CCC Intelligent Solutions Holdings Inc. (CCC) Earnings Call Transcript & Summary

My name is Yitchuin Wong. I'm one of the associates supporting Tyler Radke on the data analytics and vertical software space. This afternoon, we have CCC Intelligence Solutions, a vertical software company that caters to the auto insurance economy, and they recently completed the return to public market via SPACs that closed just last month. And we will begin this call with a short presentation, and we'll move to some Q&A after that. So welcome, Githesh. Welcome, Brian. Thanks for joining us.

Thanks, Yitchuin. Hi. Great to meet everybody on the call. I just wanted to start by telling you what we do. CCC is the software-as-a-service, or SaaS, platform for the multitrillion dollar P&C insurance economy. Our definition of the P&C insurance economy is a little broader. It includes insurers, repairers, parts suppliers, OEMs, lenders, fleet providers, all kinds of people. So at the heart of this slide, what you will see is that everything we do is powered by the CCC Cloud. We are a 100% software-as-a-service company. All our apps are essentially multi-tenant running on the cloud. And if you start with the top left-hand side, we provide a series of applications to insurance carriers. In the United States, we have over 300 insurance customers, including 18 of the top 20. And for the insurance carrier, we provide everything when it comes to an auto claim, from how the customer -- our customers manage the digital experience, all the way through to helping write the estimate, settle the total loss, all the way through the repair process, and we do that across the board. And we also have on our platform 26,000 repair facilities where we are the system of record, and they're also on the cloud platform, and they use a series of apps on our cloud ranging from how you check in a vehicle when it comes into your collision repair facility for repair. The average repair is about $3,500, $3,600. And all the way to procuring parts, managing labor, production schedules, all of that. So we do that. About $50 billion is spent by insurers on repairs. We also connect the repair facilities to parts suppliers. Roughly $15 billion of parts are ordered by repair facilities every year after a collision. And we connect thousands of parts suppliers onto our cloud platform. And then as you go around this chart, you will see that we also connect diagnostics providers, ride share fleets. And we also have almost every OEM as a customer. And the way a claim -- an auto claim can get initiated, either those of you who had experience with an auto claim, you can get a -- you can make a phone call, or increasingly, if you saw the announcement that we did with Toyota, the telematics data comes directly through the CCC Cloud, and we can initiate the auto claim process right from there. So the industry is going through a massive phase of digitization, and we process -- in the United States alone, about $100 billion flows through the CCC Cloud. We deliver very high uptime, 99.96% uptime, and have 30,000 companies that are involved in the ecosystem that we help power. So that is a short summary. And we recently went public, and just literally a few months ago, trading under CCCS. But prior to that, we have a 20-year track record of delivering record revenue and record earnings every single year for the last 20 years. So we're excited about the growth that is in front of us. The single most important secular trend that we see is the opportunity to digitize a massive industry. And we see the total market opportunity of almost $35 billion in front of us. So that's the intro, and then turning back to you, and then Brian and I will be happy to take questions.

Thanks, Githesh. That's a pretty good overview, just to get a good introduction in there. So just a quick reminder for investors listening in, feel free to submit your questions in your Ask a Question on the top right-hand corner of your screen, I believe, and then I'll try to incorporate in our conversation as we progress here. So let's go to Githesh first. Like the company was founded back in the 1980s and was actually taken public and private before in your history. I think it's timely to ask like why are you returning to the public market now? And like what has changed since the last time you guys were in public market?

Sure. We took the company public in '96, operated as a public company for 10 years. Back then, we traded under the symbol CCCG. And we ended up -- we went private in 2006 and have been private for the last 15 years. And we've had some just fantastic partners over the years, TPG, Leonard Green, TCV, Advent, just wonderful partners. But we also felt that as we look at this industry going forward, the pace of digitization that we are so excited about, we think that's going to really drive a lot of growth. And given our size, given our scale, we felt the next phase of our life needs to be as a public company. So we were actually down the path of becoming a public company, and that's the reason for the transition, essentially accelerating growth organically and inorganically.

