Q4 2024 CCC Intelligent Solutions Holdings Inc Earnings Call
Good day and thank you for standing by. Welcome to the CCC Intellect Next Solutions fourth quarter fiscal 2024 earnings conference call.
At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1 1 again.
Speaker Change: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Bill Warmington
Vice President of Investor Relations. Please go ahead.
Speaker Change: Thank you operator. Good afternoon and thank you all for joining us today to review CCC's fourth quarter and full year 2024 financial results which we announced in the press release issued following the close of the market today.
Githesh Ramamurthy: joining me on the call are Githesh Ramamurthy, CCC's Chairman and CEO, and Brian Herb, CCC's CFO.
Githesh Ramamurthy: 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.
Githesh Ramamurthy: These risks are discussed in the earnings releases available on our Investor Relations website and under the heading Risk Factors in our 2024 Annual Report on Form 10-K, filed with the SEC later today.
Githesh Ramamurthy: Further, these comments and the Q&A that follows are copyrighted today by CCC Intelligent Solutions Holdings Incorporated.
Githesh Ramamurthy: Any recording, retransmission, or reproduction, or other use of the same, for profit or otherwise, without prior consent of CCC, is prohibited in a violation of United States copyright and other laws.
Githesh Ramamurthy: 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.
Githesh Ramamurthy: Please note that the discussion on today's call includes certain non-GAAP financial measures as defined by the SEC.
Githesh Ramamurthy: 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.
Githesh Ramamurthy: The reconciliation of GAAP to non-GAAP measures is available on our earnings release that is available on our investor relations website. Thank you. And now I'll turn the call over to Githesh.
Githesh Ramamurthy: Thank you, Bill, and thanks to all of you for joining us today. I'm pleased to report that CCC delivered another quarter of strong top and bottom line performance to complete another record year in 2024.
Githesh Ramamurthy: For the fourth quarter of 2024, CCC's total revenue was $246 million, up 8% year-over-year and at the high end of our guidance range.
Githesh Ramamurthy: adjusted EBITDA for the fourth quarter was 106 million dollars ahead of her guidance range
and adjusted EBITDA margin was 43 percent.
Githesh Ramamurthy: Looking at the full year, 2024, revenue was 945 million dollars, up 9% year over year.
Githesh Ramamurthy: Adjusted EBITDA was $397 million, up 12% year-over-year, with an adjusted EBITDA margin of 42%, up about 130 basis points year-over-year.
Githesh Ramamurthy: This solid financial performance reflects our durable business model and the ability to balance margin expansion with investments in innovation that help position CCC for our next phases of growth.
Githesh Ramamurthy: In 2024, we also made significant progress in strengthening and expanding the scope of the CCC network.
Githesh Ramamurthy: with several key renewals and new customer additions, including the onboarding of over 1,000 new collision repair facilities to our platform.
Githesh Ramamurthy: We also continue to grow our industry-leading partner ecosystem and now have over 200 active technology and service providers in our network.
Githesh Ramamurthy: Our leadership in product innovation and AI also continued to advance in 2024, with the launch of several new solutions, as well as our IX Cloud event-based architecture.
Githesh Ramamurthy: and with our AI now in production at over 100 insurers and over 10,000 collision repairers.
Githesh Ramamurthy: We took that a step further through our acquisition of Evolution IQ, a fantastic business which expanded our addressable markets into disability and workers' compensation, while also deepening and strengthening our AI and casualty capabilities.
Githesh Ramamurthy: As we look to 2025 and beyond, we continue to be incredibly excited about the numerous growth opportunities ahead of us.
which I will now cover in three topics.
Githesh Ramamurthy: The first is our conviction in the digitization of the insurance economy and the transformational impact we believe it will have on the industry.
The second is the real-world results.
Githesh Ramamurthy: customers are seeing from our most recent innovations. And third is the actions we're taking to accelerate our customers' journey along this transformation, which we believe will also accelerate CCC's growth.
Now, let me start with my first topic.
Githesh Ramamurthy: We believe the multi-trillion dollar insurance economy is in the early innings of digital transformation and CCC is well positioned to be our customer's partner of choice for the transformation.
Githesh Ramamurthy: Our clients continue to face significant operational challenges as the many forms of complexity they deal with continue their persistent rise.
Githesh Ramamurthy: vehicle technology, labor shortages and skill gaps, medical treatments, natural disasters, data proliferation, changing regulations, and much more.
Githesh Ramamurthy: These inflationary pressures have driven record premium increases in recent years and are also extending claims and repair cycle times.
in my conversations with customers.
whether with management teams or boards of directors.
Githesh Ramamurthy: They are increasingly describing these trends as unsustainable within their current operations, and as a result, are increasingly determined to deploy AI-driven transformation across their businesses.
Githesh Ramamurthy: We believe the fusion of our industry-leading AI, deep multi-sided network, and our scalable multi-tenant platform
Githesh Ramamurthy: positions us as the partner of choice for this digital transformation and for more and more of a claim and repairs lifecycle to be processed using CCC solutions over time.
Githesh Ramamurthy: and with the depth and breadth of the investments we have already made across our product portfolio, we are ready to help our customers achieve this level of end-to-end transformation.
Githesh Ramamurthy: For auto insurers, that means helping them all the way up front at first notice of loss as they work to accurately and efficiently triage a claim.
Githesh Ramamurthy: and then helping them navigate the many downstream steps from vehicle appraisal to injury resolution and even subrogation.
Githesh Ramamurthy: For collision repairers, it means first helping them to drive business by optimizing their web presence or by collaborating with insurers, and then supporting them through the entire repair process, including accessing repair procedures, scheduling technicians,
Githesh Ramamurthy: ordering parts, and we can even support the business office in processing payroll and other tasks through integrations into our partner ecosystem.
Githesh Ramamurthy: Fully unlocking the value of these capabilities requires a holistic approach to transformation, which we are seeing customers increasingly embrace so they can build and deploy the intelligent experiences that matter most to them.
Githesh Ramamurthy: It means using rich data and state-of-the-art AI to identify the best outcome for a given claim or repair, based on customer-specific configurations, and then making that happen by connecting the many different participants.
across the ecosystem who are involved in resolving that event.
with industry professionals facing ever-higher demands.
