CCC Intelligent Solutions (NASDAQ: CCCS) reported robust financial results for the second quarter of fiscal 2024, with total revenue reaching $233 million, a 10% increase from the previous year and surpassing company guidance. The company's adjusted EBITDA saw an 18% year-over-year rise to $96 million, reflecting a solid adjusted EBITDA margin of 41%. The company's commitment to innovation and the rapid adoption of its AI-enabled solutions were key drivers of this growth. Despite some delays in converting pilot projects into revenue, CCC Intelligent Solutions remains optimistic about the future contributions of its emerging solutions to its revenue growth.
Key Takeaways
- Total Q2 revenue was $233 million, up 10% year-over-year, surpassing company guidance.
- Adjusted EBITDA increased 18% to $96 million, with a margin of 41%.
- Over 30,000 repair facilities are using CCC's platform, with $1 billion invested in R&D over the past decade.
- CCC's AI-enabled solutions, like Intelligent Reinspection and Build Sheets, have garnered strong customer interest.
- Expectation of emerging solutions contributing one point to 2024 revenue growth, with more significant impact in 2025.
- Full-year 2024 revenue forecast is between $941 million and $945 million, representing 9% growth.
- Anticipation of margin expansion to around 42% for the full year.
- Long-term growth target of 7% to 10% organic revenue growth with a mid-40% adjusted EBITDA margin.
Company Outlook
- Confident in meeting strategic and financial objectives in both near and long-term.
- Total addressable market for AI-enabled solutions estimated at $2 billion.
- Not directly impacted by the CrowdStrike (NASDAQ:CRWD) outage, minimal disruption experienced.
Bearish Highlights
- Conversion of pilot projects to revenue has been slower than expected.
Bullish Highlights
- Strong early interest from customers in emerging solutions.
- Positive return on investment and impact for live contracted customers.
- Multiple top 10 insurers evaluating CCC's emerging solutions.
Misses
- No specific misses mentioned in the provided context.
Q&A Highlights
- AI implementation is an ongoing cost but offers scalability and efficiency.
- Insurers are making operational changes for efficiency, not architectural changes.
- Intelligent Reinspection has received positive feedback and speeds up the repair review process.
In conclusion, CCC Intelligent Solutions has shown a solid performance in the second quarter of fiscal 2024, with expectations to continue this trajectory through the year and beyond. The company's focus on AI-enabled solutions and the strong interest from customers suggest a promising future, despite the slower-than-anticipated conversion of pilot projects. CCC's management remains confident in their ability to achieve their long-term financial and strategic goals.
InvestingPro Insights
CCC Intelligent Solutions has demonstrated a strong financial performance in the recent quarter, and InvestingPro data provides further context for investors considering the company's stock. With a market capitalization of $6.45 billion, the company's growth and profitability metrics are particularly noteworthy.
InvestingPro Data highlights include:
- A significant gross profit margin of 77.26% over the last twelve months as of Q2 2024, underscoring the company's efficiency and strong pricing power.
- Revenue growth of 11.0% during the same period, aligning with the company's reported 10% year-over-year increase in quarterly revenue, signaling consistent business expansion.
- The company's P/E ratio stands at 297.71, indicating a high earnings multiple which might reflect investor confidence in CCC's future earnings potential.
InvestingPro Tips that are particularly relevant to CCC Intelligent Solutions include:
- The management's active share buyback strategy, which could signal their belief in the company's undervalued stock and potentially lead to higher earnings per share.
- Analysts' prediction of net income growth this year, providing a positive outlook for the company's profitability.
For investors interested in a more comprehensive analysis, there are additional InvestingPro Tips available, which can be accessed through the company's InvestingPro page. These tips offer valuable insights into CCC's financial health and future prospects, further enriching the investment decision-making process.
Full transcript - Dragoneer Growth Opp (CCCS) Q2 2024:
Operator: Good day and thank you for standing by. Welcome to the CCC Intelligent Solutions Second 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 today, Bill Warmington, Vice President of Investor Relations. Please go ahead, sir.
Bill Warmington: Thank you, operator. Good afternoon, and thank you all for joining us today to review CCC's second 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, Incorporated. Any recording, retransmission or reproduction or other use of the same for profit or otherwise without prior consent of CCC is prohibited in a violation of United States copyright and other laws. Additionally, while we will provide a transcript of portions of this call, and we've approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in the transcripts. Please note that the discussion on today's call includes certain non-GAAP financial measures as defined by the SEC. The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the company's financial condition and the results of operations. A reconciliation of GAAP to non-GAAP measures is available in our earnings release that is available on our Investor Relations website. Thank you. I'll now turn the call over to Githesh.