Yes. That's exciting to see. I mean maybe now it's good time to just kind of introduce Brian. You took over the CFO position in the middle of the pandemic last year, and then maybe we can start go over some of your experiences and why you joined CCC with Githesh and the team here.

Yes, absolutely. Well, thanks for having us. It's great to be part of the conference. Yes, so before I joined CCC, I was with Experian. So Experian is the largest global credit bureau business model, data, analytics, software. I was with Experian for 20 years, 20 years plus, mostly in finance, but I also did some M&A with them and did some strategy work. The last role I had was CFO of the North America division. It's about $3 billion in revenue and about $1 billion in profit. So yes, I was ready for a new opportunity, and Githesh and I met for a cup of coffee and just had a very informal chat and get to know each other. And for me, it clicked right away. And I was really excited to move forward with CCC. The things that really resonated with me when Githesh and I met, CCC has this very differentiated market leadership position in this very important ecosystem. The network effect of the business that has been built up over time is really compelling and has driven really good retention rate and stickiness with the client base. It also is the core of driving growth through upsell and cross-sell. But beyond the business dynamics and the market position, there is also a very strong principle that really resonated with me. The view is if you do the right thing for your clients, you do the right thing for your team, you do the right thing for your shareholders, you get to good outcomes. And for me, that was a really good fit. And yes, I started in February of last year, right before COVID hit, and then have worked through the transaction and the destacking. Now super excited that we're a public company and where we are and where we're going.

Great. So just to follow up here a little bit. So in your first year, can you go over some of the surprises that you've seen in the company like before you joined and then now you joined, kind of a real world, like can you go over some of the surprises here? Positive, negative, that would be great.

Yes. I mean, as I mentioned, when I initially talked to Githesh and understood the business model, we talked about kind of the network effect and the stickiness and the predictability of the business and the resiliency. We certainly got tested kind of jumping in. I had 3 weeks of a normal onboarding before COVID really hit. And obviously, COVID is clearly tragic. And it also has -- as everyone knows, was super disruptive to the marketplace. And so it really put the resiliency of the business to test, and it played out as expected. We grew the business 5% last year. We had no material churn of the client base. But what was really impressive was how the business continued to operate. We continued to sign new business. We rolled out new products. We went through and implemented large carriers onto the platform and onto product. We continue to invest in the business. And so seeing this operate in a COVID environment, although challenging and difficult, it was impressive to see how the business operated through it. I think one of the challenges is -- you asked for both kind of the good and the bad, was just onboarding largely virtually through this process. So kind of building relationships with the team, building relationships with the finance team, working through the transaction with the Dragoneer team and the destacking and public and road shows and investor meetings, all have been virtual, which has worked fairly seamlessly but certainly still missing some of the personal interactions that are natural. And so that's been a challenge. But we're in a good spot, and I'm really excited about where we are.

Yes. Well, just on like personal interaction that we're talking about, are you guys planning on heading back to office? Like when -- do you guys have a time line of when you guys going back to sit together and see each other face to face?

Yes. We started to open the offices back up with kind of an open policy for people to volunteer to come back, and we're starting to build some momentum, and we're hoping to be back in the office as a team shortly. So we're -- I'm very much looking forward to getting into the office environment and seeing the team face to face.

Yes, yes. I mean that's great. I just got back to office this week.

Very good.

So we just -- well, turning over to like Q2 results, I know you had talked about some of the high points that you've seen recently. So you guys just reported a few weeks ago, and then we showed some strength in the [ reservation ] of comp line and then NDR actually upticked slightly. So can you help us go over some of the highlights and how does demand environment you see in the past few months or even weeks since we have like Delta variant going on and how the auto insurance economy doing lately?

