Thank you for standing by. This is the conference operator. Welcome to the CCC Intelligent Solutions Third Quarter 2022 Earnings Conference Call. As a reminder, all participants are in listen- only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator with pressing star and zero. I would now like to turn the conference over to Bill Warmington, Vice President of Investor Relations. Please go ahead, sir.
Good morning, and thank you for joining us today to review CCC's Third Quarter 2022 Financial Results, which we announced in the press release issued before the open of the market today. Joining me on the call are Githesh Ramamurthy, CCC's Chairman and CEO, and Brian Herb, CCC's CFO. The forward-looking statements we make today about the company's results and plans are subject to risks and uncertainties that may cause the actual results and the implementation of the company's plans to vary materially. These risks are discussed in the earnings releases available on our investor relations website and under the heading Risk Factors in our 2021 annual report on Form 10-K filed with the SEC. Further, these comments and the Q&A that follows are copyrighted today by CCC Intelligent Solutions Holdings Inc.
Any recording or retransmission or reproduction or other use of the same, for profit or otherwise, without prior consent of CCC is prohibited and a violation of United States copyright and other laws. Additionally, while we've approved the publishing of a transcript of this call by a third- party, we take no responsibility for the inaccuracies that may appear in that transcript. Please note the discussion on today's call includes certain non-GAAP financial measures as defined by the SEC. The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the company's financial condition and the results of operations. A reconciliation of GAAP to non-GAAP measures is available in our earnings release that is available on our investor relations website. Thank you. Now I'll turn the call over to Githesh.
Thank you, Bill, and thanks to all of you for joining us today. I'm pleased to report that CCC delivered another quarter of strong top and bottom line performance. For the third quarter of 2022, CCC's total revenue was $199 million, up 13% year-over-year and ahead of our guidance range. Adjusted EBITDA was $78 million, up 11% year-over-year, also ahead of our guidance range. Our adjusted EBITDA margin was 39.3%. Based on our strong performance in the third quarter and year to date, coupled with our outlook for Q4, we are raising our revenue and adjusted EBITDA guidance for the full year, which Brian will walk through. Today, I would like to discuss three topics. The first is the uniqueness and strength of the CCC platform.
The second is how our efficient financial model enables continuous investment in innovation throughout economic cycles. Third is the progress we're making on our new solutions. Beginning with our first topic, what makes CCC's platform so unique is that it combines an efficient technology framework, close customer relationships, and a multi-sided network that benefits all parties, resulting in a powerful business model. Our technology framework is a key element of the CCC platform. We have a long history of being at the forefront of technological innovation for the auto insurance economy. Whether that was introducing the CCC ONE platform for collision repair more than a decade ago, and which today represents more than 40% of our revenue, or more recently in launching and scaling several first-in-the-world AI solutions for claims.
Innovation is at the heart of what we do, and today our 100% multi-tenant cloud architecture is scalable and enables us to roll out new products and updates quickly and cost effectively. We are also very fortunate to have great customers who want to innovate with us and to do so over the long term. A good example of this is a recent renewal with a top 20 national insurer. This insurer extended their contract with us through 2029, a 7-year extension versus our typical three- to five-year contract length, and also expanded their relationship to include multiple new solutions. This arrangement underscores CCC's role as our customers' long-term innovation platform of choice, with customers increasingly looking to the CCC cloud to help them transform their business and optimize their performance.
A core part of delivering those results is how we work with customers. Delivering solutions with significant input from our customers enables us to effectively address customer pain points and deliver near-term operational efficiencies for our clients, in many cases, years ahead of others. As a result, our solutions have high levels of customer adoption, ROI, and renewal, which helps create a powerful and highly scalable business model. Maintaining close customer relationships is a key part of CCC's culture and a major driver of our consistent Net Promoter Score of 80. Our network is another key element of the CCC platform. Our network is large, complex, highly interconnected, and generates value for all participants. It supports mission-critical processes at over 30,000 companies and across more than $100 billion of annual transactions.
The network includes insurers, repair facilities, OEMs, parts suppliers, and many other members of the auto insurance economy. With CCC, the trusted partner, powering and facilitating billions of interactions. As the CCC network has grown in both segments and participants, the value of the network to each participant has also grown. The classic network effect. We believe the interconnected CCC network is an essential enabler of the auto insurance economy's transformation and is a great way for our customers to address the rapidly increasing complexity they face. The second topic I'd like to cover today is how our efficient financial model enables continuous investment in innovation throughout economic cycles. Our financial model is both predictable and scalable. In terms of predictability, over 80% of our revenue is subscription-based under 3- to 5-year contracts, and we have 99% gross dollar retention.