Githesh Ramamurthy: 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. The second quarter of 2024, total revenue was $233 million, up 10% year-over-year and ahead of our guidance range. Adjusted EBITDA was $96 million, up 18% over the last year and also ahead of our guidance range. Our adjusted EBITDA margin was 41%. On today's call, I would like to highlight three themes that underpin how we are helping our customers, ushering a generational change in operating performance. The first is CCC's durable business model. The second is our innovation engine, which at its core has created over 300 unique AI models and the third is a view into the pace of adoption as customers transition to this next generation of CCC solutions. My first topic is CCC's durable business model. Our solid financial performance in Q2 was a result of continued new business wins, renewals and contract expansions. We also completed the successful on-schedule rollout of our full suite of auto physical damage, or APD solutions, for a top 20 insurer as they transition from multiple vendors to the CCC platform. In our insurance business, the first half of this year has seen us renew multiple clients, add a number of new logos and across a variety of incremental products across our customer base. We've also added over 600 new repair facilities so far in 2024. This growth pushed us across a major milestone. We now have over 30,000 repair facilities on the CCC platform. Our diverse customer base, broad range of mission-critical solutions and growing multisided network have helped create a business model that has both revenue predictability and margin expansion. This balanced profile has served us well as we continue to invest in AI-enabled innovation. Because of the deep decade-plus experience we have in building AI solutions, we have an infrastructure and development model that provides tremendous scale and efficiency as customer volumes ramp. To date, our customers have processed tens of millions of unique claims using a CCC AI-enabled solution. And the economic profile of these AI solutions is similar to the rest of our SaaS portfolio. We believe the scale and efficiency of our AI deployment model will be a significant competitive and economic advantage in the future. And the foundation of our durable business model is the deep trust our customers place in us to help them solve their most pressing business problems. We believe that delivering top-tier day-to-day performance, coupled with a vision and tangible pathway to innovation is the best way to build lasting relationships with customers. These principles have served us well for decades and are the key enablers to our 99% GDR and industry-leading Net Promoter Score of 83. A hallmark of our customer-focused culture is our ability to understand our customers' pain points and to design, develop and implement new solutions that address tangible problems they are facing across their businesses. While the amount of time it takes for different solutions to gain critical mass can vary, we have consistently found that demonstrable value delivery is the key to achieving successful launches with long runways for growth. And while this can sometimes make quarter-to-quarter predictions on the adoption of new solutions challenging, our conviction around tangible product ROI is what gives us the confidence to invest in game-changing solutions over the long-term and that is precisely what we're seeing across our portfolio of innovation. This leads me to my second topic, innovation. As we approach the $1 billion mark in annual revenue, it is important to note that almost all of this growth has come from innovation. Innovation that substantially improved operating performance for our customer segments. As we look forward, we believe that our investments over the last 3 years have created an exciting pipeline of new solutions with greater breadth and depth than at any time in our history. And critically, this portfolio of innovation is not meant to deliver modest incremental improvements to customers. We believe our solutions are transformational for them. And over many years, we have found that laying the foundation for transformational change yields decades long runways for growth. A good example of this is the evolution of our automotive repair platform, CCC ONE which today contributes over $400 million in annual revenue. Leveraging the power of cloud computing, we used the launch of CCC ONE to reinvent estimating and shop management and over time have added a series of industry-leading innovations to a platform that serves everyone from single-store independents to the largest multi-store operators. Our state-of-the-art CCC ONE platform has pushed thousands of software releases over the past decade and is now the trusted operating system for more than 30,000 collision repair facilities across the United States. The CCC ONE platform is the gateway to estimating, parts ordering, repair management, diagnostics, customer communications, and much more. Today, we see our decade-plus investments in AI enabling an even larger growth opportunity across the broader P&C insurance economy. While each of our customers is different, they share a common challenge in managing the rapidly increasing complexity that has become the norm in this industry. And CCC is leading the way in investing to address this challenge. Over the past decade, we have invested over $1 billion in R&D, including about $150 million in 2023, and 17% of year-to-date 2024 revenue to develop new high ROI solutions for our customers. And we work closely with our clients to help them rapidly integrate our new innovations and also navigate the change management that is sometimes needed to fully realize the benefits of these powerful innovations. For example, in November 2021, we deployed Estimate - STP, the world's first production AI that can pre-populate on qualified repairable vehicles a full line-level estimate from a photo in seconds. And today, we have over 30 insurers using this solution. While volume from revenue-generating clients in production is still just 3% of annual claims, through our deep engagement