Githesh Ramamurthy: with an all-around increase in complexity, helping them identify and implement the next best action for their work. And doing that at scale is going to become a defining feature of AI-enabled vertical software.
Speaker Change: Evolution IQ pioneered the use of AI-enabled claims guidance in disability and workers' comp.
Speaker Change: And by delivering proven results, has been growing rapidly with multi-million dollar annual contracts from many of the largest insurers in the United States.
Speaker Change: By helping claims professionals identify the highest-value tasks to do next from among hundreds of possible tasks, they are bringing the future of AI-guided next-best actions to life.
Speaker Change: The nature of this transformational impact is very clear from my meetings with the leadership of Evolution IQ customers.
Speaker Change: The addition of Evolution IQ to our portfolio continues CCC's track record of delivering tangible, real-world impact from AI through an attractive and highly scalable economic model.
Speaker Change: We believe the digitization of the insurance economy through intelligent experiences is inapplicable.
Speaker Change: And while the exact progression is hard to predict, we expect it to provide CCC with many years of growth.
Speaker Change: This brings me to my second topic, which is the real-world ROI clients are realizing from our newer solutions as they make this transition.
Speaker Change: Throughout our history, success has always been driven by reference-level products that deliver a high and demonstrable ROI, with results from early-launch customers setting the path for wider adoption across our customer base.
Speaker Change: and we are now consistently seeing this ROI play out in our priority areas of growth.
Speaker Change: Within our Insurance Auto Fiscal Damage, or APD, business, customers are realizing tremendous benefits from the capabilities in our Intelligent APD Suite.
Speaker Change: a set of AI-enabled solutions that dramatically improves effectiveness and efficiency in APD claim sampling and resolution.
Speaker Change: Many of these solutions leverage proven computer vision AI to extract insight from photos and then deploy those insights across customer and partner workflows.
Speaker Change: This includes helping insurance appraisers prepare a vehicle damage estimate that is on average 30% less time than before.
Speaker Change: to more rapidly identify a potential total loss regardless of where that vehicle is located.
Speaker Change: Making that total loss determination as early as possible can eliminate hundreds of dollars in avoidable rental, storage, and other charges.
while also greatly improving a carrier's customer and employee experience.
Speaker Change: Today it takes an insurer about 13 days on average to make that total loss determination.
Speaker Change: By using the capabilities in our intelligent APD suite, one national insurer has seen a 30% lift in early total loss identifications with an average reduction of 3-7 days in cycle time for vehicles located within their direct repair program.
Speaker Change: Our casualty and subrogation solutions are also driving significant real-world ROI for our clients.
in Casualty, Innovations in our Third-Party Bill Review Solutions,
Speaker Change: delivered an almost 40% increase in identified improvements for a top 10 insurer last year.
Speaker Change: And in subrogation, our AI-enabled inbound solution has enabled some carriers to settle more than 40% of demands the same day they receive them.
versus days or weeks traditionally.
Speaker Change: We now have over 20 insurers using one of our subrogation solutions, including multiple in the top 20.
Speaker Change: Priority growth areas in our automotive business are also delivering substantial benefits to repair facilities, along with the broader ecosystem of auto manufacturers, dealers, parts suppliers, and other partners they do business with.
Speaker Change: Several of our newer repair facility solutions improve shop productivity by standardizing operating procedures and streamlining manual tasks.
for example.
A recent introduction of Bill Sheets.
Speaker Change: leverages as manufactured vehicle data to quickly identify the exact part that should be used in a repair.
Speaker Change: With so many vehicle trims and options to choose from, this data can filter the choices for, say, a headlamp, from dozens down to one.
In addition to saving time during the estimating process,
Real-world results show another benefit.
reduced parts returns from ordering the wrong parts.
Fox Returns for customers using the solutions.
Speaker Change: are 25% lower by quantity and more than 50% lower by dollar value.
Speaker Change: Customers of the solution are also seeing higher customer satisfaction scores as improved accuracy in part selection up front, improved cycle time along with other aspects of the customer experience.
Speaker Change: The clear and demonstrable value of this solution has led to rapid adoption with thousands of repair facilities now using it despite being in the market for less than a year.
Speaker Change: We are also delivering real-world ROI impact to companies in the broader automotive ecosystem that do business with our repair facility customers.
Speaker Change: For example, parts suppliers continue to see strong results from their integration into CCC-1 because it allows repair facilities to electronically order parts in the operating system they use every day.
Speaker Change: In fact, the efficiencies are so significant that one major OEM recently decided to use our park solution as their exclusive platform for managing promotional park sales to collision repair facilities. They are the second OEM to do so.
Speaker Change: We also continue to integrate new diagnostics providers into CCC1, reducing the administrative burden on shops in managing and performing diagnostics-related tasks.
Speaker Change: This benefits the repair facility, diagnostics provider, and in many cases also the insurer and OEM.
Speaker Change: And we now have about 20% of repair facility customers taking advantage of this functionality.
Speaker Change: As I said earlier, Evolution IQ is also delivering substantial, in some cases multi-point combined ratio impact to its clients.
Speaker Change: And because of those results, clients are excited to do more.
Speaker Change: Since announcing the acquisition two months ago, I've seen from my own personal meetings with both Evolution IQ and CCC clients that their reaction has been overwhelmingly positive.
Speaker Change: We see tremendous opportunity in Evolution IQ's core disability and workers' comp markets.
Speaker Change: and Evolution IQ's capabilities, including medical document summarization, are also highly complementary to our existing casualty business, which is one of our largest growth opportunities and also one of our fastest growing product lines overall.
Speaker Change: Across our portfolio, the ROI from our newer solutions is generating strong demand and a robust customer pipeline, with emerging products collectively representing the fastest-growing part of our portfolio.
Speaker Change: This gives us confidence in the market opportunity for these solutions, and as a result, focusing more on accelerating their revenue velocity in 2025 and beyond.
Speaker Change: This brings me to my third topic, which is a set of actions we have taken to help our customers more rapidly adopt our new solutions and accelerate their transformation journeys as we head into 2025.
Speaker Change: I will start with technology and last year's introduction of the CCC Intelligent Experience Cloud.
