Thank you for standing by. This is the conference operator. Welcome to the CCC Intelligent Solutions Third Quarter 2022 Earnings Conference Call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. [Operator Instructions].

I would now like to turn the conference over to Bill Warmington, Vice President of Investor Relations. Please go ahead, sir..

Good morning, and thank you for joining us today to CCC's third quarter 2022 financial results, which we announced in the press release issued before the open 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 2021 annual report on Form 10-K filed with the SEC. Further, these comments and the Q&A that follows are copyrighted today by CCC Intelligent Solutions Holdings, Inc.

Any recording, retransmission, reproduction or other use of the same for profit or otherwise without prior consent of CCC's prohibited and a violation of United States copyright and other laws.

Additionally, while we have approved the publishing of a transcript of this call by a third-party, we take no responsibility for the inaccuracies that may appear in that transcript. Please note 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'm pleased to report that CCC delivered another quarter of strong top and bottom line performance. For the third quarter of 2022, CCC's total revenue was $199 million, up 13% year-over-year and ahead of our guidance range.

Adjusted EBITDA was $78 million, up 11% year-over-year also ahead of our guidance range. Our adjusted EBITDA margin was 39.3%. 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.

Today, I would like to discuss three topics. The first is the uniqueness and strength of the CCC platform. The second is how our efficient financial model enables continuous investment and innovation throughout economic cycles. And third is the progress we're making on our new solutions.

Beginning with our first topic, what makes CCC's platform so unique is that it combines an efficient technology framework, close customer relationships and a multisided network that benefits all parties, resulting in a powerful business model. Our technology framework is a key element of the CCC platform.

We have a long history of being at the forefront of technological innovation for the auto insurance economy. Whether that was introducing the CCC ONE platform for collision repair more than a decade ago, and which today represents a 40% of our revenue or more recently in launching and scaling several first in the world AI solutions for claims.

Innovation is at the heart of what we do. And today, our 100% multi-tenant cloud architecture is scalable and enables us to roll out new products and updates quickly and cost effectively. We are also very fortunate to have great customers who want to innovate with us and to do so over the long term.

A good example of this is a recent renewal with a top 20 national insurer. This insurer extended their contract with us through 2029, a 7-year extension versus our typical 3- to 5-year contract line and also expanded their relationship to include multiple new solutions.

This arrangement underscores CCC's role as our customers' long-term innovation platform of choice with customers increasingly looking to the CCC Cloud to help them transform their business and optimize their performance. A core part of delivering those results is how we work with customers.

Delivering solutions with significant input from our customers, enables us to effectively address customer pain points and deliver near-term operational efficiencies for our clients. In many cases, years ahead of others.

As a result, our solutions have high levels of customer adoption, ROI and renewal, which helps create a powerful and highly scalable business model, maintaining close customer relationships is a key part of CCC's culture and a major driver of our consistent Net Promoter Score of 80. Our network is another key element of the CCC platform.

Our network is large, complex, highly interconnected and generates value for all participants. It supports mission-critical processes at over 30,000 companies and across more than $100 billion of annual transactions. The network includes insurers, repair facilities, OEMs, parts suppliers and many other members of the auto insurance economy.

With CCC, the trusted partner, powering and facilitating billions of interactions. As the CCC network has grown in both segments and participants, the value of the network to each participant has also grown, the classic network effect.

We believe that interconnected CCC network is an essential enabler of the auto insurance economy's transformation and is a great way for our customers to address the rapidly increasing complexity they face.

The second topic I'd like to cover today is how our efficient financial model enables continuous investment in innovation throughout economic cycles. Our financial model is both predictable and scalable. In terms of predictability, over 80% of our revenue is subscription-based under 3- to 5-year contracts, and we have 99% gross dollar retention.

In terms of scalability, CCC's high 70s percent gross margin is a product of our highly efficient, cloud-based service delivery model I discussed earlier. In addition, we have an efficient go-to-market model because we already have broad customer coverage with our growth increasingly coming from existing clients.

These efficiencies allow us to continually reinvest in our state-of-the-art technology stack over the long term, enabling rapid deployment to customers. During the pandemic, for example, we continue to invest aggressively in developing new solutions such as Estimate-STP, Diagnostics and Payments.

These investments, combined with decades of previous investments, our position CCC at the heart of a major digital transformation of the auto insurance economy. We think a good analog is how the great financial crisis of 2008, 2009 accelerated the digital transformation of the financial services industry in the decade that follow.

We believe that pandemic illustrated to auto insurance economy participants, the need for new tools to improve their consumer experiences and operational efficiency. We believe this industry is in the early innings of this transformation and that these forces have changed will underpin our growth for the next decade.