In terms of scalability, CCC's high 70s% gross margin is a product of our highly efficient cloud-based service delivery model I discussed earlier. In addition, we have an efficient go-to-market model because we already have broad customer coverage with our growth increasingly coming from existing clients. These efficiencies allow us to continually reinvest in our state-of-the-art technology stack over the long term, enabling rapid deployment to customers. During the pandemic, for example, we continued to invest aggressively in developing new solutions such as Estimate STP, diagnostics, and payments. These investments, combined with decades of previous investments, have positioned CCC at the heart of a major digital transformation of the auto insurance economy. We think a good analog is how the great financial crisis of 2008, 2009 accelerated the digital transformation of the financial services industry in the decade that followed.
We believe the pandemic illustrated to auto insurance economy participants the need for new tools to improve their consumer experiences and operational efficiency. We believe this industry is in the early innings of this transformation, and that these forces of change will underpin our growth for the next decade. The third topic I'd like to talk about today is the progress we are making on some of our newer solutions. We have a long history of developing solutions combining software, hyperlocal data, and our interconnected network to solve problems for our customers. Today, our customers' problems include labor shortages, supply chain challenges, inflation, lack of repair facility capacity, and rising consumer expectations, all compounded by the increasing complexity of vehicles and of the ecosystem itself. So far in 2022, for example, repair costs are running over 12% higher than the same period in 2021.
In third quarter 2022, the national average scheduling backlog for auto accident repair has reached four point eight weeks, more than twice the previous peak of two point two weeks in the first quarter of 2017. Those figures are all before the impact of Hurricane Ian. Customers recognize that investing in digital solutions is the best way to counteract the negative impact of the macro challenges they are facing. This morning, I wanted to give you an update on two of our solutions that are helping to do that. We discussed these last quarter, Estimate STP and Diagnostics. Estimate STP is our AI-based system that can write line item insurance claim estimates from photographs with little to no human involvement based on carrier configuration. We now have 14 clients on Estimate STP, up three from the 11 we mentioned on our last earnings call in August.
We now have seven of the top 10 insurers representing over 50% of the industry claim volume running Estimate STP, and we are excited that clients are starting to roll it out nationally. The absolute volume levels are still a tiny fraction of the potential, but they are growing quickly off that small base. In September, the number of claims being processed through Estimate STP was several multiples of the number of claims processed in January. I also wanted to mention CCC Smart Red Flag Cross- Carrier in the context of Estimate STP, as well as the broader straight-through processing opportunity. CCC Smart Red Flag Cross- Carrier is an AI-powered fraud detection system that leverages the claims data of the participating insurers on the CCC cloud. five weeks ago, we announced that GEICO was the first auto insurer to join, and since then, 8 additional carriers have signed up.
These nine carriers include three of the top 10 and represent about 30% total market coverage. We believe Smart Red Flag Cross- Carrier is an important digital enabler for the auto insurance economy because it helps increase trust in the digital claims system as the velocity of auto claims increases. The second solution I'm going to talk about is diagnostics. Cars are getting safer, but all these safety features are also making cars more complex. As a result, diagnostic scans are getting more and more important because damage is not always visible to the naked eye. Five years ago, the number of repairable appraisals that included a scan was about 3%. Today, that figure is about 50%. Over the past few years, we've built out a robust network of leading providers of diagnostic services such as asTech, AirPro, Opus, and Honda.
In fact, last week, just before a large trade show in Las Vegas, we launched a new optional add-on package to CCC Diagnostics, our diagnostic solution for repair facilities. The add-on enables repairers to simplify the administration of diagnostics, creating more consistency in reporting, improving verification of scans, and increasing transparency between repairers and insurers. We have also received strong endorsements from OEM automotive customers who see this capability as being very helpful to repair quality and safety. The new CCC Diagnostics add-on is part of the previously defined $50-$100 million revenue opportunity for diagnostics and is another example of the central role CCC is playing in digitizing the auto insurance economy. Before concluding my remarks, I'd like to welcome Mike Silva to our executive team as CCC's new Chief Commercial and Customer Success Officer.
Mike has run multi-billion dollar U.S. and international operations at companies like Microsoft, IBM, UnitedHealth, and most recently, Salesforce. Best of all, he represents the core values we look for in our leaders. Mike also has direct industry experience, having started his career as a claims manager at Chubb Insurance. He has deep experience with enterprise-level sales in SaaS, cloud, and AI across insurance, financial services, and other industries. I have high confidence in Mike's ability to help our customers improve their operational efficiency and consumer experiences. Mike, it's great to have you as a part of our team. I will now turn the call over to Brian, who will walk you through our results.
Thanks, Githesh. As we now turn to the numbers, first, I'd like to review our third quarter 2022 results and then discuss our updated guidance for the fourth quarter and for the full year 2022. Total revenue for the third quarter was $198.7 million, up 13% from the prior year period. Approximately 10% of our revenue growth in the third quarter was driven by cross-sell and upsell into our installed client base, including continued strong adoption of our digital solutions. About one percentage point of the 10% came from the large expansion deals that we closed in the second half of last year that we've been talking about over the last several quarters. An incremental 3% came from new logos, mostly repair facilities and parts suppliers.