As you heard me describe before,
Speaker Change: IX Cloud is an overlay that sits on top of CCC's existing cloud applications.
Customer Workflows, and Customer and Partner Systems.
Speaker Change: It is essentially a distribution system that is able to handle our AI-enabled workflows and massive amounts of data from multiple sources in real time.
Speaker Change: IXcloud employs an event-driven architecture, which means it uses a managed, published, and subscribed model that enables companies to set up notifications for relevant business events and configure actions.
based on those events using AI.
Speaker Change: This architecture is designed to make it faster and easier for customers to deploy new CCC solutions.
Speaker Change: and it also increases the number of ways customers can use multiple CCC solutions together. There is minimal effort to leverage the new architecture and there is no additional cost to the client.
Speaker Change: We are already seeing benefits from this approach with customers, and we anticipate it becoming an even more important catalyst moving forward.
We have also taken several steps
to streamline and upgrade our go-to-market activities and customer support.
Speaker Change: The first of these initiatives has been the rollout of new insurance packages that better align existing and new solutions within and across our solution sets.
Speaker Change: In many cases, these new packages are also improving adoption of our existing solutions.
Speaker Change: as is the case of a recent top 20 insurer who not only contracted for new solutions as part of their multi-year renewal but also added several established solutions as part of migrating to a more holistic, package-based offering.
Speaker Change: We are employing this approach for all new and renewal insurance contracts in 2025.
Speaker Change: I've also spoken in recent quarters about the impact of change management on the adoption and ramp up of our newer solutions and we are making changes to improve our support for customers in this area as well.
Speaker Change: CCC has always been a deeply trusted partner to our customers and a key part of this has been our support for implementation and change management at a very granular level.
Speaker Change: But we have found that change management support needed for our newer solutions
can sometimes be different in important ways.
Speaker Change: First, the productivity impact of our newer solutions often does not just warrant a customer streamlining their operations, but instead transforming them altogether.
Speaker Change: For example, our AI-enabled subrogation solution has led some insurers to consider realigning their entire subrogation operation.
Speaker Change: which demonstrates the value of the solution but also requires a different duration and form of support than if you were helping an insurer migrate an existing process.
Speaker Change: Second, we've also seen variations in how quickly customers will scale a new solution across their operations.
Speaker Change: For example, while paid volume on estimate SDP, a component of our Intelligent Estimating Solution, is still just 4% of our annual claims overall,
Speaker Change: We announced in 2024 that a top 10 insurer was on track to process 20% of their repairable claims on a run rate basis using this product.
by replicating the learnings from that initiative.
We are helping other carriers set similar goals.
Speaker Change: and that first insurer that was on track to process 20 percent.
They feel very good about their results.
Speaker Change: As a hyper-growth AI startup, Evolution IQ has been particularly effective at providing AI-specific change management support to its customers.
During my visits with Evolution IQ's clients,
They told me directly how important
Speaker Change: These change management capabilities have been for them to get results and we are already starting to incorporate these approaches more broadly across CCC.
Lastly, we have taken steps to realign our customer-facing functions.
Speaker Change: so we can be better partners in accelerating our customers' transformation journeys overall.
Speaker Change: Starting next month, all of CCC's market-facing and service functions will operate under Tim Welsh.
will be joining us as president.
Speaker Change: Tim brings a wealth of experience to CCC, including 25 plus years of PNC and life insurance leadership at McKinsey, where he served as a senior partner and member of McKinsey's Board of Directors.
Speaker Change: Tim has worked with many of the top insurers in the world, and most recently, Tim spent seven years as Vice Chairman of Consumer and Business Banking at U.S. Bank.
Speaker Change: Tim has a deep understanding of the broader insurance economy as well as transformation, including a recent digital transformation of U.S. Bank's 20,000-plus employee retail banking system.
Speaker Change: I know Tim has followed CCC for a long time and is excited about the growth opportunities in front of us.
Speaker Change: We look forward to Tim helping our teams, advise our customers on their own transformations and advancing the digitization of the entire insurance economy. Welcome Tim.
As we look ahead to 2025,
Speaker Change: We remain confident that the global insurance economy is still in the early stages of a generational digital upgrade cycle and that CCC is well positioned to help our customers navigate this transition.
Speaker Change: We are excited about the long-term growth potential this opportunity represents and look forward to supporting our customers and partners.
Speaker Change: on this journey in the months and years ahead. I will now turn the call over to Brian, who will walk you through our results in more detail.
Thanks, Githesh.
Brian: 2024 was a year of solid revenue growth, margin expansion, and free cash flow generation that reflects our ability to effectively balance between investments in our growth initiatives and ongoing margin discipline. It also highlights the strength of our durable business model.
Brian: Now, as we turn to the numbers, I'd like to review our fourth quarter and fiscal year 2024 results.
Brian: and provide guidance for the first quarter in full year 2025.
Total revenue for the fourth quarter was $246.5 million.
Brian: million, which is up 8% from the prior year period. Total revenue for the fiscal year 2024 was $944.8 million, which was up 9% over 2023.
Brian: In the fourth quarter of 2024, approximately five percentage points of our growth was driven by cross-sell, up-sell, and adoption of our solutions across our client base.
Brian: including Repair Shop Upgrades, the continued adoption of our emerging solutions.
and the ongoing strengthening casualty and other ecosystem customers.
Brian: Approximately three points of growth came from new logos, mostly from our repair facilities and parts suppliers.
Brian: about one point of growth in Q4 came from our emerging solutions.
mainly Diagnostics, Build Sheets, and Estimate STP.
Brian: Run rate from Emerging Solutions overall was about 3% of our total revenue in Q4 2024, and these solutions continue to be our fastest-growing portion of the portfolio.
Brian: 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: In Q4 2024 our GDR was 99% which is in line with the last four quarters
Brian: Note that since the first quarter of 2020, our GDR has been between 98 and 99% and is either rounded up or down, primarily driven by repair, shop, industry, churn.
Brian: We believe that the 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: Software Net Dollar Retention, or NDR, captures the amount of cross-selling upsell from our existing customers compared to the prior year period, as well as volume movements in our auto physical damage client base.
Brian: In Q4 2024, our NDR was 105, down modestly from 106 in Q3 2024. Now I'd like to turn 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 metrics in our press release.
