Thank you for standing by, and welcome to CCC's Third Quarter 2023 Financial Results Conference Call. [Operator Instructions]. Please be advised that today's call is being recorded. I would now like to turn the conference over to your host, Mr. Bill Warmington, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and thank you all for joining us today to review CCC's third quarter 2023 financial results, which we announced in the press release issued following the close of the market today. Joining me on the call are Githesh Ramamurthy, CCC's Chairman and CEO; and Brian Herb, CCC's CFO. The forward-looking statements we make today about the company's results and plans are subject to risks and uncertainties that may cause the actual results and the implementation of the company's plans to vary materially. These risks are discussed in the earnings release on our Investor Relations website and under the heading Risk Factors in our 2022 annual report on Form 10-K filed with the SEC. Further, these comments and the Q&A that follows are copyrighted today by CCC Intelligent Solutions Holdings, Inc. Any recording, retransmission or reproduction or other use of the same for profit or otherwise without prior consent of CCC is prohibited and a violation of United States copyright and other laws. Additionally, while we've approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in that transcript. Please note that the discussion on today's call includes certain non-GAAP financial measures as defined by the SEC. The company believes that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends related to the company's financial condition and the results of operations. Reconciliation of GAAP to non-GAAP measures is available in our earnings release that is available on our Investor Relations website. Thank you. And now I'll turn the call over to Githesh.

Thank you, Bill, and thanks to all of you for joining us today. I am pleased to report that CCC delivered another quarter of strong top and bottom line results reflecting both the predictability and mission-critical nature of our solutions. For the third quarter of 2023, CCC's total revenue was $221 million, up 11% year-over-year and ahead of our guidance range. Adjusted EBITDA was $93 million, up 19% year-over-year and well ahead of our guidance range. Our adjusted EBITDA margin was 42%, up 270 basis points year-over-year. Based on our strong performance in the third quarter, and year-to-date, coupled with our outlook for Q4, we are raising our revenue and adjusted EBITDA guidance for the full year, which Brian will walk through. On today's call, I would like to highlight three themes of significant importance. The first is CCC's durable business model; the second is innovation; and the third is our strategic outlook for the business. First, our durable business model. A key part of our business model's durability is the diversity of our customer base and product offerings. Over 4 decades, we have built one of the industry's most comprehensive platforms, comprised of a range of different solutions that brings together over 35,000 participants across the P&C insurance economy, including insurers, repair facilities, part suppliers, automotive OEMs and more. The result is a growth algorithm balanced across a wide variety of solutions, clients and customer groups. We're focused on continuing to grow our customer base while investing in innovation that brings new high ROI solutions to the market. These solutions, not only drive improvements in our customers' operating efficiency and consumer experience, but also serve to expand the CCC network. We believe our decades-long track record of helping clients with their mission-critical operations is a cornerstone of our durable…

Thanks, Githesh. As Githesh highlighted, our balanced growth algorithm, the multisided network and velocity of innovation are driving positive momentum across the business and reinforcing our confidence in our long-term growth outlook. We are pleased with our top and bottom line performance which reflects a balance between investment in growth initiatives and margin discipline. As we now turn to the numbers, I'd like to review our third quarter 2023 results, and then provide guidance for the fourth quarter and full year 2023. Total revenue for the third quarter was $221.1 million, up 11% from prior year period. Approximately 8 points of our revenue growth in Q3 was driven by cross-sell, upsell, and adoption of our solutions across our client base, including the upsell of repair shop packages, continued adoption of our digital solutions, and the ongoing momentum in casualty and parts. About 1 point of the 8 points came from catch-up revenue on a subscription contract. An incremental 3 points of growth came from new logos, mostly with our repair facilities and part suppliers. I also want to highlight that we saw about 1 point of contribution in Q3 from our emerging solutions, mainly Diagnostics and Estimate-STP. Now turning to our key metrics. Software gross dollar retention or GDR captures the amount of revenue retained from our client base compared to the prior year period. In Q3 2023, GDR was 98%, which is down modestly from 99% last quarter. This is the result of rounding. Since the first quarter of 2020, GDR has been between 98% and 99% in rounded up or down, driven primarily by industry churn. We believe our strong software GDR reflects the value we provide and the significant benefits that accrue to our customers from participating in the broader CCC network. Our strong GDR is a…

[Operator Instructions] Our first question comes from the line of Gabriela Borges of Goldman Sachs.

This is Kelly Galanis on for Gabriela. Great to hear about the long-term auto physical damage customer adding impact dynamics as its first casualty solution. Do you expect to see more deals like this as a result of Impact Dynamics?

