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

All right. Good morning, everybody. Welcome to Citi's Global Tech Conference 2023. My name is Tyler Radke. I co-head the U.S. software sector. To kick us off, we have CCC IS, we have Brian Herb, the CFO; Bill Warmington from Investor Relations. Gentlemen, thanks for joining our tech conference. I think this is third year in a row. Great to have you on stage. I know there's a number of folks listening to the webcast as well, and we'll probably be rewatching this presentation. So Brian, maybe just give us a quick overview who CCC IS is, a little bit about your background. I think you joined the company a few years ago.

Yes, absolutely. Well, thanks for having us and hosting. It's great to be here. So Brian Herb, CFO. I've been with the business for about 3.5 years. Prior to my time at CCC, I was with Experian. So credit reporting, software, data analytics company. I was there for 20 plus years, most of my career, mainly in finance, but did some other operational roles for them. And then prior to that, I was at Ernst & Young. I'll let Bill introduce himself, and then I can do a profile of the business.

So Bill Warmington, Head of Investor Relations. So I spent 20 years on the sell side and 4 years at a long-short equity hedge fund in Boston, Lee Munder Capital Group. And then I did Investor Relations at Costar Group for 1.5 years before I came here. I joined in April of 2022. Good to be here. Thank you for having us.

So maybe just a profile of the business. So CCC is a SaaS platform, and we serve the P&C insurance economy. So we connect a multisided network. So we have 35,000 clients, and we're ultimately connecting insurance carriers with repair facilities, repair facilities with parts suppliers, OEMs are part of the platform and the network as well. So we're a vertical software company connecting this multisided network. And today, we're largely focused on the digitization of auto claim. So think about an auto claim from a carrier's perspective or a repair facility, repairing that car, the software that we enable really drives a digital experience. And so we think about the numerous decision points that happened through an auto claim life cycle and our software is really enabling in digitizing and automating those decision points along the way.

And I think it's been about 2 years since you've gone public, actually not the first time CCC has been public, right? Going back in the history, but the results have been very, very stable. I mean a lot of companies in our coverage have talked about macro headwinds, cloud optimizations, yet your growth has largely tracked to your long-term framework. Maybe just talk a little bit about what makes CCC unique? What has allowed the business to be so stable despite high interest rates, inflation, all these macro or geopolitical concerns?

Yes. I mean we're certainly operating in dynamic market conditions just across the way. I would say a few things to highlight. I mean, one is we're a very durable company, operating in large end market. And insurance is mandated by the state. So it is not discretionary. And the carriers need to process these auto claims. And so our software is driving that. The second is it's a very predictable revenue model. So we have about 80% of our revenue is subscription-based, 96% of our revenue is software revenue. We have long-term contracts. They average from 3 to 5 years. We have a gross dollar retention of 99%. So we hold on to our clients for a very long time. And then we're also a core tool and system. As I mentioned, the auto claims need to get processed and our software is core to doing that. And we also help our clients with their operational challenges. So as you highlighted, there's a lot of macro trends and operational challenges that our clients are dealing with, and our software helps them with that. And so we continue to see strong demand for software even in choppy waters.

Yes. And so diving in a little bit more into the different segments of the business, I wanted to talk about the casualty part of the business. I mean, clearly, you're processing a huge scale and volume of claims. But how do you kind of see the opportunity on the casual side and which products specifically are leading the charge?