model, we have helped one top 10 carrier be on track to process nearly 20% of their repairable claims on a run rate basis through this technology. AI is now embedded in a wide variety of solutions across the entire CCC portfolio, from AI-enabled insurance solutions like First Look, Intelligent Reinspection, Impact Dynamics, and Subrogation, to repair-focused solutions like Repair Cost Predictor and Mobile Jumpstart. The recently introduced CCC Intelligent Experience Cloud, or IX Cloud for short, is designed to accelerate our customers' digital transformation journey in a way that is purpose-built to solve for the inherent complexity of the P&C insurance economy. The IX Cloud overlays a new event-driven architecture onto CCC's existing cloud applications, customer workflows, and customer and partner systems. This microservices-based approach is designed to 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. Tens of billions of dollars are wasted annually across the P&C insurance economy due to administrative inefficiency, unnecessary delays, and other forms of leakage. The IX Cloud provides a step-level change to address this inefficiency. Another important point of validation for our product portfolio was our recent annual customer conference in Atlanta this past May. We heard firsthand from more than 300 customers representing insurers, repair facilities, parts providers, automotive OEMs, and other members of CCC's multi-sider network. We also had representatives from across the 200 partners in the CCC ecosystem sharing how the IX Cloud platform can help customers extend into new areas. The positive feedback we received from our product demos reinforced our confidence in the investments we're making, and I thought I'd discuss two of the exciting innovations we showed. The first of these is CCC Intelligent Reinspection, which continues the AI theme I noted earlier. Insurers receive millions of shop-written estimates each year, and while we have several tools in place to make the review of those estimates more efficient, the added complexity of vehicles requires step-change solutions to make this process as seamless as possible. With Intelligent Reinspection, AI helps insurers prioritize their review by flagging the specific individual line items that fall outside the normal rules so they can quickly engage with the shop and resolve the claim. The second is CCC Build Sheets. Vehicle complexity has gotten to a point where the number of possible replacement part options is negatively impacting ordering accuracy. Take a driver's side mirror as an example. Ten years ago, all you had to worry about was paint color. Today, the matrix of choices includes heated versus unheated, paint color versus chrome, auto folding, blind spot detection, 360-degree view camera. This creates dozens of possible combinations. Build Sheets denote the exact factory installed options on an individual vehicle as manufactured, and having access to them during estimate creation means an estimator can accurately filter to the correct replacement part from potentially dozens of available versions of that part for the exact model and make of the vehicle being repaired. We recently launched CCC Build Sheets as an add-on for CCC ONE customers so they can have this data online while they're writing the estimate. That means fewer part returns, fewer supplements, and reduced cycle time because the repair facility is writing a more accurate estimate the first time. Both of these solutions have been getting strong early interest from customers. My third and final topic is the adoption of CCC solutions. We continue to see strong demand for our solutions across our customer base, including high levels of customer engagement and pilots for new solutions, but we're also seeing the duration of pilot conversion for our emerging solutions take longer than anticipated to convert into in-year revenue. Last year, emerging solutions contributed about one point to revenue growth, and in our Q4 earnings call, we discussed our expectation that emerging solutions would contribute two points of growth in 2024. We now expect emerging solutions to continue to contribute about one point of growth in 2024, with good contributions of these solutions playing out more materially in 2025. Our confidence in the long-term opportunity from these solutions is based on the strong engagement we are having with customers and the value delivery that we see from early results. Each of our emerging solutions is being evaluated by multiple top 10 insurers, and nearly all of our top 20 insurance accounts are piloting and/or evaluating one or more of these products. Live contracted customers are also experiencing significant positive impacts to performance. Within subrogation, for example, we now have double-digit contracted customers using one or more solutions. With tens of millions of dollars of impact already realized from using our recently introduced inbound subrogation solution alone, with many more customers in active pilots. We're also seeing continued progress in adoption for Estimate - STP and diagnostics workflow, though in aggregate, the rate at which these new solutions contribute to in-year revenue has been slower than anticipated as customers have pursued larger than expected change management activities aimed at fully maximizing the value of a newer, more transformative solutions at scale. In my 30 plus years at CCC, the most exciting growth opportunities have always come on the cusp of a transformational industry change. I believe we were in a similar place today, except that the number of solutions and the transformational nature of these solutions is the greatest I have ever seen. We are investing accordingly to capitalize on this generational opportunity and are confident in our position as our customers' trusted partner of choice to help them navigate this journey. We believe doing so will deliver substantial benefits to our customers and also allow us to deliver against our strategic and financial objectives over the near and long-term. I'll now turn the call over to Brian, who will walk you through our results in more detail.