Yes. That's our belief that this is a unique game-changing solution that really takes the physics of the auto accident and the AI capabilities and that we think this is applicable in a very broad way across the board.

And then for Brian, just as you look at planning for 2024, are there any like specific dynamics investors should be aware of that could be different next year versus this year? And then how are you expecting emerging products to contribute next year?

Yes. Sure, Kelly. So maybe I'll start with the emerging solutions, and then we can talk to the broader guide. So emerging solutions contributed 1 point of growth in the quarter. That's approximately what it has done throughout the year. So year-to-date, emerging solutions is about 1 point of growth. We have highlighted over time that will move to more like 3% to 4% of the total growth coming from emerging solutions, but that's going to be over a multiyear journey going from the 1 point today to 3 to 4 points in the future. So that's how to think about emerging solutions. As far as the guide, we're not putting anything specific out there. We would just highlight that we point towards the long-term guide of 7% to 10% organic. We do see really good momentum across the business from the broad set of solutions and a lot of opportunities to grow, and there's good momentum in the business. So we feel good as we exit the year and come into next year, we'll be more specific on the guidance as we get into next year and talk about Q4.

Our next question comes from the line of Dylan Becker of William Blair. Our next question comes from the line of Matt Bullock of Bank of America.

I'm on for Mike Funk. My question is on Estimate-STP. I was hoping you could maybe walk us through the progression of one of the company's more mature Estimate-STP customers. At a high level, how quickly have the volumes and revenue contribution ramped at the highest and most enthusiastic adopters? And then how might you expect this to trend over the next 12 months?

Maybe -- thanks, Matt. Just a couple of broader perspectives. If you recall last quarter, we said we have expanded the AI capabilities from not just the mobile channel. Today, the mobile channel after an auto claim is about 30%, another 20%, 45% are through the facilities, another 25% of claims come in where staff appraiser goes in and looks to the claim, and we have now expanded the AI capabilities across all of these channels. Back to your second broader point I'd make is that we've also now expanded the number of customers that are rolling out Estimate-STP to where we now have over 20 customers who are now rolled out. So that number continues to increase. Now as you go specifically to individual customers, what we have seen is that customers start out in 2 or 3 states, expand to about 10 or 15 states, go out broadly to about 30, 40 states, and we have customers who are now at pretty much every state. And then as they fine-tune their processes, they start adopting more and more of the capabilities. And to give you kind of a perspective on the range of customers, we have some customers who are in that -- who use these capabilities in the mobile capabilities and the Estimate-STP capabilities at a pretty high percentage and some are at very low percentage. And -- but we are very encouraged overall with the rollout of customers and the announcement that we're seeing. Brian, in terms of the actual dollars of revenue and how that's flowing through, do you want to add anything to that?

Yes. We're not breaking out Estimate-STP as an individual item. We talk about it just within the overall emerging solutions that we've already highlighted, emerging solutions, Estimate-STP, along Diagnostics, adding about 1 point of growth for the quarter. So I won't get more specific. I would just say to get to Githesh's point, we are seeing good traction and momentum. We are still very much in the early innings and even the more advanced users of Estimate-STP are still sending through smaller portions of their overall claim volume. So we see adoption continuing to go and feel really good on where it's headed and the traction that we have against the product.

Our next question comes from the line of Alexei Gogolev of JPMorgan.

This is Alexei Gogolev from JPMorgan. I wonder if you could update us on total Estimate-STP volume of claims. And how much it is either in percentage terms or in absolute terms and total volumes?

Alexei, what we're seeing is that in aggregate, Estimate-STP is still under 1% of claims. So still in the aggregate in terms of straight-through processing of claims, it is still under 1%. What we are seeing is that Estimate-STP as our customers have rolled out and adopted is now capable of handling around 10% of all repairable claims. So when you look at our customers who are using Estimate-STP, that is the broad range we're seeing and different people are at different stages. But the aggregate number is still under 1%, but we really like the way it is developing and how people are starting to adjust their processes to be able to put this in production.

A quick follow-up on that Subrogation, how will this fit into STP ecosystem? And have you tried to calculate ROI benefits for your customers versus manual processes?

Yes. What we have now started testing our Subrogation solution with a number of customers where we've taken customers closed files, and we're seeing really primary benefits with customers. First and foremost, the AI that is underneath our Subrogation platform is able to scan and go through a ton of pages, documents, photos, and then really zero in on what customers -- which files should be subrogated, what the -- how people should adjust the inputs based on what the AI is seeing. So we're seeing a tremendous applicability in terms of the speed it is providing onto the Subrogation side. And then what we're also seeing for customers who are testing it is that the lift that they're seeing versus manual methods in terms of the return on the ROI specifically that they see is significant. So we are very encouraged with the fact that we have both an inbound and an outbound Subrogation solution. And the results that our customers are seeing are also very promising.