Yes. Maybe just to profile it. So we have auto physical damage side of the business, which is helping carriers cope with either repairing a car or a total loss of a car. That business is about $300 million. Our Casualty business is about $80 million, about 10% of revenue. About 1 in 5 accidents have an auto claim or a medical claim associated with them. And the carriers, they spend roughly the same amount of money, either with repairing the car or totaling the car, they spend the same amount of money with the medical claim side. So the spend is equivalent. Today, our APD business has about 300 clients on it. We have 27 of the top 30 carriers using our APD solutions. And as I mentioned, Casualty is a much smaller business, is about 10% of the revenue, have about 50 or 60 clients using it. So we see the opportunity to cross-sell the Casualty platform to the clients that we're serving on the APD side and seeing the opportunity at a penetrated -- a more penetrated rate. So Casualty was as penetrated as our auto physical damage side of the business, it would be a $300 million business. And so that's the opportunity. What our Casualty business ultimately does is it's reviewing medical bills as part of auto claims. And it's really checking for the accuracy of those bills and are those bills reasonable. And we can help our carriers process those and be more efficient with that spend. And we see the opportunity to leverage the APD side of the business with the Casualty. And we've spent significant dollars reinvesting in that platform. We brought in a new leadership team in that side of the business. And so we feel we're in market. We feel like we have a competitive product. We feel that the leadership team is making really good progress and see that as an opportunity to scale that business and grow. And we are seeing Casualty grow at a faster pace than total company growth, and we see that opportunity to continue.

Yes. And I guess, is there any reason why that couldn't reach the size the APD business over time? Anything different about competitive landscape or regulatory...

No. I mean there's always a competitive landscape. We have a competitive landscape on the APD side. We have competitors on the Casualty side. There isn't any barrier to get to that size. It will take time. Then when we point out that moving from $80 million, has an opportunity to move to $300 million, that's over many, many years, but that is the size of the opportunity that we're going after. And as I said, we do see synergy and the opportunity. When we're helping a carrier with the APD side of the business, there's efficiency in supporting the casualty side as well. And so we think that gives us a competitive differentiation.

You can see what we've done on the APD side. As a sell-side analyst, I covered one of the competitors on the APD side before it was taken private back in 2015. And back then when I covered the company, it was kind of roughly 1/3 of 1/3 of 1/3 in terms of market share. And if you look at it today, CCC has 27 of the top 30 names in APD in the insurance space. And so why couldn't that happen with Casualty as well?

Yes. I guess sticking on the new product side, you also have some exciting opportunities in Diagnostics, Subrogation and AI. Could you just maybe also frame for the audience, how you see about the opportunity maybe in the context of other businesses and how far along we are in penetrating this?

Yes. Absolutely. So we talk about an emerging solution set that's been brought to market in the recent past. And so that would be, as you say, Diagnostics, Estimate STP, Subrogation product. Payments were newly into the market. We look at those as kind of a cohort of solutions we call them our emerging solutions. The TAM against those solutions is over $1 billion. We look at each of those individually, those 4 product areas or solution areas, and we think each of them could be $50 million to $100 million each over a medium time horizon, so say, 5 to 7 years, we think those are the -- at that level can contribute to the business. Where we are today is it's still early. We're still scaling those. I think we highlighted in our last quarter that those products contribute about 1% of growth against the overall growth for the quarter. We think, overtime, they will be more like contributing 3% to 4% of our growth. And so that's where we see the business going as those new solution sets start to scale kind of moving from 1% of total growth to 3% to 4% over a couple of year period. And so that's the opportunity, and we're really excited. The early feedback in the market has been positive. As 4 sets of -- or 4 areas of solutions, they're going to ramp at different paces. Certainly, Diagnostics came out of the gate early and has been the most material, but we feel good about all of them and recognize that all of them will be meaningful contributors as we go forward.

Yes. One other stat for you is that about -- to support that is that in 2022, about 1/3 of our growth came from products that had been introduced within the last 5 years.

Yes. So bringing in new products, driving innovation into the market really is a core of what we do, and it's always been a catalyst of our growth. And so this is just the newest cohort of these solutions and the runway in front of us is really promising around those starting to scale.

So I guess as we think about the growth algorithm for CCC, I think you've talked about 8% to 10% growth, somewhere around there.

7% to 10%.

7% to 10%. Bill's going to accuse me of raising the bar too high. But if the early-stage products today are only contributing 1 point and then that ramps to 3 to 4 points, like why wouldn't overall growth increase? Are there some offsets that maybe you benefited from this year that you're not expecting to benefit from in the years ahead.