I'd also note that 99% of our revenue in the third quarter was domestic. Turning to our key metrics, software gross dollar retention, or GDR, captures the amount of revenue retained from our client base compared to the prior year period. In Q3 2022, GDR was 99%, consistent with last quarter. We believe our software GDR reflects the value we provide our customers and the stickiness of the network effect. Software GDR is a core tenet to our predictable and resilient revenue model. Software net dollar retention, or NDR, captures the amount of cross-sell and upsell from our existing customers compared to the prior year period, as well as volume movements in our auto physical damage client base. In Q3 2022, software NDR was 110%, which is above our historical average.
The consistently strong NDR performance in recent quarters reflects the success we've been having with our cross-sell and upsell opportunities across our client base, including the large expansion deals signed in the second half of last year. NDR is a core driver in our business, and we have excellent opportunities to execute against this for the foreseeable future. Now I'll review the income statement in more detail. As a reminder, unless otherwise noted, all metrics are non-GAAP, and we provided a reconciliation of GAAP to non-GAAP in our press release. Adjusted gross profit in the quarter was $154.1 million, with adjusted gross profit margin of 78%, which is consistent with the third quarter of last year. We feel good about the operating leverage and scalability of our business and being able to deliver against our long-term target of 80%.
In terms of expenses, adjusted operating expenses were $83.1 million, which grew 11% year-over-year. Growth in these expenses was driven mainly by headcount additions and, to a lesser extent, an increase in discretionary spend as these expenses are largely normalized. On the headcount point, we are pleased with the progress made to advance both our operational capabilities and capacity for new product innovation by adding key positions across product management and product development. We feel we are in a strong position to continue to deliver ongoing innovation into the market and executing on our strategic agenda. Adjusted EBITDA for the quarter was $78.1 million, with a 39.3% adjusted EBITDA margin. Adjusted EBITDA grew 11% year-over-year, with a slight margin decline of 40 basis points compared to Q3 of last year.
The modest margin decline reflects operating leverage of our revenue growth being offset by investment in resources to support our long-term growth initiatives. As an example, year to date, we have increased our product development staff month capacity by approximately 20%. Now turning to the balance sheet and cash flow. We ended the quarter with $248 million in cash and cash equivalents and $794 million of debt. At the end of the quarter, our net leverage was approximately 1.8 times adjusted EBITDA. In an effort to proactively manage our interest rate risk, during the third quarter, we put in place a 4% three-year interest rate cap on $600 million of our floating rate debt.
Going forward, the interest rate on our debt will continue to float based on a one-month LIBOR, but approximately three-quarters of our debt will be subject to an interest rate cap of 4%. Free cash flow in the quarter was $17.4 million compared to $25 million in the prior year period. Year-to-date, we've converted approximately 43% of our adjusted EBITDA into unlevered free cash flow. Adjusting for the timing of customer receipts, which were collected in October, the interest rate cap, and the headquarters build-out, adjusted unlevered free cash flow would have been in the low 60s range year-to-date, consistent with historical results. Now I'd like to finish with guidance, beginning with the fourth quarter. We expect total revenue of $200 million-$202 million. This represents 7% year-over-year growth at the midpoint.
We expect adjusted EBITDA of $77 million-$79 million, which represents a 39% adjusted EBITDA margin at the midpoint. For the full year 2022, we expect revenue of $779 million-$781 million, which represents 13% year-over-year growth at the midpoint. We expect adjusted EBITDA of $302 million-$304 million, which represents a 39% adjusted EBITDA margin at the midpoint. Three points to keep in mind as you think about our fourth quarter and full year guidance. The first is that we have now lapped all the large expansion deals that we signed in the second half of last year. These deals contributed 5% of revenue growth in the first quarter of 2022, 4 points in the second quarter, and 1 point in the third quarter.
We will receive no benefit from these deals in the fourth quarter. The second point is that we had a two percentage point contribution from non-recurring revenue in the fourth quarter of last year. This creates a two-point revenue headwind for us in the fourth quarter, which means the implied fourth quarter guidance of 7%-8% revenue growth without the two-point headwind would be 9%-10% growth in the fourth quarter. The third point is that we are raising our adjusted EBITDA margin forecast for the full year based on the operating leverage of our revenue performance in Q3 and year to date. We expect adjusted EBITDA margin will be up approximately 80 basis points for the full year 2022 to about 39%. This represents about 900 basis points of margin expansion since the end of 2019.