The third topic I'd like to talk about today is the progress we are making on some of our newer solutions. We have a long history of developing solutions, combining software, hyper local data and our interconnected network to solve problems for our customers.

Today, our customers' problems include labor shortages, supply chain challenges, inflation, lack of repair facility capacity and rising consumer expectations, all compounded by the increasing complexity of vehicles and of the ecosystem itself. So far, in 2022, for example, repair costs are running over 12% higher than the same period in 2021.

And in third quarter 2022 the national average scheduling backlog for auto accident repair has reached 4.8 weeks, more than twice the previous peak, up 2.2 weeks in the first quarter of 2017. And those figures are all before the impact of Hurricane Ian.

Customers recognize that investing in digital solutions is the best way to counteract the negative impact of the macro challenges we are facing. This morning, I wanted to give you an update on two of our solutions that are helping to do that. We discussed these last quarter, Estimate-STP and Diagnostics.

Estimate-STP is our AI-based system that can write line item insurance claim estimates from photographs with little to no human involvement based on carrier configuration. We now have 14 clients on Estimate-STP, up three from the 11 we mentioned on our last earnings call in August.

We now have 7 of the top 10 insurers representing over 50% of the industry claim volume, running Estimate-STP, and we are excited that clients are starting to roll it out nationally. The absolute volume levels are still a tiny fraction of the potential, but they are growing quickly off that small base.

In September, the number of claims being processed through Estimate-STP was several multiples of the number of claims processed in January. I also wanted to mention CCC smart red flag cross-carrier in the context of Estimate-STP as well as the broader straight-through processing opportunity.

CCC Smart Red Flag cross-carrier is an AI-powered fraud detection system that leverages the claims data of the participating insurers on the CCC cloud. 5 weeks ago, we announced that GEICO was the first auto insurer to join. And since then, 8 additional carriers have signed up.

These 9 carriers include 3 of the top 10 and represent about 30% total market coverage. We believe smart red flag cross-carrier is an important digital enabler for the auto insurance economy because it helps increase trust in the digital claims system as the velocity of auto claims increases. The second solution I'm going to talk about is Diagnostics.

Cars are getting safer, but all these safety features are also making cars more complex. As a result, diagnostic scans are getting more and more important because damage is not always visible to make it up. Five years ago, the number of repairable appraisals that included the scan was about 3%. Today, that figure is about 50%.

Over the past few years, we built out a robust network of leading providers of diagnostic services such as Astec, AirPro, Opus and Honda. In fact, last week, just before a large trade show in Las Vegas, we launched a new optional add-on package to CCC Diagnostics, our diagnostic solution for repair facilities.

The add-on enables repairs to simplify the administration of diagnostics, creating more consistency in reporting, improving verification of scans and increasing transparency between repairs and insurers.

We have also received strong endorsements from OEM and automotive customers who see this capability as being very helpful to repair quality and safety.

The new CCC Diagnostics add-on is part of the previously defined $50 million to $100 million revenue opportunity for Diagnostics and is another example of the central role CCC is playing in digitizing the auto insurance economy.

Before concluding my remarks, I'd like to welcome Mike Silva to our executive team as CCC's new Chief Commercial and Customer Success Officer. Mike has run multibillion-dollar U.S. and international operations at companies like Microsoft, IBM, UnitedHealth and most recently, salesforce.

And best of all, it represents the core values we look for in our leaders. Mike also has direct industry experience, having started his career as a claims manager at Chubb Insurance. His deep experience with enterprise-level sales in SaaS, cloud and AI across insurance, financial services and other industries.

I have high confidence in Mike's ability to help our customers improve their operational efficiency and consumer experiences. Mike, it's great to have you as a part of our team. I will now turn the call over to Brian, who will walk you through our results..

Thanks, Githesh. As we now turn to the numbers, First, I'd like to review our third quarter 2022 results and then discuss our updated guidance for the fourth quarter and for the full year 2022. Total revenue for the third quarter was $198.7 million, up 13% from the prior year period.

Approximately 10% of our revenue growth in the third quarter was driven by cross-sell and upsell into our installed client base, including continued strong adoption of our digital solutions, about 1 percentage point of the 10% came from the large expansion deals that we closed in the second half of last year that we've been talking about over the last several quarters.

An incremental 3% came from new logos, mostly repair facilities and parts suppliers. I'd also note that 99% of our revenue in the third quarter was domestic. 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 2022, GDR was 99%, consistent with last quarter. We believe our software GDR reflects the value we provide our customers and the stickiness of the network effect. Software GDR is a core tenet to 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 Q3 2022, software NDR was 110%, which is above our historical average.