Brian Herb: Thanks, Githesh. As Githesh has highlighted, we are seeing strong innovation and client engagement across our solution set. We are pleased with our 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'd like to review our second quarter 2024 results and then provide guidance for the third quarter and full year 2024. Total revenue in the second quarter was $232.6 million, up 10% from the prior year period. Approximately 7% of our growth in Q2 was driven by cross-sell, up-sell, and adoption of our solutions across our client base, including repair shop upgrades, continued adoption of our digital solutions, and ongoing strength in casualty and parts. Approximately three points of growth came from our new logos, mostly our repair facilities and part suppliers. About one point of growth in Q2 came from our emerging solutions, mainly Diagnostics, Estimate - STP, and the new adjacent casualty solutions. 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 Q2 2024, our GDR was 99%, which is in line with last quarter. Note that since the first quarter 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 GDR reflects the value we provide and the significant benefits that accrue to our customers from participating in the broader CCC network. Our GDR is a core tenant of our predictable and resilient revenue model. Software net dollar retention, or NDR, captures the amount of cross-sell and up-sell from our existing customers compared to the prior year period, as well as volume movements in our auto physical damage client base. In Q2 2024, our NDR was 107, which is in line with Q1 2024 and 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 182 million. Adjusted gross profit margin was 78%, which is flat sequentially and up against 77% in Q2 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 the scalability of the business model and our ability to deliver against our long-term adjusted gross profit target of 80%. In terms of expenses, adjusted operating expense in Q2 2024 was 96 million, which is up 7% 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 96 million, up 18% year-over-year, with an adjusted EBITDA margin of 41%. Now, turning to the balance sheet and cash flow. We ended the quarter with 238 million in cash and cash equivalents, 780 million of debt. At the end of the quarter, our net leverage was 1.4x adjusted EBITDA. Free cash flow in Q2 was 36 million, compared to 55 million in the prior year period. Free cash flow on a trailing 12-month basis was 197 million, which is up 11% year-over-year. Our trailing 12-month free cash flow margin as of Q2 2024 was 22%, that is up from 20% as of Q2 a year ago. Unlevered free cash flow in Q2 was 48 million, or approximately 50% of our adjusted EBITDA. While our level of free cash flow can vary quarter-to-quarter, we expected to continue to average out in the mid-60 range of our adjusted EBITDA on an annual basis. In May, we issued 3.8 million shares to redeem 17.8 million in private sponsor awards. The transaction helped simplify our capital structure going forward. In addition, our private equity owners completed two secondary offerings since our last earning call, 50 million shares in May and 30 million shares in July. Our free float, as measured by Bloomberg, is currently over 70% of shares outstanding. That's up from about 30% in October, a significant improvement in stock liquidity over the last nine months. I'll now cover guidance beginning in Q3 2024. We expect total revenue of 236 million to 238 million, which represents 7% to 8% growth year-over-year. We expect adjusted EBITDA of 97 million to 99 million, a 41% adjusted EBITDA margin at the midpoint. For the full year 2024, we expect total revenue of 941 million to 945 million versus our previous range of 944 million to 950 million. An adjusted EBITDA of 391 million to 395 million versus our previous range of 389 million to 395 million. The midpoint of our new range represents about a half a percent reduction in year-over-year revenue growth to 9% and a half a percent increase in adjusted EBITDA margin to 42%. So three things to keep in mind as you think about our third quarter and full year guide for 2024. The first point is that, as Githesh referenced in his remarks, we expected emerging solutions to increase their contribution to revenue growth in the second half and make up about 2 percentage points of our full year 2024 revenue growth versus one point contribution in 2023. While client engagement around our emerging solutions continues to be very strong, it is taking longer to convert pilots to revenue than we had originally forecasted. As a result, we are now expecting the contribution from emerging solutions will remain at about 1% for 2024. That said, our medium to long-term view of the growth contributions from these solutions has not changed. The second point is that, as we discussed in our earnings call last year, we had a one percentage point benefit in Q3 and a one percentage point benefit in Q4 of last year from non-recurring items. One point came from catch-up revenue on a subscription contract in Q3 and one point came from one-time items in year-end true-ups in Q4 of last year. Note that our year-over-year revenue growth can be impacted by contract timing and solutions with volume components. The third point is that Q2 of this year adjusted EBITDA margin of 41.2% was up about 300 bps year-over-year. The increase was stronger than initially expected largely because of phasing of cost benefit in the first half of the year. Margin of the second half will be impacted by the pace of hiring and phasing of cost in the second half. For the full year of 2024, we expect margin expansion of about 100 basis points year-over-year to about 42% and margins for the second half of the year to expand sequentially over margins in the first half. Overall, the strong trends we're seeing in renewals, relationship expansion, and engagement around new solutions reinforces our confidence in the underlying strength of the business. The combination of our durable business model, advanced AI capabilities, interconnected network, and a broad solution set puts us in a unique position to help our customers in the P&C insurance economy reduce their cycle times and administration costs while improving their consumer experiences 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 40% adjusted EBITDA margin as we continue to execute on our strategic priorities and generate significant value for both our customers and our shareholders. With that, operator, we are now ready to take questions. Thank you.
Operator: [Operator Instructions] And our first question is going to come from the line of Dylan Becker with William Blair. Your line is open. Please go ahead.
Dylan Becker: Maybe Brian, starting with you and maybe also for Githesh here. it sounds like that decisioning elongation is playing out and you called out maybe the change management aspect that's driving that. I get that there's some near-term implications there, but wondering how you guys are thinking about what that means for the long term of the business with the healthy pipeline you've called out and maybe the opportunity for that to unlock kind of incremental capacity to adopt more of the platform over time?
Brian Herb: Yes, sure. Dylan, it's Brian. I'll start and then Githesh can add. So, the position over the medium to long-term is not changing. We've talked about the emerging solutions and how they will contribute to the long-term growth target. We still feel very strong and confident about that position. We talked about them scaling to about three to four points of growth within the long-term target, and we still believe that that is a good target and we're confident that we'll move towards that over time.
Githesh Ramamurthy: Yes. The one thing I would add to that is the number of customers, I think, as we pointed out in, if you look at our top 20 carriers, whether they're evaluating, testing one or multiple solutions, so it's very, very healthy in terms of the energy our customers are spending. But more, perhaps even more important than that is the ROI and the impact that we're seeing in these solutions are substantial. And so, to the point you made about change management, where what we see is customers putting even more focus saying, I can see some significant impact, so maybe I make more process changes or changes to take advantage of the solutions. So, that is taking a little bit longer.
