CCC Intelligent Solutions Holdings Inc Q3 2024 Earnings Call Transcript

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

Question: Kirk Materne - Evercore ISI - Analyst : Yes, thanks very much and congrats on the quarter. Githesh, I was wondering, can you just talk about what you think needs to happen to sort of unstick the bottleneck in terms of some of the adoption of your newer products? Is there anything either at a macro level or industry level that needs to happen? Or are there things that you can do to sort of grease the skids, if you will, just if you're thinking -- as we start thinking about 2025?

Question: Kirk Materne - Evercore ISI - Analyst : I was just going to say, as a sort of a follow-up for Brian or you, Githesh, just on the softness in claim volume this year, one of the things you guys have talked about historically has been that while claims can go up and down, the cost per claim is going up as the complexity of vehicles. Does that factor in at all as you talk to customers going forward, meaning if claim volume were to remain a little bit depressed? Is there an opportunity to go back to talk about the broader value as contracts renew just to get away from some of the variability of that? Thanks.

Question: Kirk Materne - Evercore ISI - Analyst : Thank you all.

Question: Michael Funk - Bank of America - Analyst : Yeah, thank you all for the questions tonight. One for you Githesh, along the lines of the first question. Are you contemplating or planning any changes in how you either sell to your customers or helping with onboarding to increase the conversion rate of the emerging solutions? Or would that not be impactful in your view?

Question: Michael Funk - Bank of America - Analyst : Okay. And that's my second question, Githesh. Heard from a number of partners and resellers, there is some caution or pause in front of the election. Any sense that there's any pause in your customers in front of the election given some of the uncertainty around tax and other factors?

Question: Michael Funk - Bank of America - Analyst : Great. Thank you, Githesh.

Question: Dylan Becker - William Blair - Analyst : Hey, guys, thanks for the questions here. Maybe, Githesh, you touched on it quite a bit in your prepared remarks around kind of the interoperability and integration of IX Cloud with your existing kind of data network. It feels like that has the potential to be a notable amplifier of kind of that value proposition for some of these customers that are running these pilots. So I guess how are you thinking about that impact and that dynamic on ROI versus kind of the change management and the internal focus that might be a little bit less out of your control as you've kind of talked to as well here?

Question: Dylan Becker - William Blair - Analyst : Okay, great. That makes sense. And then if we think about it from like an industry perspective as well, too, Githesh, a question I get somewhat frequently as well, too, is on the impact of with this kind of hardening environment, the impact then shifts from -- towards total loss from repairs. Can you kind of walk us through the nuance maybe relative to those two? It feels like it kicks off in and of itself additional kind of workloads and processes, maybe brings other solutions to the conversation that weren't as readily addressable on the repair side. But how should we think about kind of that trend of what we're seeing relative to total loss versus the repair side? Thank you.

Question: Dylan Becker - William Blair - Analyst : Okay, great. Thanks, Githesh.

Question: Gabriela Borges - Goldman Sachs - Analyst : Hi, good afternoon and thanks for taking the question. Brian and Githesh, I'm trying to reconcile your comments on emerging solutions adoption and NRR with some of the deceleration that we're seeing more broadly in the business. So if we look year-over-year, there's about a 3-point deceleration in total growth for the CCC. There's about a 1-point impact as best we can tell from NRR. So it looks a little bit like the new business dynamics are slowing as well. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 28, 2024 / 9:00PM, CCCS.OQ - Q3 2024 CCC Intelligent Solutions Holdings Inc Earnings Call So maybe just talk to that a little bit. Are you seeing a slowdown in new business dynamics? And how do you think about that piece of the business given all the commentary you already provided on the cross-sell piece Thank you.? Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Gabriele, it's Brian. Yes, I'll be happy to take that. So first thing I would highlight is our guide for the full year is 9%, which is in the range and at the high end of our long-term range. When you think about the point, you're making around what growth has done, there's kind of three factors that are playing into the second half and into Q4. First, we have tougher comps as we're into the second half. So we had one point that we highlighted in Q3. There's another point in Q4 that we highlighted; that's a headwind. So we are facing into tougher comps in the second half. The second point is the volume that is -- we're seeing softness. We talked about volume being down about 6 points on claim volume overall, and that drives about a point of headwind for us as well. And then the third point I'd highlight is it's just timing of deals and flow of deals. And quarter to quarter, those can move around a bit. One quarter, they can be strong; another quarter, they can be a bit weaker. So we really focus on long term and the full-year position. So quarter to quarter, deal flow can have an impact. But just to give some size, when you look at Q4 and you think about sequential growth over Q3, we're looking about 2.5 points of growth. And you compare that with the last two Q4s. So what we did in '23, what we did in '22, and it's broadly the same. It's been around 2.5 or 3 points of growth. So just sizing the Q4 and kind of sequential growth is broadly consistent.