The consistently strong NDR performance in recent quarters reflects the success we've been having with our cross-sell and upsell opportunities across our client base, including the large expansion deals signed in the second half of last year.

NDR is a core driver in our business, and we have excellent opportunities to execute against this for the foreseeable future. Now I'll review the income statement in more detail. As a reminder, unless otherwise noted, all metrics are non-GAAP, and we provided a reconciliation of GAAP to non-GAAP in our press release.

Adjusted gross profit in the quarter was $154.1 million with adjusted gross profit margin of 78%, which is consistent with the third quarter of last year. We feel good about the operating leverage and scalability of our business and being able to deliver against our long-term target of 80%.

In terms of expenses, adjusted operating expenses were $83.1 million, which grew 11% year-over-year. Growth in these expenses was driven mainly by headcount additions and to a lesser extent, an increase in discretionary spend as these expenses are largely normalized.

On the headcount point, we are pleased with the progress made to advance both our operational capabilities and capacity for new product innovation by adding key positions across product management and product development.

We feel we are in a strong position to continue to deliver ongoing innovation into the market and executing on our strategic agenda. Adjusted EBITDA for the quarter was $78.1 million with a 39.3% adjusted EBITDA margin. Adjusted EBITDA grew 11% year-over-year with a slight margin decline of 40 basis points compared to Q3 of last year.

The modest margin decline reflects operating leverage of our revenue growth being offset by investment in resources to support our long-term growth initiatives. As an example, year-to-date, we have increased our product development staff month capacity by approximately 20%. Now turning to the balance sheet and cash flow.

We ended the quarter with $248 million in cash and cash equivalents and $794 million of debt. At the end of the quarter, our net leverage was approximately 1.8 times adjusted EBITDA.

In an effort to proactively manage our interest rate risk, during the third quarter, we put in place a 4% 3-year interest rate cap on $600 million of our floating rate debt. Going forward, the interest rate on our debt will continue to float based on a 1-month LIBOR, but approximately 3/4 of our debt will be subject to an interest rate cap of 4%.

Free cash flow in the quarter was $17.4 million compared to $25 million in the prior year period. Year-to-date, we've converted approximately 43% of our adjusted EBITDA into unlevered free cash flow.

Adjusting for the timing of customer receipts, which were collected in October, the interest rate cap and the headquarter buildout, adjusted unlevered free cash flow would have been in the low 60s range year-to-date consistent with historical results. Now I'd like to finish with guidance, beginning with the fourth quarter.

We expect total revenue of $200 million to $202 million. This represents 7% year-over-year growth at the midpoint. We expect adjusted EBITDA of $77 million to $79 million, which represents a 39% adjusted EBITDA margin at the midpoint.

For the full year 2022, we expect revenue of $779 million to $781 million, which represents 13% year-over-year growth at the midpoint. We expect adjusted EBITDA of $302 million to $304 million, which represents a 39% adjusted EBITDA margin at the midpoint. Three points to keep in mind as you think about our fourth quarter and full year guidance.

The first is that we have now lapped all the large expansion deals that we signed in the second half of last year. These deals contributed 5% of revenue growth in the first quarter of 2022, 4 points in the second quarter and 1 point in the third quarter. We will receive no benefit from these deals in the fourth quarter.

The second point is that we had a two-percentage point contribution from nonrecurring revenue in the fourth quarter of last year.

This creates a 2-point revenue headwind for us in the fourth quarter, which means the implied fourth quarter guidance of 7% to 8% revenue growth with how the 2-point headwind would be 9% to 10% growth in the fourth quarter.

The third point is that we are raising our adjusted EBITDA margin forecast for the full year based on the operating leverage of our revenue performance in Q3 and year-to-date. We expect adjusted EBITDA margin will be up approximately 80 basis points for the full year 2022 to about 39%.

This represents about 900 basis points of margin expansion since the end of 2019. We continue to be focused on investing in innovation to support our growth ambitions while at the same time progressing towards our long-term mid-40s adjusted EBITDA margin targets.

Overall, our guidance reflects our confidence in the underlying momentum of the business and we feel good about the strategic position of the long-term opportunities in our product portfolio. We believe we have many shots on goal.

Two of which were highlighted today with Estimate-STP and Diagnostics, but we have many other exciting opportunities across both our emerging solutions like subrogation and payments as well as our more established solutions like casualty, repair shop package upsells and Engage.

The need for digitization across the P&C insurance economy continues to accelerate, and CCC is well positioned to drive durable growth in revenue and profitability in the near and long term. We are confident in our ability to deliver on our long-term organic revenue growth target of 7% to 10% next year and beyond.

As we continue to execute on our strategic priorities, we believe we will generate significant value for both our customers and our shareholders. With that, operator, we're now ready to take questions. Thank you..

