Good day, and thank you for standing by. Welcome to the CCC Intelligent Solutions First Quarter Fiscal 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. .

I would now like to hand the conference over to your speaker for today, Bill Warmington, Vice President of Investor Relations. Please go ahead, sir. .

Thank you, operator. Good afternoon, and thank you all for joining us today to review CCC's first quarter 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 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 2023 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 or reproduction or other use of the same for profit or otherwise without prior consent of CCC is prohibited and a violation of the United States copyright and other laws.

Additionally, while we 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 in our earnings release that is available on our Investor Relations website. Thank you. .

And now I'll turn the call over to Githesh. .

Thank you, Bill, and thanks to all of you for joining us today. I am pleased to report that CCC began 2024 on a strong note. .

In the first quarter of 2024, CCC's total revenue was $227 million, up 11% year-over-year and ahead of our guidance range. Adjusted EBITDA was $94 million, also ahead of our guidance range, and our adjusted EBITDA margin was 41%.

Our industry continues to be in the early innings of digital transformation, and CCC is well positioned to be our customers' partner of choice for that transformation. .

On today's call, I'd like to share how the CCC Intelligent Experience Cloud is helping our customers navigate this journey and the growing adoption we are seeing across our recent innovations. I'll also provide an update on the continued progress we have made in broadening our shareholder base.

My first topic is the role of the CCC Intelligent Experience Cloud in enabling our customers' digital transformation. .

insurers, collision repairs, auto manufacturers, parts suppliers and more, and is a key enabler of our ability to provide continuous innovation to customers with a rapid return on investment and minimal effort on deployment. .

Our client platform is also highly efficient. In 2023, our engineering teams deployed more than 1,400 releases to customers with high operating leverage, scalability and reliability. Our transition from private to public cloud infrastructure last year further reinforce these advantages. .

Across the markets we serve, customers are increasingly looking to CCC to make it faster and easier to adopt our solutions and drive innovation into their business.

This trend is being driven by a wide variety of forces, including macroeconomic changes, labor shortages and increasing complexity in day-to-day operations, challenges that can best be addressed through a highly integrated, highly connected AI-enabled platform. .

And critically, they're looking to rapidly transform and simplify their businesses without disrupting their existing operations. Doing this at scale requires intelligently orchestrating the data and workflows, not just within a customer's four walls, but across the consumers and businesses they interact with. .

And with the recent introduction of the CCC Intelligent Experience Cloud or IX Cloud for short, we are enhancing our customers' ability to solve this many-to-many problem with the cloud platform they already use every day.

The CCC IX Cloud overlays a new event-driven architecture into CCC's existing cloud applications, customer workflows and customer and partner systems. This micro services-based approach will make it faster and easier for customers to deploy new CCC solutions and will also increase the number of ways customers can use multiple CCC solutions together.

Customers do not need to upgrade as a CCC IX cloud represents an enhancement to the existing CCC cloud platform. It just gets better. .

Throughout our history, CCC has helped customers navigate the complexity of our industry and use advanced, highly connected technology to solve the most pressing business problems.

The CCC IX Cloud is designed to accelerate this journey in a way that is purpose-built to solve for the substantial increase in complexity in the P&C insurance economy we see today. .

Unlike most industries where an existing supply chain converts raw materials into finished products and distribute them in a predetermined and repeatable manner, instead in the P&C insurance economy, the supply chain is created spontaneously after an accident occurs.

Each insurance claim and collision repair is unique, and so are the hundreds of different decisions, tasks, and data flows that go into those claims and repairs. These are crucial moments for our customers and their customers.

And our new event-driven architecture, helps to align this highly complex supply chain, so our customers can drive a step function improvement in their operating performance and consumer and employee experience. We are excited to see what they invent..

My second topic is the growing adoption of our solutions. Our solid performance in Q1 was driven by the continued expansion of our multisided network and traction from new and existing solutions.

In addition, we began rolling out the new top 20 APD insurance client we announced last year and had multiple insurers renewing and expanding their relationships with CCC. .

We have also continued to add new repair facilities and parts suppliers to the CCC network. We also saw strong demand and adoption of our AI-enabled solutions across our different customer groups. For Estimate-STP, for example, we continue to see progress across volume, adoption and the number of clients testing, piloting and rolling out.

