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

Perfect Awesome. Well, thank you, everybody. Good morning. Welcome to William Blair's 45th Annual Growth Stock Conference. Appreciate the time today. My name is Dylan Becker. I'm the research analyst here that covers technology stocks and CCC. We have Brian Herb, the CFO; and Githesh Ramamurthy, the CEO of CCC here with us today. For all the necessary disclosures, you can find those on williamblair.com.

But maybe as a way to kind of start the conversation, Githesh, there's people at varying levels of familiarity in the room. Could you kind of help level set us context background on the history of CCC, kind of the solutions you've built and the problems that you're looking to solve in the market?

Sure. What CCC does is we are a Software-as-a-Service company and have been for a long time, focused at the intersection of insurance companies, repair facilities, parts providers, OEMs. And it's a very large ecosystem. And if you think about auto insurance in the U.S., over $300 billion are spent on premiums and most of that is paid out in claims. So that means -- and if you take it up at 1 level higher, roughly $0.40 on the dollar are spent out on physical damage, which is the repair of vehicles, total loss of vehicles, another $0.40 are paid out in casualty or the medical claims associated with it, another $0.20 are really what we call loss adjustment expenses, which is adjusters, staff and everything else. And that's the macro piece. . So what CCC does is we provide mission-critical capabilities to all of the different participants in what we call the auto insurance economy to settle auto and claims, and claims in general. And very recently, we acquired a company called EvolutionIQ that also diversifies the company into disability and workers' comp as well as provides some core capabilities on casualty. So that's in a nutshell what we do.

Perfect. And we'll get into a lot of the kind of factors that are pushing for complexity and change in that ecosystem. But maybe Brian for you as well, too, from a financial perspective, kind of how we should think about the business, the financial profile, the opportunity that we're looking to solve here?

Yes, sounds good. So we operate in a very large market, $35 billion addressable market globally. Here in the U.S., which is where the predominant focus of the business is, is about $15 billion as addressable TAM. It's a durable business model. So 96% is software revenue. About 80% is subscription revenue. And we hold on to our clients for a very long time, very low attrition, high retention. Our gross dollar retention is between 98% and 99%. The long-term targets that we talk about for the business is 7% to 10% organic revenue growth. We look at margin progression, about 100 basis points a year. We're in the low 40s today as margin, and we expect to step up to the mid-40s over the next several years. The acquisition that Githesh has mentioned, EvolutionIQ, we closed at the beginning of this year. As it turns organic, we'll add about another 200 bps of growth on top of the 7% to 10% that I talked about, and also help on our margin progression as we go forward. So it's just a quick profile of the financials.

Perfect. Perfect. Now Githesh, we talked about kind of this ecosystem, the interconnected nature of everything. There's also a lot of complexity in the vehicles that we're trying to solve. Can you help us get a sense of what are the drivers of digitization, how you help solve for that complexity and really kind of what's pushing digital adoption in the ecosystem?

Sure. So let's start with how many of you own a car in this room? Pretty much everybody. I was going to ask for a show of auto insurance as well, but I'm assuming it's one for one. So if you look at your average vehicle that everybody has in this room, there's roughly 20,000 parts per vehicle, and there's enormous amounts of complexity. So one piece that's really consistent has been, if you look back over the last 20 years, the complexity of vehicles through software, computer chips, cameras, ADAS, all kinds of things, the complexity is increasing substantially. Along with that complexity, the cost of parts is also increasing significantly. And then on top of it, the labor shortage, the industry continues to face a more and more acute labor shortage in terms of handling this complexity. And there's also skill gaps to be able to manage this complexity. So all of these things contribute to putting an enormous amount of stress on insurance companies, collision repairers, parts providers, car companies, almost every OEM is a customer as well. And what CCC does at the end of the day is solve in a very mission-critical sort of way, all of this complexity using very sophisticated software workflows, unique data sets and artificial intelligence that really powers a lot of this capability.

Sure. And you talked about kind of the unique data set as well, too. Can you talk about the scale in the data network that helps you drive a lot of that hyperlocal and precision outcomes for your customers?