[Operator Instructions] The first question comes from Gabriela Borges of Goldman Sachs. Please go ahead. .

Hi, good morning. Thank you for taking my question. For both Brian and Githesh, Brian, you talked a little bit about the puts and takes, the 4Q guidance. Githesh, you talked about some of the longer-term secular tailwinds you're seeing post COVID. I'd ask about the long-term growth rate, so the 7% to 10%.

Maybe give us a little bit of insight into what would drive you to be at the low end of that range versus the high end of that range in any given year? And any early visibility into 2023 and how we should be thinking about that? Thank you..

Brian, do you want to take the first part? Gabriela, how are you. And I'll take the second part of your question..

Yes. Good morning, Gabriela. I'll start think about Q4 and the range we put out. So, we talked about 7% at the midpoint and 8% at the high-end range. Remember, within there, there's two points of headwind that we're facing. So, when you normalize that, that's 9% and then 10% at the high-end range.

So, I think that's a good way to think about how we're going to end the year and then the stepping off point into next year. When you think about what will drive the high end of the range, it's certainly going to be -- one of the key factors will be the adoption of our newer solutions and how those track.

And so, when we think about what will push us to the high end or beyond, it's really going to be the progress of those new solutions that we're rolling out and the adoption of them.

Githesh, if you wanted to add some additional color?.

Yes. Gabriela, one of the things that we have focused on is having a very, very scalable and modern cloud architecture. So, as we deliver new solutions, our ROI tends to be very quick. We're talking about 90 days, typically from the time we roll out a product or a solution. So as a result, we have high adoption.

And as an example, I mentioned Estimate-STP. And if you look at even just over a quarter, we've added 3 large clients. And as we roll out existing products, as we roll out our newer solutions, we're also continuously developing new products. So, I would say adoption as well as the pipeline we have of new solutions is what gives us confidence.

And most importantly, we've had a number of meetings with our customers. And they all have indicated a very deep propensity to continue to roll our solutions out. That's what gives us confidence in our growth..

That all makes sense. As a follow-up, Githesh, congratulations on hiring Mike. Maybe give us a little bit of a preview.

What are a couple of key projects that Mike will be looking on? And what are some of the areas where you think you can really move the needle?.

Sure. Mike is primarily focused on, first and foremost, making sure he has an extraordinarily deep understanding of our customers, our products and solutions as we built all of these over the long run.

And Mike's primary focus is working with our customers and to really roll out many of these newer solutions, a whole range of solutions working with our teams. And Mike has deep experience in go-to-market rollout of new solutions. And that's, I would say, hey, a big focus for Mike..

Appreciate the color. .

Alright Gabriela. Thank you.

The next question comes from Dylan Becker of William Blair. Please go ahead. .

Hey guys, good morning. Congrats on the quarter. I guess maybe starting with Githesh, the idea, you touched on STP planning out around claims automation, obviously, some solid early traction there.

But as you think about the idea of rounding out the broader kind of touchless claims opportunity, I think that there's probably other components that you could build out, right? So, speaking to that innovation piece, you touched on smart enabler.

I would just understand how the early track you're seeing maybe gives you and the market confidence in claims automation capabilities and how you're thinking about rounding up that suite in the future innovation cadence there?.

Okay. Thanks for the question, Dylan. And here's what we're seeing. What we started to do, first and foremost, was when we started rolling out Estimate-STP, people started testing Estimate-STP in a handful of geographies. People are tested out in the state, maybe two states, maybe three states.

And just by way of background, prior to Estimate-STP, we had rolled out Smart Estimate, which was our AI solution, which were being used by thousands of adjusters, so people get really comfortable with the ability of the AI and its fundamental capabilities.

So, as we move to Estimate-STP, what we are now seeing is clients are going from 1 or 2 or 3 states to in some instances, have gone to all 50 states, and that volumes are still very tiny.

But as we tune the models, as we add more customers and people are rolling out in more states, we see tremendous opportunities for Estimate-STP to continue to roll out across our client base. Now just as a reminder, Estimate-STP is part of a much broader view that we have around STP or straight-through processing.

So this ability to demonstrate in very tangible terms, immediately, what Estimate-STP can deliver gives our customers a lot of confidence, and we're working at design levels with many of our customers across a much broader STP, which basically starts all the way from consumer, all the way through settlement and takes advantage of the network of customers we have across insurers, repairs, parts providers because you have to bring all of these pieces together to truly pull off straight-through processing..

That's very helpful. I appreciate the color there. Maybe switching over to the repair facility side as well, too. The idea of consolidation playing out in the space. You've got a healthy share here. And I'd assume that most of your customers tend to be the consolidators.