Question: Josh Baer - Morgan Stanley - Analyst : Thank you. One for Githesh, one for Brian. For Githesh, just hoping you could take us through a typical time line for a customer that was an early adopter of like Estimate-STP or some of your other AI products that's already made it through the piloting, the testing, the implementation, like hoping to generalize how much time will it take from this building pipeline to really convert over to revenue.

Question: Josh Baer - Morgan Stanley - Analyst : Okay. Great. And then, Brian, just wondering, like we had the implied Q4 guidance from last quarter. So Q4 was lowered by about $2.5 million. I just wanted to clarify, was that -- like versus 90 days ago, was that all the softness in the claims that you're talking about? Or were there any other changes that popped up in the last 90 days? Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yeah. Josh, I mean, for the full year, we kept the guide at the full year position from where we were last time to 9%. So we had a similar range of $941 million to $946 million. So that's consistent. Yeah, there's been just -- as I highlighted to the previous question, there's just some moving parts as we think about the year-end and how that's going to play through. You have the true-ups, which are harder to forecast. We talked about the harder, more difficult comp that's playing through. We have the volume weakness that's been moving around quarter over quarter. And then there's just the deal flow, what's going to close off the pipeline this year versus falling into next year. So all those are factoring into the guide. But I would point back to the full year position is consistent with where we've been when we talked 90 days ago

Question: Samad Samana - Jefferies - Analyst : Hey, good evening. Thanks for taking my question. Maybe first, appreciate the color on the claim volume and kind of the related sensitivity. Could you just maybe help us think about are you expecting volumes to kind of persist at this -- like tracking down 6% levels going forward? Are you expecting them to rebound? What have you embedded? And I know it's a couple of months away from 2025. But are you thinking that we should think about volumes at this kind of like lower level? Or are you expecting a rebound? Just maybe help us understand how we should think about that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 28, 2024 / 9:00PM, CCCS.OQ - Q3 2024 CCC Intelligent Solutions Holdings Inc Earnings Call Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yeah, sure. Samad, it's Brian. So the way that we're looking at forecast for claims, they have been bouncing around a bit. Q1 was soft. Q2 improved

Question: Samad Samana - Jefferies - Analyst : Great. And then maybe just as a follow-up, when you guys made the changes to the kind of the customer service organization or customer-facing side of the organization, like how have you thought about the impact of that? And how should we think about that maybe flowing through to the business as we look forward? Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yes. So it's Brian. I'll start and let Githesh add some color. So clearly, we're setting the organization up for what we believe will be successful and the best way to engage with our clients. And so having one customer-facing organization, bringing both client services and our sales organizations together, we think will give a more seamless interaction with our clients. We do believe it will improve the velocity of our sales. We also have brought in product sellers, which was a recent investment that we brought into the organization, especially to help with these newer solutions with people that have expertise in these areas. And they're certainly having an impact as we built the pipeline on our engagement with clients. But that's how we're thinking about the organizational changes and the setup for next year.

Question: Samad Samana - Jefferies - Analyst : Great. Appreciate taking my questions. Thank you.

Question: Saket Kalia - Barclays - Analyst : Okay. Great. Thanks for taking my questions here. A lot of my questions have been answered, so I'll keep it to one. Brian, maybe for you. I've gotten the question from a couple of investors on just the impact of hurricanes here. Now of course, that's going to be much more impactful to home insurers. But unfortunately, those events tend to also have a lot of auto claims, right, during those big storms. So just to make sure the question is asked, right, in the wake of some of these storms recently, can you just talk to us a little bit about what sort of impact that sort of -- that is having this year if any? And maybe just give us some historical perspective to it as well as we just think about this kind of going forward? Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Sure. Yes, I can take it, Saket. So as a reminder, when you think about our revenue streams, 80% of the business is subscription and 20% is transactional or has volume based. And it really comes into three places, the volume. So one is our casualty solutions. There's a part of our -- or component of our parts business that's transactional. And then there is a portion that relates to our auto physical damage client base. But those, for the most part, are going to be your smaller regional carriers that are paying volume versus the large nationals. So that's how the revenue breaks out. As far as the hurricanes, the volumes we have seen to date have not been material and are not really moving the number. It really matters on the client mix. Some of our clients are in all-you-can eat transaction -- all-you-can-eat flat fees, and so the excess volume doesn't necessarily play through their numbers. Others, it will play through, depending on if they're paying transaction or have transactional components of their agreement. So mix really matters as well. But I would tell you, to date, the hurricanes that we've seen, although significant for the carriers and impact have not been a material part of what we're seeing in our volumes.