So since we operate in literally every nook and corner of the U.S., the precision and the data we have down to the CBSA down to the ZIP code by vehicle type, by labor rates, parts, all of that becomes extraordinarily important, as well as for the medical claims we help our customers process. There's an enormous amount of complexity that varies by geography, jurisdiction and the like as well. So we have about $2 trillion of historical data across our data sets. And where this has been extraordinarily helpful is about 11 years ago, we started investing heavily in artificial intelligence. We started hiring our first PhDs in AI. We bought one of some of the early NVIDIA CUDA machines to start really doing the deep learning and the training. And after 6, 7 years of this heavy work, we actually went to production in November of '21. So what this data set allows us to do is to create incredible levels of accuracy. We collect over 500 million photographs a year. We're able to extract data and meaning from the photos to process the claims, also the impact on medical claims. So this data set has been enormously useful for training, but perhaps even more importantly, 1 of the things with AI that you had to worry about is drift, meaning how accurate are your predictions? And are your predictions getting more accurate with time? And there, we have a massive feedback loop, because every day we're getting real-time information and literally hundreds of millions of dollars of claims in every single day that are being processed. So the accuracy, the feedback loop for the AI is also super, super helpful. So when you think about CCC, think of it as a very broad network of customers that creates enormous value for everybody, a very large data set powered by AI and workflows that connect everybody together.

Sure. And to your point, maybe can you talk to the opportunity to embed intelligence within those workflows and what that can mean from a customer productivity perspective? You called out kind of labor constraints as a factor as well.

Yes. So when you think about it, our customers have anywhere from a few hundred employees to literally tens of thousands of employees. And when they're dealing with this complexity coming in, it could be -- take an example, medical claims. You might get an incoming medical claim package that you have to help your policyholder with, but it might be several hundred pages. So having artificial intelligence that can sift through that information, synthesize the information and go very, very deep. This is where domain expertise really comes in, because the physics of the accident may inform how you're actually processing that medical claim in terms of severity and complexity. So our AI works in concert with claims adjusters, appraisers as well as consumers and repair facilities. If you go to carwise.com, which is a CCC-driven website, you can literally go in, take a picture of your car of an accident, a couple of clicks and you can route it to a repair facility. And they can actually look at it. It will give you an initial range of what this is going to cost. You can schedule your repair. So the AI is a very user-friendly way of doing this. And in fact, one of the hallmarks of CCC has been to run one of the highest Net Promoter Scores of any software company in the world. So we run one of the highest NPS scores. And so that ease of use, high performance has been super important to our success.

Sure. And maybe, Brian, from a financial perspective as well, too, how do you think about the monetization of the platform, the packaging opportunities and how that aligns with value for customers that helps kind of incentivize adoption?

Yes. The way we price is very much on an ROI basis. So the way we think about it is we help our clients drive operational efficiency. And as we help them save money, our pricing and the way we price, we look at taking a piece of that. So if you think about that we're saving our clients $5, we expect to get paid $1. And so we are very focused on a 5:1 ROI. That doesn't mean it's contingent on savings, but that's how we price the product. And that makes it very tangible for the clients. And so when we're talking to them and looking at their results and talking about the opportunity of the solutions, it becomes very clear on the value the solutions drive, and that's how we price. Interestingly enough, when we bought EvolutionIQ, the business that we closed on this year, they have the same methodology. They very much price on an ROI basis. So very much aligned to the principle that we have in the market.

Sure, sure. And to your point on the innovation front, Githesh, maybe tying it to value, Brian, as we think about the core components of the platform, there is the more established kind of subsegment of the portfolio. There's the emerging segment of the portfolio. How should we think about kind of the blended balance of growth between the 2? And maybe within emerging, kind of some of the areas that you're excited about?