We continue to be focused on investing in innovation to support our growth ambitions, while at the same time progressing towards our long-term mid-forties adjusted EBITDA margin targets. Overall, our guidance reflects our confidence in the underlying momentum of the business, and we feel good about the strategic position of the long-term opportunities in our product portfolio. We believe we have many shots on goal, two of which were highlighted today with Estimate STP and Diagnostics. We have many other exciting opportunities across both our emerging solutions, like subrogation and payments, as well as our more established solutions like Casualty, repair shop package upsells and Engage. The need for digitization across the P&C insurance economy continues to accelerate, and CCC is well-positioned to drive durable growth in revenue and profitability in the near and long term.
We are confident in our ability to deliver on our long-term organic revenue growth targets of 7%-10% next year and beyond. As we continue to execute on our strategic priorities, we believe we will generate significant value for both our customers and our shareholders. With that, operator, we're now ready to take questions. Thank you.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We kindly ask all analysts to limit themselves to two questions each. Thank you. The first question comes from Gabriela Borges of Goldman Sachs. Please go ahead.
Hi, good morning. Thank you for taking my question. For both Brian and Githesh. Brian, you talked a little bit about the puts and takes, the full-year guidance. Githesh, you talked about some of the longer-term secular tailwinds you're seeing post-COVID. I thought I'd ask about the long-term growth rate, so the 7%-10%. Maybe give us a little bit of insight into what would drive you to be at the low end of that range versus the high end of that range in any given year, and any early visibility into 2023 and how we should be thinking about that. Thank you.
Brian, you want to take the first part, Gabriela? Over to you, and I'll take the second part of your question.
Yeah. I'll start. Hey, morning, Gabriela. To start, think about Q4 and the range we put out. We talked about 7% at the midpoint and 8% at the high-end range. Remember within there's two points of headwind that we're facing. When you normalize that's 9% and then 10% at the high-end range. I think that's a good way to think about how we're gonna end the year and then the stepping off point into next year. When you think about what will drive the high end of the range, it's certainly gonna be, you know, one of the key factors will be the adoption of our newer solutions and how those track.
When we think about what will push us to the high end or beyond, it's really gonna be the progress of those new solutions that we're rolling out and the adoption of them. Githesh, if you wanted to add some additional color.
Yep. Gabriela, one of the things that, you know, we have focused on is having a very, very scalable and modern, cloud architecture. As we deliver new solutions, our ROI tends to be very quick. We're talking about 90 days, typically from a time we roll out a product or a solution. As a result, we have high adoption. As an example, I mentioned Estimate STP. If you look at even just over a quarter, we've added three large clients. As we roll out existing products, as we roll out our newer solutions, we're also continuously developing new products. I would say adoption, as well as the pipeline we have of, new solutions is what gives us confidence.
Most importantly, we've had a number of meetings with our customers, and they all have indicated a very deep propensity to continue to roll our solutions out. That's what gives us confidence in our growth.
That all makes sense. Thank you. As a follow-up, Githesh, congratulations on hiring Mike. Maybe give us a little bit of a preview. What are a couple of key projects that Mike will be working on, and what are some of the areas where you think he can really move the needle?
Sure. Mike is primarily focused on, first and foremost, making sure he has an extraordinarily deep understanding of our customers, our products and solutions as we built all of these over the long run. Mike's primary focus is working with our customers and to really roll out many of these newer solutions, a whole range of solutions working with our teams, and that Mike has deep experience in go-to-market rollout of new solutions. That's, I would say, a big focus for Mike.
Appreciate the color.
All right, Gabriela. Thank you.
The next question comes from Dylan Becker of William Blair. Please go ahead.
Hey, guys. Morning. Congrats here on the quarter. I guess maybe starting with Githesh, the idea you touched on STP playing out around claims automation, obviously some solid early traction there. As you think about the idea of rounding out the broader kind of touchless claims opportunity, I think that there's probably other components that you could build out, right? Speaking to that innovation piece, you touched on Smart Enabler. I would just understand how the early traction you're seeing maybe gives you and the market confidence in claims automation capabilities and how you're thinking about rounding out that suite and the future innovation cadence there.
Okay. Thanks for the question, Dylan. Here's what we're seeing. What we started to do, first and foremost, was when we started rolling out Estimate STP, people started testing Estimate STP in a handful of geographies. People were testing out in a state, maybe two states, maybe three states. Just by way of background, prior to Estimate STP, we had rolled out Smart Estimate, which was our AI solution, which were being used by thousands of adjusters. People get really comfortable with the ability of the AI and its fundamental capabilities. As we move to Estimate STP, what we are now seeing is clients are going from one or two or three states to, in some instances, have gone to all 50 states. And that volumes are still very tiny.
As we tune the models, as we add more customers and people are rolling out in more states, we see tremendous opportunities for Estimate STP to continue to roll out across our client base. Now, just as a reminder, Estimate STP is part of a much broader view that we have around STP or straight-through processing. This ability to demonstrate in very tangible terms immediately what Estimate STP can deliver gives our customers a lot of confidence, and we're working at design levels with many of our customers across the much broader STP, which basically starts all the way from consumer all the way through settlement and takes advantage of the network of customers we have across insurers, repairers, parts providers, because you have to bring all of these pieces together to truly pull off straight-through processing.
