CCC Intelligent Solutions Holdings Inc at Morgan Stanley Technology, Media & Telecom Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Josh Baer - Morgan Stanley - Analyst : <_ALACRA_META_ABSTRACT>So to kick it off, for those who may be newer to the story, I was hoping, Brian, you could provide an overview of the business and really how CCC fits into the overall PNC insurance economy. Looking to understand who your customers are, what are your core products. Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yeah, Sounds good. So yes, we are a SaaS platform for the insurance economy. Today, revenue is largely focused on US auto claims. And so we have a connected network through our platform that connects insurance companies, we have 300 insurance companies, two repair facilities. We have over 1,000 repair facilities, two parts suppliers. We have over 5,000 parts suppliers all on our network. And we're connecting them in our software and AI tools are helping them with facilitating claim resolution. So that's where the business largely is. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 3:00PM, CCCS.OQ - CCC Intelligent Solutions Holdings Inc at Morgan Stanley Technology, Media & Telecom Conference We have moved into some adjacency -- so in January, we closed an acquisition, EvolutionIQ. They are focused -- that business is focused on disability in workers' comp. So, using AI to help through claim resolution and disability and workers' comp as well. So those are new expansions for us. The business is about $1 billion in revenue. We have margins of 40%. We're a rule of 50 companies with a high percent of revenue coming from subscription and a really strong gross retention, 98%, 99%. So that's kind of the profile of the business.

Question: Josh Baer - Morgan Stanley - Analyst : Excellent. Let's jump right into some of the most asked about topics. So one being claims frequency and maybe you could also sort of touch on the composition of the business model, subscription recurring revenue versus more transactional. And really, for this question, I am interested in that more volume-based piece around claims. And I wanted to ask about the trends that you're seeing around 2024, the impact from claims and then also how you're thinking about or like what assumptions are embedded into '25 outlook as far as claims frequencies.

Question: Josh Baer - Morgan Stanley - Analyst : Business model, claims frequency, impact on your business. Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer So when we -- kind of on the first point, we were talking about a high amount of subscription revenue. So we're over 80% subscription, 20% transactional or volume based. It really comes into three parts. About half of it is our casualty business. which is reviewing bill reviews, medical bills that are part of auto claims. Then there is a component in our parts business. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 3:00PM, CCCS.OQ - CCC Intelligent Solutions Holdings Inc at Morgan Stanley Technology, Media & Telecom Conference Our parts business is about half subscription and half transaction, we get a percentage EMV and then some of the smaller carriers pay transactionally. So those are kind of the three parts of the volume base, which makes up, as I said, 20% of overall revenue. When you look at the volume and claim frequency in 2024, for us, it was down about 5%. So if you just do simple math and say 20% is transactional 5% down, it's got about 1 point of headwind. It's not perfectly correlated to frequency because there's some lagging casualties lagging and some of the other products, it depends on client mix, product mix, but that gives a direction of kind of how frequency played through 2024. As we set up to 2025 and we think about the impact, we're assuming a relatively neutral position relative to 2024. We're not assuming further decline. We're not assuming recovery on the claims. We'll keep that updated and give investors updates as we go through the year. But we're assuming a neutral position on volumes.

Question: Josh Baer - Morgan Stanley - Analyst : Got it. Brian, you mentioned two other topics, so two parter. Well -- and they go together. ADAS and the increasing complexity of cars, what is your assumption or your view on ADAS and also how do you help your customers navigate the higher cost and complexity of repair? Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yeah, So there's kind of three macro trends we look at and we think about for the business. One is frequency and what frequency will do over time, meaning kind of the number of claims, number of accidents. Number two is severity, the cost to return policyholders back to pre exiting condition. Severity has been going up and will continue to rise. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 3:00PM, CCCS.OQ - CCC Intelligent Solutions Holdings Inc at Morgan Stanley Technology, Media & Telecom Conference And then the third is complexity, which also is rising. When you think about complexity, with the cars. The cars have all these ADAS features, cameras, there's a lot more technology, there's a lot more parts per repair that are happening. There's also some of the experience, both adjusters and the insurance companies and the technicians and the shops are retiring out, so there's skill gaps and labor charges. All that is driving complexity and our solutions and the solutions we bring in the market, help address that. So, from electronic parts ordering or repair methods in the shops to help them manage the repair in the car to putting AI and the carriers to help manage the claim process. All that is helping them address complexity. So that is a rising trend that we feel our solutions are in a good place and a good position to help our clients manage through complexity.