Yes, I can start with the growth drivers, and then we can talk about some of the new solutions in emerging. So if you look at where we ended last year, about 30% of the growth came from new logos and then the balance came from cross-sell, upsell. Within that, about 1 point of growth contribution came from emerging solutions. Emerging solutions are solutions that have recently come into market. So that's how the profile looked at a snapshot at the end of last year. As we go forward and we think about the growth drivers on a go-forward basis, we do think new logos will moderate over time just because of our market leadership position. So we think the 30% over time will move more like to 20%. And then the balance will be this cross-sell, upsell. We do expect emerging and established to be equal contributors of growth within that. They both have ample opportunities. The white space for both emerging and established are very large and relatively equal. And so we think both of them will contribute over time about 50% of the cross-sell, upsell. That won't be perfect in every quarter, every year. Some years, some quarters, established will be stronger, emerging will be stronger. But that's how we think about the growth over time. And so emerging definitely becomes a larger part of the growth equation as we go forward from here.

Sure. And maybe, Githesh, for you, kind of give us a sense of what some of those emerging opportunities are? What kind of excites you the most within that?

Yes. Sure. So what's been really interesting is that over the last 3, 4 years, we spent very, very heavily in building out a range of solutions. And in fact, we just had our customer conference in Texas just a couple of weeks ago, and we had fantastic receptivity. And what we've seen is for the insurance carriers, what we've been able to do is to build out a range of solutions, not only that are artificial intelligence like Estimate-STP, Intelligent Reinspection, but also make some significant investments in casualty. So if you step back, as I said, the claims spend for auto is roughly the same for auto physical damage and casualty. We only have 60 casualty customers, while we have 300 insurance customers. So the solutions we build for casualty have been very, very well received by customers, including some of the newer AI capabilities. And then same thing for the repair facility market, we've also invested very heavily. Traditionally, we've been on the front office of the repair facility, connecting every repair facilities. We have over 30,000. Connecting these repair facilities to insurance carriers. So in terms of work coming in, scheduling the work, all of that. And then we've also added for them capabilities like diagnostics, where every car today, if you look over the last many years, cars need diagnostic capabilities, calibration capabilities. Our software integrates a lot of those capabilities. And working with a lot of different diagnostic providers. We've added parts capability, about 5,500 parts suppliers, because we've got roughly $20 billion of parts going into cars every year. So we've enhanced all of these capabilities as well as built a bunch of back-office capabilities for the repair facilities to be able to manage their website, manage payroll, manage other facets of the business that's being well received. And then for the car companies, for the OEMs that have increasingly become customers, I think we announced in the last quarter, one large EV maker who has switched over to our platform to not only offer auto insurance for their policyholders -- for their customers, but also their collision repairs using the CCC ONE platform. So we've innovated literally on every front, and that's one of the things about EvolutionIQ we're super excited about is ever since the acquisition, we've also been able to accelerate the innovation for a solution called MedHub, which enhances our casualty capability.

Perfect. And it's probably a good segue, right? You have a very strong positioning in the APD side of the equation. We're talking about kind of investing and innovating into casualty. Can you help kind of lay the backdrop of what EIQ brings to the table, how that helps create the casualty initiative, and maybe the value of pairing those 2 data together?

Sure. So typically what you have is out of 5 auto physical damage claims, you have 1 casualty claim. So that's the macro. But the payouts are roughly the same in aggregate dollars. And the inflation on medical is also a lot higher. But there's also a great need to help policyholders get back to recover and help them. And what we've been able to do with EIQ is EIQ has really emerged without a shadow of doubt as a leader in disability claims. That means an extraordinarily deep understanding of the medical conditions and the capabilities associated with it. And what we have been able to do since the acquisition is to work with the EIQ team and the core CCC casualty team to take some of the generative AI capabilities where it can really dig deep into hundreds of pages of medical claim information and then provide guidance and provide recommendations, let's say, based on what I see, based on this specific condition. These are some things you should look at. So that ability to guide and help an adjuster has been extraordinarily well received. And we actually showed these capabilities to several of our customers for the first time at our conference just a few weeks ago, and the receptivity has been fantastic.

Maybe for Brian, we've kind of touched on all of the opportunity or obviously, the vastness of the ecosystem and opportunity. You kind of hinted at it, but could you give us a sense, we talked about where the business is today, but how do you think about all these pieces kind of tie together into, what the long-term financial profile can look like from a growth and profitability or margin perspective?

