CCCS - NASDAQ

Good day, and thank you for standing by. Welcome to the CCC Intelligent Solutions Fourth Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [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.

Thank you, operator. Good afternoon, and thank you, all, for joining us today to review CCC's fourth quarter and full year 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 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 2024 annual report on Form 10-K filed with the SEC later today. 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 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 on 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'm pleased to report that CCC delivered another quarter of strong top and bottom line performance to complete another record year in 2024. For the fourth quarter of 2024, CCC's total revenue was $246 million, up 8% year-over-year and at the high end of our guidance range. Adjusted EBITDA for the fourth quarter was $106 million, ahead of our guidance range, and adjusted EBITDA margin was 43%. Looking at the full year 2024, revenue was $945 million, up 9% year-over-year. Adjusted EBITDA was $397 million, up 12% year-over-year with an adjusted EBITDA margin of 42%, up about 130 basis points year-over-year. This solid financial performance reflects our durable business model and the ability to balance margin expansion with investments in innovation that help position CCC for our next phases of growth. In 2024, we also made significant progress in strengthening and expanding the scope of the CCC network, with several key renewals and new customer additions including the onboarding of over 1,000 new collision repair facilities to our platform. We also continue to grow our industry-leading partner ecosystem and now have over 200 active technology and service providers in our network. Our leadership in product innovation and AI also continued to advance in 2024 with the launch of several new solutions as well as our IX Cloud event-based architecture and with our AI now in production at over 100 insurers and over 10,000 collision repairs. We took that a step further through our acquisition of EvolutionIQ, a fantastic business, which expanded our addressable markets into disability and workers' compensation while also deepening and strengthening our AI and casualty capabilities. As we look to 2025 and beyond, we continue to be incredibly excited about the numerous growth opportunities ahead of us, which I will now cover in three topics. The first is our conviction in the digitization of the insurance economy and the transformational impact we believe it will have on the industry. The second is the real-world results customers are seeing from our most recent innovations. And third is the actions we are taking to accelerate our customers' journey along this transformation which we believe will also accelerate CCC's growth. Now let me start with my first topic. We believe the multitrillion dollar insurance economy is in the early innings of digital transformation, and CCC is well positioned to be our customers' partner of choice for the transformation. Our clients continue to face significant operational challenges as the many forms of complexity they deal with continue their persistent rise, vehicle technology, labor shortages and skill gaps, medical treatments, natural disasters, data proliferation, changing regulations and much more. These inflationary pressures have driven record premium increases in recent years and are also extending claims and repair cycle times. In my conversations with customers, whether with management teams or Boards of Directors, they are increasingly describing these trends as unsustainable within their current operations, and as a result, are increasingly determined to deploy AI-driven transformation across their businesses. We believe the fusion of our industry-leading AI, deep multi-sider network and our scalable multi-tenant platform positions us as the partner of choice for this digital transformation and for more and more of a claim and repairs life cycle to be processed using CCC solutions over time. And with the depth and breadth of the investments we have already made across our product portfolio, we are ready to help our customers achieve this level of end-to-end transformation. For auto insurers, that means helping them all the way upfront at first notice of loss as they work to accurately and efficiently triage a claim and then helping them navigate the many downstream steps from vehicle appraisal to injury resolution and even subrogation. For collision repairs, it means, first, helping them drive business by optimizing their web presence or collaborating with insurers and then supporting them through the entire repair process, including accessing repair procedures, scheduling technicians, ordering parts. And we can even support the business office in processing payroll and other tasks through integrations into our partner ecosystem. Fully unlocking the value of these capabilities requires a holistic approach to transformation, which we are seeing customers increasingly embrace so they can build and deploy the intelligent experiences that matter most to them. Intelligent experiences are, to us, the next phase in tech-enabled business transformation. It means using rich data and state-of-the-art AI to identify the best outcome for a given claim or repair based on customer-specific configurations and then making that happen by connecting the many different participants across the ecosystem who are involved in resolving that event. With industry professionals facing ever higher demands with an all-around increase in complexity, helping them identify and implement the next best action for their work and doing that at scale is going to become a defining feature of AI-enabled vertical software. EvolutionIQ pioneered the use of AI-enabled claims guidance in disability and workers' comp and by delivering proven results has been growing rapidly with multimillion dollar