Brian: Adjusted gross profit in the quarter was $188 million. Adjusted gross profit margin was 76%, which was down from 79% in Q4 2023.
The lower adjusted gross profit margin primarily reflects two factors.
Brian: The first is an increase in depreciation expense from capitalized projects recently put into service.
Brian: The second is driven by mix, as we've seen faster growth from certain casualty solutions that carry a lower margin profile. 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 of 80 percent.
Brian: In terms of expenses, adjusted operating expense in Q4 2024 was $95 million, which is up 4% year-over-year. Most of the $4 million year-over-year expense grows.
Brian: was the result of lapping a one-time $3 million insurance claim reimbursement in Q4 of 2023, which we highlighted last year. Adjusted EBITDA for the quarter was $106 million, which is up 6% year-over-year, with an adjusted EBITDA margin of 43%. Now, turning to the balance sheet and cash flow, we ended the quarter with $399 million in cash and cash equivalents and $776 million of debt.
Brian: At the end of the quarter, our net leverage was 0.9 times adjusted EBITDA. After the close of the acquisition of Evolution IQ on January 6,
Brian: Free cash flow in Q4 was $106 million compared to $75 million in the prior year period. Free cash flow on a trillion-12-month basis was $231 million, which is 18% up year over year. On a trillion-12-month
Brian: Free cash flow margin as of Q4 2024 was 24%, up from 23% in Q4 2023. While our free cash flow levels will vary quarter to quarter, we do expect it to trend up over time.
Brian: Before we turn the page on 2024, I want to say that it was a year of solid financial performance across multiple metrics. Revenue grew 9% organically. Adjusted EBITDA margin expanded 130 basis points.
Free cash flow margin increased almost 200 basis points.
Brian: and also on the capital markets front, our stock liquidity improved significantly as private equity ownership decreased from about 70% to just over 20%.
Brian: Now looking at 2025, I'll discuss guidance beginning in Q1 2025.
Brian: We expect revenue of $249 million to $250.5 million, which represents 10% growth year-over-year at the midpoint. We expect adjusted EBITDA of $92.5 million to $94 million, a 37% adjusted EBITDA margin at the midpoint.
Brian: For the full year 2025, we expect total revenue of $1.055 billion to $1.065 billion, which is a 12% year-over-year growth at the midpoint.
Brian: We expect Evolution IQ to contribute $45 to $50 million in 2025, as we discussed back in December when we announced the deal. For Jesse Ibada, we expect...
Brian: 417 million to 427 million, a 40% adjusted EBITDA margin at the midpoint, which includes absorbing a moderate EBITDA loss from Evolution IQ.
Githesh Ramamurthy: So three points to keep in mind as you think about the Q1 and full year guide for 2025. The first point, as Gitesh mentioned, is that the actions we are taking give us confidence in our ability to help our customers advance more rapidly on their digital transformations.
Githesh Ramamurthy: As we experience in 2024 and not unique to launching new solutions, timing of adoption can be hard to predict as new solutions take time to roll out, gain adoptions, and scale.
Githesh Ramamurthy: For that reason, we are assuming growth excluding evolution IQ in 2025 remains towards the lower end of our 7 to 10 long-term range, and then emerging solutions continue to contribute about one point of growth.
Githesh Ramamurthy: The second point is that Evolution IQ is a high growth business, so we are expecting that revenue contribution from Evolution IQ to increase as 2025 progresses and the business continues to scale.
Githesh Ramamurthy: We also expect that EvolutionIQ's EBITDA laws will moderate as we go through the year based on the front-loading of integration efforts and the scaling of revenue.
Githesh Ramamurthy: The third point is that the adjusted EBITDA margin should be up about 75 basis points year over year to about 43% excluding evolution IQ.
Githesh Ramamurthy: on a reported basis, which includes the dilution from Evolution IQ.
Full year 2025 adjusted EBITDA margins.
Githesh Ramamurthy: will be down about 200 basis points at the midpoint to roughly 40 percent. We do expect margins to improve from the initial Q1 guide throughout the year and continue to expansion on a full year basis in 26 and beyond.
Githesh Ramamurthy: One additional comment. Before the acquisition of Evolution IQ, we're on track to reduce stock-based compensation as a percent of revenue from 18% in Q4 2024.
Githesh Ramamurthy: to roughly 12% in 2025. As I mentioned on the EvolutionIQ call in December, we will be absorbing about three points of stock-based compensation for a total of about 15% of revenue in 2025. The impact of this will be front-end loaded.
Githesh Ramamurthy: We believe that the grants for Evolution IQ were important for alignment and retention of our new team members. We expect share-based comp as a percent of revenue to decline from that 15% level beginning in 2026.
Githesh Ramamurthy: So, as we wrap up, I'd like to reiterate our confidence in our ability to deliver against our long-term revenue growth and adjusted EBITDA margin targets.
Githesh Ramamurthy: We believe that our durable business, multi-sided network, and the growing portfolio of AI-enabled solutions will enable us to 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.
Thank you.
Speaker Change: Thank you. As a reminder to ask a question please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 1 again. We ask that you please limit yourself to one question one follow-up. One moment while we compile our Q&A roster.
Speaker Change: Our first question comes from the line of Alexei Gogolov with JP Morgan. Your line is open, please go ahead.
Alexei Gogolov: Good evening, everyone. Brian, I had a follow-up question about the organic revenue growth.
Alexei Gogolov: It seems like based on the midpoint of the evolution IQ contribution You're suggesting that the organic growth in Q1 may be roughly
Alexei Gogolov: sort of 5-6% and then accelerating to about 7% for the year. Can you explain what is driving this deceleration versus the organic growth you reported in 2024?
Alexei Gogolov: Yeah, hey Alexi, it's Brian. So the way to think about Evolution IQ is it's going to scale as we go through the year, so you can't look at
Alexei Gogolov: The five points in each quarter, so we get to five points of contribution from evolution IQ at the full year
Alexei Gogolov: we are guiding towards the lower end of the long-term range in each quarter. So that, if you remember, the long-term range is 7 to 10. We are in Q1 7 to 10. So Evolution IQ is the balance to get to the 10% total.