Our next question comes from the line of Shlomo Rosenbaum, at Stifel.

There's been a lot of questions about Estimate-STP. I wanted to ask a little bit about some of the other ones that are out there, like is there any movement in terms of traction on the payment product? And how is that going out in the marketplace now?

Yes. Payments has -- we continue to see opportunity in payments. In fact, there are more use cases that we are seeing every day, both from not just insurers, paying repairers, repairs paying parts providers. So every day, we keep seeing more use cases and opportunities. With that said, we'll have -- we are still, I would say, in the earlier stages of rolling that out, and it is -- compared to a solution like a Subrogation, payments will be a slower adopter than a solution like Subrogation or Estimate-STP.

Yes. I would just add that it is generating revenue today. But as Githesh said, it's in the early innings, and we expect it to scale over the next several years.

Okay. Great. And if I could just squeeze in another one. Can you talk a little bit about the catch-up on the subscription contract for like $2 million? Maybe you could just give us a little more detail on exactly what that was?

Yes. Happy to. So we highlighted it because it drove about 1 point in the quarter. And it's also going to play into the sequential Q3 moving to Q4. And so that's why we called it out. There were some specifics to the dynamic of the deal. We were not recognizing revenue consistently over the period for this subscription contract. We caught it up in Q3. And then going forward, it's going to be spread more evenly. So it's just the dynamic of the catch-up that we wanted to call out because there's a bit of lumpiness in the quarter.

Thank you. One moment, please. Our next question comes from the line of Dylan Becker of William Blair.

Congrats, guys. Nice job here. Githesh, I think you mentioned in your prepared remarks, about, again, the development capacity, the data scale over the years, how this has kind of fueled new innovation and value for customers. I wonder how you're thinking about how that evolution has trended over the past kind of several years and how you think about the opportunity set to potentially accelerate that cadence if it shapes up that way, as you think about, again, that innovation funnel going forward and the opportunity to capitalize on this digital investment capacity.

Thanks, Dylan. When you look at it at the macro level, what we are seeing in all our conversations with our customers. In fact, we just finished our trade show in -- at SEMA last week, we had over 600 customers on night for our event. What you hear consistently across the board with customers is a need to move faster and to roll out more solutions. And we see this as a once-in-a-lifetime opportunity to really leverage this. And we started to see this actually a couple of years ago. So if you recall, in 2022, we added substantial development capacity. So we added to the tune of 20% development capacity in 2022. And right now, we're still adding development capacity but not at that same rate. So we feel very good about our development capacity, the engines and what I talked about and what Brian and I just covered in the call today is a number of new solutions that are now coming out that are a direct result of this enhanced and increased development capacity that we put in. The other is done to get ready to really capitalize on the opportunity, and frankly, what our customers need is that the transition we made to the public cloud has also enabled a substantial capability, strategic capability and our ability to deploy software releases, speed to market, reliability, scale, a number of things. So we feel good about the tech stack that we have, the infrastructure we have, on which the tech stack is running. So we do think we prepared ourselves and put ourselves in a place where we can work closely with customers, and hence, you're seeing in the call a broadening of not just a number of solutions, new solutions that we're coming out with.

Got it. That makes a ton of sense, super helpful. Brian, maybe on your year-end, too. I know you called out the 17% spend, a little bit of a step-up on the parts side of the equation. But as we reconcile that back to kind of the 70% to 80% of claims volume, you, guys, seeing across the network, how should we expect those two metrics to converge, obviously a benefit of the scale and growth in the ecosystem across partners? But any reason why we wouldn't see similar adoption rates, understanding that it's going to take time to get there.

Yes. No, we feel really good on the parts opportunity. I mean there's 2 ways that we're going to continue to grow. I mean, one is we are adding new rooftops each month, and so the footprint continues to expand. And then we're just seeing additional adoption of online and moving to electronic parts ordering. So just that natural volume of people moving from offline ordering to online ordering gives us strength and momentum. And so as we build out the footprint, we do 17% expecting to grow. Parts is growing faster than the rest of the business and will be a growth contributor going forward. So yes, we feel really good about the opportunity in front of us.

One more data point, Brian, which is in 2020, that number was 10%, right? So you can see it went from 10% to 15% in '22 and is now continuing to grow past that.

Got it. Super helpful. And really congrats on the nice numbers here.

[Operator Instructions]. Our next question comes from the line of Kirk Materne of Evercore.