Yes, absolutely. Yes. So we posted in Q2 16% total revenue growth over the prior year. So it was a very strong set of results. The growth was primarily driven through cross-sell and upsell of our installed base with a heightened focus on our digital solutions. We also did see meaningful new logo growth, largely focused repair facilities and our parts suppliers. So we saw 5% of growth from new logos. We had gross dollar retention of 98%, so consistent with our historical performance. And then as you mentioned, the NDR was 110%. So strong performance on the NDR, 110%. If you look at our historical, it's been largely in the 105%, 106%, 107%. So it was a meaningful step-up from where we've been. If you compare it to kind of the 106%, the growth really was driven on digital solutions and the uptick of our clients taking on digital solutions. So we saw a couple of points from a client uptake on digital and in newer solutions. There is a little bit of impact and pickup on volume recovery as we lapped lower comparisons in the prior year. And then we got about 1 point worth of pricing mix, which effectively is moving some of our clients off discounted rate card and shifting them back closer to book pricing. And so that was also a pickup of about 1 point. So really strong performance. We expect NDR to continue to be strong through the balance of the year, supporting our H2 and Q3 guidance that we put out.

Yes. So that's good that you mentioned the point like through the end of the year. So I'm curious like if you're going to see this kind of tailwind from like transformation and as we drive more upsell here. Like could we potentially see longer term, it stays around, say, 110%? Or just stay in this or potentially go up next year or further a year, 2 years ahead?

Yes. We haven't given forward guidance on NDR. What I would say is we see good momentum. We do have good line of sight and forward views of predictability of that metric. We have guided to this year of 13% to 14% revenue growth on the back of strong NDR. We talked for next year, we've signaled that we believe performance will be stronger than our long-term guidance, and NDR will be a big factor of that as well. So we do see continued strength of NDR going forward, not only in the second half of this year but also going into next year.

I mean, as you know, we've grown in that 5 -- 10% range over the last 5 years.

Okay. That's good color here. Okay. Let's move to -- transition to some product questions here for Githesh. And I think some of the key pieces of the CCC platform is your multi-tenant cloud platform that's able to support like large volume of concurrent users on the platform, from customer experience to AI, workflows and management IoT. That is an enterprise-geared platform that can support probably tens of thousands of terabytes of data and network traffic daily amount, you have about 500,000 active users. Could you help us walk through some of the capabilities here? And what are some of the most important use cases that you see?

Yes. I think when we look at the use cases, usually what happens after you report an auto claim is while we talk at a very high level about digitization, the process is very different from, say, ordering a pair of sneakers, right? When you order a pair of sneakers, you go to a website, you click, you order, a box shows up with your sneakers. So when you have an auto claim, what happens is that hundreds of decisions, hundreds of multiparty decisions have to be made behind the scenes. So that means our software has to enable the consumer to be able to take photos with their phone, go click, click, click. Our AI is running right there so we can say what is the next set of actions to be taken. Should you send out a tow truck? Should this person be directed to a repair facility? Should the staff adjusters show up? So we start providing these services to the carrier, to the consumer. And then many of the other decisions behind the scenes include should this car be repaired, should this car be totaled, what parts do I need to order. And if you use -- if you've been a user of open table, how do I drop an appointment into the production schedule of a repair facility I've chosen. We have millions of historical data points on collision repairs, what's been done to help you choose a repair facility. We can also help the repair facility order the parts. In addition to that, while you have, literally on any given day, hundreds of millions of dollars flowing through, what also happens is that our software provides a level of trust between insurers, repairers, OEMs, and it provides a level of transparency. So at the end of the day, what we're doing is helping make hundreds of multiparty decisions. In fact, in the United States, 1 billion days, 1 billion days are lost in putting cars back on the road after an auto claim, 1 billion. And so those are some of the use cases we have, and that's why we have these various applications for each of our customers around this picture that's here in front of you. And by the way, we also have about $1 trillion of historical data that allows -- that also powers our AI. We've been building AI models for years, but having $1 trillion of historical data is a massive advantage in terms of our ability to build out the AI.

Yes. I guess that's the next topic I want to touch on. I think AI was the other big capabilities. It's newer, but it's a big capabilities that you guys have been talking about a lot of AI. I mean, how -- your AI and along with all the complicated process, you guys work on the repair facilities, connecting all these ERP networks that you created. And can you talk how differentiated is all this service -- all these connections that you have versus other competitors in your view?