Does that make sense?
Speaker Change: And can you explain why that is? Is there some sort of seasonality in Evolution IQ revenues?
Speaker Change: No, it's just it's a hyper growth business and we're expecting it to continue to scale as we go through the year. So we'll start at a smaller base and then build as we go sequentially through the year.
And how much did it generate in 2024?
Speaker Change: Yeah, we didn't give that number specifically. We did highlight an NDR number of 150 when we announced the deal. We talked about the contributions this year for about 45 to 50 million dollars. So those give you the data points to kind of understand
the contribution from Evolution IQ.
Speaker Change: Okay. Thank you, Brian. And then with regards to your comment about
Speaker Change: The contribution of emerging solutions, I think you've highlighted again that they'll contribute about one percentage points to total revenue. When do you expect that contribution to?
Speaker Change: expand and what is the process of adoption right now among those solutions?
Githesh Ramamurthy: Yeah, I'll talk about the numbers and I'll let Githesh add some color on what we're seeing on Emerging. So just as a reminder, Emerging is about 3% of total revenue at this stage for the company. It's contributing about one point of growth for the company, so think about that as about $10 million.
Githesh Ramamurthy: So this part of the portfolio is growing 30-plus percent. It's the fastest growing part outside of Evolution IQ. We have a lot of engagement with our top clients, working through proof of concepts, pilots, tests, and signing of contracts.
Githesh Ramamurthy: And so we feel like we're getting close to the inflection point on emerging moving from one point of growth contribution to something more. We're just not calling it yet.
Githesh Ramamurthy: So as we talked about in the prepared remarks, there's a lot of activity and actions that we're driving across the business, and we're feeling really good on the progress we're making and we'll keep you updated on emerging solutions as we go through the year. Githesh, if you want to add any color. The only thing I wanted to add is...
as I said in my comments.
We are seeing
Githesh Ramamurthy: continued adoption and increase in volume pretty much across the board.
Githesh Ramamurthy: on all our solutions. And as you know, 2024, as we entered the year, it was the largest launch of new products and new solutions across our entire portfolio.
Githesh Ramamurthy: and we feel very good but we are not going to call anything more than what Brian called out until we see the inflection point of all of these solutions starting to ramp towards a lot later on.
Speaker Change: Thank you, Githesh. And one final, if I may squeeze one more. Are you still seeing softness in the claims volume that you talked about in the past?
Speaker Change: Yeah, on the volume side, Alexi, we had talked last time about, you know, six percent year-to-date when we looked at it last on total claims. It moderated a bit in Q4. Some of what we saw was
Speaker Change: The declines that we had seen were partially offset by some weather-related events and had a partial offset. So in Q4, we saw the moderation to about minus 3% of total claims, and so we ended the year at 5% down year over year in 24.
Very clear. Thank you very much for your answers.
Speaker Change: Thank you and one moment as we move on to our next question.
Speaker Change: Our next question is going to come from the line of Josh Baer with Martin Stanley. Your line is open. Please go ahead.
Speaker Change: Thanks for the question. I was hoping you could revisit pricing and philosophy there on efforts to lean more into pricing and wondering how much of the growth when thinking about 2025 is coming from taking price.
Brian: Yeah, hey Josh, it's Brian. So we haven't called out a specific pricing component.
Brian: or part of the growth that comes from pricing specific. It will be embedded in our NDR number, so it's a factor there.
Brian: Like all SaaS companies, we do look at the pricing and the value that's created from the software, make sure that we're balancing.
Brian: the value being generated from our clients and that we're getting compensated fairly for that. So that pricing review is ongoing and we always evaluate the packaging and solutions. So that's why how I'd give you kind of the pricing strategy is as we think about the 25 impact.
Speaker Change: Okay, thanks Brian. And just to follow up on the claims...
Speaker Change: just wondering like now with January and February mostly done what what you're seeing there on the on the claim side and wondering if like the Q4 moderate improvement was is a trend that that we should carry through to 2025 when thinking about the transactional piece of the business or is like a down five down down five down six the right level do you think like in your guidance essentially
Yeah, this is Githesh.
Speaker Change: January always has some weather-related activity, so we don't try to extrapolate off of January.
Speaker Change: We have the January data, it does look a little moderated, but it's a little too early to call it one way or the other. And as you know, the vast majority of our revenues are not impacted by frequency.
Speaker Change: Yeah, just to follow up on Josh, we're not assuming anything really moving on 25, we're not assuming that we're going to get a lift or a drag. We're kind of baking in the 24 performance as the baseline, and then we'll adjust from there.
Okay, that's helpful. Thank you.
Speaker Change: Yep. Thank you. And as a reminder, analysts, please limit yourself to one question and one follow-up. Our next question does come from the line of Dylan Becker with William Blair. Your line is open. Please go ahead.
Speaker Change: Hey, guys. Maybe to continue on the topic of the claims volume side, Githesh, for you, do you still feel like, I mean, obviously they're still directionally a proxy, but it feels like there's some nuances in particular in 2024 that
Speaker Change: that somewhat muddy that metric. So is that a fair characterization? And then how to kind of reconcile that with the increasing, what seems like perpetual complexity associated with the cost of repair and the process itself that can offset that as well too. Thanks.
Speaker Change: Yeah, sure. So what we did see, you know, over the last two plus years,
Speaker Change: is the propensity for consumers to self-pay we saw a market increase in that number, right? That is claims that are still being processed by repair facilities and the like.
Speaker Change: and that went from, you know, 10-12%, which used to be consumer self-paid, about two, two-and-a-half, three years ago.
Speaker Change: to where it's now 22-ish, 22-23% self-pay. And then we've now started to see...
Speaker Change: that numbers start to come down, meaning consumers paying for repairs.
Speaker Change: is still at that elevated level and part of that has been the reluctance or the fear of
Speaker Change: increased rates and and you know we are also hearing that from we're seeing that from customers
Speaker Change: and you can see that from some of our public customers as well.
Speaker Change: We are also seeing that as rates, insurance, the increase in insurance rates starts to moderate.
The expectation is that
Speaker Change: You know, that too shall normalize over time. But the underlying point that you're making about the increase in complexity, that is absolutely the case, right? With calibrations, diagnostics...