That's very helpful. Appreciate the color there. Maybe switching over to the repair facility side as well too.
Sure.
The idea of consolidation playing out in the space. You've got a healthy share here, and I'd assume that most of your customers tend to be the consolidators. You touched on a lot of the macro impacts, but maybe how they're prioritizing investment and efficiency to address, again, growing backlogs, material, labor challenges, everything you talked about. Thanks.
Yes. In fact, I was at our trade show just day before yesterday, talking to many of our repair customers. What we see across the board is, just as a reminder, we also have a lot of independent customers, repair facilities as customers. When we say we have 27,500 plus customers, it is made up of multi-store operators, it's made up of independents. It's a pretty large share of both that are there. What we are seeing is that the pressures that they have in terms of labor shortage, inflationary costs, and many of the things that we pointed out, people are looking to save time. Time is the one thing that if they can have technicians and others be highly productive. Part of our solutions eliminates, you know, simplifies things.
As an example, CCC ONE, all of the capabilities of CCC ONE streamlines the operation of not only multi-store operators, but also independent repair facilities. As we add functionality like diagnostics has a dramatic impact on improving the entire flow between OEM procedures to connecting to insurers. What we're seeing across the board is people are seeing volume come back, but at the same time, the drive for more digital capabilities, more efficiency, we are hearing that across the board from our repair customers as well.
Very helpful. Thanks for taking the question, guys. Congrats.
Thank you.
The next question comes from David Kelley of Jefferies. Please go ahead.
Hey, good morning and thanks for taking my questions. Thanks for all the color on the lapping of your large expansion deals from last year. Maybe regarding the new top 20 expansion deal you announced this morning, you know, how should we think about contribution from the new deal going forward? Also curious if there's any other major contracts potentially up for renewal in the coming months that we should be considering.
Yeah. Hey, David Kelley, it's Brian Herb. I'll take that. Yeah, so within the deal, I mean, we highlighted a top 20 renewal. Within that renewal we had several products that were included as a cross-sell. We highlighted it also because of the term, right? The seven-year term really highlights the commitment this carrier has for CCC. You know, you think about that in just our normal step up of growth sequentially. When you look at our absolute dollars, you see, you know, each quarter it's building. It's gonna be part of just that natural step up of cadence. Nothing particular to highlight on this deal within the guidance that we're saying for Q4, and when we talk about the guidance for next year.
We are always working with our clients on cross-sell and expanding their bundles. That's just the natural cadence, and we'll continue to do that. You know, as we think about next year and our growth, we'll be always, you know, cross-selling and upselling into our client base. It's kind of standard operating procedure with you know, the way we work with our clients.
Okay. Got it. Thank you. Then we're starting to see used vehicle values soften from really high and frankly record levels. This will have implications for vehicle total rates and clearly your repair facility customers. I was hoping maybe you could walk us through how this trend impacts CCC, and clearly, you know, not nearly to the extent given your recurring revenue stream. High level, how do you think about a market where used vehicle values are starting to correct from really robust post-COVID supply shortage driven levels?
Sure. So first and foremost, what I wanna make clear is that we have deliberately designed our business model so that we have. You know, our goal for our clients is to give them the correct answer every single time. So it's very important that whether a vehicle should be repaired or a vehicle should be totaled, it's important to make you know, what is the accurate decision for that particular vehicle. With that said, as total loss prices have come down, in fact, total loss valuation hit a $16,000 peak just a couple of months ago. So over a period of 20 years, total losses had gone from you know, roughly $6,700 to $10,000 over 20 years. In the last 2 years it went from $10,000 to $16,000.
We've seen a significant bump. What we're seeing very, very recently, literally in late September into October, is total loss percentages coming down from the 20% range closer to 18%, and that is directly related to the softening of used car prices. The impact it has for our repair customers is that as total loss it really starts even at these high levels, it increases the amount of repair. For the CCC business model, it has zero implications whatsoever one way or the other.
Okay. Got it.
Does that answer?
Thanks, guys.
Does that help? Okay. All right.
Thanks, David.
The next question comes from Saket Kalia from Barclays. Please go ahead.
Okay. Great. Hey, good morning, guys, and thanks for having me on the call here.
Morning.
Morning, Saket.
Saket, hey, good morning. Githesh, maybe for you, great to see the 14 carriers on Estimate STP. I was wondering, what do you think is their catalyst to accelerate that adoption? And from CCC's perspective, do the economics scale as that adoption increases? Maybe you could just talk about that broad brush.
