My name is Alexei Gogolev, head of JP Morgan Vertical Software Team, and today I'm delighted to welcome Githesh Ramamurthy, CEO and the leader of CCCS, and Brian Herb, company CFO. Gentlemen, welcome, and it's great to have you at our conference.
Thanks a lot.
Thank you. Thank you, Alexei.
Githesh, I guess, I would probably start with, highlighting that, there are quite a lot of stakeholders in the ecosystem that you guys have built, and, it would be amazing if you could discuss the top-of-the-funnel demand for some of these stakeholders.
Sure. So, you know, the ecosystem that we serve is made up of about 35,000 companies that are customers and partners in one way, shape, or form at CCC. And if you think about it, at the highest level, you know, $350 billion are collected in auto premiums, and then, you know, most of that is also spent in auto claims. So the ecosystem between insurers, repairers, OEMs, parts providers, and the like, so at the top of the funnel, you know, that's really what creates demand. So there are three macro trends that we have seen that are continuing. First and foremost, complexity is increasing enormously, and the only way to fight that complexity is through digitization. So our customers are spending more time and energy digitizing more and more of the process.
At the same time, there's an acute level of labor shortage across the industry with people with this level of knowledge and capability. So that is also, you know, from a macro standpoint, those are the three things we see at the top.
Specifically, if we talk about auto insurance and the premiums that you've mentioned, is there a certain lag between premiums and the tailwinds to your business? And how do you generally perceive the current setup in the P&C insurance environment at the moment?
Yeah. For us, maybe Brian can also add to this, there's not a direct link between the dollars paid out and what CCC does. What we are more of a subscription. You know, the vast majority of our revenue come from subscription, as a Software SaaS subscription business, and so there's not a direct linkage or a correlation to the overall revenue in the industry, except we help manage a lot of what is, you know, paid out, both in terms of indemnity as well as, loss adjustment expenses.
Yeah, no, you covered it. Even the part that is subscription, it's not linked to premiums. So it, it's really more of a claim volume metric. So there isn't a direct link there.
Perfect. And one of the key highlights from the consumer conference that you just held, for me specifically, given my coverage, is the partnership that you signed with Guidewire. So can you provide some more details? I mean, I understand that you had some sort of integration in the past, but what does the new relationship look like, and what does that mean for your customers?
Sure. Many of our customers also use Guidewire solutions, and in the past, we have dozens of integrations with Guidewire systems with our customers, and we also have integrations with other providers as well in the space. So what this integration allows is a more intimate connection to their APIs and back and forth of data moving between our systems and Guidewire systems, making it more seamless for the customer.
Mm-hmm. And does it focus on any specific areas, within the P&C or maybe specific geographies?
No, it's a broad relationship because it can apply to any aspect of claim.
Perfect. Within P&C insurance, one thing that we feel many don't realize is that the historic crash data is the amazing asset that you have. Like, it, it sits behind the firewall, and clearly, that's a massive competitive advantage for you as, you know, time evolves. So how do you think about that longer term? You have $1 trillion of crash data that you can train your models on. How does that position you against your competition?
You know, so first and foremost, I think it's the granularity of the data that we have because we collect literally hundreds of data elements per claim, and in that process. And also, we enjoy an enormous amount of trust from our customers to have access to that data. The really interesting part of this is not only the dataset that exists, but on a daily basis, we see literally a massive amount of data flowing through. So in a week or a month, what it also allows us to do is take, for example, our AI models that, as you were mentioning, have been built on this, is that we're able to manage drift and keep the accuracy and the currency and the speed at which we can correct the models, keep the models up to speed. That is the extraordinarily important part, is that feedback loop that we also have.
Mm-hmm. And when you think about sort of the competitive environment that you're in right now, specifically considering some of the most recent developments with larger players considering coming to the market, like, how has the competitive environment and landscape evolved? And if you could maybe mention some overlap with perhaps your kind of top competitors, Solera and Mitchell.
Yeah, I would say, you know, over time, the overlap has become less and less and less, especially in the United States.
Mm-hmm.
And so when you look at these, the companies you mentioned, there's a lot less overlap across the most of our revenues or their revenues and vice versa. So we've continued to focus pretty intensely on the auto side of the business and have built out a lot of capabilities at enormous scale with the data sets and, you know, the collision repair marketplace, the parts space, and everything else. So I'd say less of an overlap, and also, we think we, on a cumulative basis, we spend far more in R&D and products for this particular thing, given our scale.