Dylan Becker: Okay. Great. That's really helpful. Maybe for Githesh here too, you called out kind of the innovation engine here and hard not to notice what seems to be kind of continued acceleration on product rollouts. Given you do offer so much value and it's pretty tangible and there's room for continued adoption, how should we think about kind of that potential product roadmap as well and how much more white spaces are out there that you guys can potentially solve or digitize from that workflow perspective? Thanks.
Githesh Ramamurthy: So, if you step back and we started this effort, as you may recall, about two to three years ago, we said we'll continue to make sure that our core business continues to perform, continue to increase profitability of the business. But at the same time, we said we'd increase the velocity and delivery of new solutions. And a lot of it is stemming from our core AI capability that we've started building up a decade ago. So, what we see from these solutions that we've introduced, whether you call it in the last six months, last two years, that TAM for these solutions is in that $2 billion range. So, if you think about the expansion opportunity for these solutions is in that $2 billion TAM range.
Operator: Our next question comes from the line of Alexei Gogolev with JPMorgan (NYSE:JPM). Your line is open. Please go ahead.
Alexei Gogolev: I realize that you already mentioned that there is no direct impact on CCCS from CrowdStrike outage. But can you elaborate how some of your big clients are impacted from the event? And would you agree that the companies in your industry that are having the biggest issues are the ones that don't have their arms around their infrastructure? Do you think this outage can trigger broader issues for your customer base?
Githesh Ramamurthy: Alexei, thank you for the question. I would say that exactly as you pointed out, there's been no impact on our business because we do not use CrowdStrike. And as you know, we're also in the public cloud. So, with the one incident that we talked about, we immediately disconnected from that one provider who had the problem. And so, we disconnected all the interfaces. So, that caused, honestly, a little bit of disruption for several weeks as it impacted some of the parts ordering that is done from dealers out of the dealer management systems. It caused the impact for some, some about 10% of our repair facilities are owned by dealers and also parts ordering. I would say for our insurance customers, for the most part, there was almost minimal to no impact whatsoever. So, that's the answer to your question, Alexei.
Alexei Gogolev: Thank you, Githesh. Have you seen any incremental growth from IX Cloud, i.e., are customers placing more of their operations on CCC because of this increased connectivity?
Githesh Ramamurthy: We are seeing that more customers are now working to integrate more solutions. IX Cloud accelerates that ability to implement more solutions together. For example, if you look at solutions like Estimate - STP, working with First Look, working with Impact Dynamics, so these are examples where multiple solutions can work better and closer together, and IX Cloud helps with that, and we are seeing customers also excited about that.
Operator: Our next question comes from the line of Samad Samana with Jefferies. Your line is open. Please go ahead.
Samad Samana: Maybe first, just on the emerging solutions taking longer to go from pilot to conversion. Straightforward there, I guess, Brian, my question would be, should we then assume that we'll track closer just over time to assume the lower end of the long-term target range as well as long as is it's taking longer, or is this something that you view as transitory? I'm just trying to recalibrate what we should assume not just for the rest of this year, but maybe how you want us to think about it on a go-forward basis, that pilot to conversion timeline?
Brian Herb: Yes. Hey, Samad. It's Brian. Thanks for the question. Yes. I mean we're setting the guide in the second half of the year in a place we're comfortable and confident on based on the reset on emerging and the time. When we think about 25 next year, we are expecting more material contribution off emerging. So, we do see it continuing to step up going into next year. We're not going to get specific within the guide, but we are very comfortable with the long-term range that we've put out in the market.
Dylan Becker: Great. And then Githesh, maybe a follow-up for you. It's a big number, the one customer that you referenced that's processing 20% on a run rate basis of their claims using one of the AI solutions. I guess I was seeing if you could give us maybe some more information there in terms of how are they defining the ROI that they're seeing by processing that high percentage of volume. And then, has there been any kind of consequent change to the economics of their contract and what that looks like versus a typical CCCS customer and would it benefit you?
Githesh Ramamurthy: Sure. So, let me just first talk about the customer themselves. So, this customer actually implemented our AI, Estimate - STP, and its precursor in late 2021. That's when they really started. So, they started out going to about a few states, expanded to multiple states, and then expanded to multiple vehicle types and continued and then moved to about 50 states. And as they got more and more comfortable with the solution and the AI and the precision, the accuracy of the AI, and most importantly, the two things the solution was doing is handling consistency and complexity of new vehicles that were coming in. So, they were starting to see that in many instances, hate to get mathematical on you, but the bell curve, you've got a much narrower distribution in terms of how they were dealing with it. And they started to apply the solution to different mixes of their book across different states and the results continue to be really good. So, on a run rate basis, they are now tracking towards 20%. Our entire customer base in aggregate is tracking towards that 3%. But this is a top 10 carrier who now has three years of experience and is now tracking towards that 20%. And they're very excited about the results. And then in terms of contracts, obviously, there's an incremental amount of revenue that comes out of this solution being fully deployed. But we don't break out any individual customers, as you know.