Sure. Look, the -- I would say the single biggest -- the 3 significant differentiators we have at CCC. I would say the first and foremost differentiation has really been customer focus. And everybody says they're customer-focused, and -- but we measure customer focus and use Net Promoter Score as a measurement. So some of the world's leading consumer electronics company, including the one that made the announcement today, there's a Net Promoter Score of 72. You've got people very, very high at 68. CCC has a Net Promoter Score of 80, which is substantially higher than enterprise software in general. So that focus for our customers for delivering that level of NPS is a huge differentiator. That means software is going to be easy to use. That means the AI looks transparent. And as I mentioned, we have a -- the network around this, the network effect is a second big differentiator. So if you're an insurer, you have access to the largest network of repair facilities in every part of the country. You have access to all the parts providers. You have access to OEMs. If you're a repair facility, you have access to all of the -- to a very large number of insurance carriers. So every other participant on the network benefits from everybody else. And then the last but not least, our software platform. What we've done in the software platform, there is no transition involved, right? We've been on the cloud for a very long time. We've been on mobile for over a decade. So there is no need for anyone to actually transition to the cloud. We've been on the cloud for a long time. So what we've been able to do is to introduce very specific AI. For example, you take pictures around the car. With a single photo, we can help the policyholder, the insurer decide should this car be repaired or should this car be totaled. Totaled means write a check, no need to repair this vehicle, with a single photo. That saves a lot of time and improves customer satisfaction pretty dramatically for the policyholder if you can do that with speed. And so we're applying AI to many other parts of this process but integrate it into the workflow that we already have. So that combination of applying AI -- and as Brian pointed out, if you look at Q2 and if you look at last year, we have seen a tremendous uptake in customers adopting our mobile platform to connect directly to the policyholders, and the mobile platform is powered by our artificial intelligence.

Yes, that's great color. I guess in the competitors, I want to touch on just slightly deeper, who are you replacing? Is it more legacy solution that like repair facilities use? Or is it more like greenfield opportunities?

I would say, for the most part, we're automating a lot of manual processes. For example, when COVID happened, our customers had to send 10,000, 20,000, 30,000 people home, yet they still needed to service customers. Those people already had access to the CCC software, but we didn't have software for the consumers. So now by introducing mobile capability, all of our customers' employees could work remotely and service the policyholders. So a lot of it is really automation, and we also have deep integrations, very deep integrations with all our customers [ built ].

Yes. Yes, there's a deep integration there. And then -- plus it's a good way to go into like the market opportunity that you guys have. I know you guys talk about $35 billion global TAM and -- but it's only $13 billion is in the U.S. And how are you thinking of -- it looks like the international market is like a bigger opportunity going forward. And how are you guys thinking of the international market and just going forward?

Yes. Just to clarify, our domestic opportunity is roughly more than 10x our revenue today. So we didn't do anything internationally. We have the opportunity -- the domestic opportunity is a $9 billion TAM. And that is made up of this secular trend towards digitizing all of these processes. And some of the early examples I gave you about shifting to mobile, and these are some examples. So domestic, again, I repeat, $9 billion opportunity just domestically. Internationally, the only place we operate internationally today is in China. 4 of the 5 largest insurance companies in China use the CCC product. And China, as you know, based on your definition, you'd see that #1 or #2 car market in the world. And so we're the 2 largest car markets in the world. Other than that, Europe represents an opportunity. Latin America represents an opportunity. Asia represents an opportunity. And we want to be very thoughtful about how we enter these opportunities. And this is where -- the beauty for us is a car is a car. There are local differences, but cars are global. The way you repair a Volkswagen Passat is not that dissimilar in Germany versus the U.S. versus China. But there are different labor rates, there are different nuances, et cetera. So another big factor for us is complexity. Our software helps deal with the growing complexity of vehicles. So ADAS, sensors, cameras, calibration. So many parts of our software are also helping you repair that vehicle and to deal with the complexity that's increasing.

Yes. I mean, I guess in -- we have a lot of software companies that enter the China market. It's like slightly different because China has a different kind of rules for how U.S. companies especially to enter. And a lot of that require you to cooperate with a local agency and just recognize the revenue might be slightly different. Can you kind of talk through some of the differences that how you guys operate in the China market and versus the domestic market here?

