Good day, and thank you for standing by. Welcome to the CCC Intelligent Solutions Second Quarter Fiscal 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Warmington, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, and thank you all for joining us today to review CCC's second quarter 2024 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 releases available on our Investor Relations website and under the heading Risk Factors in our 2023 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 will provide a transcript of portions of this call, and 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 the transcripts. Please note that the discussion on today's call includes certain non-GAAP financial measures as defined by the SEC. The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the company's financial condition and the results of operations. A reconciliation of GAAP to non-GAAP measures is available in our earnings release that is available on our Investor Relations website. Thank you. I'll now turn the call over to Githesh.

Thank you, Bill, and thanks to all of you for joining us today. I'm pleased to report that CCC delivered another quarter of strong top and bottom line results. In the second quarter of 2024, total revenue was $233 million, up 10% year-over-year and ahead of our guidance range. Adjusted EBITDA was $96 million, up 18% over the last year and also ahead of our guidance range. Our adjusted EBITDA margin was 41%. On today's call, I would like to highlight 3 themes that underpin how we are helping our customers ushering a generational change in operating performance: the first is CCC's durable business model; the second is our innovation engine, which at its core has created over 300 unique AI models; and the third is a view into the pace of adoption as customers transition to this next generation of CCC solutions. My first topic is CCC's durable business model. Our solid financial performance in Q2 was a result of continued new business wins, renewals and contract expansions. We also completed the successful on-schedule rollout of our full suite of auto physical damage, or APD, solutions for a top-20 insurer as they transition from multiple vendors to the CCC platform. In our insurance business, the first half of this year has seen us renew multiple clients, add a number of new logos and cross-sell a variety of incremental products across our customer base. We've also added over 600 new repair facilities so far in 2024. This growth pushed us across a major milestone. We now have over 30,000 repair facilities on the CCC platform. Our diverse customer base, broad range of mission-critical solutions and growing multisided network have helped create a business model that has both revenue predictability and margin expansion. This balanced profile has served us well as…

Thanks, Githesh. As Githesh has highlighted, we are seeing strong innovation and client engagement across our solution set. We are pleased with our top and bottom line performance, which reflects a balance between investment in our growth initiatives and the ongoing margin discipline. Now as we turn to the numbers, I'd like to review our second quarter 2024 results and then provide guidance for the third quarter and full year 2024. Total revenue in the second quarter was $232.6 million, up 10% from the prior year period. Approximately 7% of our growth in Q2 was driven by cross-sell, upsell and adoption of our solutions across our client base, including repair shop upgrades, continued adoption of our digital solutions and ongoing strength in casualty and parts. Approximately 3 points of growth came from our new logos, mostly our repair facilities and parts suppliers. About one point of growth in Q2 came from our emerging solutions, mainly Diagnostics, Estimate-STP and the new adjacent casualty solutions. 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 Q2 2024, our GDR was 99%, which is in line with last quarter. Note that since the first quarter 2020, our GDR has been between 98% and 99% and is either rounded up or down, driven primarily by repair shop industry churn. We believe our GDR reflects the value we provide and the significant benefits that accrue to our customers from participating in the broader CCC network. Our GDR is a core tenet of our predictable and resilient revenue model. Software net dollar retention, or NDR, captures the amount of cross-sell and upsell from our existing customers compared to the prior year period as well as volume movements…

[Operator Instructions] Our first question is going to come from the line of Dylan Becker with William Blair.

Maybe Brian, starting with you and maybe also for Githesh here. it sounds like that decisioning elongation is playing out and you called out maybe the change management aspect that's driving that. I get that there's some near-term implications there, but wondering how you guys are thinking about what that means for the long term of the business with the healthy pipeline you've called out and maybe the opportunity for that to unlock kind of incremental capacity to adopt more of the platform over time?