Sure. From a customer standpoint, there's a number of factors that people are dealing with. One, vehicle complexity is increasing pretty substantially. With literally hundreds and hundreds of models and variations, what artificial intelligence can do is provide a capability that starts taking the photos, and we collect over 500 million photos a year, and to really collect, translate that into how should, what should be the repair estimate for this vehicle, so we produce all the way down to a line level estimate. As customers have started using it, they're finding substantial use cases in terms of speed, in terms of reducing complexities, in terms of jump-starting estimates for their own staff. Sending a person out to go look at a vehicle can cost as much as $200.
These tools are not only having a significant impact on that. It also dramatically improves the consumer experience after a claim because of the speed at which you can deal with this. That's really what we see. For us in terms of CCC, as the scale, when we look at the next 24, 36 months, we see Estimate STP continue to roll out very, very nicely. And as that scale increases and the rollout increases, revenue and, you know, there is a revenue increase is commensurate with those rollouts as they take place. Again, even though as I mentioned in my call that from January to September, we've seen a multiple increase in the number of Estimate STP claims on an overall basis for this year, it's still a very small number.
We are excited about what it can do for our clients, and we also believe very strongly this will be a revenue driver for us.
Got it. Very clear. Brian, maybe my follow-up for you. Great to see the software NDR continue sort of at that 110% range, particularly given the tough compare from the big renewals last year. Can you just kind of dig into what drove that? I know we don't guide to software NDR, but how do you sort of think about that ebbing and flowing in sort of the coming quarters?
Yeah, absolutely. We feel good about the 110 that we posted in the quarter. When you look at that versus historical levels, historical levels have been more of 106, 107. You know, feeling good on the trend and the traction. You know, the three things I would highlight that really underpin that metric. One, we do see continued strong growth contribution from our digital solutions, Mobile AI, Engage, some of the digital tax and fee solutions for total losses. That's certainly playing through the number. We also see continued strength in our upsell at the repair facilities, and that is trending higher than our historical levels.
The third piece is the large expansion renewals is still in the metric, although it's tapering off for Q3, but that also was part of it. That will go away in Q4. As you think about the go forward position, you know, the guidance I would give you is about over time, we'll see about 80% of our growth coming from our existing installed base. You think about that over the long term. That will flux a bit quarter to quarter, but that should give you a view of how to think about NDR in the overall growth equation.
Got it. Very helpful. Thanks, guys.
All right. Thanks, Saket.
Thank you.
The next question comes from Kirk Materne of Evercore ISI. Please go ahead.
Yeah, thanks very much. Githesh, maybe following up a little bit on Saket's question. When we think about adoption of SDP by your customers, how much of it is sort of a business process challenge for them to start integrating it into their sort of existing business processes? And is this something that has to happen from their perspective on a state-by-state basis? Or once they sort of do a proof of concept, you know, the adoption can, you know, take place at a rate, you know, maybe not as linear. I'm just trying to get a sense on, you know, how you all see.
Yeah.
Sort of the adoption. Is it a nice steady sort of push higher, or are there opportunities for it to kind of go a little bit more exponential? Thanks.
Yeah. First of all, there is zero need to actually go state by state. It is more in terms of tuning. There are literally hundreds and hundreds of parameters from an AI standpoint that have to be tuned, and every carrier has unique needs in terms of how they would like to do the tuning, and we work with them on the unique tuning. Once you plug it in, we can literally roll this out across our entire platform, across all our geographies. It's not a technology issue, it is not a training issue, you know, it's relatively quick. Because our customers are deeply integrated into the CCC platform with their systems and our systems, when we rolled out mobile several years ago, almost all our customers are using our mobile capabilities.
In fact, the adoption of mobile in the industry has literally gone from 0%-30% of all mobile claims are coming in through the mobile channel. That means the consumer sent a link, consumer takes pictures, then the AI starts to work. That part of the funnel is already built for consumers. The entire workflow, the process is already in place. What this does is there are some adjustments to the operating process, and it's more of people getting comfortable with it. That's why we're so excited to see that, you know, we had 11 customers last quarter. We've added three more customers. Does that help, Kirk?
That's very helpful. Yeah, I was just trying to get a sense on, you know, whether there's certain gating factors for adoption, but it doesn't sound like there is. Brian, just on, you know, the big renewal this quarter, you know, it's great obviously to see your customers so committed to CCC in terms of seven years. Can you just remind us, are there any sort of pricing escalators built into contracts? Maybe not this contract specifically, but in general, you know, as inflation goes up or is it basically just still volume-based? I was just trying to get a sense if there's any sort of pricing uplift, you know, over a period of a contract like that.
Yeah. So it's a good question. I mean, we are always looking at our strategic pricing and tuning. Like many SaaS providers, we'll look at the packaging, we'll look at the value we're driving for our clients, and we'll look to then make sure we're getting appropriate value back to us for, you know, for bringing that solution to our clients. I'd say there's nothing new that we're doing on the back of, you know, inflationary challenges. We're continuing to just look at our pricing in a strategic way as we have historically. That's the way I would leave it.
Okay. That's great. Thank you both.