You touched on a lot of the macro impacts, but maybe how they're prioritizing investment and efficiency to address again growing backlogs, material, labor challenges, everything you talked about? Thanks. .

Yes. In fact, I was at our trade show just day before yesterday talking to many of our repair customers. And what we see across the board is just as a reminder, we also have a lot of independent customers, repair facilities as customers. So, when we say we have 27,500-plus customers, it is made up of multi-store operators. It's made up of independence.

So, it's a pretty large share of both that are there. What we are seeing is that the pressures that they have in terms of labor shortage, inflationary costs and many of the things that we pointed out, people are looking to save time. Time is the one thing that if they can have technicians and others be highly productive.

So, part of our solutions eliminates, simplifies things. So as an example, CCC ONE, all of the capabilities of CCC ONE streamlines the operation of not only multi-store operators, but also independent repair facilities.

And as we add functionality like Diagnostics, Diagnostics has a dramatic impact on improving the entire flow between OEM procedures to connecting to insurers.

So, what we're seeing across the board is people are seeing volume come back, but at the same time, the drive for more digital capabilities, more efficiency we are hearing that across the board from our repair customers as well..

Very helpful. Thanks for taking the question guys and congrats. .

The next question comes from David Kelley of Jefferies. Please go ahead. .

Good morning and thanks for taking my question. And thanks for all the color on the lapping of your large expansion deals from last year.

But maybe regarding the new top 20 expansion deals you announced this morning, how should we think about contribution from the new deal going forward? And also, curious if there's any other major contracts potentially up for renewal in the coming months that we should be considering?.

Yes. Hi David, it's Brian. I'll take that. Yes, so within the deal, I mean, we highlighted a top 20 renewals. Within that renewal, we had several products that were included as a cross-sell. We highlighted it also because of the term, right? So, it's a seven-year term and really highlights the commitment this carrier has for CCC.

You think about that in just our normal step-up of growth sequentially. So, you look at our absolute dollars, you see each quarter, it's building -- it's going to be part of just that natural step-up of cadence and nothing particular data highlight on this deal within the guidance that we're seeing for Q4.

And when we talk about the guidance for next year. We are always working with our clients on cross-sell and expanding their bundles. And so that's just the natural cadence and we'll continue to do that as we think about next year and our growth, we'll be always cross-selling and upselling into our client base.

So, it's kind of standard operating procedure with the way we work with our clients..

Okay. Got it. Thank you, and then we're starting to see used vehicle values soften from really high and frankly record levels. This will have implications for vehicle total rates and clearly, your repair facility customers.

I was hoping maybe you could walk us through how this trend impacts CCC and clearly, not nearly to the extent given your recurring revenue stream, but high level how do you think about a market where used vehicle values are starting to correct from really robust post-COVID supply shortage-driven levels?.

Sure. So first and foremost, what I want to make clear is that we have deliberately designed our business model so that we have -- our goal for our clients is to give them the correct answer every single time.

So, it's very important that whether a vehicle should be repaired or a vehicle should be totaled, it's important to make the -- what is the accurate decision for that particular vehicle. With that said, as repair as total loss prices have come down, in fact, total loss valuation hit a $16,000 peak just a couple of months ago.

So, over a period of 20 years, total losses had gone from roughly $6,700, $10,000 over 20 years -- and in the last 2 years, it went from $10,000 to $16,000. So, we've seen a significant bump.

What we're seeing very, very recently, literally in October, September, late into October is total loss percentages coming down from the 20% range, closer to 18%. And that is directly related to the softening of used car prices.

The impact it has for our repair customers is that as total loss, it’s really starts -- even at these high levels, it increases the amount of repair. But for the CCC business model, it has 0 implications whatsoever one way or the other..

Ok, got it. That’s helpful. .

The next question comes from Saket Kalia from Barclays..

Okay. Great. Good morning guys and thanks for having me on the call here. Githesh, maybe for you. Great to see the 14 carriers on Estimate-STP.

I was wondering -- what do you think is there a catalyst to accelerate that adoption? And from CCC's perspective, do the economic scale as that adoption increase? So maybe you could just talk about that broad brush?.

Sure. So, from a -- when you look at it from a customer standpoint, there's a number of factors that people are dealing with.

One, vehicle complexity is increasing pretty substantially and with literally hundreds and hundreds of models and variations, what artificial intelligence can do is provide a capability that starts taking the photos, and we collect over 500 million photos a year and to really collect and translate that into how should -- what should be the repair estimate for this vehicle so we produce all the way down to a line level estimate.

And as customers have started using it, they're finding substantial use cases in terms of speed, in terms of reducing complexity, in terms of jump-starting estimates for their own staff and sending a person out to go look at a vehicle can cost as much as $200.