Yes, sure. Dylan, it's Brian. I'll start and then Githesh can add. So the position over the medium to long term is not changing. We've talked about the emerging solutions and how they will contribute to the long-term growth target. We still feel very strong and confident about that position. We talked about them scaling to about 3 to 4 points of growth within the long-term target. And we still believe that, that is a good target, and we're confident that we'll move towards that over time.

Yes. The one thing I would add to that is the number of customers, I think, as we pointed out, if you look at our top 20 carriers, whether they're evaluating, testing one or multiple solutions. So it's very, very healthy in terms of the energy our customers are spending. But more, perhaps even more important than that, is the ROI and the impact that we're seeing in these solutions are substantial. And so to the point you made about change management, where what we see is customers putting even more focus saying, I can see some significant impact, so maybe I make more process changes or changes to take advantage of the solutions. So that is taking a little bit longer.

Okay. Great. That's really helpful. Maybe for Githesh here, too. You called out kind of the innovation engine here and hard not to notice what seems to be kind of continued acceleration on product rollouts. Given you do offer so much value and it's pretty tangible and there's room for continued adoption, how should we think about kind of that potential product road map as well? And how much more white spaces are out there that you guys can potentially solve or digitize from that workflow perspective?

So if you step back and we started this effort, as you may recall, about 2 to 3 years ago, we said we'll continue to make sure that our core business continues to perform, continue to increase profitability of the business. But at the same time, we said we'd increase the velocity and delivery of new solutions. And a lot of it is stemming from our core AI capability that we've started building up a decade ago. So what we see from these solutions that we've introduced, whether you call it in the last 6 months, last 2 years, the TAM for these solutions is in the $2 billion range. So if you think about the expansion opportunity for these solutions is in that $2 billion TAM range.

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

I realized that you already mentioned that there is no direct impact on CCCS from CrowdStrike outage, but can you elaborate how some of your big clients are impacted from the event? And would you agree that companies in your industry that are having the biggest issues are the ones that don't have their arms around their infrastructure? Do you think this outage can trigger broader issues for your customer base?

Alexei, thank you for the question. I would say that exactly as you pointed out, there's been no impact on our business because we do not use CrowdStrike. And as you know, we're also in the public cloud. So with the one incident that we talked about, we immediately disconnected from that one provider who had the problem. And so we disconnected all the interfaces. So that caused, honestly a little bit of disruption for several weeks as it impacted some of the parts ordering that is done from dealers out of the dealer management systems. It caused impact for some -- about 10% of our repair facilities are owned by dealers, so -- and also parts ordering. I would say for our insurance customers, for the most part, there was almost minimal to no impact whatsoever. So that's the answer to your question, Alexei.

Thank you, Githesh. Have you seen any incremental growth from IX Cloud, i.e., are customers placing more of their operations on CCC because of this increased connectivity?

We are seeing that more customers are now working to integrate more solutions. IX Cloud accelerates that ability to implement more solutions together. For example, if you look at solutions like Estimate-STP, working with First Look, working with Impact Dynamics, so these are examples where multiple solutions can work better and closer together, and IX Cloud helps with that, and we are seeing customers also excited about that.

Our next question comes from the line of Samad Samana with Jefferies.

Maybe first, just on the emerging solutions taking longer to go from pilot to conversion. Straightforward there, I guess, Brian, my question would be should we then assume that we'll track closer just over time to assume the lower end of the long-term target range as well as long as is it's taking longer, or is this something that you view as transitory? I'm just trying to recalibrate what we should assume not just for the rest of this year, but maybe how you want us to think about it on a go-forward basis, that pilot to conversion time line.

Yes. So it's Brian. Thanks for the question. Yes. I mean we're setting the guide in the second half of the year in a place we're comfortable and confident on based on the reset on emerging and the time. When we think about '25, next year, we are expecting more material contribution off emerging. So we do see it continuing to step up going into next year. We're not going to get specific within the guide, but we are very comfortable with the long-term range that we've put out in the market.

