CCC Intelligent Solutions Holdings Inc. (CCCS) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial performance with revenue and EBITDA exceeding guidance, and optimistic guidance for the future. Despite some concerns about claim volumes and EvolutionIQ's impact on margins, the company's strategic initiatives, such as the integration of EvolutionIQ and positive feedback on new products, are well-received. The Q&A section reveals a positive sentiment from analysts, with management providing reassuring insights on customer adoption and competitive positioning. These factors, combined with positive revenue growth and guidance, suggest a positive stock price movement.
Key Financial Performance
Total Revenue $260 million, growing 12% year-over-year. Growth driven by cross-sell, upsell, adoption of new solutions, new logos, and contributions from EvolutionIQ. Industry claim volumes declined 8% year-over-year, representing a 1 percentage point headwind.
Adjusted EBITDA $108 million, up 13% year-over-year. Adjusted EBITDA margin was 42%. Growth attributed to revenue flow-through and a $2 million one-time benefit from exiting a vendor relationship.
Adjusted Gross Profit $203 million, with an adjusted gross profit margin of 78%, flat compared to the prior year. Margin stability reflects increased depreciation offset by accretion from EvolutionIQ.
Free Cash Flow $27 million, compared to $36 million in the prior year. Decline due to timing of working capital and operating losses from EvolutionIQ. Trailing 12-month free cash flow was $226 million, up 15% year-over-year.
Net Leverage 2.3x adjusted EBITDA, with $55 million in cash and $996 million in debt.
Software Gross Dollar Retention (GDR) 99%, consistent with the last 6 quarters, reflecting strong customer retention.
Software Net Dollar Retention (NDR) 107%, consistent with prior quarters. EvolutionIQ contributed approximately 1 percentage point to NDR.
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Operating Highlights
AI-enabled auto physical damage (APD) solutions: Several top 10 insurers contracted for multiple AI-enabled APD solutions, extending photo AI capabilities to earlier and later stages of claim handling. These solutions cut the time to identify a total loss in half, resulting in millions of dollars in annual impact.
AI-based subrogation solution: 25 customers, including multiple top 10 insurers, are using this solution. A top 20 insurer entered a long-term agreement due to a 6:1 ROI and increased productivity.
Casualty platform: Renewals and expansions with top 10 and top 20 insurers. Integration of EvolutionIQ's Medhub into the casualty suite is generating positive engagement.
Repair facility solutions: Adoption of visual AI-based estimating solution and bill sheets tool. Bill sheets are used in over 5,000 repair facilities, achieving 20% penetration in one year.
Expansion of EvolutionIQ capabilities: Strong interest in expanding EvolutionIQ's capabilities into auto claims guidance. Renewals and expansions with top 15 disability carriers.
Repair facility adoption: Increased adoption of AI and non-AI solutions by repair facilities, including diagnostics and bill sheets.
Operational efficiency through AI: AI is being used internally to save time, reduce errors, and improve scalability, including writing code and hiring processes.
Scalable business model: Recurring revenue subscription model and scalable cloud infrastructure enable continuous investment in innovation.
Interconnected network and AI solutions: The IX Cloud architecture facilitates connectivity across a network of 35,000 businesses, enabling faster deployment of solutions and amplifying benefits.
Board of Directors update: Barak Eilam, former CEO of NICE Systems, joined the board, bringing expertise in enterprise software and AI.
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Risk or Challenges
Market Conditions: Industry claim volumes declined 8% year-over-year in Q2, representing a headwind to growth. This trend continues to impact revenue growth.
Competitive Pressures: The company faces challenges in maintaining its competitive edge as it relies on early adopters to drive broader market adoption of its AI-based solutions. Adoption cycles for new solutions are lengthy, which could delay revenue realization.
Regulatory Hurdles: No explicit regulatory challenges were mentioned in the transcript.
Supply Chain Disruptions: No explicit supply chain disruptions were mentioned in the transcript.
Economic Uncertainties: Geopolitical uncertainty and labor shortages were highlighted as ongoing operational challenges for clients, which could indirectly impact CCC's business.
Strategic Execution Risks: Delays in implementation of signed contracts for EvolutionIQ are impacting the timing of revenue. Additionally, the company’s reliance on a few large clients for adoption of new solutions poses a risk to achieving broader market penetration.
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Guidance & Outlook
Revenue Guidance for Q3 2025: Expected revenue between $263 million to $266 million, representing 10% to 12% growth year-over-year.
Adjusted EBITDA Guidance for Q3 2025: Expected adjusted EBITDA of $104 million to $107 million, with a 40% adjusted EBITDA margin at the midpoint.
Full Year 2025 Revenue Guidance: Expected revenue of $1.046 billion to $1.056 billion, representing 11% year-over-year growth at the midpoint and 12% at the high end of the range.
Full Year 2025 Adjusted EBITDA Guidance: Expected adjusted EBITDA of $420 million to $428 million, with a 40% adjusted EBITDA margin at the midpoint and 41% margin at the high end of the range.
EvolutionIQ Revenue Contribution: Expected to come in at the lower end of the $45 million to $50 million guidance due to delays in implementation on signed contracts moving to production.
Stock-Based Compensation Trend: Expected to trend down as a percentage of revenue, reaching high single digits by 2027.
