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

Day 2 of the Citi Tech Conference. I'm Tyler Radke, Citi's Co-Head of U.S. Software. And to kick things off, we're excited to have the CCC team. We got Brian Herb, the CFO; and Bill Warmington from Investor Relations. Gentlemen, thanks for joining us again this year. And for those listening along, I thought it would be great, Brian, if you could just give an overview of the CCC business for those who aren't familiar.

Yes, sounds good. Thanks for having us again this year. It's great to be here. Yes, so CCC, we're a SaaS platform. We serve the insurance economy. So the business has largely been focused through auto claims and helping to facilitate an auto claim process. And so our software, our platform, tools and AI, we connect a multisided network. So we have our software into insurance companies, about 300 insurance companies. We connect them to body shops. We have 30,000 body shop clients, over 30,000. We connect them to part suppliers, over 5,000 parts suppliers. And so that software and our workflow connects those trade partners to help facilitate the resolution of an auto claim. And that's where the business has been largely focused. We have expanded more recently with an acquisition, and I'm sure we'll talk about that. But we closed a deal in January of this year, a company called EvolutionIQ, and it expanded us into workers' comp and to disability. So software, again, using AI and software helping insurance companies facilitate and process a disability claim or a workers' comp claim. So that business was acquired this year. When you think about the financial profile of the business, we're about $1 billion of run rate revenue, we have margins in the 40s. We have -- the software is very sticky along with the multisided network. We keep clients for a very long time on the platform. We have a gross dollar retention of around 99%. So that hopefully gives just an overall profile of what we do and kind of the sizing of the business. I don't know, Bill, anything to add?

I would just add that I think 1 of the really unique things about CCC is that it's just a combination of a vertical software company and a network with very high levels of subscription revenue and 99% retention. It's really an outstanding business.

Yes, particularly for the auto repair side, which is a lot of small businesses, you don't see that type of retention rate in SMB software.

So maybe as you just think about what's top of mind for customers, right? And obviously, you have an interesting purview into a variety of customers within the base you just talked about, auto repair shops, P&C insurers and some of the suppliers. But what is top of mind for them as it relates to running their business in terms of efficiencies thereafter and how are you thinking about what you can help them out with in terms of the CCC platform?

Yes, absolutely. Yes. So a couple of macro trends that are in our clients' minds. I mean, first is just the rise in complexity. So when you think about in auto claim and a car getting repaired, there's just increased complexity around that, and that can be complexity of the car, it can be complexity of medical procedures with bodily injury related to an auto claim. The ecosystem continues to expand and there's more and more players that are helping facilitate a claim, and that drives complexity as well. So our software helping to address that complexity as insurers and auto body shops work through a claim. The second is just a shift in workforce. So we're seeing a lot of our clients. And it's both on the carrier side and the shop side, where some of the more experienced staff workers are retiring out and they're bringing in a whole another -- a new level of more inexperienced workers. And so that -- they're losing a lot of history, a lot of knowledge in that transition, and our software also helps through that transition. And then the third is just inflationary cost pressures that's in the ecosystem. So that's the cost to repair a car, the cost of parts are rising, medical inflation for bodily injury that's related to auto plan. Those are all rising. And 1 of the things that we really do across our clients is help them with operational efficiency and start to help them address some of the cost pressures that they have. So those are some of the macro trends that our clients are facing.

Got it. And you hit on this in your opening remarks around the acquisition of EvolutionIQ. But talk to us, I mean, this was certainly larger acquisition in terms of the price paid. Obviously, a pretty interesting space, high-growth asset and everything. But just walk us through the thought process on that acquisition and how it fits into the technology stack.

Yes. I mean we touched on a little bit, but just -- if you step all the way back and you think at the most basic level, core CCC is helping our clients facilitate and process an auto claim. In EvolutionIQ, what they do is they use AI to help insurers process a disability claim or a workers' comp claim. And so at the most basic level, there's consistency in software driving efficiency through the claims departments and helping them get to resolution in a seamless and effective and efficient way of a claim. And so that's at the most basic level. From just a fit perspective, it's a fantastic technology stack, a really strong leadership team, great team overall. And so from a cultural fit, it was a really good machine as well. And then there's a really impactful opportunity as we think about some of what they do and porting those capabilities over to our clients. So when you think about our auto casualty clients, some of EvolutionIQ's AI and software would be incrementally -- incremental opportunities to cross-sell into that base. And so that becomes really impactful for us as well. And 1 example is a platform called MedHub. So what MedHub is, it's a medical summarization, medical synthesis platform that takes in both unstructured and structured medical data and brings it all into a portal and helps the claim handler process that information in a really effective way and also highlights the things that the claim handler should be focused on. We don't have that capabilities. And those capabilities certainly are very relevant for our P&C clients that are dealing with auto casualty claims. And so the opportunity there is to bring that technology and cross-sell it into our casualty base. As 1 example, and there'll be other examples of other technology from EvolutionIQ that we can cross-sell into our clients. But that cross-selling opportunity is a material part of our acquisition rationale and why we're so excited about the deal.