Yes. Sure. I mean in China, we've basically been there for over almost a decade. We've been in China from the beginning. We've built up our own teams. We have our own folks. We have our own development center in China. We do our software development for China locally. And we have a small partner in China. But for the most part, we've been operating very closely with our customers, building it at CCC in China.

Okay. So it's just kind of subscription are in just one line, it's not like -- we have some comment that's like the other revenue line, the subscription revenue, that's from China.

Yes, it's -- Brian, I think we report China under the other column. A relatively small percentage of revenue today.

It is. We break it out China separately when we de-aggregate U.S. versus China. And so you can see it's under 2% of our total revenue.

But what we like about that is China, as you know, is a very competitive market, and the fact that 4 of the top 5 use us is a real testament to the capability of our team.

Yes. I guess now we can bring Brian back into the picture here. You talked about like investing for growth and then you guys have a relatively good margin for the software companies, like very profitable. So -- and now with the IPO, you guys have much better balance sheet flexibility. Then how are you guys like balancing this kind of profit stability and then investing for growth? Can you just kind of talk about like what you're thinking there?

Yes, absolutely. I mean the business has invested for growth in the past. We spend over $100 million annually on R&D and have been very, very aggressive in investing. Even through COVID, we continue to invest aggressively. So although there is more flexibility on the balance sheet, the investment cycles and our view to long-term investment remains the same. We absolutely believe in balancing revenue and margin, but we're hyper-focused on growth on the top line. But because of how efficient the business model is, there's just natural leverage that comes through the business. So as we scale revenue, we see good flow-through of that revenue coming through to EBITDA. And if you look over the path and the trends in the business, we've seen about 100 to 200 basis points of margin improvement annually. Now if you look back at 2017, we went backwards in margin. The business took intentional investments in China and in telematics capability. And so we did stop margin progression and went back on margin to invest, and then it continued -- margin progressed from there. And that's how we think about it, right? So we think there is natural margin progression. We're in the mid-30s. We've guided towards the mid-40s. That said, we're not committing to margin progression every single year. And if there is an opportunity to accelerate growth, and we think it has long-term great returns and is consistent with our strategic ambition and strategic fit, we'll take those investments, pause margin progression or even step backwards on margin progression to take those top line opportunities. But overall, over the medium to long term, because of the efficiency of the business model, the cloud, being on a single platform, that allows us to continue to progress margin while still investing in the business.

Yes. Well, talking about investing, I think you guided long-term growth of about 7% to 10% here. And currently, you guys are kind of mid-teens to high single-digit. Can you kind of have a bridge the current growth rate that you're seeing and -- towards your long-term guide 7%, 10%? Like what is baked in there and what is not?

Yes. I'll answer that in 2 parts. So what we're seeing now, and it goes to the NDR question you had, we're seeing really good momentum of digital adoption. When we look at COVID and the recovery of COVID, that is only playing about 1 to 2 points in our overall growth. So COVID's not a huge part of the growth drivers. It's a relatively small part. What we're seeing is the strength of digital solution and the take-up, which is driving up the NDR, which in turn is pushing up the overall revenue performance. So we're guiding this year 13% to 14% growth. The guide for next year is above the long-term range, so above 10%. And then we've established a long-term guidance based on 7% to 10%. And we think about that as a baseline that we can operate in over the long term and doing it at scale. So what's in that? When we built the long-term model, we built it at a product level and at a customer segment level. 80% of the growth comes from the existing installed base. Most of that is going to be cross-sell with some upsell. And we see key drivers, as Githesh talked about, really the acceleration of digitization across the base. So that includes products like mobile, AI, some of our digital CRM tools that we sell into the shops, and a lot of focus around how we automate the overall claims process and think about how we drive straight-through processing. So that's the focus of the business on the install. That leaves 20% of growth to come from new logos. So we have about 26,000 shops. We look at the shops in the U.S. is about 40,000, so there's still opportunity to continue to build out the shop base. Although we have most of the large carriers, there's still significant small and midsized carriers that drive growth opportunities, and we're about 1/3 penetrated on parts suppliers. So again, we think that we have good opportunities to build new logo growth, and we think about that as 20%. I think it's important to understand kind of what's not in that guide as well. We have not built in any new significant material carrier wins. So we've assumed our existing base and small and medium-sized wins, but not material on new wins. Those are lumpy and hard to model. We also have not assumed that we sign new clients outside of our current customer segments. So today, we focus on carriers, repair shops, parts suppliers. We have not assumed that we expand out of those customer segments. So that's not in the guide. From a product perspective, we're not assuming within the guidance that we get material new revenue from new products beyond what's being introduced in the current year. So there is no go find on a product basis or based off of kind of future road map. So that's how we think about the products. We also have not assumed material take-up on new products that are getting released this year. So we're not over-indexing on our growth on new products. So out in the 5-year model, anything being released in '21 does not assume to be bigger than 5% of our total revenue in any 1 year. A few other points what's not in the plan, we have not assumed new international markets. So we assume we stay in the U.S. and China, and there is no M&A. So the guidance is an organic figure. So hopefully, that helps on what's in and what's not in, in the long-term guidance.