Other examples are CCC Subrogation, our suite of solutions that applies AI and workflow automation to both outbound and inbound subrogation, as well as Impact Dynamics, which uses computer vision to predict potential injuries to the occupancy of a vehicle involved in an accident based on photos of the damaged vehicle. .

Both of these solutions continue to deliver significantly positive results for customers using them, often in the multiple millions of dollars, resulting in growing interest from more customers. We expect these positive demand and adoption trends to continue given the significant bottom line benefits insurers are seeing from these solutions. .

For repair facilities, we are continuing to add new rooftops and are seeing strong adoption of new products like Mobile Jumpstart, the solution we launched at the end of 2023 that uses AI to dramatically reduce the time it takes an estimator to repair facility to generate an initial estimate, from an industry average of 0.5 hour or more to less than 2 minutes.

In Q1, almost 5,000 repair facilities used Jumpstart to complete tens of thousands of repair estimates. .

We're also continuing to see strong interest in the expansion of CCC ONE beyond its traditional focus on repair operations to help our customers run their businesses overall.

Two examples of such solutions are Amplify, a quick and easy way for repair facilities to set up a modern professional-looking website with deep integration into CCC ONE and our consumer payment solution which has already enabled over $1 billion in partner payment collections for our repair facility customers. .

We feel good about the early traction and growth potential for both of these solutions and see many additional category expansion opportunity for repair facilities given our platform, network and AI capabilities.

The progression of these and other new solutions follows a pattern of innovation that we have observed over multiple decades, building a great product grounded in tangible customer value with a rapid ROI provides a long-term runway for growth and strong referenceable customer relationships, which in turn leads to additional opportunities. .

The credibility we established with our original product, a tool to help insurers assess total losses provided a pathway for us to deploy a state-of-the-art solution estimating damaged to repairable vehicles.

We then extended those same estimating capabilities to repair facilities establishing direct repair and the expansive insurer repair facility network that exists today. .

In the year since, a steady stream of industry-first innovations has extended our platform and delivered additional value to customers; workflow tools for insurers to manage the appraisal process, an advanced operating system for repair facilities to help them manage their day-to-day operations, integrated parts ordering with thousands of connected parts suppliers, mobile and then AI-based digital solutions that range from first notice of loss to appraisal to casualty and even subrogation and more.

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Our track record of delivering these and other innovations has, at its core, been enabled by the depth of our customer relationships with insurers, collision repairs, parts suppliers and auto manufacturers.

The result is an innovation flywheel that lets us incubate new concepts, test them with initial customers and then deploy reference level solutions at scale across our customer base.

And because we have such a broad portfolio of innovation, different customers can adopt different solutions in different increments based on their particular needs over time. .

This dynamic is at the heart of our durable long-term business model and enables us to consistently invest in R&D across economic cycles, $150 million last year and well over $1 billion in the past decade.

And with our projected 2024 revenue representing a fraction of the $10 billion-plus market opportunity we see in digitizing the P&C insurance economy, we believe we have decades of growth ahead of us. .

My third and final topic is an update on the continued progress we have made in broadening our shareholder base. Since going public, we have made significant advances in expanding our shareholder base and increasing the liquidity of our shares.

The secondary offerings and block trades from our private equity investors over the past 6 months have increased our public float as a percent of total shares outstanding as measured from Bloomberg from about 30% in October of last year to about 60% currently.

We see this as an important development towards fulfilling our commitment to our shareholders. .

Let me conclude by saying that we are excited about what we have planned for 2024, the rising demand for AI-based solutions across our customer base, combined with our track record of driving growth through innovation and increasing the ease of adopting our solutions via the CCC IX cloud gives us confidence in our ability to continue to deliver on our strategic and financial objectives.

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I will now turn the call over to Brian, who will walk you through our results in more detail. .

Thanks, Githesh. As Githesh highlighted, we are seeing strong innovation and momentum across the business as reflected in our track record of driving growth through category expansions and cross-selling, our IX Cloud architecture enables easier client adoption of our solutions and our durable business model.

We are pleased with both top and bottom line performance which reflects a balance between investment in our growth initiatives and ongoing margin discipline. .

Now as we turn to the numbers, I will review first quarter 2024 results and then provide guidance for the second quarter and full year 2024.