All right. Thank you.
The next question comes from Tyler Radke of Citi. Please go ahead.
Good morning. I wanted to follow up on the questions around the large renewal. Can you just remind us, you know, are typically these large renewals within insurance carriers a catalyst for them to take on more products, you know, or do the expansions kinda happen independently? Just as you look out over the next 12 months, how does that renewal pipeline look relative to 2022? Are you expecting things to step up just based on the timing of some of your contracts? Thank you.
Brian, if you'll take the second part, I'll take the first one. First and foremost, whether people add additional components of our solutions or not, is really independent of whether we are renewing the contract or not. Because the platform is already in place, as we bring new solutions on board, as an example, the 14 clients for Estimate STP, you know, those solutions can be added to any, you know, regardless of what the contract terms are. Now, interestingly enough, when people do renew and when those things do take place, there's an opportunity for both the customer and for us as we look at the next several years in terms of adding additional functionality.
I would not say that there is anything unusual about contract extensions, you know, having a link to rolling out additional solutions we have. Brian, you wanna take the other part.
Yeah, no, I would just iterate the same points. I mean, we look at our opportunities in different ways. I mean, some will be. A renewal will be a catalyst to expand the broader bundle. We'll sell into that broader bundle and do a renewal. As Githesh said, sometimes we will just add a product schedule within an existing contract and there won't be a renewal. Others, these product extensions will be a driver to extend and drive a renewal. They kind of work in all different ways. You know, when we look at our pipeline, we feel really good about the opportunities we have in front of us, both with adding new product capabilities and renewing key deals, as we go into next year.
We feel really good about where we sit with our clients and the renewal cadence and the cross-sell, upsell opportunities.
Remember, many of our customers have worked with us for several decades.
Yep. No, definitely aware of that. Can see that with the high retention and the strong relationships over time. Brian, maybe for you, for the second question, how are you just thinking about the hiring environment here? You know, I think CCC has had typically less churn, certainly at the senior level, from an attrition perspective, employee attrition relative to peers. Have you noticed any changes for better or for worse in the hiring environment? Just how are you thinking about kind of the expense growth and headcount growth into next year?
I would maybe start with the second and we'll come back to the hiring part. I'll let Githesh add as well. I mean, we remain extremely focused on balancing both our investment and funding our strategic innovation to really underpin, you know, our strategic agenda. We remain very focused on that, at the same time, focused on margin progression. Because we're fortunate to have a very efficient business model, we can do both. We can put the funding that we need to drive the strategic initiatives and also see the margin progress over time. We saw that this year as we moved from 38% margins to 39% margins, and we see that going forward.
I also highlighted in our prepared remarks that we are seeing, you know, good progress in our in hiring. We added about 20% of capacity in our staff months on a year-to-date basis. That's starting to show. We are adding the necessary capacity to fund the innovation. We are not seeing anything dynamic or dramatic from changing in hiring. We are able to continue to make the key hires that we need. We're also seeing good, you know, low churn and attrition in our teams and managing, you know, high retention. Overall, we feel good where we are.
We feel good as we go into next year and having both the capacity and the skill set that we need to set us up for the long term. I know Githesh may have more to add to that.
I'd just add that, look, historically, we've had very low churn, and that continues. Most important, I would say two specific areas that the vast majority of the 20% capacity increase is really coming to two areas. First and foremost, in engineering, where we have full stack developers, where we have AI capabilities. We're continuing to add, you know, top talent into engineering as we roll these products out, as well as product management. I would say that's the vast majority of our recruiting, and we're able to recruit across geographies, and if anything, that's become a little easier in the last few months.
Great. Thank you.
The next question comes from Gary Prestopino of Barrington Research. Please go ahead.
Hey. Thank you. Good morning, all.
Hey, Gary.
Githesh, how are you?
Good.
Great. Wanted to ask this. With this, STP, Estimate STP that you have out there, as insurers sign up for this, are there adjacent products that you are offering that are really must-haves to work with Estimate STP, maybe on the repair side, maybe on the insurance side, wherever? You know, it just adds to the potential growth that you foresee from this product.
Hey, Gary, the answer is yes. In fact, the Estimate STP is really important to establish when we look at the broader concept of STP or straight-through processing. That has implications on many, many facets of the claims process where we can apply artificial intelligence and other capabilities since we're already deep in the workflows with customers. We are working with repair facilities of various types of repair facilities, so that, you know, from engaging all the way from the consumer, you know, we're adding components to our Engage product that's in the repair facilities. We see work going on over there. We have work going on in everything ranging from subrogation, where we had done acquisitions. That's another example of an adjacency.
We've got work going on in, you know, at first notice of loss. You're exactly right that as people try, test, use, and see a significant impact, this is why we remain so excited about the broader straight-through processing opportunity across our entire customer base.