annual contracts from many of the largest insurers in the United States. By helping claims professionals identify the highest-value task to do next from among hundreds of possible tasks, they are bringing the future of AI-guided next best actions to life. The nature of this transformational impact is very clear from my meetings with the leadership of EvolutionIQ customers. The addition of EvolutionIQ to our portfolio continues CCC's track record of delivering tangible real-world impact from AI through an attractive and highly scalable economic model. We believe the digitization of the insurance economy through intelligent experiences is inevitable. And while the exact progression is hard to predict, we expect it to provide CCC with many years of growth. This brings me to my second topic, which is the real-world ROI clients are realizing from our newer solutions as they make this transition. Throughout our history, success has always been driven by reference level products that deliver a high and demonstrable ROI, with the results from early launch customers setting path for wider adoption across our customer base. And we are now consistently seeing this ROI play out in our priority areas of growth. Within our insurance Auto Physical Damage, or APD business, customers are realizing tremendous benefits from the capabilities in our intelligent APD suite, a set of AI-enabled solutions that dramatically improves effectiveness and efficiency in APD claims handling and resolution. Many of these solutions leverage proven computer vision AI to extract insight from photos and then deploy those insights across customer and partner workflows. This includes, helping insurance appraisers, prepare a vehicle damage estimate that is, on average, 30% less time than before to more rapidly identify a potential total loss regardless of where that vehicle is located. Making that total loss determination, as early as possible can eliminate hundreds of dollars in avoidable rental, storage and other charges, while also greatly improving a carrier's customer and employee experience. Today, it takes an insurer about 13 days on average to make that total loss determination. By using the capabilities in our Intelligent APD suite, one national insurer has seen a 30% lift in early total loss identifications, with an average reduction of 3 to 7 days in cycle time for vehicles located within a direct repair program. Our Casualty and Subrogation solutions are also driving significant real-world ROI for our clients. In Casualty, innovations in our third-party bill review solutions delivered an almost 40% increase in identified improvements for a top 10 insurer last year. And in Subrogation, our AI-enabled inbound solution has enabled some carriers to settle more than 40% of demands the same day they receive them versus days or weeks traditionally. We now have over 20 insurers using one of our Subrogation solutions, including multiple in the top 20. Priority growth areas in our automotive business are also delivering substantial benefits to repair facilities, along with the broader ecosystem of auto manufacturers, dealers, parts suppliers, and other partners they do business with. Several of our newer repair facility solutions improved shop productivity by standardizing operating procedures and streamlining manual tasks. For example, our recent introduction of bill sheets leverages as-manufactured vehicle data to quickly identify the exact part that should be used in a repair. With so many vehicle trims and options to choose from, this data can filter the choices for [indiscernible] from dozens down to 1. In addition to saving time during the estimating process, real-world results show another benefit, reduced part returns from ordering the wrong parts. Parts returns for customers using the solutions are 25% lower by quantity and more than 50% lower by dollar value. Customers of this solution are also seeing higher customer satisfaction scores, as improved accuracy in parts selection upfront, improved cycle time, along with other aspects of the customer experience. A clear and demonstrable value of this solution has led to rapid adoption with thousands of repair facilities now using it despite being in the market for less than a year. We are also delivering real-world ROI impact to companies in the broader automotive ecosystem that do business with the repair facility customers. For example, parts suppliers continue to see strong results from their integration into CCC ONE, because it allows repair facilities to electronically order parts in the operating system they use every day. In fact, the efficiencies are so significant that one major OEM recently decided to use our parts solution as their exclusive platform for managing promotional parts sales to collision repair facilities. They are the second OEM to do so. We also continue to integrate new diagnostics providers into CCC ONE, reducing the administrative burden on shops in managing and performing diagnostics-related tasks. This benefits the repair facility, diagnostics provider and, in many cases, also the insurer and OEM. And we now have about 20% of repair facility customers taking advantage of this functionality. As I said earlier, EvolutionIQ is also delivering substantial, in some cases, multi-point combined ratio impact to its clients. And because of those results, clients are excited to do more. Since announcing the acquisition two months ago, I've seen from my own personal meetings with both EvolutionIQ and CCC clients that their reaction has been overwhelmingly positive, a sentiment that also reinforced in day-to-day customer interactions with our account teams. We see tremendous opportunity in EvolutionIQ's core disability and workers' comp markets, and EvolutionIQ's capabilities including medical document summarization are also highly complementary to our existing casualty business, which is one of our largest growth opportunities and also one of our fastest growing product lines overall. Across our portfolio, the ROI