Right. And is there a way to frame just on that cross-sell opportunity? Obviously, you have most of the large P&C carriers as customers today. But how big could EvolutionIQ be at those customers? Are we talking tens of millions of dollars in revenue at each customer? How do you just sort of think about that cross-sell opportunity?

Yes. I mean when they sell into their modules, I mean, those are meaningful deals. I mean, those can be -- there's certainly 7-figure deals, some of them can push up to 8-figure deals depending on how many modules that they adopt. And so yes, these are meaningful size opportunities that we have with our casualty clients to cross-sell into EvolutionIQ or bringing EvolutionIQ capabilities. Right now, when we start with MedHub, it's a pretty narrow sales opportunity. But as that expands and they continue to build out capabilities that are relevant for the auto side, auto casualty and roll out more modules, it will become a larger opportunity and have some sizable deals, sizable opportunities.

Okay. Got it. So last quarter, you talked about some delayed deal timing, which impacted the revenue recognition. Could you expand on that? And is this something that you think is kind of more of a go-to-market thing you need to clean up? Or is this just sort of the nature of selling something new and AI technology into a pretty conservative industry?

Yes. I mean there's 2 dynamics that played out. So 1 was they had a couple of meaningful deals that were closed and signed at the end of last calendar year. We were expecting implementation to take 4 to 6 months, the clients to go live and revenue to start. And so they do have a longer implementation time. It's more like 6 months and ours is kind of weeks or months. And so that implementation has shifted back. Part of what happens is they need client data to build their AI models off of it. And so if the clients are delayed in getting that data, that slows implementation. So the deals were already signed, it really was an implementation cycle time that has impacted when revenue will start. And so it's a '25 impact doesn't really play into '26, because those clients are signed. The second dynamic that played through is there's a couple of deals we expected to close in Q1, they ended up closing in Q2. And again, that just shifted the revenue out, but it's not revenue leakage beyond '25. And so as we think about '26 and beyond and the impact that businesses have, we're -- we remain consistent with where we've been at the time of the acquisition. And as I said, we remain really excited about the strategic fit and the opportunity and the early discussions we're having with our existing clients about the EvolutionIQ capabilities. It's certainly driving a lot of excitement. And so we remain really enthusiastic about the opportunity in front of us.

Got it. In recent quarters, you talked about the claims volume headwinds out there in the space and that impact on at least part of your business. Can you just frame for investors the dynamics you're seeing on the claim volume side? And when do you expect things to get better and normalize?

Yes, happy to. And I'll just make a couple of comments. I mean, one, on the claims themselves, I mean, what we're seeing is we're seeing a decline in claims being filed. We don't believe there is a decline in frequency of accidents that is driving that. It's really around consumer behaviors, and at the lower end of accidents, consumers are choosing not to file a claim. And you can see that in the data. If you look at ISS data, casualty claims were up in Q1 in 2025. So you're seeing where claims are less discretionary. They're more expensive. They have medical bills. Those claims continue to get filed and you're seeing those claims actually grow. And what you're seeing decline are the smaller claims where it's more discretionary for the policyholder. And so that's the dynamic that is happening. Our business is 80% subscription based, which doesn't move with claim volume and 20% is transactional. Some of that transactional revenue is directly tied to claims and some of it is correlated to claim volumes, but not directly tied. As an example, our parts business, a component of our parts business goes with percent of GMV, that's not tied directly to a claim, but it certainly is correlated to how many claims are filed and how much work goes into the repair shop. So that's the dynamic that's playing out. We saw in Q1 9% claim decline year-over-year. That's slightly modified to 8% in Q2. And when you think about kind of the impact it has on our business model, 9% or 8% has about a 1 point of revenue drag for us of growth. So we're absorbing that drag as we go through the year. Your question around when we expect it to moderate and come back to more normalized levels. It's hard for us to predict that. We do -- we're continuing to monitor it. As I said, there was a slight moderation in Q2 and we'll just continue to focus on it. Overall, when you think about the shape of our revenue and the size of the business, 1 point of drag is not overly material. So even though this has an impact on the growth, it's not a material part of the overall revenue growth equation.