Yes. I mean the way that we break down maybe just to give the breakdown of the growth. So we talked about 7% to 10% doing that over the long term, doing that at scale. We break it down saying, out of that growth, 20% will come from new logos. And then of the remaining 80%, half of it will be from solutions that we've had in the market for several years. So that's 3 to 4 points of growth. And then half of it will come from these new emerging solutions that we just touched on. So that's how it breaks down. What I would say it's changing. I mean 1 is new logos are becoming a smaller part of the growth. So historically, it was more like new logos was 1/3, and then cross-sell upsell was 2/3. It's going to move 20% of new logos to 80% of cross-sell upsell. So that's one of the shifts. And then the solutions that have been in market for several years, some of those are becoming more penetrated. And so those are partially the trade-offs as the emerging growth become a bigger part of the contribution towards total growth.

Okay. That's helpful. And then we haven't talked about generative AI, which is a pretty good time to go through a conversation without bringing that up. But at your conference this year, in Tucson, we heard a lot about generative AI and just -- I think Githesh at the keynote talked about how this isn't the first time you're investing in it. You've been making investments over the last 10 years. Could you just talk about where you are with the generative AI investments? I mean, you did highlight how you're kind of at the center of all these network effects. And so maybe AI gives you an increased ability to monetize that. But just frame for us what the strategy is today and how this could potentially benefit in terms of top line growth?

Yes, happy to. And as you said, using AI in our solution set is not a new trend or fad that we're focused on. It's been part of what the business has been driving with over a 10-year period. Just a couple of stats just to show that some of the points of maturity is we have over 100 clients that are using AI at some level within our solution set. I think at the end of last year, we processed 14 million unique claims through AI solutions on a cumulative basis, I should say. One of the kind of flagship products that we have in the market using AI is a product called Estimate-STP. So it uses computer vision, AI capabilities. And what it ultimately does is someone's in an accident, a policyholder will be sent a link, the policyholder will then take photos of the car and the damage to the car and upload that and then our computer vision AI will take those photos, look at them and compute a line item estimate for repairing that car. And it will take into account all the parts that will be required and parts are very localized on the pricing of the parts. It will take labor rates that are required, and it will come up with a multipage line item estimate down to labor hours and all the parts that are required. And that would be a process. Historically, if you go back where a staff adjuster is going to visit a policyholder and making appointment at their house to come and look at the car and walk around the car and use software to write an estimate, that would be -- could take half a day for a policyholder to get that claim and that information. You're now moving that using this AI capabilities using the photos, moving that from half a day to minutes, where AI is generating this line item estimate. And so that is in market today that's generating revenue for us today. We have 8 of the top 10 carriers that are using Estimate-STP at some level. Now that could be from testing it, to piloting it, to rolling it out, but that is a production-ready AI generating revenue. And so that's one real example of how AI is at work. And as we think about and where I started about us digitizing the broader auto claim process, we referenced straight-through processing is kind of a north star for us. And thinking about all the touch points and the decisions that happen from the start of first notice of loss of an auto accident, all the way to returning the policyholder to pre-accident condition, there's hundreds of decisions that are made across an ecosystem of trade partners, how do we use our software, our workflow to help digitize that and AI will be certainly part of that journey and how we digitize those steps in the process. An Estimate-STP is kind of the first use case to really showcase what we can do and certainly drives great efficiency for the carrier. So instead of deploying staff to go to process that, they're using technology. And it also makes the process for the policyholder takes a lot of friction out of that. So instead of waiting for an appraiser to come to your house and walk around, you're getting a real-time feedback based on submitting photos through a link. And so it ultimately improves the policyholder's user experience as well. So certainly a win-win.