Speaker Change: more complex parts, 13 and a half parts per estimate, $120 a part. So all of the underlying complexities are continuing to increase, and that's really where customers are saying they need significant help managing that.
Speaker Change: Got it. Okay, and so probably fair to say then that
Speaker Change: that Nick's shift should, in theory, contribute to some level of growth in claims volumes as well, too, as that normalizes. Okay.
Speaker Change: Maybe on the comment around the go-to-market kind of resource allocation as well too, it feels like that that's something that's coming from a position of strength, given the interest in value that you're seeing from a lot of the larger top carriers.
Speaker Change: How should we think about, effectively, the benefits of having more dedicated focus and teams towards some of those customers and maybe learnings from, I think you called out a top 20, that had a significant expansion as well to kind of accelerate their digital transformation change?
Speaker Change: Yes, I mean, without question, you know, we now have essentially for almost every new solution, we have customers in pilot or in production in various forms. And what we are seeing is
Speaker Change: that more dedication in terms of change management, specific tuning to their processes, or some instances like the subrogation example I gave, where people are saying, hey, I can get some real benefits very quickly.
Speaker Change: For example, in several, you know, people see an 80% decrease in cycle time.
Speaker Change: Those kind of things mean I can actually restructure some of my operations to take full advantage of it. So what we have learned as a result of these new solutions, especially the AI solutions,
Speaker Change: is that there is more effort and more energy in really working closely with customers and tuning it. So even our oldest solutions, like when you look at Estimate SDP, I think we've announced that we have probably over 40 plus customers now on Estimate SDP.
you know, volume is steadily increasing.
and we see some customers at higher levels.
Speaker Change: But we have learned a lot about the nuances and the specifics of each solution and change management. And we're putting that effort into working closely with our customers.
Got it. Okay, very helpful. Thank you, Githesh. Appreciate it.
Speaker Change: Thank you and one moment as we move on to our next question. Our next question comes from the line of Samad Samana with Jeffries. Your line is open.
Samad Samana: Good evening, and I appreciate you taking my questions. Maybe first, just on the rollout of the new packages and pricing, can you maybe help us understand more clearly how you're thinking about the impact and maybe net revenue retention from the changes in 2025? What have you baked in? How should we think about that, maybe flowing through revenue?
Samad Samana: and have you made any kind of maybe conservative assumptions since there's an unknown around it or are you very confident in those assumptions?
Speaker Change: We actually don't guide on NDR as well. I mean, if you look at NDR and how it's been trending, it's roughly 60% to 70% of total revenue, so you can look at that as the ratio.
We have had
Speaker Change: Pricing is a component. I would say on the insurance side, it's not overly material.
Speaker Change: as a driver of growth, but we feel good on the solutions set that we're taking in the market.
Speaker Change: and our go-to-market approach, but I wouldn't highlight a material part of growth related to insurance pricing. In fact, the vast majority of our growth comes from new solutions and new products and adoption by new customers.
That's how traditionally most of our growth has come from.
Speaker Change: Great, and then as we think about, you know, Tom taking over his new role, how should we think about...
Speaker Change: what changes we may anticipate in that. And again, maybe just trying to understand
Speaker Change: Have you taken any different type of approach to guidance this year when considering what you talked about in terms of packaging changes and the impact of some of the current market changes? How should we think about how you skate that to the outlook?
Speaker Change: Yeah, look, I think, you know, we factored, we just completed a plan at the end of last year. We're six weeks into the plan. We feel very good about the
Speaker Change: Customer, you know, pilots, testing, all of the activities that we described in the call in terms of every single new solution. Tim is going to be a fantastic addition, and we're really excited about Tim coming on board for two very fundamental reasons.
Speaker Change: Tim has an extraordinarily deep understanding of the broader insurance economy. He understands the overall space very, very well, having served many of the customers for a long period of time.
Speaker Change: The second thing we're really excited about is that Tim has done a remarkable job in a digital transformation of a large-scale operation.
Speaker Change: And that's really what our customers are trying to do. And in Tim's role, Tim's ability to guide our teams and guide our customers on their own digital transformation we think will be incredibly valuable.
Speaker Change: and Tim I know is excited about it and so we're looking forward to Tim coming on board and helping with all of that.
Speaker Change: Great. Also, apologies, Jim, for getting your name wrong the first time. Sorry about that. No worries.
One moment as we move on to our next question.
Speaker Change: Our next question comes from the line of Gabriela Borges with Goldman Sachs. Your line is open. Please go ahead.
Maura: Hi, this is Maura on for Gabriella. Thanks for taking the question
Speaker Change: I'm sticking with the digital transformation and more specifically AI opportunities. As you're talking to customers, what are you hearing that might be different than this time last year just in terms of how fully baked the AI strategies are and willingness to invest?
Speaker Change: Sure, you know, we are hearing really three things that I would say when we talk to the management teams of our customers, our boards, and more recently I've gone out with our EIQ team and talked to very senior levels of their customers.
Speaker Change: So here's, I would say, at a macro level, three things. First and foremost,
at the board level, at the senior management level.
Speaker Change: All our customers are now saying we have got to be able to use AI to tame and manage complexity.
Speaker Change: So it has gone from, hey, this could be an interesting concept. I don't know if this is going to work, you know, is
Speaker Change: You know, I'm really not interested in writing, you know, a poem with, you know, Chad GPT, but how can I put AI in, really, production? So that has been, first and foremost, that mindset shift to lean into those solutions.
Speaker Change: customers are now a year, two years into using our solutions. We have 300 plus different AI models and the level of trust and the level of usability of these solutions
Speaker Change: I think I mentioned the call over 10,000 repair facilities using it.
Speaker Change: you know, 100 plus carriers using it. So the level of confidence and trust.
Speaker Change: over time, that has increased in both the solutions we announced earlier, as well as the ROI, the specific ROI people are seeing from solutions like First Look or Subrogation or these tools.
So that's kind of the second bucket
Speaker Change: The third bucket is, you know, when you look at EIQ and what that team has done.
Speaker Change: You will see that many of their customers are actually reporting their results publicly and are even referencing Evolution IQ as having had a significant impact on the bottom line results in the quarter.