Question: Josh Baer - Morgan Stanley - Analyst : Great. Let's stick to this topic and then we'll circle back to a few other more established areas, but focusing on AI, emerging solutions, I think it would be really interesting to sort of lay out the value proposition of estimated STP, straight-through processing, definitely one of the most interesting products that's in everyone's focus. Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yeah, Yes. I mean it was our initial launch of AI and what it does is -- I mean, go back in old world where you have a policyholder has an accident, they call their carrier. The carrier sends out an adjuster, they look at the car and they write up an estimate. And what we've done is we've now deployed AI, that same scenario, a policyholder gets in an accident, they can reach out to the carrier. The carrier will send them a link They'll go around with their mobile device and have AI will guide them through taking pictures of the car. And then the AI will write a line item estimate for the policyholder and the carrier, and that happens in real time. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 3:00PM, CCCS.OQ - CCC Intelligent Solutions Holdings Inc at Morgan Stanley Technology, Media & Telecom Conference And so the policyholder will now see the cost to repair and it can work with the carrier to determine the best way to take it to a shop, get paid out on the repair. But we're replacing kind of staffing and scheduling with deploying the technology and allowing AI to write this line item estimate. And so we've seen good traction, there's about 40 clients that are using estimate STP. We're still in the early innings of volume, so about 4% of total claims are going through estimate STP. But we are seeing that continue to scale and grow, and we feel really good on the opportunity that, that will drive. When we think about the economics of it, the numbers we talk about is about $15 incremental per claim that estimate STP runs. And so that's an incremental fee that we get as we deploy ultimate STP.

Question: Josh Baer - Morgan Stanley - Analyst : Excellent. From my understanding and talking to some of those 40 customers, there's certain accidents that are great for estimate STP. And then there's others that are more complex when it starts dealing with internal damage like we're not there yet. And there's also thresholds from a dollar value that your customers are comfortable putting through AI. Like where are we? How should we think about the types of accidents that are prime today? And like where is that going to be in one or three, five years? Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yeah, I'd say the way we framed it out is out of the repairable claims, we think, estimate claims will be over 50% are eligible for using estimate STP out of those claims. But that's also improving. I mean where we were two years ago, we had a more limited set of claims that we could run through estimate STP and so the models keep improving as they get more photos, as they get more use. And so we're seeing more and more opportunities to grow the type of claims that we're putting through it. So yes, we see that continuing to expand as we go forward. But right now, we talk about 15% repairables that it makes sense to deploy estimate STP.

Question: Josh Baer - Morgan Stanley - Analyst : So bigger picture of these emerging solutions, they contributed 1% to growth in '24, and that's how you're framing the expectation for 2025 over the medium-term or long-term targets, that's got a step up to 3% to 4% contribution. So what's it going to take? Which of these products are going to get you there? Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yeah, I would say you're exactly right. So today, we've assumed emerging is about 3% of total revenue. We're assuming that we'll drive 1 point of growth contribution. That's what it did in '24, that's what guides assuming in '25 as well. We are expecting over time for that to step up and hit an inflection point and drive more meaningful growth as a percent of overall growth. And so that's what the plan is. We are making progress across the solu set. We feel really good on the progress we were -- if you look at where we were versus a year ago, the number of pilots that are happening, proof of concepts, test signing. And so we're seeing that momentum across many of those emerging solutions. We're feeling we're getting closer to the inflection point and kind of pushing up beyond that one point of growth contribution, we're just not at a point to call it. I'd say there is a portfolio approach. We have five, six solutions that fit into emerging. We're not calling on is going to be the ultimate driver of this inflection point. We look at it as there's several opportunities to win and that we're seeing momentum across the solution sets.

Question: Josh Baer - Morgan Stanley - Analyst : Perfect. Let's stick to go-to-market. I wanted to double-click on the bundling and sort of sweet selling. When did the sales organization start to sort of take that approach? What -- and really what should we expect the impact to be? And what products are being bundled like how is that -- how are you going to market that way? Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer That I mean bundling is not a new concept, and we've done bundling in the past. When you look at some of our kind of core solutions in auto physical damage. We've bundled workflow with estimating and total loss and to kind of bundle that, that the carriers will buy. So when we kind of deployed these new emerging solutions, we're bringing them into market as they were being developed and ready for GA. And they were coming into the clients kind of on an individual SKU level. And that -- and we still can do that today if a client is very focused on one set of capabilities or a use case we can still sell it at that individual level. But trying to bring the conversation at a higher level, really talk about the carrier's need at a platform level, bring these solutions together and they REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 3:00PM, CCCS.OQ - CCC Intelligent Solutions Holdings Inc at Morgan Stanley Technology, Media & Telecom Conference can be a combination of the emerging solutions, but it also can get bundled in with some of the established core solutions that allows us just to simplify the story and the message and improve the velocity of closing the deals. And so we've started to do that. As I said, it's both a bundled solution. We can still sell it kind of a la carte. And we're seeing some early success with it and feel good on the pipeline and the engagement we're having with clients.

