CCC Intelligent Solutions Holdings Inc.

Good day, and thank you for standing by. Welcome to the CCC Intelligence Solutions first quarter 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is recorded. I would like to hand the conference over to your speaker today, Bill Warmington, Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us today to review CCC's first quarter 2023 financial results, which we announced in the press release issued following the close of the market today. Joining me on the call are Gitesh Ramamurthy, CCC's Chairman and CEO, and Brian Herb, CCC CFO. The forward-looking statements we make today about the company's results and plans are subject to risks and uncertainties that may cause the actual results and the implementation of the company's plans to vary materially. These risks are discussed in the earnings releases available on our Investor Relations website and under the heading Risk Factors in our 2022 Annual Report on Form 10-K filed with the SEC. Further, these comments and the Q&A that follows ARE COPYRIGHTED TODAY BY CCC INTELLIGENCE SOLUTIONS HOLDINGS INCORPORATED. ANY 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 HAVE APPROVED THE PUBLISHING OF THE TRANSCRIPT OF THIS CALL BY A THIRD PARTY, WE TAKE NO RESPONSIBILITY FOR INACCURACIES THAT MAY APPEAR IN THAT TRANSCRIPT. Please note 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 Kitesh.

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 results, reflecting the predictability and profitability of our business. The first quarter of 2023, CCC's total revenue was $205 million, up 10% year over year and ahead of our guidance range. Adjusted EBITDA was $79.5 million, also ahead of our guidance range. And our adjusted EBITDA margin was 39%. On today's call, I'd like to highlight three themes that underpin our performance. The first is CCC's durable business model. The second is innovation. And third is the growing adoption of CCC solutions. First, our durable business model. Our clients in the P&C insurance economy are increasingly focused on the need to manage the business through two powerful megatrends, accelerating operational complexity and rising consumer expectations. Last year, auto insurers in the United States paid out over $200 billion in claims indemnity and spent about $25 billion on administrative expenses to handle those claims, known as loss adjustment expense, or LAE. Increasing operational complexity and consumer expectations are raising those costs even further. At CCC, we are focused on developing tools to help our clients increase efficiency and customer satisfaction while simultaneously overcoming headwinds from labor shortages, inflation, supply chain issues, and regulatory changes. We do this through innovation, specifically by developing new solutions that leverage our industry-leading focus on AI and our interconnected industry network. One of the main drivers of increasing operational complexity is the growing sophistication of the vehicles themselves. whether that is the sheer number of parts on the cars, the introduction of advanced driver assistance systems known as ADAS, or the expansion of electric vehicles or EVs. Increasing vehicle complexity has been and continues to be a major factor in rising lost costs. ADAS modules range from automatic braking to lane departure warnings and leverage a wide array of sensors and cameras. Repairing these systems typically requires more parts and more labor hours per repair, as well as diagnostic and calibration services, contributing to an increase in the average total cost of repair from $2,900 in 2017 to $4,200 in 2022, or 44% growth during this period. As vehicles become even more intricate, we anticipate the P&C insurance economy needing increasingly sophisticated tools to manage this change. While EVs are still a very small percentage of cars on the road, less than 1% of vehicles in operation, they are becoming increasingly popular with U.S. consumers. In 2017, EVs were less than 1% on new car sales. In 2022, they were almost 6%. Unfortunately, the average total cost of repair for an EV in 2022 is 50% higher than the average for non-EVs. While total EV claims are currently quite small, only about 1% of the claims processed by CCC in 2022, the long-term growth in this number and the increased complexity it causes is something we are helping our customers anticipate and address. Growing complexity is not the only challenge our customers face. Consumers today expect their commercial interactions to be highly digital, simplified, personalized, fast, empathetic, and available at all hours. The leading consumer-facing companies that have met those high expectations have essentially set the standard for interactions across our lives. The good news is that CCC's AI technology enables our customers to meet the standard by streamlining and digitizing the P&C claims journey. According to a CCC survey, 84% of policyholders prefer a digitized claims process, and CCC solutions are a key enabler of that shift. Whether that is enabling the submission of an auto claim via photos on their phone, instantly booking a repair appointment, or even resolving an injury claim digitally, our customers are deploying CCC solutions to help them deliver these digital experiences. This brings me to the second point I'd like to discuss with you today, innovation. CCC's business, which began with a single product, vehicle valuations, sold to one customer group, insurers, has grown to a point today where the CCC cloud powers the mission-critical operations of more than 30,000 companies across the P&C insurance economy, including insurers, repair facilities, OEMs, parts suppliers, lenders, and more. A fundamental driver of that expansion has been our commitment to innovation, and for the last several years, a major pillar of that innovation has been artificial intelligence. Today, More than 