Total revenue in the first quarter was $227.2 million, up 11% from the prior year period, approximately 8 points of our growth in Q1 was driven by cross-sell, upsell and adoption of our solutions across our client base, including repair shop package upgrades, continued adoption of our digital solutions and the ongoing strength in casualty and parts.

Approximately 3 points of growth came from our new logos, mostly with repair facilities and parts suppliers. About 1 point of growth in Q1 came from our emerging solutions mainly diagnostics, Estimate-STP and Subrogation. .

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 Q1 2024, our GDR was 99% which is in line with last quarter.

Note that since the first quarter of 2020, our GDR has been between 98% and 99% and is either rounded up or down, driven primarily by repair shop industry churn. We believe our strong 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 to our predictable and resilient business 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 Q1 2024, our NDR was 107%, consistent with our average across 2023. .

Now I'll review 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 $177 million. Adjusted gross profit margin was 78%, down slightly from 79% in Q4 and up against 76% in Q1 of 2023.

The stronger year-over-year adjusted gross profit margin primarily reflects operating leverage on the incremental revenue. .

Overall, we feel good about the operating leverage and scalability of our business model and our ability to deliver against our long-term adjusted gross profit margin target of 80%. In terms of expenses, adjusted operating expense in Q1 2024 was $92.9 million, which is up 8% year-over-year.

This was mainly driven by higher IT-related costs as well as investment in our customer-facing functions. Adjusted EBITDA for the quarter was $93.7 million, up 18% year-over-year with an adjusted EBITDA margin of 41%. .

Now turning to the balance sheet and cash flows. We ended the quarter with $191 million in cash and cash equivalents, $782 million of debt. At the end of the quarter, our net leverage was 1.6x adjusted EBITDA. Free cash flow in Q1 was $39.6 million compared to $18.5 million in the prior year period.

Free cash flow on a trailing 12-month basis was $216 million, which is up 56% year-over-year. Our trailing 12-month free cash flow margin in Q1 2024 was 24% compared to 17% a year ago. .

Unlevered free cash flow in Q1 was $52 million or approximately 55% of our adjusted EBITDA. Q1 is usually our lowest conversion quarter because it's when we pay our annual incentives. While our level of free cash flow can vary quarter-to-quarter, we expect it to continue to average out in the mid-60% range of our adjusted EBITDA on an annual basis. .

I'll now cover guidance beginning in Q2 2024. We expect total revenue of $228.5 million to $230.5 million, which represents 8% to 9% growth year-over-year. We expect adjusted EBITDA of $89 million to $91 million, a 39% adjusted EBITDA margin at the midpoint.

For the full year 2024, we expect revenue of $944 million to $950 million, which represents 9% to 10% year-over-year growth. We expect adjusted EBITDA of $389 million to $395 million, which represents 41% adjusted EBITDA margin at the midpoint. .

So 3 things to keep in mind as you think about our second quarter and full year guidance for 2024. The first point is that we remain confident in our 2024 financial target and have increased the midpoint of our guidance ranges. We're pleased with the broad-based strength that we saw across the business in Q1.

But keep in mind that year-over-year revenue growth rates can vary quarter-to-quarter because of contract timings, variations and subscription revenue contracts with volume-based elements and the pace of client adoption of new solutions. .

The second point is that the Emerging Solutions contributed about 1 point of growth in Q1, and we expect the upsell, cross-sell of these new solutions will contribute about 2 points of growth in 2024 as they continue to scale.

Githesh mentioned in his remarks, we are seeing positive feedback in client engagement around these emerging solutions, and this gives us confidence about the contribution to growth in the back half of 2024. .

The third point is that in prior years, we experienced seasonality in our adjusted EBITDA margin with the second half levels being above our first half levels, in Q2 being the low point for the year.

We expect 2024 to be consistent with this pattern, with the first half margins being constrained by the reset of employee-related expenses and the cost of our industry conference. .

Overall, the strong trends we're seeing in renewals, relationship expansions and new solution adoption reinforces our confidence in the underlying strength of the business.

The combination of our durable business model, advanced AI capabilities, interconnected network and the broad solution set puts us in a unique position to help our customers in the P&C insurance economy, reduce their cycle times and administrative costs while improving their consumers' experience throughout the claims process.

We are confident in our ability to deliver against our long-term target of 7% to 10% organic revenue growth and mid-40s adjusted EBITDA margin as we continue to execute on our strategic priorities and generate value for both our customers and our shareholders. .