So, these tools are not only having a significant impact on that, but it also dramatically improves the consumer experience after a claim because of the speed of which you can deal with this. So that's really what we see.

For us, in terms of CCC, as the scale, when we look at the next 24, 36 months, we see Estimate-STP continue to roll out very, very nicely. And as that scale increases and the rollout increases, revenue, and there is a revenue increases commensurate with those rollouts as that take place.

And again, even though as I mentioned in my call, that from January to September, we've seen a multiple increase in the number of Estimate-STP claims. On an overall basis for this year, it's still a very small number. So, we are excited about what it can do for our clients, and we also believe very strongly this will be a revenue driver for us..

Got it. Very clear. Brian, maybe for my follow-up for you. Great to see the software NDR continue sort of at that 110% range.

Particularly given the tough compare from the big renewals last year, can you just kind of dig into what drove that? And I know we don't guide to the software NDR, but how do you sort of think about that ebbing and flowing in sort of the coming quarters?.

Yes, absolutely. Yes. So, we feel good about the 110% that we posted in the quarter. When you look at that versus historical levels, historical levels have been more of 106%, 107%. So, feeling good on the trend and the traction. The three things I would highlight that really underpin that metric.

One, we do see continued strong growth contribution from our digital solutions mobile, AI, Engage, some of the digital tax and fee solutions for total losses. So that's certainly playing through the number. We also see continued strength in our upsell at the repair facilities. And that is trending higher than our historical levels.

And then the third piece is the large expansion renewals is still in the metric, although it's tapering off for Q3, but that also was part of -- that will go away in Q4. But as you think about the go-forward position, the guidance I would give you is about -- over time, we'll see about 80% of our growth coming from our existing installed base.

And so, you think about that over the long term, that will flex a bit quarter-to-quarter, but that should give you a view of how to think about NDR in the overall growth equation..

Got it, very helpful. Thanks guys..

The next question comes from Kirk Materne of Evercore ISI. Please go ahead..

Thank you very much. Githesh, maybe following up a little bit on Saket's question.

When we think about adoption of STP by your customers, how much of it is sort of a business process challenge for them to start integrating it into their sort of existing business processes? And is this something that has to happen from their perspective on a state-by-state basis? Or once they sort of do a proof of concept, the adoption can take place at a rate maybe not as linear.

I'm just trying to get a sense on how you all see sort of the adoption? Is it a nice steady sort of push higher? Or are there opportunities for it to kind of go a little bit more exponential? Thanks..

Yes. So first of all, there is 0 need to actually go state by state. It is more in terms of tuning. There are literally hundreds and hundreds of parameters from an AI standpoint that have to be tuned. And every carrier has unique needs in terms of how we would like to do the tuning and we work with them on the unique tuning.

So, once you plug it in, we can literally roll this out across our entire platform across all our geographies. So, it's not a technology issue. It is not a training issue. It's relatively quick. And because our customers are deeply integrated into the CCC platform with their systems and our systems.

When we rolled out mobile several years ago, almost all our customers are using our mobile capabilities. In fact, the adoption of mobile in the industry has literally gone from 0 to 30% of all mobile claims are coming into the mobile channel. That means that consumers sent a link, consumer takes pictures, then the AI starts to work.

So, we are already -- so that part of the funnel is already built for consumers. And so, the entire workflow, the process is already in place. And what this does is there are some adjustments to the operating process, and it's more of people getting comfortable with it. That's why we're so excited to see that we had 11 customers.

Last quarter, we've added three more customers.

And does that help, Kirk?.

Yes, that's very helpful. Yes, I was just trying to get a sense on whether there are sort of gating factors for adoption of there is. Brian, just on the big renewal this quarter, it's great, obviously, to see your customers so committed to CCC in terms of seven years.

And can you just remind us, are there any sort of pricing escalators built into contracts, maybe not this contract specifically, but in general, as inflation goes up? Or is it basically just still volume-based? I was just trying to get a sense of if there's any sort of pricing uplift over-to-over a period of a contract like that..

Yes. So, it's a good question. I mean we are always looking at our strategic pricing and tuning. So, like many SaaS providers, we'll look at the packaging. We'll look at the value we're driving for our clients, and we'll look to then make sure we're getting appropriate value back to us for bringing that solution to our clients.

And so, I'd say there's nothing new that we're doing on the back of inflationary challenges. We're continuing to just look at our pricing in a strategic way as we have historically. So that's the way I would leave it..

That’s great. Thank you..

The next question comes from Tyler Radke of Citi. Please go ahead..

Good morning. I wanted to follow up on the questions around the large renewal.

