CCCS - NASDAQ

Thank you for standing by and welcome to the CCC's Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's call is being recorded. I would like to hand 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 releases available 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 Incorporated. 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 the United States copyright and other laws. Additionally, while we've approved the publishing of the 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 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. 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'd 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 four 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, parts 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 the mission critical operations is a cornerstone of our durable business model and why customers typically adopt more of our products overtime. That support from our customers is reflected in our financial results. In the eleven quarters since becoming public, we have grown our revenue run rate by roughly $250 million to more than $880 million, an increase of about 40%, while growing our adjusted EBITDA run rate by roughly $150 million to more than $370 million, an increase of nearly 70%. We believe the digitization of the auto insurance economy still has a long way to go and can support this attractive combination of top and bottom line growth well into the future. A key driver of our durable growth model is the breadth of our multisided network. Since our founding, our network has steadily grown by adding individual participants as well as new categories of participants within the P&C insurance economy. As the total network has grown, so has the value of the network to each participant. CCC's electronic parts ordering solution is a good example of how multiple participants in the ecosystem benefit from being in the CCC network. Our electronic parts platform brings the relevant parties together to increase buyers' visibility into parts availability and pricing and to help reduce errors and cycle time. As a result, CCC's parts platform can help improve operational efficiency for insurers, automotive OEMs, parts suppliers and repair facilities through process simplification, integration and automation. A case in point is auto manufacturer Toyota Motor North America. We expanded their participation in CCC's Parts network to support its Toyota and Lexus dealers earlier this year. That in turn has contributed to strong sign ups on new dealers for electronic parts ordering, with over half of those new dealers in the last couple of months being Toyota or Lexus dealers. We're also seeing an increase in electronic parts ordering in general as a wider range of dealers choose to transact on our platform. At this point, about 17% of the industry's parts volume by gross market value is being ordered electronically through the CCC network. The second point I'd like to discuss with you today is the strong velocity of innovation in each of our customer groups. Our goal at CCC is to enable the digitization of the entire automobile claims supply chain from first notice of loss through subrogation. AI enables insurers and repair facilities to automate more steps in the process based on their rules and thereby more efficiently support their customers. In order to drive operating efficiency and a better consumer experience, we believe all members of the insurance economy, insurers, repair facilities, parts providers and others need seamless integration leveraging AI, connected networks and digital engagement. You may recall we added substantial development capacity in 2022 to deliver our future product road map. I'm also pleased to report that we have completed substantial improvements to our multitenant public cloud IT infrastructure, which further improves seven key areas of our infrastructure; speed to market, system availability, performance, agility, scalability, security and cost structure. This combination of development capacity and infrastructure upgrades gives us the confidence in our ability to continue to scale innovation and efficiently deliver new solutions and updates. Over the last several years we have also invested heavily in building AI into the workflow solutions we offer our customers. With insurers for example, we are seeing growing traction of Estimate-STP and strong customer interest in our AI driven subrogation solutions. Last quarter we talked about our new AI based computer vision solution for casualty claims known as Impact Dynamics, which links our auto physical damage or APD and casualty capabilities to predict potential physical injuries to the occupants of a vehicle involved in an accident, based on photos of the damaged vehicles. Customers have reacted very positively to the solution and we already have a top-five auto insurer contracted for it. As a leading operating system for the collision repair industry, we believe that CCC is well positioned to continue to roll out new differentiated solutions for repair facilities that help to solve their key pain points as we've been doing for more than a decade. In 2010, we had about 20,000 repair facilities on CCC ONE and only about one in 10 repair facilities use more than one product. Today, we have over 29,000 repair facilities and about two thirds of them use more than one product. That's a nearly tenfold increase in the number of repair facilities using multiple CCC products. Yet we still have many new growth opportunities ahead of us. These include expanding our network through new partner integrations, adding new AI solutions to improve repair facility's efficiency and lead generation effectiveness, and introducing new capabilities to help our repair facility customers with the front and back office productivity. In September, we announced a collaboration with Google to make it easier for consumers to schedule online appointments with collision repairers that use Engage, our scheduling and self-service lobby check-in package for repair facilities. This collaboration adds a user friendly Book Online button to Google Business Profiles, Search and Maps, helping participating repair facilities, stand out in search results and making it easier for consumers to schedule repair appointments. We believe this type of deep integration across products helps improve repairers lead generation, consumer experience and operating efficiency. Last month, we announced two new AI driven solutions that help address the tight labor challenges facing repairers in writing estimates for damaged vehicles. The first, Repair Cost Predictor is a new AI powered feature within Engage that allows consumers who are shopping for a repair to upload photos of the damaged vehicle and receive a predicted range for the cost of repair in seconds. The consumer can then book an appointment for an estimate or directly schedule a repair, giving repair facilities the ability to efficiently capture and convert digital leads even after hours. The photos and predictions are seamlessly integrated into CCC ONE, further enhancing repair facility's ability to service their customers. The second new AI based solution for repairers, Mobile Jumpstart, is a new feature within our CCC ONE estimating IP solution that helps estimators significantly reduce the time it takes to prepare estimates by leveraging their mobile phones. Mobile adoption in the collision repair industry is high, with about 85% of users operating the CCC mobile app daily and collectively taking over 40 million digital photos per month on their phones. In early usage, Mobile Jumpstart is reducing the average time to complete an initial estimate from about half an hour to a few minutes or less. This is a game changer and with about 45% of repair estimates written by estimators and repair facilities, we are optimistic that the combination of Repair Cost Predictor and Mobile Jumpstart can have a meaningful impact on cycle time in the industry. In addition to improving their repair operations, our repair facility customers are also asking us to deliver new solutions that enhance the front and back office productivity. Last month we introduced one set solution targeted and addressing a common customer pain point, digital presence. Consumers generally expect businesses to have a modern website they can interact with. Yet often in the collision repair industry those websites are outdated and many repair facilities do not have one at all. Our new solution called Amplify enables repair facilities to quickly and easily set up a modern professional looking website with deep integration to CCC ONE. Amplify automatically pulls the relevant information from the repair facility CCC ONE profile into a prebuilt customizable template and keeps that information in sync. So for example when the repair facility adjusts their hours of operation in CCC ONE, those hours automatically update on the website. The repair facility's new digital presence also integrates seamlessly with their other CCC capabilities for example, by incorporating Engage's online scheduling capability directly into their website. And as new CCC solutions roll out net repair facility digital presence can be continually upgraded as well. Digital presence is just one of many front and back office solutions our customers are looking for help in. And with our platform, network and AI capabilities, we see many additional opportunities that we can deliver in the future. For my third and final point, I would like to discuss our strategic outlook for the business. We recently completed our five-year strategic planning session and as a very long-term shareholder in CCC, perhaps the longest shareholder in CCC, I wanted to say that this is the most excited I've ever felt about our long-term opportunities. As you all know, our industry has serious secular challenges. In all the years of talking to our customers, I have never seen more determination to deal with the biggest challenges facing the industry, labor shortages, rising vehicle complexity, persistent inflation, increasing consumer expectations, challenges that are reflected in over 2 billion days of cumulative annual cycle time for automotive claims. I believe these forces are driving a once in a generation digital upgrade cycle across the auto insurance economy and that CCC is uniquely positioned to help our clients navigate this transition. We put a lot of time and effort into understanding our customers businesses and their pinpoints. We hold Advisory Council meetings for our client groups multiple times per year and conduct deep business reviews with many individual clients quarterly. As a result of this deep understanding of the auto insurance economy, we are able to build novel, mission critical solutions with high ROI and short time to value that leverage our multisided network. These solutions drive billions of dollars of impact to customers annually and are central to improving their consumer experience and support a 98% plus retention rate and 82 Net Promoter Score. We feel good about the business and I'm very encouraged by our pipeline of solutions, both recently introduced and in development. Our new solutions increasingly combine our multisided network and artificial intelligence to help our clients improve their operating efficiency and consumer experience. In addition, I believe we will continue to have opportunities to develop new solutions for our clients to help them deal with the growing technological and other complexities facing their businesses. I will now turn the call over to Brian, who will walk you through our results in more detail.