14 million auto claims have been processed using a CCC deep learning AI solution, generating tangible real world impact for our customers and significant direct revenue for CCC. Underpinning these advances are not just cutting edge technology, but over a trillion dollars of historical data as well as deeply embedded workflows that enable our customers to seamlessly deploy these innovations at scale. One example of our commitment to continuously expanding the scope of our AI-enabled innovations is our acquisition of SafeKeep in February last year. SafeKeep's technology uses AI and automated workflows to streamline the subrogation process, addressing a key pain point for our insurance customers. Subrogation is the process of insurance companies attempting to recover dollars from other parties who are at fault for a claim. It affects tens of billions of dollars in claims, costs insurers over $2 billion in estimated administrative expenses annually, and is a highly manual and time-intensive process. Digitizing subrogation is a natural extension of plans to address the industry's vision of straight-through processing. This in turn creates additional network benefits for insurers using CCC and extends the CCC cloud into lines of insurance outside of auto. We have spent the time since the acquisition integrating SafeKeep into the CCC cloud so that CCC's more than 300 insurance customers will have the opportunities to take advantage of this capability with direct tie-ins to the CCC solutions they already have in place. We have made significant investments to expand Safekeep's product functionality and are very pleased with the level of customer engagement and real-world results delivered by the solution today. We are also continuing to make substantial investments in AI across the entire CCC product line, including new computer vision applications in our casualty business, as well as ongoing enhancements to Update Plus our industry-leading CRM solution for repair facilities that uses semantic AI to help repair facilities sort and respond to consumer queries throughout the repair process. In the 12 months ending March 2023, over 80 million messages had been sent by UpdatePlus via email and text to over 17 million unique consumers. a significant increase from the 45 million messages sent to 10 million consumers in 2018. We remain tremendously excited about the long-term opportunity to digitize the PNC insurance economy by applying industry-leading AI to existing highly embedded workflows across the CCC connected network. My third and final point is a growing adoption of CCC solutions. The first solution I will cover is Estimate STP, our AI-based system that can pre-populate a complete line-level repair estimate on a qualified claim in seconds. The total number of claims processed through Estimate STP continues to grow as we onboard new customers and as existing customers increase their claim volumes by activating more collision categories, geographies, and vehicle types. The annualized run rate value of auto claims processed by Estimate SDP in March 2023 was over $1 billion. This is more than 10 times our run rate in March of 2022. While this is still less than 1% of our current annual auto physical damage claim volume, The rate at which customers are moving towards estimate STP is very encouraging. In diagnostics, we continue to grow both our network and the volume of scanned vehicles being verified on our platform. The first quarter of 2023, about 3,800 repair facilities ran a scan through one of CCC's diagnostic service partners. This was more than twice the number of repair facilities running scans in the first quarter of 2022. In the first quarter of 2023, over half a million scanned vehicles were verified on the CCC network, more than double the volume in the first quarter of 2022. As a reminder, this solution is designed to help improve consistency and transparency of scans and calibrations between repairers and insurers. CCC Engage, our solution which enables consumers to schedule estimate and repair appointments online with participating repair facilities, is currently eliminating 50,000 phone calls from repair facilities every month by facilitating integrated scheduling for insurers direct to consumers who have been in an accident. This process is in turn already generating 25,000 leads per month for repair facilities by allowing consumers to request estimates online using photos. The online process eliminates the need for the consumer to physically drive to the repair facility to obtain an initial estimate. reduces interruptions for the repair facility's estimators, and helps insurers improve their customers' experience. We continue to see opportunities for product adoption across both our repair facility and insurance customers. We previously highlighted a cross-selling momentum in repair facilities where the number of customers using four or more solutions has increased over 20% since 2020, and the average revenue per repair facility has increased 30% during that time. On the insurance side, a way to think about adoption is to look at CCC's revenue in relation to the aggregate annual amount insurers spend on claim payouts, including indemnity and LAE. Today, CCC's insurance revenue represents a very small percentage of these expenditures, about two-tenths of 1% or less than 20 basis points overall. Yet our solutions are helping insurers manage hundreds of billions of dollars of costs. We believe that the continued focus on digitization by carriers and the expanded PAM from emerging solutions provides a path to growing our share of a growing market. Let me conclude by saying that we are excited about what we have planned for 2023 and remain confident in our ability to continue to deliver on our strategic and financial objectives. I will now turn the call over to Brian, who will walk you through our results in more detail.