Question: Josh Baer - Morgan Stanley - Analyst : Yes. And thinking about into the future, just giving us both -- and obviously, 4 quarters of inorganic contribution. But after that, you should be left with an asset that's accretive to your growth profile helping build that up. Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yes, that's right. So we framed this year that the asset will drive about $45 million to $50 million of revenue. Beyond this year when you get to '26 and beyond, we're talking about 1 to 2 points of growth contribution, then we think about that incremental to the long-term range that we put out there. Yes, so it's going to be accretive on revenue going forward.

Question: Josh Baer - Morgan Stanley - Analyst : I guess part of the EBITDA margin is where you start as far as gross margins, and there are some headwinds there. Could you talk through that, just as you're ramping some of these emerging solutions? Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yeah, So we ended the year at 78% gross margin. Q4 was softer. There was kind of two factors that drove the softness. One is, as we're bringing these new emerging solutions out into market, along with some of the platform upgrades that we've done, when we bring them into surface, depreciation and the amortization starts to hit gross profit. And there's also support cost to support the emerging solutions, and the revenue hasn't scaled to a stage that's really covering those costs. And so it does have a drag on gross profit in the near term. Over time, when we think about those emerging solutions getting to scale, they're going to have a similar gross profit characteristic as our more mature established. So we don't think about it as a long-term drag, we think about it more as a short-term drag. And so we expect gross profit margins. We've talked about it moving towards 80% over time, and we still feel really good on that. When you look at EvolutionIQ and the acquisition, they have similar gross profit margins. So they're going to kind of come in and be relatively neutral to our gross profit margin. So as I said, we feel good on the targets that we have out there for gross profit.

Question: Josh Baer - Morgan Stanley - Analyst : Perfect. So game plan, I'll ask one more, poll the audience, see if there's any questions. And then in the last three minutes, we'll cover most of your entire business that we have. So I did want to ask on M&A. So you just did this big deal, like how should we think about your M&A philosophy going forward? I know maybe this is two little questions. You're not outside the US I've always sort of talked about if you were to expand internationally, it will be through M&A, but how should we think about sort of M&A strategy now? Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yeah, I mean, I'll pick up that one and then we'll come back to M&A. So yes, so today, 99% of the revenue is US-based. EvolutionIQ does have some -- they have some sales opportunities internationally but it's largely US-based. We've said that we're not going to go organically and deploy a startup in another country, the more likely play for us internationally is to either partnership or buy into an existing business. So that remains kind of our purview internationally. When you think about broader M&A, we'll continue to stay active. It's -- the deal we closed was a meaningful deal for us, and we're very focused on the integration and setting that business up to be successful. We do have strength in the balance sheet. We're 2 times levered. We will remain active in evaluating opportunities as they come in. And if there's good fit from a strategic priority, we'll continue to focus on M&A. Yes, that's how I think -- frame the M&A opportunity.

Question: Josh Baer - Morgan Stanley - Analyst : So we started with one of the key debates emerging solutions, the ramp of STP. Let's finish with another, which is the durability of organic growth and I was hoping you could dig in a little bit on penetration in some of your different end customers and really like the growth algorithm, thinking about more products, price how do you sustain that 7-plus percent growth? Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yeah, when we look at established solutions we've been in market for a while, and we look at the white space opportunity, it has as much white space opportunity as our emerging growth area. So that's why when we think about the longer-term model, we talk about there's equal opportunity for emerging and establish a dry cross sell and upsell. So a lot of untapped white days. You think about casualty, which is very -- we're early days in penetration casualty similar with parts, we're still at an early stage of the parts digitization. There's just about 15% of GMVs is going off through our platform. And then we see a big opportunity to continue to upgrade our repair shop packages. So those are three examples in our established that have long runways, but they're certainly more than that.