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 of 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, up sell and adoption of our solutions across our client base, including the upsell, 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 parts 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% and 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 core tenant 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 movement in our auto physical damage client base. In Q3 2023, NDR was 107%, which is consistent with last quarter. Now I'll move to the income statement in more detail. As a reminder, unless otherwise noted, all metrics are non-GAAP. We provide a reconciliation of GAAP to non-GAAP in our press release. Adjusted gross profit in the quarter was $172.1 million. Adjusted gross profit margin was 78%, up from 77% last quarter and flat to the third quarter of last year. The flat year-over-year adjusted gross profit margin primarily reflects operating leverage on the incremental revenue being offset by the higher depreciation expense from capitalized projects recently released to the market, while the associated revenue from these emerging solutions is still in the early stages of scaling. Overall, we feel good about the operating leverage and the scalability of the business model and our ability to deliver against our long-term adjusted gross profit margin target of 80%. In terms of expenses, adjusted operating expense in Q3 2023 was $89.4 million, up 8% year-over-year. This was driven by the impact of headcount additions and higher IT cost related to system migration. Adjusted EBITDA for the quarter was $92.9 million, up 19% year-over-year with an adjusted EBITDA margin of 42%. Now turning to the balance sheet and cash flow, we ended the quarter with $449 million in cash and cash equivalents and $786 million of debt. At the end of the quarter, our net leverage was one time suggested EBITDA. Free cash flow in the quarter was $46 million compared to $70 million in the prior year period. Unlevered free cash flow in Q3 was $57 million or approximately 61% of our adjusted EBITDA. While our level of free cash flow can vary quarter-to-quarter based on seasonality, phasing or one-time items, we expect it will continue to average out to the low to mid 60% of our adjusted EBITDA overtime. I'd like to finish with guidance beginning in Q4 2023. We expect total revenue of $221.5 million to $223.5 million which represents a 9% to 10% year-over-year growth. We expect adjusted EBITDA of $92 million to $94 million which represents a 42% adjusted EBITDA margin in Q4. For the full year 2023, we expect revenue of $859 million to $861 million, which represents 10% year-over-year growth. We expect adjusted EBITDA of $345 million to $347 million which represents a 40% adjusted EBITDA margin and a year-over-year improvement of about 120 basis points at the midpoint. Three points to keep in mind as you think about our fourth quarter and full year guidance. The first is we feel good about our ability to deliver the position for the year. We've raised our revenue guidance in 2023 by $7 million at the midpoint on the momentum in the business and the durable revenue model that provides good visibility from our long-term subscription contracts. This has moved our revenue guidance range from 9% to 10% growth for the full year. The second point is that while the midpoint of our Q4 revenue and adjusted EBITDA guidance implies strong year-over-year growth, revenue and adjusted EBITDA are relatively flat sequentially on a dollar basis. This is the result of the quarter to quarter comparison created by the $2 million in revenue catch-up we recognized in Q3. The Third Point is that we expect adjusted EBITDA margin to expand about 260 basis points year-over-year to 42% in Q4 at the midpoint as we benefit from operating leverage on the incremental revenue as well as lapping last year's second half headcount ramp. Given the seasonality in our adjusted EBITDA margin, we think of the starting point for next year's margin expansion at the full year 2023 target of 40% versus our Q4 target of 42%. Overall, the strong trends we're seeing in renewals, relationship expansions and new solution introductions reinforce our confidence in the underlying strength of the business. The combination of our durable business model, advanced AI capabilities, the interconnected network and the broad solution set puts us in a unique position to help our customers in the P&C insurance economy, reduce cycle times and administrative costs, while improving their customer experiences throughout the claim process. The need for digitization across the P&C insurance economy continues to accelerate and CCC is well positioned to drive durable growth in both revenue and profitability in the near and long-term. We are confident in our ability to deliver against our long-term target of 7% to 10% organic revenue growth and adjusted EBITDA margins expanding to the mid-40s. As we continue to execute on our strategic priorities, we believe we will generate significant value for both customers and our shareholders. With that, operator, we are now ready to take questions. Thank you.