Question: Saket Kalia - Barclays - Analyst : Thanks again, guys.

Question: Elyse Kanner - JPMorgan - Analyst : This is Elyse Kanner on for Alexei Gogolev. My question was could you elaborate on why SBC as a percentage of revenue grew slightly sequentially to 18%. And can you reiterate what the outlook for SBC as a percentage of revenue is for next year? Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yes, this is Brian. Happy to do that. Yes. So it was 18% in the quarter, which is broadly consistent with where it was in Q2, which is slightly down from where it was in Q1. The big driver we're seeing run through is there is a modification in the TSR. And that modification had a P&L charge of about $70 million. Most of that is running through 2024. So it's got about 6% of impact into our percent -- share-based comp percentage. So that's the real kind of onetime driver. There was no additional units that were attached to the modification. And the modification is detailed out specifically in the proxy. When you think about next year, this modification has largely run through in 2024. There's a small tail that's in Q1 of '25, but it's not that material. We think about 2025 being more in the 12% to 14% of revenue, and that's the way to think about the model for next year.

Question: Elyse Kanner - JPMorgan - Analyst : Got it. Thank you so much.

Question: Chris Moore - CJS Securities - Analyst : Hey, good afternoon, guys. Most answered. I just wanted to -- from a modeling standpoint, obviously, you got some unusual model. You're able to continue to invest heavily in R&D, still expand margins. It's been roughly -- R&D roughly in the 20% range these last few quarters. Is that a reasonable place to be moving forward into '25? Or just how should I be thinking about that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 28, 2024 / 9:00PM, CCCS.OQ - Q3 2024 CCC Intelligent Solutions Holdings Inc Earnings Call

Question: Chris Moore - CJS Securities - Analyst : Perfect. I will leave it there. Appreciate it guys.

Question: Shlomo Rosenbaum - Stifel - Analyst : Hi. Thank you for taking my questions. Githesh and Brian, I was just wondering if the volumes could at all be attributed to market share gains amongst the client base or in specific, progressive, I believe, has been investing throughout the period the last couple of years or so in terms of getting new clients, whereas a lot of the other insurance companies were not as aggressive because of the rate issue that we've had in all the various states. And I was wondering if you are hearing any of that amongst your clients as one of the reasons why the volumes might be pressured this year. And after that, I have one more question.

Question: Shlomo Rosenbaum - Stifel - Analyst : Okay. And then can you give me another -- just an example, when you talk about potential extensions of the payroll system product, that seemed very interesting. We had seen it at your conference in some of the demo of that. And I was just wondering if you could talk about where else you could extend that too.

Question: Shlomo Rosenbaum - Stifel - Analyst : Okay. Thank you.

Question: Gary Prestopino - Barrington - Analyst : Hi, Brian and Githesh. A couple of questions here, well, first one and then a follow-up. Do you find that with these new products that you've launched, particularly I'll just point out build sheets, which I think should save insurers a ton of money given all the different trend levels that cars have, with these newer solutions, since they're driving more efficiencies, are you able to price at a better than 5:1 ratio that you'd often cited as how you price your products? Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yeah. Gary, it's Brian. Yes, so a lot of the 5:1 ratio, I mean, we based the products and insurers very clearly on an ROI basis. And we do that, as we've talked about, on a 5:1. These build sheets, we're selling into the shops, and so the price dynamic is slightly different. Clearly, it drives a lot of efficiency both for the shops and for the part suppliers. It's eliminating significant returns and then just lag times in the repair and having to store the car, having it wait for the proper part to be received if they ship the wrong part. So there is a really efficient play here, and it certainly has a strong ROI. But the 5:1 that we've talked about historically has been more on how we price into the carriers.

Question: Shlomo Rosenbaum - Stifel - Analyst : Well even with what you're selling to the carrier since you're driving more efficiencies, can you are you seeing a step-up there? Or is that something you're not seeing a lot? Brian Herb - CCC Intelligent Solutions Holdings Inc - Executive Vice President, Chief Financial and Administrative Officer Yes. I mean in general, products have different dynamics. Some will have a better ratio and be 3:1. Others could be 7:1. It depends. I mean, certainly, on these newer solutions, the emerging solutions, they're very compelling. They have a very strong ROI. We do think that gives us pricing opportunity. But I think, in general, we still look at a 5:1 ratio as a good rule of thumb of how we price our products and the value it drives for our customers. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 28, 2024 / 9:00PM, CCCS.OQ - Q3 2024 CCC Intelligent Solutions Holdings Inc Earnings Call

Question: Gary Prestopino - Barrington - Analyst : Okay. Thank you.