Speaker Change: So people are translating this into actual operating performance. And that is actually making its way from a customer to customer. And those references, great execution.
Maura: gives us great references which are incredibly valuable. So those would be the three, Maura.
Speaker Change: Great, thanks for all the detail there. And then on EIQ, you talked about the complementary nature to CCC's existing products. Just higher level, how are you thinking about the timeline around synergies and faster adoption there?
Speaker Change: You know, we've kind of factored all of that in the guide. So first and foremost, let me start out by saying
you know, everything we thought about the team.
Speaker Change: We feel very, very good. We spent a lot of time in the integration, so that feels fantastic. The reaction from Evolution IQ customers, as well as the traditional CCC customers, has been very, very positive.
Speaker Change: And what we see is that they have a lot of growth in their core markets going into 2025. And in addition to that,
one of the solutions, the ability to do medical summarization.
Speaker Change: through a solution called MedHub. That solution is extraordinarily unique and capable that is very valuable for Evolution IQ customers but also applies to our casualty business.
Speaker Change: So, it's really a product synergy and we've been world leader, you know, we've been absolutely fantastic with our photo AI and all of the capabilities there.
Speaker Change: the Evolution IQ's ability to understand hundreds and hundreds of pages of medical information and documents and extract very specific actionable information is useful to the CCC casualty business as well.
Speaker Change: Yeah, maybe it's Brian just to add a point. So as Githesh said, there is certainly revenue product synergies. We are excited about the opportunity, specifically the 25 guide. There's not a meaningful part within the guide regarding the revenue synergies.
Got it, thank you.
Speaker Change: Thank you. Thank you. And one moment as we move on to our next question.
Speaker Change: And our next question is going to come from the line of Shlomo Rosenbaum with TFLU. Your line is open, please go ahead.
Shlomo Rosenbaum: Hi, thank you very much. Githesh, I just want to ask you like holistically when you look at the growth of the business
Speaker Change: We're not going to have, or at least it's not assumed in your guidance, that the volume of claims is going to be impacting, you know, the revenue growth. And we've seen the revenue growth migrate from the high end of the range to what's expected to be the low end of the range.
Speaker Change: What exactly is changing in the market? Is it the fact that there's so much need from the customers to make changes on their end? So you're ending up with bottlenecks or what what exactly is
Speaker Change: changing that's resulting in the growth, migrating from the upper end to the lower end over the course of, frankly, a year.
Shlomo Ramamurthy: Yeah, I would say, Shlomo, first and foremost, having seen or been close to this for a very long period of time, I've seen this pattern multiple times over the years, especially as you go from one wave of solution to the next generation of solutions.
Shlomo Ramamurthy: And as you go, you know, as we went to the internet platform, as we go to the mobile capabilities, as you go to now the next generation of AI based solution, there's always a transition period where
Shlomo Ramamurthy: The adoption of customers, you know, a lot of work to be done to really put the products in production. It's also the broadest set of solutions we've ever released.
Shlomo Ramamurthy: So I would say it's a combination of both of those. It's a transition to the next wave of growth.
Shlomo Ramamurthy: as well as, you know, the adoption things that I talked about, which is helping with more change management and some of the things we talked about.
Shlomo Ramamurthy: So that's why we are not calling an inflection point on the new solutions until we actually see it.
Shlomo Ramamurthy: OK, and then in terms of the bundling to get more solutions.
Shlomo Ramamurthy: Did that start just in the beginning of the year and usually when companies do that, especially
Shlomo Ramamurthy: with products that are proven, it usually is a great way for them to raise the price on existing solutions. You're adding new bales and whistles. And I'm just wondering where,
is in the context of your starting the bundling here.
Shlomo Ramamurthy: Are you kind of testing it out first in order to see the adoption? Because I would think that it should drive just better growth just from the opportunity to price things well or to bundle things in a way that can drive additional sales.
Shlomo Ramamurthy: Yeah, I think so first and foremost, as Brian described, pricing is not a material part of this. But what it is doing is that when you think of, for example, estimate STP working with
Shlomo Ramamurthy: working with, you know, intelligent re-inspection, they all rely on the same photo-AI capabilities.
Shlomo Ramamurthy: So, customers that were either adopting mobile, Estimate SDP, Intelligent Reinspection, and First Look.
Shlomo Ramamurthy: It is sometimes easier for customers to align three, four, five different solutions together and implement them, it's the same amount of effort, but the ROI is significantly greater.
Shlomo Ramamurthy: So that's really what we're trying to do, is to make it easy for customers to adopt with the ROI. That's really the primary purpose here.
Okay, thanks.
Shlomo Ramamurthy: Thank you, and one moment as we move on to our next question.
Speaker Change: Our next question comes from the line of Chris Moore with CJS Securities. Your line is open. Please go ahead.
Speaker Change: Hey, good evening guys. Thanks for taking a couple. Mostly, I think, just modeling at this point in time. You probably went through it during the Evolution IQ, but from an interest expense perspective...
Speaker Change: Is there a kind of reasonable level that we should be thinking about for Fiscal 25?
Speaker Change: Yeah, so a couple of modeling points, Chris. So one, just to pick up the new debt level, since we announced the transaction, the debt level is at $1 billion. The interest rate that we have will be consistent with
Speaker Change: What we've been running at so that there isn't much of a different on on the rate so you can use the the array We have 4% cap
Speaker Change: on $600 million of the debt, and then there's a spread on top of the cap.
Speaker Change: So think about the spread at like 200 basis points, two and a quarter, depending on other factors. But that's how to model out the interest.
Speaker Change: Got it. I see Ibadan Martin is coming down a bit with Evolution IQ.
gross margins yeah that's just the gross margins
Are they going? Yeah.
Speaker Change: No, no, go ahead, Chris. Sorry, go ahead and finish your question. No, no. Yeah, I was just wondering, should we expect a little bit of expansion on adjusted gross margins or how should we be looking at that?
Speaker Change: Yeah, I mean for the full year adjusted gross margin was 78%. We talked about the long-term target of 80. Gross margins will bounce around a bit quarter to quarter depending on product mix.
and putting out new solutions into the market.
As you think about EIQ and their impact,
Speaker Change: Evolution IQ won't have an implication on a gross profit margin but as I said you know we feel good where we sit today at 78% and the long-term guide of moving towards 80 over time.