Well, great. That's good to hear. Then just a quick one from Brian. With the non-recurring deal that you had last year in Q4, you said it was a 2% contribution of revenue. I kind of looked at that, so that's about $4 million of revenue. Is that correct? And would most of that have flown directly down to EBITDA?
Yeah. That's right, Gary. Last year, we had two points of non-recurring impact in Q4, and we called it out at the time. That did flow all the way through. You'd seen it flow through in our gross profit. Gross profit in Q4 of last year was slightly elevated, 79%, and that was part of the flow-through. Yeah, you're looking at that correctly.
Okay. Thanks a lot, guys. Appreciate it.
Thanks, Gary.
The next question comes from Arvind Ramnani of Piper Sandler. Please go ahead.
Hi. Thanks for taking my question. Yeah. I wanted to ask you about recruiting. You know, as a public company where they've had a shorter view on CCC, but you know, you have been around during some of the kind of periods of tough macro. You know, and I know this, some of these macro headwinds are different than prior. But just in the macro environment, can you maybe walk us through some of the puts and takes on your business and you know, assuming the macro remains tough in 2023, what are some of the things you anticipate from a business impact?
Hey, Arvind. You broke up a little bit, but I think I can give you a couple of thoughts on the macro environment. First and foremost, you're dead right. We have been through, you know, several decades of various environments. For example, you know, during the Dotcom crash of 2000, we invested heavily to build and roll out our web-based solutions for the insurance market. Then during the 2008-2009 financial crisis, we actually invested heavily in building out the CCC ONE platform that generates almost half our revenues today. Then what we saw in 2020 with COVID is our customers needed dramatically different ways of connecting to their consumers, which really led to the adoption and investment in mobile and AI and other capabilities.
We have a history of actually understanding and dealing with all of these environments, and this is why we continue to maintain our close working relationships with customers that gives us an advanced view of the challenges that they have. We continue to build solutions. Having a very efficient financial model allows us to weather through this. With all that said, we continue to monitor the environment pretty closely. We've learned a lot from the history of how we've operated through various cycles, and we keep all those lessons learned very close to heart.
Terrific. Yeah, I appreciate that perspective. If I can ask a follow-up, like how does the macro impact your business, right? Like in the sense like if you end up in a recessionary environment, you know, does that benefit you or in what ways does it benefit you and what ways are like a persistent macro a headwind to your core business?
Yeah. When you look, you know, deep down, you know, when you look at our clients' businesses, the fundamental nature of what we do is mission-critical. When you look at our customers' business, auto insurance is a mandatory product. People, you know, that is really the root and the fundamental thing that you have to look at. People continue to drive, auto insurance is mandatory. While prices go up, you know, accidents continue to happen, you know. So the claim volume continues to go up gradually from pre-COVID levels. I'm not sure that, you know, there's a much deeper answer for the fact that our business is rooted in an industry and an environment which is not discretionary.
Yeah. Maybe there's one other thing to add. It's Brian. You know, you also look at our revenue model, you know, it is very resilient, it's very predictable. You know, we have the vast majority is subscription-based, it's and it's reoccurring. You have to think about that as well when you think about kind of the macro environment.
Terrific. Thank you.
Great. Thanks.
Thanks, Arvind.
Once again, if you have a question, please press star then one. The next question comes from Michael Funk of Bank of America. Please go ahead.
Thinking about economic sensitivity, understanding the resiliency of the business model. Are you seeing any elongation of the sales cycle or change in purchasing behavior among your customers?
You know, nothing material that we're seeing.
Okay. Maybe just one more, if I could. Just thinking about NDR longer term, you know, your longer term target there, how much of that will be driven by existing solution penetration versus developing new solutions to sell into the base?
Yeah. Mike, it's Brian. I'll take that. Yes, when we've laid out the long-term model, we've highlighted, as we go forward, about 80% of our growth will come from our installed base, so cross-sell, upsell, 20% from new logos. Within that 80%, we've highlighted that about 50% of it, so half of that, will come from the more established solutions, and the other half will come from these newer initiatives that we've been talking about. It, you know, it's the diagnostics, the STPs, the Estimate STPs. About half of it will come from these newer digital solutions.
That's great. Thank you for the time.
Yeah, absolutely. Thank you.
There are no more questions from the phone lines. This concludes the question and answer session. I would like to turn the conference back over to Githesh Ramamurthy for any closing remarks.
Well, thanks everybody for joining us today. We are proud of our performance to date in 2022, for which I'd like to thank our customers, our CCC team members, and of course, our shareholders. We remain confident in our ability to continue to deliver on our strategic and financial objectives. The durability of our business model continues to come through as we deliver innovation and operational efficiency for our customers. We look forward to talking with you on a fourth quarter call in early March, if not sooner. Again, thank you very much for your continued interest. On behalf of all my colleagues, thank you, and a big shout out to all our CCC team members who make CCC a great place every single day, for our customers and for ourselves. Thank you.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.