Yes. So I mean that all sounds incredibly compelling from the perspective of really the consumer as well as the insurance carrier. But one of the things we've seen just with P&C insurance companies is if any of the folks in the room have followed Guidewire, sometimes these tech investments and moving the cloud or adoption of AI can happen a lot slower just because they're very cautious and conservative. I guess what is the appetite you're seeing from the carriers to really lean in and roll out these solutions. It sounds like a lot of them are using it in some form, but is there some type of reluctance to move it into production, just given security or some type of concern they may have?

Yes. No, it's a good question. And we see similar things across the industry and the ecosystem. I would say we've seen really good take of just from 8 of the top carriers, roughly 20 carriers that have started to adopt the solution. To your point, that said, it's very -- the volume is running through. It is very low at this point. We have the carriers that have significant market share. And as they start to use this solution more and more, the adoption curve will go up. But it is early days. They have to operationalize how they're using the tools within their organization. They're going to test it in some parts. So maybe in one state before they roll it out more broadly. So they certainly will be testing it and incorporating it into their operations. And so that does take time. Some of that feedback they're giving us on the solution and how to configure the solution. So it's a better user experience for them. And then some of it just sits with them in their pace on how they prioritize deploying the tool and how they operationalize the tool. I would say, when you step out of Estimate-STP and just think about the carriers, we are different than the Doug Creeks and the Guidewires from the perspective that our tools that we're deploying to the carriers, they're shorter implementation times and they're very -- so fast implementation times and a quick ROI. And so we are seeing the demand for the products because we're addressing some of the operational challenges that they're facing with inflation, labor shortages, some of the delays that -- and the lag times in the repair shop industry. So those are real challenges that the carriers are facing and our tools help with some of those operational challenges. So we do see the demand there. But to your point, the carriers will kind of adopt at their pace. I don't know if you have anything to add?

I was just going to say that you really are seeing a once-in-a-generation digital upgrade cycle within auto insurance. If you think about the banks, they had a near-death experience back in 2008 and 2009. And that drove a decade worth of really heavy investment in digitization, straight-through processing, that did not happen in the insurance space and the day of reckoning really came with the pandemic. And so that is, I think, really changed the willingness of the insurers to look at new solutions and change their posture towards the pace of adoption.

Yes. One question we often get is just the international opportunity. So I think today, about close to 90% of revenue comes from the U.S. Interestingly, you do have a business in China. What that 99%?

99%.

99%, okay. Yes. Over 90%, close to 100%. So I mean, just talk about your company has been around a while, obviously, lot of opportunities still in the U.S., but what is it about the opportunity that makes it maybe less attractive today to invest internationally? And then I know China is one market where you do have a presence just talk about how you're thinking about that business, too?

Yes. You're right. The revenue breaks down were 99% U.S. and 1% international and the 1% being China. We do evaluate international opportunities. They likely will come through M&A or partnerships. We don't have near-term plans to build out organically across Europe or anything like that. Part of it has been -- the opportunity in front of us in the U.S. is so large. We talked about the size of the TAM. We talked about the opportunities there and the runway that we have and how we're helping our clients with their operational challenges that we've really just stayed true to the core space in the U.S., and we continue to see a very long runway there. That said, we'll continue to evaluate international opportunities when it makes sense. As I said, it will likely come in the form of M&A or partnerships. China, we've been in that market for a while. It's a small business. The reason we pick China is just the scale of the opportunity. When we were looking at a market that could scale over time and China is, obviously, a huge market with a large P&C insurance ecosystem. And so that felt like a good opportunity. I would say we're in that market with a pretty narrow product set. And as that gets adopted, we see the opportunity to build that product set out. It is -- we think about it as upside optionality. It's not a core driver of our near-term performance, it's not a core driver of our long-term guide. The 7% to 10% doesn't have a significant assumption on China contribution. So we see our pathway to 7% to 10% with kind of a U.S. view and we think about China as upside optionality.