Githesh, I was wondering just based on your comments on sort of the challenges facing the industry right now. Can you just talk about how sort of the cohorts are sort of progressing as it relates to sort of going from pilot projects to production, meaning as more and more of your clients start playing around with your newer products, whether it's Subrogation or Estimate-STP. Have you seen the clients that are sort of trying it out today, being able to move through sort of pilot projects at a little bit of a faster pace? I realize you have a very methodical customer base, but I was just kind of curious if the external pressures are maybe helping them move along at a faster pace.

Hi, Kurt, thanks for the question. I would just say broadly, this is kind of what I was talking about in the earlier in the call is that we have multiple customer segments we're working with. We are working with insurers, and even inside insurers, the team that handles Subrogation is different from the team that handles appraisals from the team that handles total losses. And then on the repair facility side, we are not only dealing with the core aspects of helping them retain the vehicle like the estimates, we're also helping the front office, the back office. So -- and what we really feel good about is the breadth of the solutions we have, and the breadth of the customer base we have, and they're all at various stages of adoption. And I was actually standing on the show floor at SEMA last week and to see our repair customers for the first time used Jumpstart which allows them to take photos and to be able to pre-populate and start the estimate, it can write a pretty large chunk of it explain, oh, my God, this is going to be unbelievable. This is going to save me a ton of time because I have such a shortage in terms of labor. Those individual conversations when you see the result of several years of development, we are -- what we really love is when customers see those Aha moments that can have that kind of an impact. And it is translating into adoption pilots, more breadth. Yes, it's -- we're seeing that. And hence our focus on continuing to build out a broader solution set.

And then just, Brian, on the -- and Brian, on sort of the early look at the adjusted EBITDA for next year makes 40% still an amazing sort of level to get to. Any specific expenses or I guess, investments rather, that you guys are focusing on for next year that sort of keeps you in that range versus what sort of end you're at? Or is there some one-timers in the back half of the year that influence that as well?

Yes. It's a good question. I mean we're really happy with where the margin is in the second half of what we delivered in Q3. What we're guiding for in Q4 and just ending the half at 42%. We are suggesting the point of movement from 40% is where the margin progression is going to build. There's a couple of things that are playing through that. I mean, one is just the kind of seasonal reset on payroll taxes, merit comes in at the beginning of the year. We have our customer conference, which is an investment that's in the first half of the year. We will be putting additional headcount adds into the business going forward. So it's those type of things that will naturally come in, in the first half of the year. And that's why we're suggesting moving off the 40% margin, not using the 42% exit margin.

Our next question comes from the line of Saket Kalia of Barclays.

It's Saket from Barclays. Echo a very solid quarter. Githesh, maybe for you. Maybe just to expand on the -- I'd love to dig into the parts business a little bit more, maybe more strategically. The question is, what are you typically replacing there when customers are not using the network and do you see anything on the horizon that can help accelerate the adoption of parts network, networks like CCC? Obviously, I mean, it's grown quite a bit over the last couple -- that you think can accelerate that adoption?

Thanks for the question. I would say, to start with the most fundamental question is that a lot of parts are still handled through phone calls where you have a part number. So what we've seen is, if you look back a few years ago, people were putting roughly 8 -- 9 parts for repair. Today, people are putting 13 parts. Complexity has increased. So this process of e-mail, phone calls, is, for the most part, that's really what we're replacing with a seamless electronic system where once you write the estimate, you can just go click, click, click, hit the things, set up your suppliers, electronically send out the order, get the invoice back, get that reconciled. So we really -- that's really what we're doing. And we have seen that the, in the earlier years, as we've been building the parts business, we needed to build out geographies, right? We needed to maximize the suppliers, in say, the Pacific Northwest or the Southwest. Today, we have the vast majority of the suppliers, both OEMs, recyclers, aftermarket, we have the suppliers. So it is now really continuing to work with our customers on much more of an adoption curve, and we are seeing the challenges people are having from a labor standpoint. So if I can save 10 minutes on a parts order or get it right the first time, people are willing to adopt more and more of these electronic -- of an electronic parts solutions from us because it's integrated and it saves a lot of time and it improves the accuracy.

Got it. That makes a lot of sense. Brian, maybe for you for my follow-up. Can we just dig into the revenue acceleration a little bit this quarter? I know you called out the $2 million in subscription catch-up. There are a couple of other moving parts there as well. I think even the other revenue line in the income statement, that's a little bit higher than what it's been historically. Can you just sort of unpack that acceleration a little bit for us?