Great. And then Githesh, maybe a follow-up for you. Just -- it's a big number, the one customer that you referenced that's processing 20% on a run rate basis of their claims using one of the AI solutions. I guess I was seeing if you could give us maybe some more information there in terms of how are they defining the ROI that they're seeing by processing that high percentage of volume. And then has there been any kind of consequent change to the economics of their contract and what that looks like versus a typical CCCS customer? And would it benefit you?

Sure. So let me just first talk about the customer themselves. So this customer actually implemented our AI, Estimate-STP, and its precursor in late 2021. That's when they really started. So they started out going to about a few states expanded to multiple states and then expand it to multiple vehicle types and continued and then move to about 50 states. And as they got more and more comfortable with the solution and the AI and the precision, the accuracy of the AI, and most importantly, the 2 things the solution was doing is handling consistency and complexity of new vehicles that were coming in. So they were starting to see that in many instances, I hate to get mathematical on you, but the bell curve, you've got a much narrower distribution in terms of how they're dealing with it. And they start to apply the solution to different mixes of their book across different states and the results continue to be really good. So on a run rate basis, they are now tracking towards 20%. And our entire customer base in aggregate is tracking towards that 3%, but this is a top-10 carrier who now has 3 years of experience and is now tracking towards that 20%, and they're very excited about the results. And then in terms of contracts, obviously, there's an incremental amount of revenue that comes out of this solution being fully deployed. But it is -- but we don't break out any individual customers, as you know.

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

Great. Githesh, maybe to start with you, the explanation around emerging solutions was pretty straightforward in terms of timing and rev rec. Can you just maybe go one level deeper and talk about whether any specific emerging solutions was maybe seeing more of the scrutiny? Like was it Estimate-STP, for example, that customers were maybe evaluating for a longer time? Or was it Diagnostics or Subrogation? It sounds like it was in the aggregate, but maybe you could go one level deeper and speak to which part of the emerging portfolio, maybe saw that additional kind of time.

Yes. I think there are slight differences between each one of them are slightly different, given the nuances. So rather than to go through all of them, I'll just pick one as an example, and I'll pick on Subrogation as an example for you. So Subrogation is one where we literally have, at this stage, double-digit customers in contract. And what we're seeing with Subrogation, back to the value proposition, is that we saw an 80% decrease in cycle time. This is for inbound subrogation. I noticed that outbound subrogation is still not fully rolled out. So this is for inbound subrogation. And these customers have processed tens of millions of dollars and have seen tens of millions of dollars of improvement and the impact on accuracy or how the demand dollars that are coming in and how they're responding, that increase has been somewhere between 20% and 50%. So substantial impact, significant cycle time improvements. So this is an example where the customers have said, we are excited about what we're seeing. Sometimes, we've had decentralized distributor teams. With this solution, we can centralize the teams. There's more change management we can execute. And there is more that we can do, but it requires some level of training, reorganizing to capture the opportunities that are in front of us. So this is an example of just picking one solution and each one has slightly different nuances. So -- and by the way, in addition to the double-digit customer base, we also have a long list of customers also evaluating, piloting, testing and the early references from these customers. I think some of this might even be public, but the early references from the customers is also helping with newer customers who are piloting and testing. So we feel very good about that. Does that answer your question?

Yes, it does. It does. It definitely gives it more color. Brian, maybe the follow-up for you. At one point of growth, I mean, clearly, the emerging solutions are still scaling. And so maybe this is going to be an unfair question to ask. But how do you sort of think about even just anecdotally, the margin differences between the big-scaled, established solutions versus emerging because, of course, with the revenue guide, just maybe getting adjusted a little bit, it was good to see the EBITDA guide go up a little bit. Maybe just talk to the margin differences between established versus emerging to the extent you can.