Okay. Got it. And then as you think about the -- just the landscape, I mean, you talked about how you have important customers and partners across parts suppliers, auto OEMs and then, obviously, you have a ton of repair shops, is customers. But how do you think about the -- I guess the partnership and revenue opportunity with some of the auto OEMs and part suppliers, I guess, who are smaller today in terms of that revenue contribution, but, obviously, very important in that ecosystem. Where are we at in terms of like the maturity of those relationships and ultimate commercial agreements?

Yes. So maybe we cover a bit of GTM, and then we can talk about the partnership. So I'll just give -- so the way our revenue breaks down, it's 50% of the revenue comes from carriers, 43% come from repair shops and then the balance is other, which is largely part suppliers. Part suppliers is about 5% of the business. So that's how it breaks down. We have 35,000 clients, we have over 300 carriers. We have 29,000 repair shops, and we have 4,000 to 5,000 parts suppliers. So that's how the -- it works today. We have a direct sales organization on a go-to-market. And so we have direct sales going -- supporting the carriers. We have a separate direct sales organization supporting the repair shop, and then we have another sales organization that supports part suppliers and the OEM. So we go to market with a direct sales organization. We then have sales specialists that will focus on specific product areas, especially as we're bringing new technology and platforms into the mix, really bringing people into the business that have deep expertise in those areas and then they support the direct sales organization. And we've been in this -- having this direct sales organization for a long period of time, and we see that as being kind of where we're headed as well. And so the good news is that's a very scalable organization because we're a vertical software. We have this established sales organization. We will add product specialists to augment them, but that's not significant investment to do that. And since we're -- a lot of the growth will come from cross-sell and upsell, we're going to see leverage from that sales organization. And because we're vertical software, we're not heavy into lead generation. So we don't have a significant lead generation spend because of the way we go to market and how we serve our clients. So we certainly see scale in operating leverage in our sales and marketing organizations. Do you want to touch on the partnerships and give some examples of the type of partners that we have, which we use as augmentation to our -- kind of what we're doing in our sales organization. A lot of what we think about is building the software and then partnering with either service providers or areas that bring specialization to the solution. So we're not needing to build everything. And certainly, we also partner with hardware providers or professional services because that the core of what we do is building software versus some of the wrappers that go around the software.

Sure. So I mean, broadly, part of what we're doing is we're -- we keep together these 35,000 companies on this platform and helping to power over $100 billion of annual commerce that's flowing through it. So in terms of different types of partnerships, I mean, if you look at Diagnostics, we partner with the major service providers there, AirPro, asTech, Opus are three main ones we partnered with. In Casualty, we partnered with a company like TempusDirect, which does repricing services for the third-party medical billing. We partnered with Verisk to fight risk -- sorry, to fight fraud across the P&C industry. We integrate with CDK, Duck Creek, Guidewire to create a more seamless and easier to manage workflows for the clients. And then, of course, we also partner on the tech side with hardware providers like NVIDIA. In fact, you might have seen that NVIDIA mentioned CCC on their conference call in May. And we were all really surprised that just mentioning CCC would drive $250 billion of market cap in [indiscernible]

Take all the credit for that.

Like IR, right?

That's right, that's right. CCC is not AI.

That's the way we look at it.

Yes. So I guess just going back to -- I wanted to actually just go back to the opportunity with the repair shops. And being at your conference actually the last couple of years, but particularly this year, you were showing off some interesting new solutions. I think kind of a website, mobile app builder, a little bit more on the front office side, if you will, and certainly, there is a trend within repair shops of consolidation, right? A lot of these are mom-and-pop. So how do you just think about upsell opportunities within the repair shop? A lot of these repair shops, if you've ever taken a car and don't have the most sophisticated customer experience, is that -- is the customer experience, something that you're investing in? And how would you think about that opportunity?