With that, operator, we're now ready to take questions. Thank you. .

[Operator Instructions] Our first question comes from Saket Kalia of Barclays. .

Okay. Great. Nice strong start to the year. .

Thanks. .

Thanks. .

Sure. Githesh, maybe to start with you. Listen, the quarter and the guide are pretty straightforward to the earlier point. So maybe I'll just start with a higher-level educational question.

Can we just talk a little bit about the competitive environment in the casualty market? I think you've talked about how there's plenty of room for adoption for casualty within your APD customer base.

What types of solutions do you need to displace to make that happen? And maybe just qualitatively, how are those conversations sounding maybe more recently?.

Sure. Saket, just to kind of dial back like you said, a little further. So first and foremost, what we're seeing across the board for our customers is complexity of managing medical claims and the dollars involved are increasing significantly, and they vary by geography, vary by jurisdiction.

There's a lot more complexity, a lot more costs starting to creep in. And one of the key advantages that we bring to the table that is fairly unique is that 1 in every 5 auto claim results in a medical claim.

So when you have visibility to the breadth of the auto physical damage claims that we have, the physics of the accident actually helped inform what may or may not happen downstream, and that's a very important connection between the auto physical damage side of the business and what happens when you have to deal with the medical claim. .

So there are some very unique things we have visibility to. One of the examples of that is when we introduced Impact Dynamics, which is an AI-based solution, so it takes the physics of the accident, the photos of the accident, imputes the potential impact of medical claims and projections down the road.

That's a very, very unique offering and that is one that can be adopted by whether existing or -- existing customers or not, people can adopt it. And I think we mentioned in the last -- probably last call that we had a top 5 carrier adopt that solution and saw a significant impact. So that's the linkage. .

I would just say on a broader basis, we have continued to see over the last year more clients adopt our casualty solutions. And there's always some unique aspect in terms of challenges that they're trying to solve. And that's really where we've been very focused is working with customers to solve those problems.

So that's really kind of the overall view of what we're seeing. But bottom line is we are continuing to see adoption of customers on casualty. .

Got it. That's very clear, very helpful. Brian, maybe for my follow-up for you, you talked about sort of the growing contribution from emerging solutions. I think we said it will go from 1 point of growth here in Q1 to maybe 2 points for the year.

Can you just talk a little bit about what degree of visibility you kind of have into that? Is that growth -- I mean that's very healthy growth, of course, off a small base, but is that sort of dependent on volume usage? Or is there some element of sort of contracted visibility that you have into that, which gives you confidence into that increase in growth contribution?.

Yes. Sure, Saket. So just on the metrics. So Q1, as you said, we had 1 point of growth from the emerging solutions. We do expect that to step up and continue to scale as we go through the year. We're expecting 2 points of growth contribution from emerging for the full year. To the question around visibility, we look at it around 3 areas.

One is existing clients that are using the product, paying for the product that they continue to adopt volume and ramp up their volume and we have visibility into that. We also have clients that are testing the product, and we'll move from test into pay and full production rollout, which again, there's good visibility. .

And then the third is converting pipelines, to signing new clients onto these new solutions. So across those 3 areas, we have good visibility and feel confident in the step-up that we're expecting in the second half.

As Githesh made in his remarks, the positive feedback from clients that are using the product or testing the product, the operating metrics that we're seeing as they're testing it is all very -- is going well, and we do feel that the step-up as we get into the second half of the year.

And then towards the long term, we talk about the emerging solutions being more like 3 to 4 points of growth, and that will develop over time. .

And our next question will be coming from Michael Funk of Bank of America. .

Yes. So Githesh, first one for you. You mentioned a few times on the call, customers are very early in the cloud transformation and obviously highlighted the benefit from the emerging solutions. So maybe just remind us of the revenue opportunity from the products like Estimate-STP and Subrogation.

I mean clearly, these highly repeatable human interaction events are very attractive to replace with AI. So where are we in that transformation? And do you expect we'll see a tipping point in the adoption? If you ramp towards the revenue opportunity you talked about maybe you want to highlight again tonight. .

Sure. Sure, Michael. Let me kind of start with first broad-based patterns that we've really seen with our customers over literally the last 2 or 3 decades. So what typically happens is that customers are continuously looking to deal with complexity.