You've mentioned that your focus is on and still remains on P&C auto, but you've also been expanding into casualty business.
Yes.
Could you update us on what's been happening in the last 12 months? Is the share of your total revenue still 10%, and how it's evolving?
Yeah, at a very rough cut, the share of revenue is around 10%, but even the conference we had just last week with our customers, there's a lot of excitement about our casualty solutions.
Mm-hmm.
The advanced innovation that we put in, for example, Impact Dynamics that we announced, where you can take the physics of the accident from the photo and compute, you know, that informs the casualty process, as well as we brought on board many new casualty customers. 'Cause as you're aware, only a small percentage of our auto physical damage customers use our casualty solutions. Brian, I don't know if you wanted to add anything to that.
Yeah, no, it is a combination of bringing more logos onto casualty and then expanding the product set around the casualty solution. As Githesh said, it's roughly still about 10%, but it is growing at a faster pace than total revenue, so it will continue to scale as we go forward.
The biggest competitor in that space would be Mitchell, right?
Yes.
How would you rank yourself in your technology versus your competitors? You've mentioned some of the R&D investments that you're making, that they're much more substantial. And then, what do you think you need to do to convert some of the larger insurers in the casualty space and overall in P&C, like Progressive, for example, to get them excited about your product?
Yeah. What I can tell you is what we are seeing with customers is many of the customers that we've converted to our platform, they love the functionality, the interface, you know, and the ROI that we deliver, but also the integration to the auto physical damage side is very critical.
Mm-hmm.
So one in five auto claims has a medical claim, so... But the auto claim, the physics of the accident, actually informs the medical claim. And we, over the last several years, we've invested very heavily on the casualty solutions, and so the customers that we have converted, customers that are in discussions with pilot testing and the like, we feel very good about what they're telling us, which is that they really like the innovation and the changes. And of course, you do have some customers who are still using manual solutions, who are also transitioning.
Absolutely. Could you discuss the most recent launch of the CCC IX Cloud, how this provides further competitive differentiation?
Yes. We're actually very excited about the IX Cloud. It's taken a while to put it together. So think of it as an event-driven architecture that really goes across all of the different markets, all of the different customer segments, across the different solutions. And what it does is it can instantaneously, if something happens inside a repair facility, that information is available at a different standpoint, so you can inform the... So a lot of decisions can be made. Today, if you look at the industry as a whole, a lot of these decisions are actually quite sequential.
Mm-hmm.
I did this, I passed it on to this person, then they do this. And what the IX Cloud does by connecting all of this, like an electrical bus, is that it allows more of these decisions and actions to be taking place concurrently or simultaneously, and that. And we just, you know, at our conference, we just announced, we showed that off to our customers, and in general, the receptivity has been very good.
But considering that it's available to everyone, all of your customers right now-
Yeah
... Brian, how do you think about monetization of that product?
Yeah, so it's not a SKU that will sell as a standalone platform, so it's enabling all our clients. What we do think from a revenue driver is it will accelerate the use of our applications, and make the applications that they'll drive more efficiency as they're plugged in within the platform. So we think about just the adoption curve and the acceleration through that.
Just more broadly, how do you think about monetization strategy longer term when you include an offering versus when you break it out into new SKUs, SKUs?
Yeah, I mean, we, we do both. I mean, as a vertical software, it's really important that we, within our packages, that we continue to drive innovation. And some of that innovation, a lot of that innovation comes in the existing packages. So you think of the example of Jumpstart, that we took to the shop using AI to help them, the shops write estimates. That was rolled out as, as just part of a package and not incrementally charged, for that SKU. We then do have SKUs that we bring to market, that we put a package around and sell, as, as a standalone offering. So we, we do both.
Mm-hmm. Amazing. And, Githesh, could you maybe elaborate a bit more on new products that you've announced at the consumer conference, GenAI chatbot, and longer term, the introduction of Digital Twin?
Sure. You know, the Digital Twin, I'll start, is further out.
Mm-hmm.
It's not a particular product or a SKU today.
Yeah.
It is a concept demonstration we wanted to show to our customers. You know, we are in discussions with people that provide, you know, companies that do 3D vision and with goggles and the like. So what we're seeing is a unique ability to actually take a Digital Twin of an auto claim or different facets of it, and to be able to look at every facet of what is there, because the complexity of the autos have gotten incredibly complicated. So whether you are trying to replace a camera or a sensor, you might only see one or two of those cars with that configuration in a year.