Yes, happy to. So 11% total. We had 8% from cross-sell and upsell within our existing clients. Within that, we had about 1 point of casualty. So Casualty had a strong contribution. We had 3 points from new logos as well. I would say, second, it was broad-based. I wouldn't highlight kind of one specific area of the business that really drove the growth performance. We did 10% growth in Q1. We did 10% growth in Q2. This was 11%. We called out that 1 point on catch-up. And when you kind of unpack it below that, it is really kind of a broad-based set of performance where we're really happy across the product set. So I don't -- there's not one to really highlight that really drove the performance besides just kind of general momentum across the business.

Our next question comes from the line of Chris Moore of CJS Securities.

This is [indiscernible] for Chris more. Can you talk a little bit about annual price increases and how they are embedded or not embedded into your revenue growth target?

Yes, it's Brian. We have not -- we don't embed and have a specific call out within the 7 to 10 our organic guide. We don't call out specifically kind of what price drives. We continuously look at pricing and make sure that we're pricing the products for the value that's being driven from our customers and think about pricing in a strategic way. But there's not a specific metric to highlight within the guide to call out.

All right. Super helpful. And then just one more. CCC payments is an important long-term opportunity and what are some critical milestones that we should be thinking about in 2024?

I would say for '24, it's just continuing to expand the solution set and making sure that the customers that are starting to pilot are feeling good about expanding on the pilot and starting to roll that out as well as expanding the solutions set that it's out that we offer. So we don't have specifically, in February, this needs to happen. We do have a bunch of internal milestones. But by and large, that's kind of the overall pattern.

Our next question comes from the line of Arvind Ramnani of Piper Sandler.

Phenomenal set of results. I had a question on some of the progress you're making, both across your new logos as well as sort of like some of the cross-sells that are existing. Now typically, who are you replacing on these board cohorts, both with existing as well as new logos?

Well, Yes. I can start and then Githesh, you can add the color. I would say on the new logos, Arvind, if you look at the 3 points, it's largely going to be in the repair facilities. That's the biggest contributor of our new logos. And it will be replacing other solutions that are in the market. Some will be smaller shops that hadn't used electronic software for estimating are now moving from pencil and clipboard to software. So it is a combination, but out of the new logo, the repair facility is the largest part. And then the second is the part suppliers. And then we do have some smaller insurance, more kind of small regional players that we do pull in under new logo as well. So it is broad-based.

And just to remind you also, Arvind, I mean, most of our focus is really on delivering a lot of new solutions to our existing customers. That's what drives 80% plus of our growth over the next several years.

Perfect. And then, yes, as you come with these new products or even take existing products and kind of enhance it, the significant value you're kind of generating for your clients. And some of that may -- sort of like -- you kind of deciding how much of value do you occur to your clients? Or how much of value to keep to yourself by increasing prices? How is the characteristic on that? Like if you're adding, whatever, like 100 points of value to your customers, do you kind of just give up all the value to them? Or do you all keep some sort of pricing power as you come a bit more innovative solutions, particularly that's built around AI?

Yes. I would say for the most part, our focus has really been for every new solution, the ROI needs to stand alone. So that's really what we look at, right? So every new solution that comes out it adds a tremendous amount of value. I give a very small example. It takes something like Engage, that solution is used by 1/3, roughly 1/3 of our repair facilities. 2/3 of our repair facilities have not adopted the Engage solution. So by adding Google appointments and adding other capabilities, other functional capabilities to Engage where people can drop in an appointment off hours. That just drives the adoption of Engage from about -- makes it even more palatable to those customers as we enhance that package to be able to go from 1/3 of our repair facility customers to address the other 2/3 were not using Engage. So that could drive a significant amount of growth. So and then you look at something like Subrogation, that has its own very specific value proposition. It delivers in terms of financial return to the customer, time savings, and we look at that, that's new to the market, an entirely new opportunity, and we will look at that in terms of what is fair and what is right from a customer standpoint to deliver that ROI. So that's how we're looking at this.

Yes, that's a good summary. The thing I would also just add is just a general point, Arvind, is in general, we do look across our products and think about kind of a 5:1 ratio. So that is today kind of a principal base. Some will be higher, some will be lower. But on average, we think about pricing our product with a 5:1 return.

Terrific. That's really great and phenomenal execution this quarter.

I'm showing no further questions at this time. I'd like to turn the call back over to CEO, Githesh Ramamurthy, for any closing remarks.

Thanks, everybody, for joining the CCC call, and we really are proud of the performance year-to-date in 2023. And I'd like to thank our customers, our CCC team members and our shareholders. And I hope to give you an update, Brian and I, in February when we report the fourth quarter, I'd just add that we remain confident in our ability to continue to deliver our strategic objectives and durable business model we have. Thank you for joining the call today.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.