from our newer solutions is generating strong demand and a robust customer pipeline with emerging products collectively representing the fastest growing part of our portfolio. This gives us confidence in the market opportunity for these solutions and, as a result, focusing more on accelerating the revenue velocity in 2025 and beyond. This brings me to my third topic, which is a set of actions we have taken to help our customers more rapidly adopt our new solutions and accelerate their transformation journeys as we head into 2025. I will start with technology and last year's introduction of the CCC Intelligent Experience Cloud. As you heard me describe before, IX Cloud is an overlay that sits on top of CCC's existing cloud applications, customer workflows, and customer and partner systems. It is essentially a distribution system that is able to handle our AI-enabled workflows and massive amounts of data from multiple sources in real time. IX Cloud employs an event-driven architecture, which means it uses a manage, publish, and subscribe model that enables companies to set up notifications for relevant business events and configure actions based on those events using AI. This architecture is designed to make it faster and easier for customers to deploy new CCC solutions, and also increases the number of ways customers can use multiple CCC solutions together. There is minimal effort to leverage the new architecture and there is no additional cost to the client. We are already seeing benefits from this approach with customers, and we anticipate in becoming an even more important catalyst moving forward. We have also taken several steps to streamline and upgrade our go-to-market activities and customer support. The first of these initiatives has been the rollout of new insurance packages that better align existing and new solutions within and across our solution sets. For example, we have found that many customers prefer to buy a complete intelligent APD solution suite to maximize cross-product synergies and also streamline their internal rollouts. In many cases, these new packages are also improving adoption of our existing solutions, as is the case of a recent top 20 insurer, who not only contracted for new solutions as part of their multiyear renewal but also added several established solutions as part of migrating to a more holistic package-based offering. We are employing this approach for all new and renewal insurance contracts in 2025. I've also spoken in recent quarters about the impact of change management on the adoption and ramp-up of our newer solutions, and we are making changes to improve our support for customers in this area as well. CCC has always been a deeply trusted partner to our customers, and a key part of this has been our support for implementation and change management at a very granular level. But we have found that change management support, needed for our newer solutions, can sometimes be different in important ways. First, the productivity impact of our newer solutions often does not just warrant a customers streamlining their operations but instead transforming them altogether. For example, our AI-enabled Subrogation solution has led some insurers to consider realigning their entire subrogation operation, which demonstrates the value of the solution but also requires a different duration and form of support than if you were helping an insurer migrate an existing process. Second, we've also seen variations in how quickly customers will scale a new solution across their operations. For example, while paid volume on Estimate-STP, a component of our intelligent estimating solution, is still just 4% of our annual claims overall, we announced in 2024 that a top 10 insurer was on track to process, 20% of their repairable claims on a run rate basis using this product. By replicating the learnings from that initiative, we are helping other carriers set similar goals. And that first insurer that was on track to process 20%, they feel very good about their results. As a hypergrowth AI startup, EvolutionIQ has been particularly effective at providing AI-specific change management support to its customers. During my visits with EvolutionIQ's clients, they told me directly how important these change management capabilities have been for them to get results, and we are already starting to incorporate these approaches more broadly across CCC. Lastly, we have taken steps to realign our customer-facing functions so we can be better partners in accelerating our customers' transformation journeys overall. Starting next month, all of CCC's market-facing and service functions will operate under Tim Welsh, who will be joining as President. Tim brings a wealth of experience to CCC, including 25-plus years of P&C and life insurance leadership at McKinsey, where he served as a senior partner and member of McKinsey's Board of Directors. Tim has worked with many of the top insurers in the world, and most recently, Tim spent seven years as Vice Chairman of Consumer and Business Banking at U.S. Bank. Tim has a deep understanding of the broader insurance economy as well as transformation, including a recent digital transformation of U.S. Bank's 20,000-plus employee retail banking system. I know Tim has followed CCC for a long time and is excited about the growth opportunities in front of us. We look forward to Tim helping our teams advise our customers on their own transformations and advancing the digitization of the entire insurance economy. Welcome, Tim. As we look ahead to 2025, we remain confident that the global insurance economy is still in the early stages of a generational digital upgrade cycle and that CCC is well positioned to help our customers navigate this transition. We are excited about the long-term growth potential this opportunity represents and look forward to supporting our customers partners on this journey in the months and years ahead. I will now turn the call over to Brian, who will walk you through our results in more detail.