I'll give you a couple of minor examples that lead into some major decisions, right? The number of parts per vehicle used to be 8 parts per vehicle. Today, we're up to 14 parts per vehicle. .

So the complexity on a whole range of fronts is increasing.

And at the same time, the macro trend we've talked about, which is the number of experienced people in the industry is decreasing both for our insurance customers, the repair facilities, the demand for experienced people is strong, whereas the supply of really talented and capable people is less. .

So across the board, our customers are trying to solve more complex problems in a more effective and more efficient manner. And that is the big broad macro trend that we have seen.

And what we are now seeing, especially as pricing starts to normalize, what we are seeing is customers start to make be much, much more thoughtful about digital transformation in a broader way. So we are seeing more interest in digital transformation. .

If you remember, when we introduced our first -- our AI solution, which went from photo to an estimate, I think that was November of 2021, AI was not widely talked about as it has been, let's say, in the last 12 to 18 months.

So people are starting to really get comfortable that AI has a capability that amplifies their people's capability to handle more decisions more quickly across the board. So that macro view of digitizing, using technology to make decisions is happening. .

So now getting to the specifics of your question.

So when you look at something like Estimate -- so when you look at something like Estimate-STP, what you're seeing is that it really speeds the ability for staff appraisers, for consumers to send in picture, get an estimate or jump-started the repair facility really substantially reduces speed at which estimates that can be produced.

And then when you think at solutions like subrogation, where you might get in 200 page demand for inbound and our solution in a matter of a minute or 2 can really give you a very fast and very precise response that increases the accuracy. .

So every single solution we're developing has these characteristics in terms of efficiency, the effectiveness, increasing the productivity of people and a very specific ROI. And hence, that's why we're focused on innovating across so many different solutions. .

Maybe one more, Brian, if I could, quickly. You've talked about the cloud infrastructure transition that you are talking from private to public.

Any comment on how to think about that impacting operating leverage or margin as you've made that transition?.

Mike, yes, we have fully transitioned. So we are on the new infrastructure and serving clients and deploying solutions through that. We do still have some legacy cloud environment that we are winding down, and we'll be doing that over time. And so we talk about IT hosting costs being up in the quarter.

Part of that is just the growth of the business and building out against the pipeline and innovation and then part of it is the decommissioning of the legacy platform environment that will wind down as we go forward. .

Overall, we're still really happy with the margin progression. We had about 240 basis points of margin progression quarter-over-quarter or year-over-year. So again, within that, we feel like we're in a really good spot within our cost base. .

And our next question is coming from Tyler Radke of Citi. .

I wanted to ask you, Githesh, about the new event-driven architecture, you referenced on the call. I'm sure we'll hear a lot more about that out at the conference here in a couple of weeks.

But can you just talk about the theoretical future use cases, what you're doing from a back-end technology perspective to enable that? And if there's an opportunity for monetization, either price increases or new SKUs with this new architecture?.

Sure, Tyler. Happy to take that question. So what we have done over the years, as you know, we have been running a multi-tenant cloud platform for many years. And one of the key things that we see in terms of getting our -- giving our customers a step-up in performance is really taking events and decisions that are taking place across the network.

What do I mean by that? That means you might have a repair at a repair facility that is not actually a repair, but might turn out to be a total loss. You might have some other decision on the medical front. You might have a consumer who changed his or her mind about something that needs to be reflected downstream. .

So many of these decisions and events would take a lot of time to move from one place to the other.

And what we have developed is an event-based architecture that really very quickly moves events from one place to the other, maximizing essentially the overall performance of the claim because there are literally hundreds of decisions that have to be made in every claim and the permutations can be intense and the data that's needed can be pretty intense.

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And what we're seeing with our AI, which is -- which has been delivered in line with existing workflows is the combination of AI and this event-driven architecture, we think, as a major way to really deliver more functionality and capability. And this platform, which we call the CCC IX Cloud, is an overlay on our existing architecture.

So customers will get it automatically. It's already included. There's no upgrade path. It works. Everything works without disrupting what they have and works in line. .

But what it really does is gives us the ability to deliver many, many more innovations across the entire supply across the entire supply chain with those solutions having very unique and specific ROIs. And those will be -- those solutions will be deployed by customers, and they'll have their own unique ROI and pricing, but not for this architecture. .