Got it. So we do hear though some investors worried about maybe a more structural decline in claims volumes, whether that's from ADAS, autonomous vehicles. And certainly, you have seen multiple quarters now of claim volume pressure. Like how do you think about the risks around more of a structural decline? And what would that look like theoretically for the CCC business?

Yes. I mean back to the earlier point, I'd say what we're seeing now at these heightened levels of decline, we don't believe this is structural, we believe it's a consumer behavior. So that's our view. When you step back and you look at ADAS and the impact ADAS has had on accidents over time, it's been moderating frequency for years. And so that is just an ongoing trend that the business has seen and the business continues to grow through. There's a stat. I mean if you look back from 2014 to 2024, claim volume is down 4% over that long period. So that's just an example of kind of the trend line that's been happening and our business has grown over 100% during that same time. So again, there's not this direct correlation that we need claims growth to grow the business. Our business model really is around addressing complexity. Certainly, severity is going up and severities is somewhat offsetting frequency declines. And what we really do is we focus on cross-selling our clients and making them more efficient and effective and deploying more and more software. And so we think about kind of our attachment rate on how our software attaches to each claim and so our growth on our long-term model and how we think about the growth of the business is not attached to claims growing. It's really around how do we improve the operational performance of the business -- or of our clients and deploy more and more software.

And you've talked about a 7% to 10% long-term organic growth rate for the business. This year, it's closer to the lower end of that spectrum. What do you need to do to get it back towards 10%?

Yes. I mean just to put it in perspective, so we've been public for 4 years now. The first 2 years of public, we were in the teens of organic growth rates. So we were above the long-term target that we had. Last year, we did 9%, so kind of towards the higher end of the long-term range. When you strip out EvolutionIQ this year, and you just look at the organic performance, Q1 was 7%, Q2 was 8%. So you're right, we have kind of come down and we're trending towards the lower end of the range. I'd say there's a couple of things playing out. One of it is just deal cycle and deal timing. So new business is not perfect linear. It's not perfectly linear in a year. It's not perfectly linear quarter-to-quarter. It will move around in those -- the timing of new business plays through, why 1 quarter is really strong or why 1 year could be stronger than another. That's point one. Point 2 is we're really focused on these emerging solutions and really see a lot of growth on the back of scaling those up. Today, emerging solutions about 4% of our total revenue. contributed just under 2 points of growth. It was just under 2 points of growth in Q1. It was just under 2 points of growth in Q2. But it continues to scale in absolute dollars. And we're also seeing some momentum on some larger clients moving from testing and piloting to signing up and turning into production and starting to drive revenue. So that gives us confidence around emerging and starting to scale as we go through the second half of the year and get into next year. So that's a real important part of our growth going forward. And then 1 of our more established products like casualty is another important part of our growth as we think about the opportunity going forward.

Got it. Okay. And we talked a lot about EvolutionIQ earlier, but could you just maybe refresh for investors, your M&A strategy going forward? Should we expect kind of more of these midsized deals? Or is kind of the small tuck-in, the way you're thinking about it?

Yes. I mean we've done both. We did a small tuck-in back in '21 when we bought subrogation. It was actually early '22. Safekeep, which was our subrogation platform. That was a small deal. That was a product expansion. It was basically instead of building it to buy it to speed to market. So we think about kind of M&A in 3 buckets. I mean, 1 bucket is product expansion so we can take new products and cross all of them to our clients. We can either build those or we can buy those and the subrogation was an opportunity to buy. We then have adjacency, which is more like the EvolutionIQ. It's around the insurance economy, but moving us into new adjacent markets like workers' comp and disability incremental to kind of P&C insurance. So adjacencies in area. And then third, we'll continue to evaluate international opportunities. The sizing will just depend on the opportunities against those 3 kind of acquisition themes. And so we're not calling, they're going to be small or they going to be medium. It's more do they fit kind of those rationale. And how is the strategic fit for the business.

Got it. Okay. So shifting gears a little bit to the product side of the equation. So I think you've talked about casualty reaching the size of APD. And obviously, EvolutionIQ is part of that. But just walk us through the journey in terms of where casualty is and reaching the size of APD?