Thanks, Githesh. 2024 was a year of solid revenue growth, margin expansion and free cash flow generation that reflects our ability to effectively balance between investments in our growth initiatives and ongoing margin discipline. It also highlights the strength of our durable business model. Now as we turn to the numbers, I'd like to review our fourth quarter and fiscal year 2024 results and provide guidance for the first quarter and full year 2025. Total revenue for the fourth quarter was $246.5 million, which is up 8% from the prior year period. Total revenue for the fiscal year 2024 was $944.8 million, which was up 9% over 2023. In the fourth quarter of 2024, approximately 5 percentage points of our growth was driven by cross-sell, upsell and adoption of our solutions across our client base, including repair shop upgrades, the continued adoption of our emerging solutions, and the ongoing strength in casualty and other ecosystem customers. Approximately three points of growth came from new logos, mostly from our repair facilities and parts suppliers. About one point of growth in Q4 came from our emerging solutions, mainly diagnostics, build sheets and Estimate-STP. Run rate from emerging solutions overall was about 3% of our total revenue in Q4 of 2024, and these solutions continue to be our fastest-growing portion of the portfolio. 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 Q4 2024, our GDR was 99%, which is in line with the last four quarters. Note that since the first quarter of 2020, our GDR has been between 98% and 99% and has either rounded up or down, primarily driven by repair shop industry churn. We believe that the 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 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 in our auto physical damage client base. In Q4 2024, our NDR was 105, down modestly from 106 in Q3 2024. Now I'd like to turn 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 metrics in our press release. Adjusted gross profit in the quarter was $188 million. Adjusted gross profit margin was 76%, which was down from 79% in Q4 2023. The lower adjusted gross profit margin primarily reflects two factors. The first is an increase in depreciation expense from capitalized projects recently put into service. The second is driven by mix as we've seen faster growth from certain casualty solutions that carry a lower margin profile. 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 of 80%. In terms of expenses, adjusted operating expense in Q4 2024 was $95 million, which is up 4% year-over-year. Most of the $4 million year-over-year expense growth was the result of lapping a onetime $3 million insurance claim reimbursement in Q4 of 2023, which we highlighted last year. Adjusted EBITDA for the quarter was $106 million, which is up 6% year-over-year with an adjusted EBITDA margin of 43%. Now turning to the balance sheet and cash flow. We ended the quarter with $399 million in cash and cash equivalents and $776 million of debt. At the end of the quarter, our net leverage was 0.9x adjusted EBITDA. After the close of the acquisition of Evolution IQ in January 6, total debt outstanding was $1 billion and net leverage approximately 2x adjusted EBITDA. Free cash flow in Q4 was $106 million compared to $75 million in the prior year period. Free cash flow on a trailing 12-month basis was $231 million, which is 18% up year-over-year. On a trailing 12-month free cash flow margin as of Q4 2024 was 24%, up from 23% in Q4 of 2023. While our free cash flow levels will vary quarter-to-quarter, we do expect it to trend up over time. Before we turn the page on 2024, I want to say that it was a year of solid financial performance across multiple metrics. Revenue grew 9% organically. Adjusted EBITDA margin expanded 130 basis points. Free cash flow margin increased almost 200 basis points. And also on the capital markets front, our stock liquidity improved significantly as private equity ownership decreased from about 70% to just over 20%. Now looking at 2025, I'll discuss guidance beginning in Q1 2025. We expect revenue of $249 million to $250.5 million, which represents 10% growth year-over-year at the midpoint. We expect adjusted EBITDA of $92.5 million to $94 million, a 37% adjusted EBITDA margin at the midpoint. For the full year 2025, we expect total revenue of $1.055 billion to $1.065 billion, which is a 12% year-over-year growth at the midpoint. We expect EvolutionIQ to contribute $45 million to $50 million in 2025 as we discussed back in December when we announced the deal. For adjusted EBITDA, we expect $417 million to $427 million, a 40% adjusted EBITDA margin at the midpoint, which includes absorbing a moderate EBITDA loss from EvolutionIQ. So 3 points to keep in mind as you think about the Q1 and full year guide for 2025. The first point, as Githesh mentioned, is that the actions we are taking give us confidence in our ability to help our customers advance more rapidly on their digital transformations. As we experienced in 2024 and not unique to launching new solutions, timing of adoption can be hard to predict as new solutions take time to roll out, gain adoptions and scale. For that reasons, we are assuming growth, excluding EvolutionIQ in 2025, remains towards the lower end of our seven to 10 long-term range and then emerging solutions continue to contribute about 1 point of growth. The second point is that EvolutionIQ is a high-growth business. So we are expecting that revenue contribution from EvolutionIQ to increase as 2025 progresses and the business continues to scale. We also expect that EvolutionIQ's EBITDA loss will moderate as we go through the year based on the front-loading integration efforts and the scaling of revenue. The third point is that the adjusted EBITDA margin should be up about 75 basis points year-over-year to about 43%, excluding EvolutionIQ. On a reported basis, which includes the dilution from EvolutionIQ, full year 2025 adjusted EBITDA margins will be down about 200 basis points at the midpoint to roughly 40%. We do expect margins to improve from the initial Q1 guide throughout the year and continued expansion on a full year basis in 2026 and beyond. One additional comment. Before the acquisition of EvolutionIQ, we are on track to reduce stock-based compensation as a percent of revenue from 18% in Q4 2024 to roughly 12% in 2025. As I mentioned on the EvolutionIQ call in December, we will be absorbing about 3 points of stock-based compensation for a total of about 15% of revenue in 2025. The impact of this will be front-end loaded. We believe that the grants for EvolutionIQ were important for alignment and retention of our new team members. We expect share-based comp as a percent of revenue to decline from that 15% level beginning in 2026. So as we wrap up, I'd like to reiterate our confidence in our ability to deliver against our long-term revenue growth and adjusted EBITDA margin targets. We believe that our durable business, multisided network and the growing portfolio of AI-enabled solutions will enable us to continue to execute on our strategic priorities and generate significant value for both our customers and our shareholders. With that, operator, we're now ready to take questions. Thank you.