Yes, absolutely. I would say when we start the -- where we're going to get to. When these products are mature and they're at scale, they will have a similar margin profile as our established and core solutions, and we are seeing efficiency in the AI. So there's nothing at a margin level that will really look different than our current solutions today when they get to scale. We are seeing early-stage costs that will be different on them before they scale. We have set up costs, the amortization starts to come through cost of revenue when we launch the product, and it's open for GA. So there is some cost that gets in front of the revenue. And then once the revenue gets to scale and get to a tipping point, the margin profile will be consistent with the broader margin profile of CCC. So that's how to think about it. I would just say in general, we're happy with where margins are. The first half had close to 300 basis points of margin improvement. And we're guiding to a full year of around 100 basis points of margin improvement.

Our next question is going to come from the line of Gabriela Borges with Goldman Secure.

Githesh, I would welcome your perspective here. At any time in the last 40 years, we could have made the argument that the portfolio is split between more established products and newer emerging products. So help us understand what's different this time to how you're thinking about the full costing and the adoption of emerging products? Are you just thinking that at any given time, you have a mix in your portfolio between more established and ramping?

Gabriela, sure. As you can imagine from my perspective, right, 90% of the revenue we just reported, we're almost up to $1 billion in revenue and 90% of this revenue we reported started at 0, right? So very little of this has come through acquisition. So we have, back to your 20-year perspective, almost all of these products have come essentially from 0. So the pattern recognition we have around this is really a handful of some very, very fundamental things, which is what is the ROI? What's the impact? What are we seeing? So this is also, as I pointed out, unlike -- here are some core differences between what we've seen to your question about what we've seen over 20 years with where we are today. Some -- about 2 or 3 fundamental differences. One, we are now 10 years of execution and development on AI and the range of solutions we can deliver using our AI are very different from solutions that we could have ever delivered through traditional deterministic software development. So the solutions themselves are different in nature. The ROI is very strong. The second thing I would say is very -- is different is that I cannot recall at any point in our history, where the breadth of our products, if you look at what we've delivered for insurance in terms of new -- our insurance customers, from Estimate-STP to First Look, Impact Dynamics, Intelligent Reinspection, Subrogation, extensions to casualty and then same thing with our repair facility customers, where we have a whole series of new solutions, the breadth of the solutions we have and the solutions' abilities to work with each other and deliver greater impact, that's the second thing that is fundamentally different. The third thing I would say is different is that our customers went through an exogenous shock in the '22, '23 time frame. So when you looked at our customers' profitability, especially our insurance customers' profitability, '22 and '23 were years where inflation, cost of parts, inflation in claims costs were substantial, and many of our customers went through some fairly tough challenges. And then as that started to correct itself into early 2024, what we're seeing from our customers is to say -- is that they're saying that we would rather go bigger in terms of making changes and get ready for a broader, bigger set of changes as opposed to incremental changes, because we make incremental changes and a situation like '22 or '23 repeats itself, then it is a real problem. So the changes that our customers have undergone is leaning them and causing them to think bigger and broader and bolder changes, which we are excited about, and this is actually also -- that's why we also said almost every one of our top 20 customers, carriers are testing one or multiple solutions with us right now. Gabriela, did that answer your question?

Yes, yes. Very much. Githesh, when you talk about bigger transformational changes, to me, that also signals longer-term changes, which seems consistent with what you're saying. We're not just about longer-term time frame is tied to perhaps the technology needing to be iterated upon more. So to what extent a customer is saying, well, we can see the potential that these particular products have. But from a road map standpoint, we're even more enthusiastic to see what it looks like a year from now. So maybe is that creating a little bit of a pause as well? Help us understand that dynamic.

Yes. I would parse that question slightly differently. So what we are seeing, this why I gave the Subrogation example. So what we're seeing is first of all, to be very blunt, initially, there is skepticism, right? How is it possible that the AI and a whole new set of tools can do things very dramatically differently from what has been possible before? And when people start putting it, using it and see numbers like an 80% decrease in cycle time, a 20% to 50% increase in accuracy, what that says is it's not that people need longer times to prove it out because you can see those results literally in 90 days because we have integration, we have -- we're cloud-based. You can see all of that. What people are not coming back and saying, in order to fully maximize the capability this thing offers, if I make adjustments to my -- the way my staff, my process flows are structured, I can capture more of these capabilities. And I can train people differently and that is where we are seeing the lengthening of time.