Very helpful. If I could ask a question follow-up for you, Brian. So just on the emerging solutions contribution, the 1 point this quarter sounds like 2 points for the full year.

I guess the path to get there, should we think about an exit rate of 3 points or something above 2? Or is the way to think about it is it ramps up to 2 points by Q4?.

Yes, Tyler. Yes, as I said, we're going to continue to see the step-up as we go through the year and the contribution is going to be larger in the second half. We're not specifically breaking down kind of exit run rate. I would just reiterate the 2 points for the full year.

We feel good on over time, we're expecting and have talked about within the long-term guide, that's stepping up to 3 to 4 points, and we'll see that progress as we go from how we exit this year into '25 and beyond. So we're not going to get more specific than that at this stage. .

Tyler, there's just one more thing I'd add to what Brian said. From my vantage point, all the revenue we deliver today were an emerging solution at one point or the other, right? So when you think about it, all of these solutions. In fact, they all have very long runways.

And what I get excited about is that some of the solutions, which were emerging at 1 point, 10 years later, 15 years later, they're still continuing to grow, and some 25 years later are continuing to grow very nicely. So our focus often is on building and delivering those long -- those solutions with long runways.

And I just want to make sure that I add that piece as well. .

And our next question is coming from Alexei Gogolev of JPMorgan. .

Githesh, I wanted to ask you about payments. You've mentioned on today's call. Once again, the $100 billion in transactions on your platform.

When do you expect to see a more pronounced tailwind to revenue growth from greater involvement in the payments flow?.

Alexei, good to hear from you, and as I've said before, the opportunities and the complexities of what our payment solutions can solve, we are seeing that every day with customers. There's a lot of complexity. It is -- it will run, we think, at a slower pace compared to our other solutions for sure.

And we don't think -- I think, towards the latter part of the year, we can hopefully give you more of an update on that. But we have continued to expand the capabilities of that solutions and a broader set of problems our customers want us to solve. So we've been continuing to work on that, but that's where we are. .

And Brian, could I ask you to elaborate a bit more on the sequential increase in stock-based compensation in the quarter?.

Yes, absolutely. So yes, stock-based comp did go up in the quarter versus where it's been trending more recently. Q1 is the -- we expect to be the high watermark for the quarter as a percent of revenue. We do expect it to step down and move down as we go through the year.

As we get into 2025, it will look like a more normalized rate and be more like 12% to 14% of revenue. That's what we expect kind of running from '25 going forward. So we do expect the step-up that we saw in Q1 to moderate and to normalize when we get into next year. .

And our next question will be coming from Josh Baer of Morgan Stanley. .

Congrats on a strong quarter. Another question on the growth algorithm. Emerging solutions increasing contribution is definitely exciting. It's a clear positive. I think it's a key to the durability of growth.

The question is on the rest of the parts of the growth algorithm, if emerging solutions was at 1 point contribution on 11% overall growth this quarter going to 2 points on 9% total. That's several points of growth coming away.

So just wondering where -- where is that coming from? And why wouldn't the growth in logos or established solutions be more durable?.

Yes, absolutely. So the way -- maybe we started the long-term guide and then we can walk backwards because the way we frame the long term. So we talk about 7 to 10 organic revenue growth over time. We say 80% of that will be from existing clients with cross-sell, upsell and 20% from new logo.

So that's where we set the expectation as we're moving towards where we are today, as you highlighted, we're seeing about 30% growth from new logo. And then out of the remaining growth from cross-sell, upsell, high percentages from established. Over time, we just expect the emerging to become more to be a larger part of the equation going forward.

So it's more of a glide path than it is a hard cutover, but how we see it playing out over time. .

Okay. I guess another way to put it on a more positive spin if new logo growth or established solutions held in a bit more durable over the next few quarters and you have confidence in the step-up in emerging solutions, that would be upside for the full year.

Does that make sense?.

Yes, it does. I mean we're always looking to deliver against the guide or outperform the guide that we have in the market. So we're pushing on all sides of it, driving hard at the core and the established solutions, driving hard at new logos and continuing to remain strong and then building out the -- getting the momentum behind the emerging.

So we're driving all 3 of those. So yes, that's a good way of framing it. .

And our next question will be coming from Dylan Becker of William Blair. .