Operator: Our next question comes from the line of Saket Kalia with Barclays (LON:BARC). Your line is open. Please go ahead.
Saket Kalia: Githesh, maybe to start with you, the explanation around emerging solutions was pretty straightforward in terms of timing and RevRec. Can you just maybe go one level deeper and talk about whether any specific emerging solutions was maybe seeing more of the scrutiny? Was it Estimate - STP, for example, that customers were maybe evaluating for a longer time? Or was it diagnostics or subrogation? It sounds like it was in the aggregate, but maybe you could go one level deeper and speak to which part of the emerging portfolio maybe saw that additional kind of time.
Githesh Ramamurthy: Yes. I think there are slight differences between each one of them are slightly different, given the nuances. So rather than to go through all of them, I'll just pick one as an example, and I'll pick on Subrogation as an example for you. So subrogation is one where we literally have at this stage double-digit customers in contract. And what we're seeing with subrogation, back to the value proposition, is that we saw an 80% decrease in cycle time. This is for inbound subrogation. Notice that outbound subrogation still not fully rolled out. So this is for inbound subrogation. And these customers have processed tens of millions of dollars and have seen tens of millions of dollars of improvement. And the impact on accuracy or how the demand dollars are coming in and how they're responding, that increase has been somewhere between 20% and 50%. So substantial impact, significant cycle time improvements. So this is an example where the customers have said, we are excited about what we're seeing. Sometimes we've had decentralized or distributor teams. With this solution, we can centralize the teams. There's more change management we can execute, and there's more that we can do, but it requires some level of training, reorganizing to capture the opportunities that are in front of us. So this is an example of just picking one solution, and each one has slightly different nuances. And by the way, in addition to the double-digit customer base, we also have a long list of customers also evaluating, piloting, testing. And the early references from these customers, I think some of this might even be public, but the early references from the customers is also helping with newer customers who are piloting and testing. So we feel very good about that. Does that answer your question?
Saket Kalia: Yes, it does. It does. It definitely gives it more color. Brian, maybe the follow-up for you, at one point of growth, I mean, clearly the emerging solutions are still scaling. And so maybe this is going to be an unfair question to ask, but how do you sort of think about, even just anecdotally, the margin differences between the big scale established solutions versus emerging? Because of course, with the revenue guide just maybe getting adjusted a little bit, it was good to see the EBITDA guide go up a little bit. Maybe just talk to the margin differences between established versus emerging to the extent you can.
Brian Herb: Yes, absolutely. I would say, I mean, we start at where we're going to get to. When these products are mature and they're at scale, they will have a similar margin profile as our established and core solutions. And we are seeing efficiency in the AI. So there's nothing at a margin level that will really look different than our current solutions today when they get to scale. We are seeing early stage costs that will be different on them before they scale. We have set up costs. The amortization starts to come through cost of revenue when we launch the product and it's open for GA. So there is some cost that gets in front of the revenue. And then once the revenue gets to scale and gets to a tipping point, the margin profile will be consistent with the broader margin profile of CCC. So that's how to think about it. I would just say, in general, we're happy with where margins are. The first half had close to 300 basis points of margin improvement. And we're guiding to a full year of around 100 basis points of margin improvement.
Operator: And our next question is going to come from the line of Gabriela Borges with Goldman Sachs (NYSE:GS). Your line is open. Please go ahead.
Gabriela Borges: Githesh, I would welcome your perspective here. At any time in the last 40 years, we could have made the argument that the portfolio is split between more established products and newer emerging products. So help us understand what's different this time to how you're thinking about the forecasting and the adoption of emerging products? Or do you just think that at any given time you have a mix in your portfolio between more established and ramping?
Githesh Ramamurthy: Hey, Gabriela. Sure. As you can imagine, from my perspective, right, 90% of the revenue we just reported, we're almost up to a billion dollars in revenue. And 90% of this revenue we reported started at zero, right? So very little of this has come through acquisition. So we have, back to your 20-year perspective, almost all of these products have come essentially from zero. So the pattern recognition we have around this is really a handful of some very, very fundamental things, which is what is the ROI? What's the impact? What are we seeing? So this is also, as I pointed out, unlike here's some core differences between what we've seen to your question about what we've seen over 20 years, where we are today. But two or three fundamental differences. One, we are now 10 years of execution and development on AI. And the range of solutions we can deliver using our AI are very different from solutions that we could have ever delivered through traditional deterministic software development. So the solutions themselves are different in nature. The ROI is very strong. The second thing I would say is very different is that I cannot recall at any point in our history where the breadth of our products, if you look at what we've delivered for insurance in terms of our insurance customers, from Estimate - STP to First Look, Impact Dynamics, Intelligent Reinspection, Subrogation, extensions to casualty, and then same thing with our repair facility customers, where we have a whole series of new solutions. The breadth of the solutions we have and the solutions' abilities to work with each other and deliver greater impact, that's the second thing that is fundamentally different. The third thing I would say is different is that our customers went through an exogenous shock in the 22, 23 timeframe. So when you looked at our customers' profitability, especially our insurance customers' profitability, '22 and '23 were years where inflation cost of parts, inflation in claims costs were substantial. And many of our customers went through some fairly tough challenges. And then as that started to correct itself into early 2024, what we're seeing from our customers is that they're saying that we would rather go bigger in terms of making changes and get ready for a broader, bigger set of changes, as opposed to incremental changes. Because if you make incremental changes and the situation like '22 or '23 repeats itself, then it is a real problem. So the changes that our customers have undergone is leaning them and causing them to think bigger and broader and bolder changes, which we are excited about. And that's why we also said almost every one of our top 20 customers, carriers, are testing one or multiple solutions with us right now. Gabriela, did that answer your question?