Yeah.
But by having a Digital Twin that walks you through all the different steps that you would have to do before you actually do it is very powerful. So we're working with all the auto manufacturers. Some of them are interested in giving us the CAD capabilities-
Mm-hmm
... to integrate in, and everyone has been super supportive. But I also want to be clear, it is a longer, longer-term-
Yeah
- vision.
Of course. And, GenAI chatbot?
The GenAI that we're doing across the board, right?
Mm-hmm.
Because that just makes a lot of sense. For example, in subrogation, we have our AI that can read hundreds of pages and provide capabilities. And then the other thing we did is we found that, you know, when you talk to consumers for an auto claim, what they really want to be able to, what they want is a clear, simple English language explanation of: What are you actually going to do to my car?
Mm-hmm.
They're having chatbot capability with the early testing stages, which lets them answer in plain English, "This is what we are doing to your car." That, people seem pretty excited about. So all of these GenAI capabilities, the vision capabilities, as you know, we've been working on a lot of these things over the last decade, but some of the GenAI tools are now very, very, very, very good.
Brian, CCC is one of the few companies in our coverage that is actually monetizing AI already. How do you think about pricing here? A nd generally, broader question that I always get about CCC is: What is the pricing strategy longer term? How come the company hasn't really exercised price increases to the same extent as some other companies are doing it?
Yeah. I mean, the framework that we use is an ROI-based framework. So when we think about launching products, and that could be AI products like Estimate- STP, it could be other products, we think about the return that drives the client and then price it accordingly. On average, we think about a 5-to-1 return for us. So, driving return or value for the customer, make sure we're getting a good value exchange back, and over time, we think about it at a 5-to-1 ratio. And so that plays through established solutions that we've had in the market for a while. It also plays through the emerging solutions that we're bringing into market. And we feel like it's a good balance, and a good value exchange.
Githesh, could you update us on how your main product Estimate- STP doing? What's the latest penetration in total claims?
Yes. You know, we rolled out Estimate- STP, just started in November of 2021. And after the initial launch, we're seeing maybe three broad things in terms of it. So first, I think, you know, we were at about 20 customers using Estimate- STP. That number has now increased to about 30 customers.
Mm-hmm.
Then I think last we had reported, I think we had said we were running at about 1% of auto claims using Estimate- STP. That number is now moved closer toward the 2%-3%.
Mm-hmm.
Then the early customers that were in one or two states or three states have increased to 10 states. People at 10 states have gone to 25 states, 25 states have gone to 50 states. So we are seeing much broader starting to get adoption. And we've also expanded its capability across a very wide range of vehicles: front-end hits, side hits, back hits, SUVs. And so the coverage has also gotten much broader, and the accuracy is getting much better.
Mm-hmm. And generally, what, what are you seeing in terms of penetration across your emerging solutions? Like Estimate- STP is one of those-
Yeah
about other solutions.
So I would say in general, we feel very good about the penetration of the different solutions. So if I stay with insurance-facing customers for a second, Estimate- STP is now going on its third year, and we really like... We're seeing a lot of the ramp, we're seeing a lot of usage, you know, so that's coming along. And then, as you move to things like First Look that we just launched very recently, so we have customers that are quite excited about starting to put it in pilot, start to use it, and the like. Impact Dynamics and other AI-based products, we're in the early stages. We have the customers that have implemented it are seeing great results.
And then Subrogation is one where, while we've not explicitly announced in public how many customers, we have a number of customers who are in various stages of piloting, testing, and contracts. So that feels also pretty good. And then, on the repair side, the newer solutions, like, apart from the traditional solutions, the newer solutions like, say, a diagnostics or, Amplify, which allows you to create your own websites, or we just demonstrated the new payroll solution. So we're seeing very good demand, and I think part of the reason for that is we have the ability to work closely with a lot of customers of some of their most pressing problems. So the beauty is we're able to design and build many of these solutions by working closely with the customers.
So by the time we come to market with these solutions, they already have had a ton of input already.
Mm-hmm.
We're just starting to see them scale. I mean, as Githesh said, the feedback has been really positive, and we're seeing momentum. But when we look at kind of just the revenue, I mean, we're operating in a $2 billion TAM for these emerging solutions, and we're at the very early stages of seeing them scale. We highlighted in Q1, it drove about 1 point of the overall growth. We are expecting that to step up and to contribute more in the second half. And then, as we build out longer term, it will be a much more important part of growth driver. The momentum and velocity is there for these new solutions.