It's Faith on for Dylan. If I could start with my first question being a more high-level industry trend that we're seeing. So as we continue to see premiums increase, we're also seeing an uptick in issues with drivers either being uninsured or underinsured.

How is this playing into the overall level of complexity in the claims ecosystem? And how are you seeing the different stakeholders react to this?.

Sure. A couple of things. We are seeing some variation state by state as well in that mix. So customers are noticing and have started to deal with that at both at first notice of loss and also in terms of how that makes its way into medical claims and a variety of other places.

And it's not had a material change on what our customers really pay for is the -- is frequency times cost of claim.

So it hasn't impacted that number for our customers, but it has, like you pointed out, increased the complexity and essentially in something like Subrogation, how they recover those dollars, that is really where we're seeing some specific differences in how you recover dollars, especially when your policyholders not involved, and that's where we are seeing more complexity.

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Okay. Cool. That's helpful color. And then for my second question, throughout the call, there's been a lot of talk about the different AI advancements between Inbound Subrogation and the IX Cloud.

How are these all fitting together to kind of drive those better outcomes for the ecosystem? And what's really ahead on the AI road map as more stakeholders are getting more comfortable with this technology and look to adopt it?.

Yes. The short answer is yes. We've had the benefit of taking this industry from books, paper and pencil to write collision estimates to laptop computers to CD-ROMs to artificial intelligence. And so we've kind of continued to work closely with our customers.

And if you look at, for example, adoption by various segments of our customer base, obviously, our OEM customers have very sophisticated needs and understanding.

Our repair facility customers, I think we just said that we had over 5,000 of our repair facility customers adopt and use jump start which really allows them to take pictures, write an estimate in seconds and then augment that. .

So we are starting to get a comfort level from the repair facilities and obviously, for the last 2 to 3 years, we've had these solutions deployed with insurance companies, and we are seeing customers very carefully and thoughtfully continue to adopt.

And this is where transparency becomes really important and traceability of how those algorithms came about, all those things are really important. And the accuracy of what we can deliver also becomes extraordinarily important. .

So that comfort and confidence we can give to our customers that when we produce something, we also produce a confidence interval about how confident we are about an answer that then their people are using to make those decisions on. So the short answer is, yes, overall, we're continuing to see very strong interest. .

And our next question will be coming from Gary Prestopino of Barrington Research. .

A couple of questions.

With the introduction of the inbound subrogation, the debt automatically attached to entities that were using the outbound subrogation or is that sold a la carte, inbound and outbound sold a la carte?.

Gary, the short answer is yes, it can be adopted individually. So we have customers that have chosen to adopt both inbound and outbound at the same time. We have customers that started out -- starting out with outbound. And so it can work in any way. And that's generally how all our solutions work.

You can adopt any components because it works seamlessly with all the other components. .

Are you finding that the ones that we're using outbound are rapidly adopting inbound, too, to have that end-to-end solution?.

It's actually more the other way around. We are seeing much more interest in inbound because of the complexity and then many of those customers are choosing to also saying, hey, once we get this rolled out, we want to move to your outbound solutions. Some are actually starting with both. .

And then just one question on this Cloud IX, where you're talking about taking events and decisions across the network to improve claims processing.

Does that -- would that also be applicable to if there was a dispute that who was at fault at an accident? Can this product help with that since you've got a whole data set of various accidents that show who is at fault, if fault was determined?.

Yes. Those are things that we'll probably come up with because what you're fundamentally talking about is liability determination. So when you think about liability determination, there are a number of factors that actually come in.

For example, we have intersection data, we have weather data, when someone is taking a left turn who had the right of way when a certain accident took place. We also have some pieces that can do accident reconstruction.

So these are all capabilities that we can introduce and the power of the IX Cloud is to put all of these pieces together in a seamless, easy to absorb manner so that at an individual claim level, you can get optimum performance. .

Our next question will be coming from Samad Samana of Jefferies. .

This is Jeremy on for Samad. A lot of my questions have already been asked. Maybe one more quick one on emerging products.

So in order to achieve that 3 to 4 points of growth in the longer term, I guess, what percent of the client base do you see is likely having to adopt these products? I guess, what's the penetration that you need there and what's that terminal penetration?.