Can you just remind us, are typically these large renewals within insurance carriers, a catalyst for them to take on more products? Or do the expansions kind of happen independently? And then just as you look out over the next 12 months, how does that renewal pipeline look relative to 2022? Are you expecting things to step up just based on the timing of some of your contracts? Thank you..

Brian, if you'll take the second part, I'll take the first one. So, when you look at -- so first and foremost, whether people add additional components of our solutions or not, is really independent of whether we are renewing the contract or not.

So, because the platform is already in place as we bring new solutions on board, as an example, the 14 clients were Estimate-STP that can -- those solutions can be added to any -- regardless of what the contract comes on.

Now interestingly enough, when people do renew and when those things do take place, there's an opportunity for both the customer and for us, as we look at the next several years in terms of adding additional functionality.

So, I would not say that there is anything unusual about contract extensions, having a link to rolling out additional solutions we have.

And Brian, do you want to take the other part?.

Yes. No, I would just reiterate the same point. I mean, we look at our opportunities in different ways. I mean some will be -- a renewal will be a catalyst to expand the broader bundle. We'll sell into that broader bundle and do a renewal.

As Githesh said, sometimes we will just add a product schedule within an existing contract, and there won't be a renewal. Others -- these product extensions will be a driver to extend and drive a renewal. So, they kind of work in all different ways.

When we look at our pipeline, we feel really good about the opportunities we have in front of us, both with adding new product capabilities and renewing key deals as we go into next year. So, we feel really good about where we sit with our clients and the renewal cadence and the cross-sell, upsell opportunities..

And remember, many of our customers have worked with us for several decades..

Yes. No, definitely aware that I can see that with the high retention and the strong relationships over time. Brian, maybe for you for the second question.

How are you just thinking about the hiring environment here? I think CCC has had typically less churn certainly at the senior level from an attrition perspective, employee attrition relative to the peers? Have you noticed any changes for better or for worse in the hiring environment? And just how are you thinking about kind of the expense growth and headcount growth into next year?.

Yes. So, I would -- maybe I'll start with the second, and we'll come back to the hiring part, and I'll let Githesh add as well. I mean we remain extremely focused on balancing both our investment and funding our strategic innovation to really underpin our strategic agenda.

And so, we remain very focused on that at the same time, focused on margin progression. So, because we're fortunate to have a very efficient business model, we can do both. We can put the funding that we need to drive the strategic initiatives and also see the margin progress over time.

And we saw that this year as we moved from 38% margin to 39% margins, and we see that going forward. I also highlighted in our prepared remarks that we are seeing good progress in hiring. We added about 20% of capacity in our staff months on a year-to-date basis. So that's starting to show we are adding the necessary capacity to fund the innovation.

We are not seeing anything dynamic or dramatic from changing in hiring. We are able to continue to make the key hires that we need. We're also seeing good low churn and attrition in our teams and managing high retention. So overall, we feel good where we are.

We feel good as we go into next year and having both the capacity and the skill set that we need to set us up for the long term. I don't know Githesh anything to add at....

I'd just add that, look, historically, we've had very low churn, and that continues. But most important, I would say two specific areas that the vast majority of the 20% capacity increase is really coming to two areas. First and foremost, in engineering, where we have full stack developers, where we have AI capabilities.

We're continuing to add top talent into engineering as we roll these products out as well as product management. So, I would say that's the vast majority of our recruiting, and we're able to recruit across geographies. And if anything, that’s becomes a little easier in the last of few months..

Great. Thank you..

The next question comes from Gary Prestopino of Barrington Research. Please go ahead..

Thank you. Good morning all. Githesh, I just want to -- wanted to ask this, with this STP Estimate-STP that you have out there, as insurers sign up for this, are there adjacent products that you are offering that are really must have to work with Estimate-STP, maybe on the repair side, maybe on the insurance side, wherever.

So, it just adds to the potential growth that you foresee from this product?.

Gary, the answer is yes. In fact, the Estimate-STP is really important to establish when we look at the broader concept of STP or straight-through processing. So that has implications on many-many facets of the claims process where we can apply artificial intelligence and other capabilities since we're already deep in the workflows with customers.

So, we are working with repair facilities of various -- of various types of repair facilities so that from engaging all the way from the consumer, we're adding components to our Engage product that's in the repair facilities. So, we see work going on over there.

We have work going on in everything ranging from subrogation where we had done acquisitions. So that's another example of an adjacency.

We've got work going on in at first notice of loss, but you're exactly right that as people try, test, use and see a significant impact, this is why we remain so excited about the broader straight-through processing opportunity across our entire customer base..

Great. That's good to hear. And then just a quick one for Brian. With the nonrecurring deal that you had last year in Q4, you said it was a 2% contribution of revenue. I kind of looked at that, so that's about $4 million of revenue.