Thank you [Operator Instructions] Our first question comes from the line of Alexei Gogolev with JPMorgan. Your line is open. Please go ahead.

Good evening, everyone. Brian, I had a follow-up question about the organic revenue growth. It seems like based on the midpoint of the EvolutionIQ contribution, you're suggesting that the organic growth in Q1 may be roughly sort of 5%, 6% and then accelerating to about 7% for the year. Can you explain what is driving the deceleration versus the organic growth you reported in 2024?

Yes. I'll talk about the numbers and I'll let Githesh add some color on what we're seeing on emerging. So just as a reminder, emerging is about 3% of total revenue at this stage for the company. It's contributing about 1 point of growth for the company. So think about that as about $10 million. So this part of the portfolio is growing 30-plus percent. It's the fastest-growing part outside of EvolutionIQ. We have a lot of engagement with our top clients, working through proof of concepts, pilots, tests and signing of contracts. And so we feel like we're getting close to the inflection point on emerging, moving from 1 point of growth contribution to something more. We're just not calling it yet. So as we talked about in the prepared remarks, there's a lot of activity and actions that we're driving across the business, and we're feeling really good on the progress we're making, and we'll keep you updated on emerging solutions as we go through the year. I don't know, Githesh, if you want to add any color.

Yes, the only thing I wanted to add is, as I said in my comments, we are seeing continued adoption and increase in volume pretty much across the board on all our solutions. And as you know, 2024, as we ended the year, it was the largest launch of new products and new solutions across our entire portfolio. And we feel very good, but we are not going to call anything more than what Brian called out until we see the inflection point of all of these solutions starting to ramp towards later on.

Thank you, Githesh. And one final, if I may squeeze one more. Are you still seeing softness in the claims volume that you talked about in the past?

Yes. On the volume side, Alexei, we had talked last time about 6% year-to-date when we looked at it last on total claims. It moderated a bit in Q4. Some of what we saw was the declines that we had seen were partially offset by some weather-related events and had a partial offset. So in Q4, we saw the moderation to about minus 3% of total claims, and so we ended the year at 5% down year-over-year in 2024.

Thank you. Thank you very much for the answers.

All right. Thank you, Alexei.

Thank you. And one moment as we move on to our next question. Our next question is going to come from the line of Josh Baer with Morgan Stanley. Your line is open. Please go ahead.

Thanks for the question. I was hoping you could revisit pricing and philosophy there on efforts to lean more into pricing and wondering how much of the growth, when thinking about 2025, is coming from taking price.

Hey, Josh, it's Brian. So we haven't called out a specific pricing component or part of the growth that comes from pricing specific. It will be embedded in our NDR number, so it's a factor there. Like all SaaS companies, we do look at the pricing and the value that's created from the software, make sure that we're balancing the value being generated from our clients and that we're getting compensated fairly for that. So that pricing review is ongoing and we always evaluate the packaging and solutions. So that's how I'd give you kind of the pricing strategy as we think about the 2025 impact.

Okay. Thanks, Brian. And just a follow-up on the claims volume comment. Just wondering, like now with January and February mostly done, what – you're seeing there on the claims side. I'm wondering if like the Q4 moderate improvement is a trend that we should carry through to 2025, when thinking about the transactional piece of the business? Or is it like a down 5%, down 6% the right level, do you think, like in your guidance essentially?

Yes, this is Githesh. January always has some weather-related activity, so we don't try to extrapolate off of January. We have the January data. It has -- it does look a little moderated, but it's a little too early to call it one way or the other. And as you know, the vast majority of our revenues are not impacted by frequency.

Yes. Just to follow up on, Josh, we're not assuming anything really moving on 2025. We're not assuming that we're going to get a lift or a drag. We're kind of baking in the 2024 performance as the baseline and then we'll adjust from there.

Okay. That’s helpful. Thank you.

Yes.

[Operator Instructions] Our next question does come from the line of Dylan Becker with William Blair. Your line is open. Please go ahead.

Hey, guys. Maybe to continue on the topic of the claims volume side. Githesh, for you, do you still feel like -- I mean, obviously, there's sort of directionally a proxy, but it feels like there's some nuances in particular 2024 that somewhat muddy that metric. So, is that a fair characterization? And then, how to kind of reconcile that with the increasing, it seems like, perpetual complexity associated with the cost of repair in the process itself that can offset that as well, too? Thanks.

Yes, sure. So what we did see over the last 2-plus years is the propensity for consumers to self-pay. We saw a marked increase in that number, right? That is claims that are still being processed by repair facilities and the like. And that went from 10%, 12%, which used to be consumer self-paid about 2, 2.5, 3 years ago to where it's now 22-ish, 22%, 23% self-pay. And then we've now started to see that number start to come down, meaning consumers paying for repairs is still at that elevated level. And part of that has been the reluctance or the fear of increased rates. And we're also hearing that from -- we're seeing that that from customers, and you can see that from some of our public customers as well. And so, while shift has taken place, we are also seeing that as rates insurance -- the increase in insurance rates starts to moderate, the expectation is that, that too shall normalize over time. But the underlying point that you're making about the increase in complexity, that is absolutely the case, right, with calibrations, diagnostics, more complex parts, 13.5 parts per estimate, $120 a part. So all of the underlying complexities are continuing to increase, and that's really where customers are saying they need significant help managing that.

Got it. Okay, too, and so probably fair to say then that mix shift should, in theory, contribute to some level of growth in claims volumes as well, too, as that normalizes. Okay. Maybe on the comment around the go-to-market kind of resource allocation as well, too. It feels like that, that's something that's coming from a position of strength, given the interest and value that you're seeing from a lot of kind of the larger top carriers. How should we think about effectively the benefits of having kind of more dedicated focus and teams towards some those customers and maybe learnings from, I think you called out a top 20, that had a significant expansion as well to you to kind of accelerate their digital transformation change?