Yes. It's a good question. So the repair shop, just the market size. So as I said, we have 29,000 shops that use CCC software. The market is about 40,000 and we've been adding about 1,000 new logos net a year, and we've done that in the past several years, and we see good opportunities to continue to progress at that pace. If you go back, we used to -- we originally started with just an estimating package, so helping the carriers -- I'm sorry, helping the repair shops write an estimate using software. So it started there. We then provide software for them to connect to the carriers and what we call a DRP program, so a direct repair program. And so they would expand the software to have that connectivity with carriers because carriers are driving most of the leads for the repair facilities. . We then also augmented and have a shop management workflow, so helping the shops manage their rooftop and a lot of the back office functions. So we have, overtime, continue to expand the type of software packages that we've taken to the repair shop, and we see that continuing to go. We rolled out Engage package, which was an add-on, and that was helping the shop manage a digital engagement and CRM tools that they could use for scheduling appointments and corresponding with their customers as well. So we see many ways of opportunity to kind of expand the packages. And so the way we go to market as we go with a software package and kind of think about it at the bronze, silver, gold, platinum. It's just the breadth of functionality that you get within the package is -- continues to move upstream. And we do see the opportunities to continue to add functionality into those bundles and support the repair shops and can see that kind of cross-sell and largely upsell motion continuing to happen. So that -- we look at that as a really meaningful opportunity. And to your point, there are -- we talked about the carriers having macro trends, the shops as well. They have labor shortages. They have a lot of volume coming to them and some of them have capacity concerns. They are needing to use software and tools to help drive efficiency as well. So kind of continuing to build out solutions that help the shops be more efficient, certainly, is an important thing. And Diagnostics is a really good example and maybe spend a minute there. So if you go back Diagnostics as a car comes in, they need a diagnostic scan or they need a calibration scan. And so that was being done at the pre-repair, post-repair, but it was done in a very inconsistent way. Some of the price points were inconsistent with the carriers. And how the shops were managing that, one technician could be really good at doing 3 scans, another technician wasn't as good. And so we provide software that help the shops enable to manage diagnostic scans and optimize their technicians in doing that, making sure they're getting reimbursed from the carriers in doing that. The OEMs like it because the cars are getting repaired back to the way they should be and it's getting verified through the scans and the calibration. So kind of the carriers are better off, the shops are better off, the OEMs like it. And so our software will help them manage those workflows and manage the diagnostic scans. That's another package, as another example of something that we've recently brought to market and added on to the shop. So we see the opportunity as complexity continues to help the shops manage and become more efficient, and that opportunity we see is substantial as we go forward.

Great. So the last thing I wanted to hit on and before we got to wrap up, just on payments. So we talked about the hundreds of billions of dollars of GMV flowing through the platform. Normally, when we're talking about GMV and software, we're talking about take rates. And I guess, why isn't payments a bigger revenue stream for you today? I guess, what are some of the inhibitors and how do you kind of see that evolving? Like what do you kind of need to do to be able to increase the take rate of that?

Yes. So when we started, we talked about the emerging solutions and being material contributors to the business over time. We talked about Diagnostics. We talked about Estimate-STP. We talked about Subrogation. We also talked about Payments. So Payments is a key emerging solutions that we feel will be a meaningful contributor to the business over time. As you say, when you think about the carriers, our workflow is helping to manage the auto process, and it goes all the way up to okay to pay to the carriers. And a lot of times, then they're moving to another channel to actually fulfill that payment, and that's still a lot of checks going into the mail. And so we have software solutions and workflow solutions that will be integrated with payments that will allow them to digitize that payment and complete the full cycle of that process. And we feel really good on our right to win. When we said -- I talked about those four emerging solutions, they're going to adopt at different paces. And certainly, Diagnostics and Estimate-STP have come out of the gates and have been a more meaningful part of the contributions and Payments is certainly taking longer than the others. but we feel good about the long-term strategic fit, and we think it will be a material part contributing part of the business going forward.

Okay. Well, with that, we'll wrap up. I guess is there any other closing remarks you gentlemen wanted to make before we end, but otherwise...

No. Thanks for having us. Thank you very much. A good day of meeting. And it's great to spend time with you.

Yes. Thank you, everyone.