Gabriela Borges: Yes, yes. Very much. Githesh, when you talk about bigger transformational changes, to me that also signals longer-term changes, which seems consistent with what you're saying. I'm not sure if that longer-term time frame is tied to perhaps the technology needing to be iterated upon more. So to what extent a customer is saying, well, we can see the potential that these particular products have. But from a road map standpoint, we're even more enthusiastic to see what it looks like a year from now. So maybe is that creating a little bit of a pause as well? Help us understand that dynamic.
Githesh Ramamurthy: Yes. I would parse that question slightly differently. So what we are seeing, this is why I gave the subrogation example. So what we're seeing is, first of all, to be very blunt, initially there's skepticism, right? How is it possible that the AI and a whole new set of tools can do things very dramatically differently from what has been possible before? And once people start putting it, using it, and see numbers like an 80% decrease in cycle time, a 20% to 50% increase in accuracy, what that says is, it's not that people need longer times to prove it out, because you can see those results literally in 90 days, because we have integration, we're cloud-based, you can see all of that. What people are now coming back and saying, in order to fully maximize the capability this thing offers, if I make adjustments to the way my staff, my process flows are structured, I can capture more of these capabilities, and I can train people differently, and that is where we are seeing the lengthening of time.
Operator: And our next question comes from the line of Shlomo Rosenbaum with Stifel. Your line is open. Please go ahead.
Shlomo Rosenbaum: Just to confirm, everything that we're talking about here is emerging solutions. Are there any changes at all in terms of sales cycles or the market environment or anything on, the legacy, I guess, you call it the vast majority of the business that you guys are working on. And then afterwards, maybe for Brian, maybe you could talk a little bit about what you did with the warrant liabilities in terms of getting them off the balance sheet and whether that affects the trajectory of the share creep?
Brian Herb: Yes. Shlomo. I'll cover the warrant one first because it's straightforward. Yes, we converted the remaining warrants. So there was private sponsor warrants. There's about 17.8 million of those. We converted them to shares. There's about 3.8 million shares that we issued. Those are now in the outstanding count, and so that cleaned up the cap table. So we were happy with that and be able to close the door on having warrants in the cap table. On your first question regarding the established solutions in the core, when you look at what the second half guide is highlighting, the only change that's playing through the numbers is the emerging solutions reducing the second half. Outside of that, the second half position is consistent with the prior guide. So we're feeling good on the established solutions. We have good pipeline and strong momentum. And so overall, we're happy with the performance in the core.
Operator: Our next question comes from the line of Chris Moore with CJS Securities. Your line is open. Please go ahead.
Chris Moore: I will leave the emerging solutions alone. I just maybe want to talk about one that I get from clients a lot is on the stock comp side. Just as a percentage of revenue, it looks like it's down a bit, but still above that 10% to 12% to 14% of revenue that you talk about. Can you talk to that a little bit? And I know it just can jump around a little bit. Just any kind of further thoughts on the normalization?
Brian Herb: Yes. Chris, it's Brian. Yes. So in the quarter, Q2 was 17%, which is down slightly from Q1. We do expect to continue to move down as we go through the year. The one thing that's pushing it up is there is a modification to the TSRs that happened at the end of last year. And there's about a $67 million P&L impact with that change. And that largely runs through this year. When that runs out and we get into next year, it's going to look like the more normalized run rate. And that will be about 12% to 14% on a run rate. So that's the way to think about the run rate. The modification on the TSR, maybe just one other point, is there was no impact on shares being issued. It was an accounting P&L charge. And that's really the only impact that's run through the numbers.
Operator: The next question comes from the line of Gary Prestopino with Barrington Research. Your line is open. Please go ahead.
Gary Prestopino: I'm interested in this new product you launched, Build Sheets. I mean, are you the first one out there with something of this nature? And how far is that in terms of model years does this go for the vehicles that are out there?
Githesh Ramamurthy: Just to clarify, are you talking about Build Sheets?
Gary Prestopino: Yes. Build Sheets.
Githesh Ramamurthy: Okay. I believe, I'm not 100% certain, but I believe we are the first ones with Build Sheets at the repair facility level integrated, again, not 100% sure of that. What is really powerful about this is it goes back many, many years, and we actually have done extensive work in making sure that Build Sheets have been integrated. So first of all, you're familiar, Gary, with our total loss solutions and other solutions where we actually have integrated Build Sheets into those capabilities, but it's the first time it's being introduced to the repair facility market, and it covers the vast majority of all brands and goes back many, many years And yes, so that's basically the gist of it.