Is that correct? And would most of that have flown directly down to EBITDA?.

Yes. That's right, Gary. So last year, we had two points of nonrecurring impact in Q4, and we called it out at the time. So -- and that did flow all the way through. And you've seen it flow through in our gross profit. So gross profit in Q4 of last year was slightly elevated at 79%. And -- and that was part of the flow-through.

But yes, you're looking at that correctly..

Okay. Thanks a lot, of guys..

The next question comes from Arvind Ramnani with Piper Sandler. Please go ahead..

Hi, thanks so take my question. I wanted to ask you about a little bit. It's a broker company, they've had a shorter view on CCC, but you have been around during some of the kind of periods of tough macro.

So, if you -- I know this -- these macro headwinds are different than prior, but just in the macro environment, can you maybe walk us through some of the percentages on your business? And assuming the macro remains tough, in '23.

What are some of the things you anticipate from a business impact?.

Arvind, you broke up a little bit, but I think I can give you a couple of thoughts on the macro environment. And so first and foremost, you're dead right. We have been through several decades of various environments.

For example, during the dot-com crash of 2000, we invested heavily to build and roll out our web-based solutions for the insurance market. And then during the 2008, 2009 financial crisis, we actually invested heavily in building out the CCC ONE platform. That generates almost half of our revenues today.

And then what we saw in 2020 with -- really with COVID is our customers need a dramatically different ways of connecting to the consumers, which really led to the adoption and investment in mobile and AI and other capabilities. So, we have a history of actually understanding and dealing with all of these environments.

And this is why we continue to maintain our close working relationships with customers that gives us an advanced view of the challenges that they have and we continue to build solutions. And having a very efficient financial model allows us to weather through this, but with all that said, we continue to monitor the environment pretty closely.

And that's really -- so we've learned a lot from the history of how we've operated through various cycles. And we keep all those lessons learned very close to heart..

Perfect. And yes, I appreciate the perspective.

But if I can ask for a follow-up, like how does the macro impact your business, right? Like in sense like if you end up in a recessionary environment, does that benefit you or in what ways does it benefit you? And what ways does it a persistent macro headwind to your core business?.

Yes. When you look deep down -- when you look at our clients' businesses, the fundamental nature of what we do is mission-critical. And when you look at our customers' business, auto insurance is a mandatory product, people -- that is really the route and the fundamental thing that is -- that you have to look at.

So, people continue to drive, auto insurance is mandatory. While prices go up, accidents continue to be -- so the claim volume continues to be -- continues to go up gradually from pre-COVID levels. So, I'm not sure that there's a much deeper answer but the fact that our business is rooted in an industry and an environment, which is not discretionary..

Yes. Maybe just one other thing to add. It's Brian. You also look at our revenue model. It is very resilient. It's very predictable. We have the vast majority is subscription based, and it's reoccurring. And so, you have to think about that as well when you think about kind of the macro environment..

That’s great. Thank you..

[Operator Instructions] The next question comes from Michael Funk from Bank of America. Please go ahead..

Think about economic sensitivity. I understand the resiliency of the business model.

But are you seeing any elongation of the sales cycle or a change in purchasing behavior amongst your customers?.

Nothing material that we're seeing..

Okay. And then maybe just one more, if I could. Just thinking about NDR, longer term, your longer-term target there.

How much of that will be driven by existing solution penetration versus developing new solutions to sell into the base?.

Yes. Michael, it's Brian. I'll take that. So yes, so we've laid out the long-term model, we've highlighted as we go forward about 80% of our growth will come from our installed base to cross-sell, upsell, 20% from new logos. Within that 80%, we've highlighted that about 50% of it. So, half of that will come from the more established solutions.

And the other half will come from these newer initiatives that we've been talking about. So, it's the Diagnostics, the STP, the Estimate-STP. So, about half of it will come from these newer digital solutions..

That’s great. Thank you..

There are no more questions from the phone line. This concludes the question-and-answer session. I would like to turn the conference back over to Githesh Ramamurthy for any closing remarks..

Well, thanks, everybody, for joining us today. We are proud of our performance to date in 2022 for which I'd like to thank our customers, our CCC team members and, of course, our shareholders. We remain confident in our ability to continue to deliver on our strategic and financial objectives.

And the durability of our business model continues to come through as we deliver innovation and operational efficiency for our customers. And we look forward to talking with you on our fourth quarter call in early March, if not sooner. And again, thank you very much for your continued interest.

And on behalf of all my colleagues, thank you and a big shout out to all our CCC team members who makes CCC a great place every single day for our customers and for ourselves. Thank you..

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day..