And our next question comes from the line of Shlomo Rosenbaum with Stifel.

Just to confirm, everything that we're talking about here is emerging solutions. Are there any changes at all in terms of sales cycles or the market environment or anything on -- excuse me, the legacy, I guess, you call it the vast majority of the business that you guys are working on. And then afterwards, I just -- maybe for Brian, maybe you could talk a little bit about what you did with the warrant liabilities in terms of getting them off the balance sheet and whether that affects the trajectory of the share creep?

Yes. Shlomo, just -- I'll cover the warrant one first because it's straightforward. Yes, we converted the remaining warrants. So there was private sponsor warrants. There's about 17.8 million of those. We converted them to shares. There's about 3.8 million shares that we issued. Those are now in the outstanding count. And so that cleaned up the cap table. So we're happy with that and be able to close the door on having warrants in the cap table. On the -- your first question regarding kind of the established solutions in the core, when you look at what the second half guide is highlighting, the only change that's playing through the numbers is the emerging solutions reducing in the second half. Outside of that, the second half position is consistent with the prior guide. So we're feeling good on the established solutions. We have good pipeline and strong momentum. And so overall, we're happy with the performance in the core.

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

I will leave the emerging solutions alone. I just maybe wanted to talk about one that I get from clients a lot is on the stock comp side. Just as a percentage of revenue it looks like it's down a bit but still above that 10% -- 12% to 14% of revenue that you talked about. Can you talk to that a little bit? And I know it just -- it can jump right a little bit, just any kind of further thoughts on the normalization.

Yes. Chris, it's Brian. Yes, so in the quarter, Q2 was 17%, which is down slightly from Q1. We do expect to continue to move down as we go through the year. The one thing that's pushing it up is there is a modification to the TSRs that happened at the end of last year, and there's about a $67 million P&L impact with that change, and that largely runs through this year. When that runs out and we get into next year, it's going to look like the more normalized run rate and that will be about 12% to 14% on a run rate. So that's the way to think about the run rate. The modification of the TSR, maybe just one other point, is there was no impact on shares being issued. It was an accounting P&L charge, and that's really the only impact that's run through the numbers.

The next question comes from the line of Gary Prestopino with Barrington Research.

I'm interested in this new product you launched, Build Sheets. I mean, are you the first one out there with something of this nature? And how far is that in terms of model years does this go for the vehicles that are out there?

Just to clarify, are you talking about Build Sheets?

Yes. Build Sheets.

Okay. In terms of -- I believe, I'm not 100% certain, but I believe we are the first ones with Build Sheets at the repair facility level integrated, again, not 100% sure of that. But the -- what is really powerful about this is it goes back many, many years, and we actually have done extensive work in making sure that Build Sheets have been integrated. So first of all, when you look at our -- you're familiar, Gary, with our total loss solutions and other solutions where we actually have integrated Build Sheets into those capabilities, but it's the first time it's being introduced to the repair facility market, and it covers the vast majority of all brands and goes back many, many years. And yes, so that's basically the gist of it.

I mean do you feel that this has the potential to become a fairly significant product need on the repair side?

Yes. The early receptivity of what we've seen in the first 60 days has been pretty substantial in terms of uptake. It's also a solution where customers can essentially self-service, go on the website, a couple of clicks, add it. And it has a pretty dramatic impact on simplification of the estimates and what you're ordering. And it's -- what it does is it continues the trajectory of CCC ONE. You go way back with us, and if you remember, CCC ONE started at almost nothing. It's well north of $400 million today, and this continues to add to that trajectory of solutions.

