis and we do that as we talked about on a 5 to 1. This build sheet we're selling into the shops.
Brian Herb: And so the price dynamic is slightly different. Clearly it drives a lot of efficiency, both for the shops and for the parts suppliers. It's eliminating significant returns.
Brian Herb: and then just lag times in the repair and having to store the car, having it...
Brian Herb: wait for the proper part to be received if they ship the wrong part. So there is a really efficient play here, and it certainly has a strong ROI. But the 5-to-1 that we've talked about historically has been more on how we price into the carriers.
Speaker Change: Well, even with what you're selling to the carriers, since you're driving more efficiencies, can you, are you seeing a step up there, or is that something you're not seeing, or what?
Speaker Change: Yeah, I mean, in general, products have different dynamics. Some will have a better ratio and be 3 to 1. Others could be 7 to 1. It depends. I mean, certainly on these newer solutions, the emerging solutions, they're very compelling. They have a very strong ROI.
Speaker Change: We do think that gives us pricing opportunity, but I think in general we still look at a 5 to 1 ratio as a good rule of thumb of how we price our products and the value it drives for our customers.
Speaker Change: Okay, and then getting back to this claims drip down decline, Kesh, it sounds like it's more of an economic issue.
Speaker Change: But I guess, are you also hearing from your insurance clients that as ADAS proliferates through the car park, that that is also causing a decline in claims in the market?
Speaker Change: Thank you.
Speaker Change: No, I think by and large what we are seeing is, you know, what we hear back from customers is distracted driving and, you know, there's a lot of other behaviors that haven't really fundamentally changed.
Speaker Change: consumer behavior from an affordability standpoint and the fear of, you know, the risk of having premiums raised. Those are the things we think and I think we're about 18 months into it.
Speaker Change: Our customers would say that they expect this to normalize in the next couple of quarters, but we'll see.
Speaker Change: Okay, thank you.
Gary Prespozino: Thanks Gary
Speaker Change: and others. Thank you. You're welcome. Thank you. Thank you. Thank you.
Speaker Change: I am showing no further questions. I would now like to turn the call back over to Githesh Ramamurthy, CEO, for closing remarks.
Githesh Ramamurthy: Just on behalf of all of us at CCC, just want to say thank you for joining us. I'd also like to take the opportunity to thank our customers, and very importantly, our CCC team members, and to our shareholders for the trust and support.
Githesh Ramamurthy: And where we sit today, we believe, we're at the beginning of a transformational shift towards intelligent experience across the PNC insurance economy and that CCC's investments in a multi-sided network, AI, event-based architecture, position us well to help our customers capitalize on this transition.
Githesh Ramamurthy: And we'll also continue to deliver on our strategic and long-term financial objectives and feel very good about those moving forward. With that, we'll end the call here. Thank you.
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: Thank you.
Speaker Change: Thank you, sir.
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