Yes. Good question. Yes. I mean we look at it as a deployment of the solutions across the existing base. So when we think about kind of where we are with the ecosystem and all the participants of the ecosystem, many of them have the established solutions. So we just see them stepping up the penetration across the emerging.

So we're not kind of calling out a percent of our existing clients to convert it. It's more that if they step into the adoption that it will ramp up over time. .

Got you. That's helpful. And then maybe a quick one. You mentioned you began rolling out the new top 20 APD insurance client that you announced last year.

I guess, can you maybe remind us what does the rollout like this look like? And when do you expect the full revenue contribution from this insurer?.

Yes, absolutely. It will start to fully contribute in the second half of the year. It will start to play into the Q2 numbers, but not fully rolled out. So it will partially come into Q2 and then fully roll out in the second half. .

We just started. .

The next question is coming from Kirk Materne. .

This is [ Bill ] on for Kirk. The auto insurance has been up recently based on inflation.

With that in mind, how are companies thinking about IT spend in your industry?.

In fact, I was just talking to a customer in my office just today. And what they are looking for is any solutions that can give them rapid ROI. So people are very open to more solutions. They're not looking at this as should I increase my IT spend or should I decrease my IT spend.

What people are saying is solutions that I can deploy easily that give me ROI. I am ready to put that in place. And the last 2 years have shown that people need to be competitive. .

The next question will be coming from Chris Moore of CJ Securities (sic) [ CJS Securities ]. .

But obviously, given the conversation you started with on the investment you're making at IX Cloud and across the board, R&D was higher than normal, close to, I don't know, 22% this quarter. almost $50 million.

Just trying to understand if this is kind of the new normal level moving forward? Or kind of how we should think about that at this stage?.

That might include stock. .

Yes, it does, Chris. So it's Brian. Yes, you have to look at it kind of in the -- excluding the stock comp. So that will be the biggest driver. If you exclude stock comp, there -- it does continue to grow, but it's pretty moderate.

We talked about in the past that we had meaningful step-up in capacity that's built into the system, and we feel like that capacity is what we need to drive innovation going forward. And so we're comfortable that R&D will continue to grow, but grow at a reasonable pace and continue to drive leverage across the business.

And we're very comfortable on the margin progression that we're talking about for the full year, and we're comfortable about the margin progression to our target of getting to the mid-40s over time. .

Our next question will be coming from Gabriela Borges of Goldman Sachs. .

I wanted to ask the new levers of question in a couple of different ways.

The first part is around the success that you're having in the repair shop community, remind us how to think about penetration there and what the limiting factor is into the number of new levers that you can get in any given year within that ecosystem, given there is a little bit of network effect in [ red ]?.

Yes. Gabriela. So the way we look at the shop network is about 40,000 repair shops that are kind of the marketplace. Today, we have 29,500. We've been adding, if you look back over the past several years, about 1,000 net new logos a year, and we continue to see that pacing and very comfortable with that pacing for the year and in the near term.

So really good momentum, continuing to see strength in new logo adoption at the shops. .

That's helpful. And the second part of the new logo question is, in the past, when you've talked about expanding overseas, it's themed with a lens towards M&A.

So my question to you is what is a little bit exactly to expanding new logos over fees organically? And maybe give us an update on to -- as to when you think the timing might be right to become more aggressive with M&A and expanding internationally?.

Gabriela, this is Githesh. I'd just say that our first priority when we look at M&A is domestic is to look at the opportunities we have in expanding our product set. For example, with Subrogation, if you remember, a little over -- it's been almost about 2 years now.

And that was a great example where we took a fantastic team and then really built that out. And those kinds of expansions we look at. On the international front, we are not at this stage that is -- we continue to spend time looking at it, both in terms of Europe.

We're already in China, as you know, but not a major focus right now in terms of international. .

There are no more questions in the queue. And I would like to turn the call over to Githesh for closing remarks. Please go ahead, sir. .

Thank you all for joining us today. I'd just like to thank our customers, our CCC team members and our shareholders for a great start to '24. And as you hopefully saw the durability of our business model continues to come through.

We remain confident in our ability to deliver on our strategic and financial objectives while helping our customers and investing in future solutions at the same time. We look forward to talking to you again in late July when we report our second quarter results, if not sooner.

Again, thank you so much for your continued interest and your support of CCC. .

This does conclude today's conference call. Thank you for your participation. You may all disconnect..