Thank you. [Operator Instructions] Our first question comes from the line of Gabriela Borges of Goldman Sachs. Your line is open.

Hi, this is Kelly Valentine [ph] for Gabriella. Great to hear about the long-term auto physical damage customer adding Impact Dynamics is 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.

Okay, thank you. 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 multi-year journey going from the one point today to three points to four 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 seven 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 guide as we get into next year and talk about Q4.

Great, thank you and congrats on the quarter.

Thanks, Kelly.

Thank you.

Thank you. One moment please. Our next question comes from the line of Dylan Becker of William Blair. Your line is open. Pardon me? Dylan Becker from William Blair. Your line is open. One moment please. Our next question comes from the line of Matt Bullock of Bank of America. Your line is open.

Hi, yes, thanks. I’m on for Mike Funk. Thanks for the questions. 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? Thanks.

Yes, 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 repair facilities. Another 25% of claims come in where a staff appraiser goes in and looks at 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 two or three states expand to about 10 states or 15 states go out broadly to about 30 states, 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. But we are very encouraged overall with the rollout of customers and the adoption 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. And we’ve already highlighted emerging solutions Estimate-STP along diagnostics adding about one point of growth for the quarter. So, I won’t get more specific. I would just say to get this 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.

Excellent. Thanks very much.

Great. Thank you.

Thank you. One moment, please. Our next question comes from the line of Alexei Gogolev of JPMorgan. Your line is open.

Hello there. 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.

Hey, 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.

Thank you, Githesh, and 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 number of customers, where we’ve taken customers closed files. And we’re seeing really two 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, 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.

Thank you, Githesh. I appreciate it.

Thanks, Alexei.

Thank you. One moment, please. Our next question comes from the line of Shlomo Rosenbaum at Stifel. Your line is open.

Hi, thank you for taking my questions. There’s been a lot of questions about Estimate-STP. I want 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, repairers 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, say, 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, thank you. And if I could just squeeze in another one, you talked a little bit about the catch up on a subscription contract for like, $2 million. Maybe you could just give us a little more detail of exactly what that was?