Yes. Maybe I'll profile EvolutionIQ and then we can talk about some of the others. So as Githesh described, I mean, we're extremely excited about EvolutionIQ coming into the portfolio. We think about it as not only just great AI, but it's a high-quality business. We talk about it contributing about $45 million to $50 million of revenue this year. When you look at where it landed last year, it had an NDR of over 150. The top 15 clients -- I'm sorry, the top 15 disability carriers, they have 7 of them as their clients, and they're just in the early days of moving into workers' comp. It's also got really good unit economics. So when I look at the gross profit margin of EvolutionIQ, it's at a similar rate as what we see at core CCC. And it will add -- as I said earlier, it's going to add about 200 basis points to our growth equation going forward. And we're absorbing the margin loss this year. As we flip the page and move into '26, it will start to contribute as we build margin progressions towards the mid-40s. So it's a really strong financial profile. And we're really excited about moving some of those product capabilities into our casualty business. When you think about the broader question around the emerging, as I mentioned earlier, emerging is going to be a bigger part of the growth contribution going forward. We're not banking on 1 or 2 solutions. It's a portfolio of opportunities in emerging. So there's a handful of solutions that we're early stages with. And all of those have really good scaling opportunities, and we expect them to be contributors to growth over time. On the established side, as Githesh said, casualty is underpenetrated compared to our auto physical damage part of the business. And we feel really good on where that product is, the differentiation in the market and the opportunity we have with casualty. We also are still in the early days of parts and electronic parts ordering, and there's still a long runway in our repair shop and the upgrades that we bring in. So those are just a handful of the opportunities that we're excited about.

Sure. Yes, there's a lot to be excited about there. Maybe, Githesh, flipping to probably one of your favorite conversations as well, too, but the idea of autonomous vehicles and autonomous driving, right? It layers in a lot of complexity. What does it mean for claims volumes? How should investors kind of think about? Is that a tailwind, headwind to the business?

Yes. I think when we look at the early goings of what we've seen over the last few years in terms of the features that have been added to vehicles, what we've seen is a lot of complexity from cameras being added, other software components. So it's actually increased the complexity and the cost of claims. So we had to make sure that we build out our software and our capabilities to help our customers manage this complexity. The other thing we also see is that when I look back -- when I look forward -- sorry, and what we see is that there's about roughly 300 million vehicles, private passenger vehicles on the road. We're selling about 16 million vehicles a year. And in terms of getting to -- in our conversations with all the auto OEMs, who are our customers, the time it will take to really turn the car park, everyone's estimate is in that 18- to 20-year time frame. But while this thing is coming through, we also think when take another snapshot and you look at the time frame, we've seen in the last, I would say, 10 years, right, so call it, 2014 through 2024, we've seen about a 4% decrease in claim volume over a 10-year time period. In that same 10-year time period, our revenue growth, pretty much organic, has been about 140%. So the functionality, the capabilities we are offering to all of our customer base will continue to grow. Meanwhile, solutions like diagnostics, calibration, and these are capabilities that we are adding and other functionality as we work with pretty much all the car companies.

Sure. And maybe if we zoom in a little bit more kind of real time as well, too, right, there are some kind of nuances and dynamics in the auto insurance market. We've seen kind of elevated premium growth causing some pressure on the consumer side. There's been a little bit of change management around AI adoption as well, too. Can you kind of give us a lay of the land if we zoom in a little closer?

Sure. Yes. I think one of the things we've learned over the last few years of actually building out our AI solutions is that traditional software that we used to build going back 10, 20-plus years was very deterministic. You give it certain inputs, you get an answer. You say, these are the parts costs with overlap of the vehicle, what is the calculation? This is the math, this is the answer. So when you start building AI, there's a predictive nature to it. And that's what we find is that it's taken customers a little longer to understand, to build that trust. So that part has taken a little longer than we thought. But what we are seeing consistently across the board is strong engagement from our largest, most sophisticated customers pretty much on every single solution we have to offer. And that testing has continued, and they're starting to see the benefits, starting to see the adoption. Still very, very early, but across the board, as someone who's been through this for 25, 30 years, that adoption curve feels pretty good.