And then just one last question on this product. I mean the data, do you get it from the manufacturers? Or is this the data that you've been accumulating in-house over the years that gives you the ability to produce these kind of Build Sheets?

Without going into all the gory details, we would say that there's a variety of sources. And this is extraordinarily important to have actual manufactured data so that the options as the car came off the manufacturing line, is down to that particular VIN number. So you're not chasing down 35 different types of mirrors and you're getting the one mirror because that really affects parts ordering and cycle time.

Our next question comes from the line of Josh Baer with Morgan Stanley.

Great. This is [ Katie Hughes ] on tonight for Josh Baer. Maybe just more philosophically on margins. EBITDA upside was strong in the quarter against previous messaging for Q2 being that kind of low point in the year on margins. Impressive to see you move those up for the full year even with revenue coming down slightly. I guess through this lens kind of looking across the model, where are you seeing the most leverage? And looking ahead, is there further room for leverage in these areas? Just kind of speaking to the durability in these areas as it relates to margin expansion would be helpful.

Yes, absolutely. Yes. No, we feel good on the EBITDA position in the margin, and we did take up the midpoint within the updated guide really on the strength we're seeing in the business. To your point on the sequential or seasonal components, we did have some cost phasing that benefited in Q2 which helped the position, and that has some offset in the second half. And so that's why the margins have moved around a little bit, H1 to H2, but we did strengthen the guide for the full year. We see leverage across cost of revenue. We expect, right now, gross profit is about 78%. We expect that to move more like 80% over time. And we see good leverage in sales and marketing and G&A. Revenue will continue to grow over those cost areas. R&D will be the fastest-growing cost category over time, but we still believe there's leverage there as well. And we are seeing efficiency as we scale AI across our solutions. And so that will be helpful on the margins playing out over time as well.

Our next question comes from the line of Tyler Radke with Citi.

This is [ Peter ] on the line for Tyler Radke. So you had called out that insurers are undertaking a large transformative architecture changes. Could you give a little bit more into detail on what those changes are that are slowing down the pace of emerging solution adoption, and then why is that a current trend given like the strong pricing and market condition in P&C?

Yes. These are not architecture changes. These are more operational changes to become much more efficient. That's really what we're talking about.

Okay. And then on your new solution to Intelligent Reinspection, just interested how you expect the adoption curve of that to play out, and then could you give us an idea like where this stacks up on importance for customers looking to adopt new CCC solutions?

Sure. So what this solution does is -- I think there's a release out there today, and it speeds up the whole process of doing reviews for literally tens of billions of dollars of collision repairs that insurers are working on their repair networks. And what this does is that the AI is actually -- looks at the carriers' rules and can speed up a lot of the decision process because the AI can be quite detailed and look at a lot of the nuances and essentially helping speed up and not hold up repair facilities to give approvals quicker and do a lot of those things. And so the heart of it, you've got tens of billions of dollars of repair that between getting assignments, going to repair facilities, repairs being completed, payments being made. So you've got all of that going back and forth. So the nice thing about this solution is we have a previous version of this solution that's been there for a very long period of time. This is a step function change in the solution and it can be implemented essentially in line with the existing workflows, no change to existing workflows, no change to integration and people can start using it right away and immediately. And the early feedback from customers who are testing it has been absolutely fantastic. And these are some of our largest customers who are testing it.

I would now like to turn the conference back to CEO, Githesh Ramamurthy, for closing remarks.

Thank you all for joining us today. And as you can probably see, the durability of our business model continues to come through, and we remain confident in our ability to deliver on our strategic and financial objectives, while at the same time truly helping our customers in the transformative journey going forward. And this week also marks our 3-year anniversary of returning to the public markets, a very important milestone in our journey as a public company, and I'd really like to take this opportunity to thank our customers, our shareholders and all our CCCers for the tremendous work they do day in and day out, and we look forward to keeping you updated. Thank you so much.

This concludes today's conference call. Thank you for participating. You may now disconnect.