Yes, happy to. So we highlighted it because it drove about one 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.

Okay, thank you.

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

Hey, guys, can you hear me all right this time?

Yes, we can, Dylan, how are you?

Perfect. All right, awesome. Hey, 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 a macro level, what we are seeing in all our conversations with our customers, in fact, we just finished our trade show at SEMA last week and we had over 600 customers one 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 thing we’ve 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, in 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. Yes, that makes a ton of sense. Super helpful. Brian, maybe on your end too, I know you called out the 17% spend a little bit of a step up on the part side of the equation, but as we reconcile that back to kind of the 70% to 80% of claims volume, you guys seeing it 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 two 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 see 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. And just add to throw one more data point in, which is in 2020, that number was 10%. Right. So you can see it went from 10% to 15% in 2022 and is now continuing to grow past that.

Got it. Super helpful. Thanks again, guys, and really congrats on a nice set of numbers here.

Great. Thanks, Dylan.

Thank you. [Operator Instructions] Our next question comes from the line of Kirk Materne of Evercore. Your line is open.

Yes. Thanks very much. 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 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.

Hey, Kurt, thanks for the question. I would just say broadly, this is kind of what I was talking about earlier in the call, is that we have multiple customer segments. We're working with, we're 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 repair the vehicle, write the estimates, we're also helping the front office, the back office. And what we really feel good about is the breadth of the solutions we have, the breadth of the customer base we have and they are 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 use jumpstart which allows them to take photos and to be able to pre populate and start the estimate, they can write a pretty large chunk of it exclaim. 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, what we really love is when customers see those Aha moment that can have that kind of an impact and it is translating into adoption, pilots more breadth. Yes, we're seeing that and hence our focus on continuing to build out a broader solution set.

And then just Brian on the, thanks Githesh and Brian, certainly on the early look at 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 you sort of end the year at or is there someone 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, 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 ads into the business going forward. So it's those type of things that will naturally come in the first half of the year. That's why we're suggesting moving off the 40% margin, not using the 42% exit margin.

Perfect. That's helpful. Thank you all.

Okay.

Thank you. One moment, please, for our next question. Our next question comes from the line of Saket Kalia, Barclays. Your line is open.

Okay. Hey, guys, it's Saket from Barclays. Thanks for taking my questions here and echo a very solid quarter.

Thanks, Saket.

Sure. Githesh, maybe for you, maybe just to expand on a problem, 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 networks like CCC? Obviously, I mean it's grown quite a bit over the last couple that you think can accelerate that adoption.

Hey, 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 eight, nine parts for repair. Today people are putting 13 parts. Complexity has increased. So this process of email, 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, hit the things, to set up your suppliers electronically, send out the order, get the invoice back, get that reconciled. So that's really what we're doing. And we have seen that in the earlier years, as we've been building the parts business, we needed to build out the 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 ten minutes on a part shoulder or get it right the first time, people are willing to adopt more and more of these electronics of an electronic part solutions from us because it's integrated and it saves a lot of time and 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 were a couple other moving parts there as well. I think even the other revenue line and 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 a point of casualty. So casualty had a strong contribution. We had three points from new logos as well. I would say Saket, 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 eleven. We called out that one 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 there's not one to really highlight that really drove the performance besides just kind of general momentum across the business.

Got it. Makes a lot of sense. Thanks, guys.

Yep. Thanks, Saket.

Thank you.

Thank you. One moment, please. Our next question comes from the line of Chris Moore of CJS Securities. Your line is open.

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

Yes, it's Brian. We don't embed and have a specific call out within the seven to ten, 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, thank you. 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 2024, 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 solution set itself that we offer. So we don't have specifically a 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.

All right, that's great. Thank you for taking my questions.

Thank you.

Thank you. One moment, please. Our next question comes from the line of Arvind Ramnani of Piper Sandler. Your line is open.

Hi, thanks. Thanks for taking my question and 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 cells that are existing. Typically, who are you replacing on these boat cohorts both with existing as well as new logos?

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 three 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 facilities 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, 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.

Terrific. And then as you come up with these new products, or even take existing products and kind of enhance it, there's a significant value you're generating for your clients. And some of that may sort of like, kind of deciding how much of value do you occur to your clients or how much of value you keep to yourself by increasing prices. How is the calculus 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 up with 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'll give you a very small example. Take something like engage. That solution is used by one-third roughly a third of our repair facilities. Two-thirds 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 one-third of our repair facility customers to address the other two-thirds who are 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 generally 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 five to one ratio. So that is just a kind of a principle base. Some will be higher, some will be lower, but on average we think about pricing our product with a 5 to 1 return.

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

Thank you, Arvind.

Thanks, Arvind. I appreciate it.

Thank you. I'm showing no further questions at this time. I'll 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'll 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.