Gary Prestopino: I mean do you feel that this has the potential to become a fairly significant product you need on the repair side?
Githesh Ramamurthy: Yes. The early receptivity of what we've seen in the first 60 days has been pretty substantial in terms of uptake. It's also a solution where customers can essentially self-service, go on the website, a couple of clicks, add it. And it has a pretty dramatic impact on simplification of the estimates and what you're ordering. What it does is it continues the trajectory of CCC ONE. You go way back with us, and if you remember, CCC ONE started at almost nothing. It's well north of $400 million today, and this continues to add to that trajectory of solutions.
Gary Prestopino: And then just one last question on this product. I mean the data, do you get it from the manufacturers? Or is this the data that you've been accumulating in-house over the years that gives you the ability to produce these kind of Build Sheets?
Githesh Ramamurthy: Without going into all the gory details, we would say that there's a variety of sources. And this is extraordinarily important to have actual manufactured data so that the options as the car came off the manufacturing line, is down to that particular VIN number. So you're not chasing down 35 different types of mirrors and you're getting the one mirror because that really affects parts ordering and cycle time.
Operator: Our next question comes from the line of Josh Baer with Morgan Stanley (NYSE:MS). Your line is open. Please go ahead.
Unidentified Analyst: Great. This is [indiscernible] tonight for Josh Baer. Maybe just more philosophically on margins. EBITDA upside was strong in the quarter against previous messaging for Q2 being that kind of low point in the year on margins. Impressive to see you move those up for the full year even with revenue coming down slightly. I guess, through this lens, kind of looking across the model, where are you seeing the most leverage? And looking ahead, is there further room for leverage in these areas? Just kind of speaking to the durability in these areas as it relates to margin expansion would be helpful. Thanks a lot.
Brian Herb: Yes, absolutely. Yes. No, we feel good on the EBITDA position in the margin, and we did take up the midpoint within the updated guide really on the strength we're seeing in the business. To your point on the sequential or seasonal components, we did have some cost phasing that benefited us in Q2 which helped the position, and that has some offset in the second half. And so that's why the margins have moved around a little bit, H1 to H2. But we did strengthen the guide for the full year. We see leverage across cost of revenue. We expect right now, gross profit is about 78%. We expect that to move more like 80% over time. And we see good leverage in sales and marketing and G&A. Revenue will continue to grow over those cost areas. R&D will be the fastest-growing cost category over time, but we still believe there's leverage there as well. And we are seeing efficiency as we scale AI across our solutions, and so that will be helpful on the margins playing out over time as well.
Operator: Our next question comes from the line of Tyler Radke with Citi. Your line is open. Please go ahead.
Unidentified Analyst: Hey. It's Peter on the line for Tyler Radke. Thanks for taking the question. So you had called out that insurers are undertaking a large transformative architecture changes. Could you give a little bit more into detail on what those changes are that are slowing down the pace of emerging solution adoption, and then why is that a current trend given like the strong pricing and market condition in P&C? Thanks.
Githesh Ramamurthy: Yes. These are not architecture changes. These are more operational changes to become much more efficient. That's really what we're talking about.
Unidentified Analyst: Okay. And then on your new solution to Intelligent Reinspection, just interested how you expect the adoption curve of that to play out. And then, could you give us an idea like where this stacks up on importance for customers looking to adopt new CCC solutions?
Githesh Ramamurthy: Sure. So what this solution does is, I think there's a release out there today, and it speeds up the whole process of doing reviews for literally tens of billions of dollars of collision repairs that insurers are working on their repair networks. And what this does is that the AI is actually looks at the carriers' rules and can speed up a lot of the decision process, because the AI can be quite detailed and look at a lot of the nuances and essentially helping speed up and not hold up repair facilities to give approvals quicker and do a lot of those things. And so the heart of it, you've got tens of billions of dollars of repair that between getting assignments, going to repair facilities, repairs being completed, payments being made. So you've got all of that going back and forth. So the nice thing about this solution is we have a previous version of this solution that's been there for a very long period of time. This is a step function change in the solution, and it can be implemented essentially in line with the existing workflows, no change to existing workflows, no change to integration and people can start using it right away and immediately. And the early feedback from customers who are testing it has been absolutely fantastic. And these are some of our largest customers who are testing it.
Operator: Thank you. I would now like to turn the conference back to CEO, Githesh Ramamurthy, for closing remarks.
Githesh Ramamurthy: Thank you all for joining us today. And as you can probably see, the durability of our business model continues to come through, and we remain confident in our ability to deliver on our strategic and financial objectives. While at the same time, truly helping our customers in the transformative journey going forward. And this week also marks our 3-year anniversary of returning to the public markets, a very important milestone in our journey as a public company, and I'd really like to take this opportunity to thank our customers, our shareholders and all our CCCers for the tremendous work they do day in and day out, and we look forward to keeping you updated. Thank you so much.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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