Very helpful. I will leave it there. Thanks, guys.
Speaker Change: All right. Thanks, Chris. Thanks, Chris. Thank you. And one moment as we move on to our next question. Our next question is going to come from the line of Peter Griffiths with Citi. Your line is open. Please go ahead.
Peter Griffiths: Yes, this is Peter on the line for Tyler. Thanks for taking the question, guys.
Peter Griffiths: On Evolution IQ, I believe at the time of the announcement, you talked about PTC having one overlapping customer with Evolution IQ. Just wondering how long it'll take for you guys to really get your stride going with crop selling into the customer base. And is there any additional changes you need to make to your selling motion as well? Thanks.
Peter Griffiths: Thanks for the question, Peter. The net-net of it is there's a lot of growth in Evolution IQ's customer base in
Peter Griffiths: in really, as you look at disability, workers' comp, and that market. And as we talked about the product synergy, as we bring in the medical summarization capability into casualty,
Peter Griffiths: That will be integrated into our casualty solution suite and sold to traditional customers.
Peter Griffiths: and the one customer where we do have an overlap, we've already started having conversations and made introductions and that's going forward. But for the most part, overlap is a relatively small piece of the overall puzzle.
Thanks for the question.
Peter Griffiths: Thank you and one moment as we move to the next question.
Speaker Change: Our next question comes from the line of Kurt Maturin with Evercore ISI. Your line is open, please go ahead.
Kurt Maturin: Yeah, thanks very much. Sort of a related question on Evolution IQ. Gitesh, can you just talk about how you're thinking about, I guess the question is, can CCCS salespeople
Kurt Maturin: Now cross sell, you know the evolution IQ product you sort of referred to it, but I'm just kind of trying to get a sense on
Kurt Maturin: When can the individual salespeople start bringing other products into those existing customers? I realize there's only one overlapping customer right now, but I would imagine...
Kurt Maturin: You'd want that to change fairly quickly. So I'm just trying to, sorry, you answered this a little bit, but I was just trying to get, I wonder if you'd give us a little bit more on that idea. Yeah, sure, sure. So.
Kurt Maturin: So first of all, you know, the Evolution IQ team has a great model of how they work with customers, and we have
Kurt Maturin: And as you know, one of the greatest things when it comes to bringing new customers on board is the quality of the references you have from existing customers who've already rolled out.
Kurt Maturin: Really great customers. I've actually gone out and met with existing customers.
Kurt Maturin: They are really thrilled with what they have. So there is an already existing pipeline. The Evolution IQ team has been working on those. So that will continue as is.
Kurt Maturin: At the same time, we are doing product development and R&D as a team working closely together.
where we bring in some of the core...
Kurt Maturin: AI medical summarization capability, but that will become part of the CCC Casualty Suite.
Kurt Maturin: and Casualty, as I mentioned in the prepared remarks, is also one of our fastest growing businesses and this adds to the Casualty suite and as soon as that product is available, that will be ready for sale.
by the CCC sales team into our customer base.
Speaker Change: Okay, that's helpful. And then Brad, maybe one for you on the OPEX side, obviously you guys are adding a lot of AI functionality into your products. I was just kind of curious, you know, within CCCS, you know, are you seeing benefits in terms of your own R&D development cycles? Are you getting any benefits yourself from, you know, the usage of AI internally?
Speaker Change: Yeah, we are to some degree. I would say we're early stage and early days on it. You know most of our AI that we've been focused on is really deploying into our solutions for customers and driving revenue. We have started to deploy AI internally and to drive productivity. I would just say we're in the early innings of that and it really hasn't driven.
Githesh Ramamurthy: much through the numbers. That said, we are always looking at areas of efficiency and opportunity within our cost base, but I'm sure Githesh has more to add. Yeah, one particular area we're seeing is in development.
Githesh Ramamurthy: where, you know, one of the most challenging parts of any large, complex software development process, and we do over 1,900 releases a year, is really building out test cases.
Githesh Ramamurthy: and where AI is really helping us and our teams is really, you know, speed at which we can build test cases and AI is proving to be very effective at that and so we have started to deploy it in our technology organization as well.
Thank you.
Githesh Ramamurthy: Thank you and one moment as we move on to our next question.
Speaker Change: Our next question comes from the line of Sagat Kalia with Barclays. Your line is open, please go ahead.
Speaker Change: Hi, this is Alyssa Leon for SACIT. Thank you for the question. Was wondering if you could speak to some of the margin differences between the emerging and established solution and how that might evolve in 2025. Thank you.
Speaker Change: Yeah, the biggest thing that's happening in the margin is really the absorbing evolution IQ. So if you think about the margin profile, we're
Speaker Change: The business before the acquisition, Evolution IQ, we're adding about 75 basis points of margin improvement year over year. What then we've absorbed, the moderate loss, EBITDA loss of Evolution IQ. There's some integration costs.
Speaker Change: that are up front, and when you add that together it's taking us to about 200 basis points of margin decline.
year-over-year, so...
seeing there is evolution IQ playing through the margin.
and established.
Speaker Change: Emerging has an impact on the gross profit because it has not scaled yet, but the depreciation is running through gross profit.
Speaker Change: So it does have a drag there. Over time, a merging when it gets to scale will have a similar margin profile as our established solution. So it's more of a temporary impact, and when you get merging to scale.
Speaker Change: It will look similar to our established solutions from a margin profile.
Thank you, that's very helpful.
Speaker Change: Thank you, and I would like to hand the conference back to Gitesh Ramamurthy for closing remarks.
Speaker Change: Well, thank you all for joining us today. As we said, we are very optimistic about what we have planned for 2025, and we remain confident in our ability to deliver on our strategic and financial objectives.
Speaker Change: and our customers I know are excited about the digital transformation journeys they're on and also in working with us in investing in future solutions.
I'd like to take this opportunity to thank our customers.
for the trust and the confidence they place in CCC.
Speaker Change: and I'd also like to thank our CCC team members and our shareholders for their support. We remain very excited about the opportunities in front of us and look forward to updating you on our next quarterly call. Thank you so much for your continued interest and trust in CCC.
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.
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