No, that's perfect. That's a really good answer there. I guess more on the new product that you mentioned was not baked in. So I'm guessing one of the products that you guys announced was the payment product, and I'm guessing that is not built in. If you just think of slightly long term, how incremental do you think this payment could be? How many points of growth that you imagine you would do once it ramps up? And kind of what's the upside scenario going like 5-plus years ahead?

Yes. Let me just be clear. So we talked -- when I referenced that new products being released in '21 do not become more than 5% of total revenue in any 1 year. So parts being released this year, we assumed it into the model but at that level, right? So not bigger than 5% of total revenue. When you do the math on the potential of parts, right, we have $100 billion flowing through our platform of transactions. You take a market share, you apply 50 basis points of take rate, you can get to really big numbers by just working through that math. But we've assumed a single rather than anything more significant because we did not want to overweight the plan on the opportunity. We know it's going to take time to develop. We have no revenue baked in for this year. We have no material revenue baked in for next year. And although the opportunity is material and significant, and we believe we're in a great position to be successful with our clients, it's going to take time to build out the use cases, to build out the pilots and to really scale the opportunity. So we're very optimistic about the opportunity, but it's going to play out in the medium to long term.

Sounds good. I guess we have about a couple of minutes here left. I guess we can go through where are you spending most of your time? And what are like opportunities that you see going forward?

Yes. I would say a lot of our opportunity is really at the intersection of continuing to digitize the capabilities between insurers, repairers, parts providers and all of the different players. And again, as I mentioned, the largest opportunity -- so there's a number of new product introductions we're making this year. For example, I talked about vehicle complexity. So we've introduced a diagnostics product capability for CCC in one of the repair facilities. We're introducing this quarter AI for collision repairs. We have not until now delivered an AI capability for collision repair. We're introducing a capability to connect our insurers with financial institutions, so in the context of processing billions of dollars of total loss titles, the exchange of titles between banks, financial institutions and insurers. We talked about payments. So there's a lot of effort we're putting in making sure that we continue to roll out our existing products but also bringing on screen, testing, validating. In fact, even today, we had an advisory council with about 15 or 20 of our customers to go through some of these new product introductions. And this concept called straight-through processing where there's less human touch but a more emotional customer experience, our customers are super excited about that. So those are the places where we're spending a fair amount of time.

All right. Great. With that, we are -- go ahead, Brian.

Yes, I was just going to make one last correction. I know when I was -- your last question, I was talking about our payments product. I think I referenced parts. But when I said we are not expecting more than 5% of total revenue on the new release, that whole talk track was on payments. So I think I just flipped the word. So I just wanted to clear that up for [ everyone ].

Yes. I was asking about the payment part on the question.

Yes. That's what I was referencing. I think I just accidentally said parts. So I apologize, and hopefully, that's not confusing.

Yes. Got it. All right. Yes, with that, I think we are just right on time or a minute past. Thank you, Brian. Thank you, Githesh, for joining us. Thank you, guys. Have a good rest of the day.

All right. Thank you.

Yes. Thank you.

Thank you.