Mm-hmm. So the $2 billion revenue opportunity for emerging businesses, what about your more mature?
Yeah. So the full TAM for our solutions is 5... Well, we have a $10 billion TAM in total for U.S. Auto, $5 billion for products that we have today, and it breaks down. Of the 5, 2 is these emerging solutions, and then the other 3 are the established solutions-
Mm-hmm
... products we've had in market for years.
Okay, perfect. And, Githesh, you talked a lot about insurance. Maybe if we talk a bit more about body shop repair facilities.
Sure.
Can you talk about, sort of diagnostics, calibration, all these products, how they are being upsold and cross-sold, to these customers?
Yeah. With repair facilities, we are seeing even many of the solutions we delivered two years ago, three years ago, four years ago, still continuing to roll out, right? Like solutions like Engage, we're at, I think, roughly at a third of our customer base. CCC One Workflow, you know, that is also a long way to go in terms of growth that's available. So we're, you know, continuing to add. So a lot of our established solutions have a lot of runway on the repair facility side. And then, the newer solutions, like a Jumpstart or Diagnostics or Amplify or some of these solutions, they're in the very, very early stages of adoption, and we feel good. And then, the other thing we're also doing is we're continuing to add a lot of new logos on the repair side of the business.
All of that's contributing to growth on the-
Mm-hmm
... repair side of the business.
Maybe switching to some of the financial targets, Brian, like, obviously, the business is incredibly profitable already, but, what do you think may help you get to mid-80s gross margin level and mid-40s EBITDA margin levels?
Yeah. I mean, we, we've seen good progress in the past couple of years in just being able to scale. We're at 78% gross profit. We think about 80%. We're at, you know, our margin, we targeted about 100 basis points, EBITDA margin, 100 basis points improvement per year, moving towards the mid-40s. Part of it is just the efficiency of the business model. And as we continue to scale, we continue to cross-sell our existing clients. That flow-through is really strong, and that flow-through will play through both the gross profit and the EBITDA margin. So, we see leverage in cost of revenue, we see leverage in G&A, we see leverage in sales and marketing. All of those areas give us really good opportunity to deliver against both the gross profit target and the EBITDA margin targets that we put out as a guide.
Any guidance in terms of stock-based compensation longer term? I think that's an area of discussion.
Yeah
with some investors.
Yeah, we set out for next year. It's gonna look more like 12%-14% of revenue-
Mm-hmm
... is a good target.
Okay, perfect. I would like to now open the room for questions. If anyone has a question, please raise your hand. In the meantime, I was wondering if you have any thoughts about kind of your strategic geographical focus. In the past, I think you mentioned that Europe could potentially become a target longer term. If you were to consider it once you sort of tackle the attractiveness of the U.S. market, what would the strategy be in Europe?
Yeah, I would say, you know, we get invited by customers to come there all the time, and, you know, there are a lot of challenges that many of our solutions could address in Europe. We would also consider M&A as a-
Mm-hmm
... way to, you know, to help facilitate the entry into Europe, and then many of the newer tools are clearly very applicable. A car is a car is a car-
Yeah
... and our AI works across, you know, geographies, too.
Are there any sizable players in Europe that would give you a pan-European exposure? I think the players like Autovista and DAT, players like that.
We have not commented in public about... There are players in Europe, and more of the players tend to be on the smaller side.
Smaller side. Okay.
Yeah.
Perfect. The other question that comes up a lot is buyback strategy, 'cause that seems like a potential solution for some of the overhang with your existing pre-IPO shareholder.
Yeah.
Have you considered that? I know you've-- last year, you've used that opportunity to limit the overhang, having bought some of the shares. So what is your long-term vision like? You obviously make a lot of cash-
Yeah
... on your core business.
So first and foremost, and maybe Brian can add to this as well, is that our public float has increased significantly.
Mm-hmm.
So from where we were at the end of last year to where we are now, the public float has, I think, what Brian, the number has gone from,
Yeah, I mean, the private equity owns about 40%, at this point, so Advent and Oak Hill. So the balance of float has moved dramatically.
So there's been a 30-point shift, right?
Mm-hmm.