Yes. I mean, without question, we now have essentially for almost every new solution. We have customers in pilot or in production in various forms. And what we are seeing is that more dedication in terms of change management, specific tuning to their processes, or some instances, like the subrogation example I gave, where people are saying, hey, I can get some real benefits very quickly. For example, in Subro, people see an 80% decrease in cycle time. Those kind of things means, I can actually restructure some of my operations to take full advantage of it. So, what we have learned as a result of these new solutions, especially the AI solutions, is that there is more effort and more energy in really working closely with customers and tuning it. So, even our oldest solutions like when you look at Estimate-STP, I think we've announced that we have probably over 40-plus customers now in Estimate-STP. And volume is steadily increasing and we see some customers at higher levels, but we have learned a lot about the nuances and the specifics of each solution and change management, and we're putting that effort into working closely with our customers.

Got it. Okay, very helpful. Thank you, Githesh. Appreciate it.

Welcome.

Thank you. Our next question comes from the line of Samad Samana with Jefferies. Your line is open.

Hey good evening and appreciate taking my questions. Maybe for just on the rollout of the new packages and pricing, can you maybe help us understand more clearly how you're thinking about the impact to maybe net revenue retention from the changes in 2025? What have you baked in? How should we think about maybe flowing to revenue? And have you made any kind of maybe conservative assumptions since there's an unknown around it or are you very confident in those assumptions?

Yes. On the way to think about pricing, I mean as I said before, we don't explicitly break out the pricing point on NDR. We actually don't guide on NDR as well. I mean, if you look at NDR and how it's been trending, it's roughly 60% to 70% of total revenue, so you can look at that as the ratio. We have had packages or reset the packages in the repair facilities market for a while, and we've more recently rolled out solutions in insurance. Pricing is a component. I would say on the insurance side, it's not overly material as a driver of growth. But we feel good on the solutions set that we're taking in the market and our go-to-market approach. But I wouldn't highlight a material part of growth related to insurance pricing.

In fact, the vast majority of our growth comes from new solutions and new products and adoption by new customers. That's how traditionally all our growth -- most of our growth has come from.

Great. And then as we think about Tom [ph] taking over his new role, how should we think about what changes we may anticipate in that? And again, maybe just trying to understand, have you taken any different type of approach to guidance this year just when considering what you talked about in terms of packaging changes and the impact of like some of the got-to-market changes? How should we think about how you restate that into the outlook?

Yes. Look, I think we factored -- we just completed our plan at the end of last year. We're six weeks into the plan. We feel very good about the customer pilots, testing, all of the activities that we described in the call in terms of every single new solution. Tim is going to be a fantastic addition, and we're really excited about Tim coming on Board for two very fundamental reasons. Tim has an extraordinarily deep understanding of the broader insurance economy. He understands the overall space very, very well, having served many of the customers for a long period of time. The second thing we're really excited about is that Tim has done a remarkable job in a digital transformation of a large-scale operation, and that's really what our customers are trying to do. And in Tim's role, Tim's ability to guide our teams and guide our customers on their own digital transformation, we think, will be incredibly valuable. And Tim, I know, is excited about it. And so we're looking forward to Tim coming on board, and helping with all of that.

Great. Apologies to Tim, for getting your name wrong the first time. Sorry about that.

No worries.

One moment, as we move on to our next question. Our next question comes from the line of Gabriela Borges with Goldman Sachs. Your line is now open. Please go ahead.

Hi. This is Maura on for Gabriela. Thanks for taking the questions. Sticking with the digital transformation and more specifically, AI opportunities, as you're talking to customers, what are you hearing that might be different than this time last year, just in terms of how fully baked the AI strategies are and willingness to invest?

Sure. No, we are hearing really three things that I would say, when we talk to the management teams of our customers, our Boards, and more recently, I've gone out with our EIQ team and talked to very senior levels of their customers. So here's, I would say, a macro level, three things. First and foremost, at the Board level, at the senior management level, all our customers are now saying, we have got to be able to use AI to tame and manage complexity. So it has gone from, hey, this could be an interesting concept. I don't know if this is going to work. I'm really not interested in writing poem with ChatGPT, but how can I put AI in really production? So that has been, first and foremost, that mindset shift, to lean into those solutions. Second thing we're seeing is that, customers are now a year, two years into using our solutions. We have 300-plus different AI models. And the level of trust and the level of usability of these solutions, I think I mentioned in the call over 10,000 repair facilities using it, 100-plus carriers using it. So the level of confidence and trust overtime that has increased in both the solutions we announced earlier as well as the ROI, the specific ROI people are seeing from solutions like, First Look or Subrogation or these tools. So that's kind of the second bucket. The third bucket is when you look at EIQ and what that team has done, you will see that many of their customers are actually public -- are reporting their results publicly and are even referencing EvolutionIQ as having had a significant impact on the bottom-line results in the quarter. So people are translating this into actual operating performance, and that is actually making its way from a customer-to-customer. And those references, great execution gives us great references, which are incredibly valuable. So those would be the three, Maura.

Great. Thanks for all the detail there. And then on EIQ, you talked about the complimentary nature to CCCs existing products. Just higher level, how are you thinking about the time line around synergies from faster adoption there?