Sure. And maybe what about on the volume side? And we'll talk about...

So now what we are seeing on the volume side is that we've seen a decrease in the number of claims filed. I use that term very carefully in the number of claims filed, because what we are seeing is that consumers are increasingly paying for lower dollar claims. And part of the reluctance to file the claim is fear of either rates going up or coverage being dropped. So if you say, well, if that's happening on lower dollar claims, what data do we see to corroborate that? The data that we see is when cars are totaled, which tend to be an average of $15,000 a claim, we're not seeing much of a decrease in the number of total losses, because that would say that higher dollar claims are being paid. And same thing with casualty. We're seeing slight increases in casualty claims, which also tend to be high dollar. And then the third data point that corroborates that view that this may be consumer behavior before it normalizes is the fact that what we saw maybe 3, 4 years ago is consumers were basically filing 90% -- 89% -- call it, 89% of all auto claims were being turned over to the insurance company for payment. Today, what we see is -- so in other words, consumer self-pay was 11%. What we're now seeing is that consumer self-pay is closer to 25%, which is a substantial increase. So our belief, having watched these cycles before, that as premium rates start to normalize, filing of claims, we think, will come back to normal.

Sure.

And just to add one point. I mean, we also -- just a reminder, as I mentioned on the financial profile, 80% of our revenue is subscription-based. So as we talk about volumes, we have 20% of the business that's transactional. Not all that transactional part of the business is even tied to insurance claims. So there's a lot of discussion on volumes. We just have to put it in a relative perspective on how it impacts the business. We saw 9% down on claim volumes in Q1, and we had a 1 point headwind in the overall growth for the quarter. So it continues to be a small part of the portfolio.

And maybe it's a good segue, Brian, kind of where we're trying to go with this as well, too, is can you talk through the evolution of the business, maybe why volumes aren't as relevant of a metric. Githesh, you've talked about how the business has doubled or more than doubled over the past decade. The mix has moved away from transactional, how you think about kind of those factors playing out?

Yes. I mean if you go way, way back, I mean, at one point in time, all the business was transactional, right? And so it has continued to change the mix between subscription on the transactional side. Probably 5, 7 years ago, 7 years ago, it was probably 70-30, 70% subscription, 30% transactional. It's 80-20. It will continue to shift up as we continue to broaden the portfolio. As clients buy more, we're bundling those together and wrapping them in subscription. So we do expect that mix to continue to shift up and more to subscriptions over time.

Okay. In the last maybe 2 to 3 minutes we've got here, we've covered a lot of ground today. Githesh, obviously, you've been involved in the business for quite some time. And there's been a lot of new innovation coming to the market. It feels like that's really accelerated on top of the data set. But if we were to kind of segment and a high-level takeaway for investors, what excites you most about the durability of the opportunity 5 to 10 years from now, how should we think about what CCC can look like?

Yes. I think our growth plans, as we've talked about, we have significant growth plans. Like if you just look at from the time we went public and just if you look at our numbers from 2020 to where we are, there's been more than a doubling of earnings, substantial growth in revenue. And what we see -- what I get really excited about personally is, as we talk to our customers at the most senior levels, at the Board level, at the senior levels, they see the value of all of these components, whether they are the largest collision repair facilities, car companies, insurance companies, they see an incredible value that CCC can really help them digitize and really transform the way they run their business. So that feedback is honestly one of the most exciting things that we see from our perspective.

Sure. Brian, maybe anything from your angle?

Yes. I would just go back to the portfolio. One of the things that really stands out in how durable the business model is, we're not banking on 1 or 2 new things. We have a handful of opportunities that we're equally excited about. And so the breadth of the capabilities, the broadness of the portfolio gives us a lot of shots on goals, and we're excited about those opportunities and scaling over time.

Fantastic. I think that pretty much puts us at about time here. Gentlemen, thank you both for the time. For those interested, we will carry on the conversation as a breakout in the [ Ginnie A ] room upstairs. So look forward to seeing many of you over there. Thank you.

Thanks.

Thank you.