In public float, and I think along with that. So in terms of the, you know, our thought about buyback specifically or other forms, we actually look at it through a single lens, and that lens is increasing long-term shareholder value, and that means equity value, you know, per share. And that may take different ways at different times. Sometimes it may be just investing in building out new products, it might be an acquisition, it might be a buyback, it might be any one of these mechanisms
So rather than, you know, have a very specific target on, "We'll do this type of buyback or not do this type of buyback," we don't have any particular religion around that. It's just to make sure that we're being very thoughtful about continuing to increase the value. If you think about the last several years that we've been public, just the three years we've been public, I think we've added about $250 million of revenue, $150 million of EBITDA. We think those are much very important, and then obviously, we've supplemented that with buying back at times. But we also know our private equity shareholders will continue to sell down over time. That will also increase the float, because for a lot of our shareholders, having an increased float has been very important to them.
Of course.
Yeah, I mean, I'd, I would just highlight the strong balance sheet. So we have 1.6x leverage, and we're driving really strong cash flow. So if you look at the trailing twelve months, free cash flow is about 24% of revenue. So the strong balance sheet position today, the good cash flow on the business, gives us a lot of opportunity, and Githesh, that's really around maximizing shareholder value, and that can come in different forms.
Of course. But to summarize, your focus for now would be core U.S., core product, more research, more investments. Opportunistically, you could consider some buybacks should-
Yeah
... this opportunity arise, but this is not the main focus, and then M&A, potentially longer term.
Yeah, I would just qualify it slightly differently. I wouldn't say... I mean, M&A remains a clear focus, and we want to drive against our strategic priorities and strategic initiatives. And where there's M&A and there's a good pipeline, you know, looking at that versus the balance sheet versus other opportunities to drive shareholder value. So I just wouldn't put M&A in kind of the medium to long term. I think there—the, as opportunities come up, we will try to be active.
Okay.
Yeah.
Perfect. In terms of, kind of more feedback from your consumer conference, Githesh, like, what was the biggest surprise in terms of customer feedback?
You know, I think more—I wouldn't call it a surprise so much as the... You know, everyone really appreciated the investments we're making. In fact, we had our tech showcase, where we were able to showcase a lot of our new solutions, and we also brought in partners that we work with. We work with a lot of external partners, and I think the feedback from customers as they saw the solutions and talked to each other about the solutions that they were using, that was very, very positive.
Mm-hmm. In terms of your focus strategically on segments adjacent to your existing operations, anything that you see attractive? So claims, yeah, automotive, and then moving into casualty was a logical step. Any other areas that you see that could potentially be on the horizon?
There are several areas we're looking at. Some, like for example, you look at Subrogation. Subrogation applies not only to auto, but to other lines of business.
Mm-hmm.
So we're already, you know, expanding in those areas. Payments is something that probably affects a lot of other areas as well. And we just think if you look at the overall scope, and this is one of the core reasons why maintaining an extraordinarily high Net Promoter Score has been so important, because it's the Net Promoter Score of 83 that gives us a license as we talk to customers about entering adjacencies and adjacent spaces. So there are a number of these, but we haven't explicitly launched any of those additional ones, besides what I just talked about.
Would you hypothetically be interested in something like telematics or dealerships?
Well, telematics is actually a core capability that we have. We can actually interface and actually process signals and apply that to the claims process. We have the core capability. It may surprise you to know that we are in dealers already. Our software is used by dealers for collision, and the other part of the dealers that use our software is for parts ordering.
Mm-hmm.
We have several, you know, several thousand dealers that are using the CCC software to actually to have purchasing by repair facilities. So the connection between parts dealers, automobile dealers, and our repair facilities continues. Just like we have a lot of OEM customers, we're also integrated into that mix.
Amazing. And the final question, Githesh, and you've always been on the forefront of technology. You were so early to invest into the cloud, to invest into AI. What's next on your agenda? Like, what are you thinking? What's, what's exciting you right now?
I think what is truly exciting today is the infrastructure we have built to be able to build and deploy AI models in the context of all of these different workflows. We think that's got a very, very long runway, right? Just like you were saying, when we started to build out the cloud platform, that was actually 21 years ago we released our cloud platform, and then it's been 10 years on AI. The last two or three years, we're seeing more of an acceleration of those capabilities.
Mm-hmm.
And also, the recent move to public cloud has also freed up a lot of the capacity and capability, so we're not in the hardware buying and installation business anymore.
Yeah, absolutely. Great! Well, thank you very much, Githesh. Thank you, Brian, for coming, and we're always happy to see you at the conference.
Thanks, Alexei.
Well, Alexei, thank you so much, and thank-
Appreciate it. Thank you very much.
Thanks to JP Morgan and the team as well.
Thank you.