We've kind of factored all of that in the guide. So first and foremost, let me start out by saying, everything we thought about the team, we feel very, very good. We've spent a lot of time in integration so that feels fantastic. The reaction from EvolutionIQ customers as well as the traditional CCC customers has been very, very positive. And what we see is that they have a lot of growth in their core markets going into 2025. And in addition to that, one of the solutions, the ability to do medical summarization to a solution called MedHub, that solution is extraordinarily unique and capable. That is very valuable for EvolutionIQ customers, but also applies to our Casualty business. So it's really a product synergy. And we've been absolutely fantastic with our photo, AI and all of the capabilities there. EvolutionIQ's ability to understand hundreds and hundreds of pages of medical information and documents and extract very specific actionable information is useful to the CCC Casualty business as well.

Yeah. Maybe it's Brian, just to add a point. So as Githesh said, there is certainly revenue product synergies. We are excited about the opportunities, specifically 2025 guide. There's not a meaningful part within the guide regarding the revenue synergies.

Got it. Thank you.

Thank you. And one moment as we move onto our next question. Our next question is going to come from the line of Shlomo Rosenbaum with Stifel. Your line is open. Please go ahead.

Hi. Thank you very much. Githesh, I just want to ask you like holistically, when you look at the growth of the business, we're not going to have -- or at least it's not assumed in your guidance that the volume of claims is going to be impacting the revenue growth. And we're seeing the revenue growth migrate from the high end of the range to what's expected to be the low end of the range. What exactly is changing in the market? Is it the fact that there's so much need from the customers to make changes on their end to ending up with bottlenecks? Or what exactly is changing that's resulting in the growth migrating from the upper end to lower end over the course of, frankly, a year?

Yes. I would say, Shlomo, so first and foremost, having seen or been close to this for a very long period of time, I've seen this pattern multiple times over the years, especially as you go from one wave of solution to the next generation of solutions. And as you go -- as we went to the Internet platform, as we go to mobile capabilities, as you go to now the next generation of AI-based solution, there's always a transition period where the adoption of customers, a lot of work to be done to really put the products in production. It's also broadest set of solutions we've ever released. So I would say, it's a combination of both of those is the transition to the next wave of growth as well as -- the adoption things that I talked about, which is helping with more change management and some of the things that we talked about. So that's why we are not calling an inflection point on the new solutions until we actually see it.

Okay. And then in terms of the bundling to get more solutions, did that start just in the beginning of the year? And usually, when companies do that, especially with products that are proven, it usually is a great way for them to raise the price on existing solutions. You're adding new bells and whistles. And I'm just wondering where in the context of your starting the bundling here, are you kind of testing it out first in order to see the adoption? Because I would think that it should drive just better growth just from the opportunity to price things well or to bundle things in a way that can drive additional sales.

Yeah. I think, so first and foremost, as Brian described, pricing is not a material part of this. But what it is doing is that when you think of, for example, Estimate-STP working with First Look, working with Intelligent Reinspection, they all rely on same photo AI capabilities. So customers that were either adopting mobile, Estimate-STP, Intelligent Reinspection, and First Look, it is sometimes easier for customers to align three, four, five, different solutions together and implement them. It's the same amount of effort but ROI is significantly greater. So that's really what we're trying to do is to make it easy for customers to adopt with the ROI. That's really the primary purpose here.

Okay. Thanks.

Thank you. And one moment as we move on to our next question. Our next question comes from the line of Chris Moore with CJS Securities. Your line is open. Please go ahead.

Hey. Good evening, guys. Thanks for taking a couple. Mostly, I think just modeling at this point in time. You probably went through it during the EvolutionIQ, but from an interest expense perspective, is there a kind of a reasonable level that we should be thinking about for fiscal 2025?

Yeah. So a couple of modeling points, Chris. So one, just to pick up the new debt level since we announced the transaction, the debt level's at $1 billion. The interest rate that we have will be consistent with what we've been running at. So there isn't much of a difference on the rate so you can use the rate. We have 4% cap on $600 million of the debt. And then there's a spread on top of the cap. So think about the spread at like 200 basis points, 2.5%, depending on other factors. But that's how to model out the interest.

Got it. Obviously, EBITDA margin is coming down a bit with EvolutionIQ gross margins, adjusted gross margins? Are they...

No, go ahead, Chris. Sorry, go ahead and finish.

No. Yeah, just should we expect a little bit of expansion on adjusted gross margins or how should we be looking at that?

Yeah. I mean, for the full year, adjusted gross margin was 78%. We talked about the long-term target of 80%. Gross margins will bounce around a bit quarter-to-quarter depending on product mix and putting out new solutions into the market. As you think about EIQ and their impact, they have a similar gross margin profile to what we have as kind of a software company. So EvolutionIQ won't have an implication on our gross profit margin. But as I said, we feel good where we sit today at 78% and the long-term guide of moving towards 80% over time.

Very helpful. I'll leave it there. Thanks guys.

Thanks, Chris.

Thank you. [Operator Instructions] Our next question is going to come from the line of Peter Griffith with Citi. Your line is open. Please go ahead.

Yes. This is Peter on the line for Tyler. Thanks for taking the question guys. On EvolutionIQ, I believe at the time of the announcement, you talked about CCC having one overlapping customer with EvolutionIQ. Just wondering how long it will take for you guys to really to try going to cross selling into the customer base. And is there any additional changes you need to make to your selling motion as well? Thanks.

Thanks for the question, Peter. The net-net of it is, there's a lot of growth in EvolutionIQ's customer base in -- and really, as you look at disability, workers' comp in that market. And as we talked about the product synergy, as we bring in medical the summarization capability into Casualty, that will be integrated into our Casualty solution suite and sold to traditional customers. And one customer where we do have an overlap, we've already started having conversations and made introductions and that's going forward. But for the most part, overlap is a relatively small piece of the overall puzzle.

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

Yes, thanks very much. Sort of a related question on EvolutionIQ. Githesh, can you just talk about how you're thinking about -- can, I guess the question is, can CCCS salespeople now cross-sell the EvolutionIQ product? You sort of referred to it, but I'm just kind trying to get a sense on when can the individual salespeople start bringing other products into those existing customers? I realize there's only one overlapping customer right now, but I would imagine you'd want that to change fairly quickly. So I'm just trying to -- sorry, you answered this a little bit, but I was just trying to get -- wondering if you could give us a little bit more color on that side.

Yes, sure. So first of all, the EvolutionIQ team has a great model of how they work with customers. And we have -- and as you know, one of the greatest things when it comes to bringing new customers on board is the quality of the references you have from existing customers who already rolled out. So that's a big piece of it. So EvolutionIQ team has really great customers, have actually gone out and met with existing customers. They are really thrilled with what they have. So there is an already existing pipeline. The EvolutionIQ team has been working on those, so that will continue as is. At the same time, we are doing product development and R&D. There's a team working closely together where we bring in some of the core AI summarized -- medical summarization capability, but that will become part of the CCC Casualty suite. And as we've -- Casualty, as I mentioned in the prepared remarks, is also one of our fastest-growing businesses, and this adds to the Casualty suite. And as soon as that product is available, that will be ready for sale by our -- the CCC sales team into our customer base.

Okay. That's helpful. And then, Brian, maybe one for you on the OpEx side. Obviously, you guys are adding a lot of AI functionality in your products. I'm just kind of curious within CCC SaaS, are you seeing benefits in terms of your own R&D development cycles? Are you getting any benefit yourself from the usage of AI internally?

Yes. We are, to some degree. I would say, we're early stage and early days on it. Most of our AI that we've been focused on is really deploying into our solutions for customers and driving revenue. We have started to deploy AI internally and to drive productivity. I would just say we're in the early innings of that, and it really hasn't driven much through the numbers. That said, we are always looking at areas of efficiency and opportunity within our cost base. But I'm sure Githesh has more to add.

Yes. One particular area we're seeing is in development, where one of the most challenging parts of any large complex software development process, and we do over 1,900 releases a year, is really building out test cases. And where AI is really helping us and our teams is really speed at which we can build test cases and AI is going to be very effective at that. And so have started to deploy it in our technology organization as well.

Thank you.

Thank you. And one moment before we move on to our next question. Our next question comes from the line of Saket Kalia with Barclays. Your line is open. Please go ahead.

Hi. This is Alyssa Lee on for Saket. Thank you for the question. Was wondering if you could speak to some of the margin differences between the emerging and established solution and how that might evolve in 2025? Thank you.

Yes. Yes, the biggest thing that's happening in the margin is really absorbing EvolutionIQ. So if you think about the margin profile, we're -- business before the acquisition, EvolutionIQ, we're adding about 75 basis points of margin improvement year-over-year. What then we've absorbed the moderate loss, EBITDA loss of EvolutionIQ, there's some integration costs that are upfront. And when you add that together, it's taking us to about 200 basis points of margin decline year-over-year. So what you're really seeing there is EvolutionIQ playing through the margin. As far as emerging and established, emerging has an impact on the gross profit, because it has not scaled yet but the depreciation is running through gross profit. So it does have a drag there. Over time, emerging when it gets to scale, will have a similar margin profile as our established solution. So it's more of a temporary impact. And when you get emerging to scale, it will look similar to our established solutions from a margin profile.

Thank you. That's very helpful.

Thank you. And I would like to hand the conference back to Githesh Ramamurthy for closing remarks.

Well, thank you all for joining us today. As we said, we are very optimistic about what we have planned for 2025, and we remain confident in our ability to deliver on our strategic and financial objectives. And our customers, I know are excited about the digital transformation journeys they're on and also in working with us and investing in future solutions. I'd like to take this opportunity to thank our customers for their trust and the confidence they place in CCC. And I'd also like to thank our CCC team members and our shareholders for their support. We remain very excited about the opportunities in front of us and look forward to updating you on our next quarterly call. Thank you so much for your continued interest and trust in CCC.