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Shareholder Return Plan
Share Repurchase Program: In Q2, CCC completed an open market repurchase of 11 million shares of CCC stock for $100 million. Year-to-date, the company has purchased 18 million shares for about $172 million under its previously announced $300 million share repurchase program.
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Key Q&A
Q:Congrats on the upside in the quarter. I wanted to start with the full year EBITDA guide reiterated. I know you just kind of walked through some of the items, $2 million benefit in the quarter but even like without that, there was a lot of upside. Maybe you could give a little more commentary around the expenses and the shifting in professional services, like what those investments are and ultimately, why the full year is just reiterated?
A:Brian Herb explained that the cost base is consistent with the previous guide and is influenced by timing. He highlighted a $2 million one-time benefit in Q2 that won't carry into the second half, increased hiring in the second half, and higher cost of revenue as revenue scales. Incremental investments in professional fees, including recruiting and project-linked initiatives, also contribute to the cost increase. Despite these factors, they are comfortable with the expected margin progression for 2026 and beyond.
Q:On EIQ, just wondering as far as coming in more at the low end and around some of the delays, what is really causing that? And what steps can you take to improve on that motion?
A:Brian Herb noted that delays in implementation timelines for significant deals are pushing production later in the year, impacting revenue timing for 2025 but not beyond. He mentioned variability in EIQ implementation and emphasized their strong pipeline, client engagement, and cross-selling opportunities. Githesh Ramamurthy added that customers remain excited, and they see opportunities in areas like Workers' Compensation and Medhub.
Q:I would love to dig a bit deeper into the technical changes you talked about in the casualty platform. What did you focus on most when improving the product? And are there 1 or 2 key pieces of functionality you added that you think are now contributing to a lot of the success you're seeing?
A:Githesh Ramamurthy highlighted several improvements, including a modernized rules engine, simulation capabilities for state regulations, enhanced analytics, and customer-specific enhancements. These changes, along with leadership adjustments, have driven strong growth and momentum.
Q:Last quarter, you discussed additional conservatism in guidance, given the macro uncertainty. I'm just curious, how do you feel now versus then? And especially given the upside in the quarter but maintain full year guidance, understand a piece of that is EvolutionIQ and then some other things you called out, but curious on how you feel from a conservatism standpoint?
A:Brian Herb stated that they feel good about the second-half guide, which remains consistent with the previous position. He noted that EvolutionIQ implementation timing and claim volume trends are factored into the guidance, and they are confident in their Q2 performance and second-half outlook.
Q:What are you assuming specifically on volume trends? I know they've oscillated but how are you thinking about what is baked into guidance for the rest of the year? Are you assuming that 8 level holds, I know that, again, it's bounced around on you. But what are you assuming? And what did you see in the month of July?
A:Brian Herb explained that 80% of their revenue is subscription-based and not impacted by volume fluctuations. For the 20% transactional revenue, they assume a 1-point drag on growth due to claim volume declines, consistent with Q1 and Q2 trends. They are not modeling specific claim volume percentages but expect the 1-point drag to continue in the second half.
Q:Could you maybe just help us understand how that -- what the time line has looked like historically for when a broader rollout happens to when it turns into revenue. And just as you think about the broader rollouts that have happened, are those full in scope? Or is there more room for expansion in those as well to get to kind of full revenue contribution?
A:Githesh Ramamurthy explained that new solutions are developed over years and are tested for ROI and sustainability. Customers gradually increase volume post-contract, and as confidence grows, more customers adopt the solutions. Both expansion within existing customers and onboarding new customers contribute to revenue growth over time.
Q:How long do you expect the claims weakness cycle to last beyond 2025? And would you say there's anything unique about this cycle compared to past periods of weakness? And as a follow-up, what macro indicators would give you hope of this dynamic improving?
A:Githesh Ramamurthy noted that the current cycle is unique due to a 50% increase in insurance premiums since March 2020, leading to changes in consumer behavior like higher deductibles and reduced coverage. He believes the cycle is cyclical and highlighted moderating repair costs and premium increases as potential indicators of improvement.
Q:Last quarter, you talked about your expectations for an elongation of the sales momentum and implementation cycles. And is this -- are we seeing things tracking along your expectation? Or have things improved at all since we talked last quarter?
A:Githesh Ramamurthy stated that emerging solutions have reached a point where customers are moving from pilot to contract, indicating progress. Core solutions remain stable, and while EIQ has seen some delays in production, the pipeline and customer interest remain strong. Overall, there is slight acceleration in emerging solutions.
Q:If I take out that $2 million of exit revenue and then go in a kind of put 4% growth, it seems like it's like 7% underlying organic growth. Is that the right way to look at it? Is it kind of rounding up a little bit better than it did last quarter when I excluded EIQ.
A:Brian Herb clarified that the $2 million was a cost benefit, not revenue, and does not impact the 8% core revenue growth. Emerging solutions contributed 2 points to the 8% growth.
Q:Can you talk through any of the free cash flow dynamics experienced for the quarter?
A:Brian Herb mentioned that free cash flow was lighter due to timing on working capital and collections, as well as absorbing EvolutionIQ losses. On a 12-month rolling basis, free cash flow was 23% of revenue, slightly up from the prior year.
Q:Is there any further insight you can provide us about the rollout of your pay workflow tool? And I guess, what has been the feedback from customers? And is this a particularly lengthy sales process to convince customers to switch?
A:Githesh Ramamurthy stated that early implementations of the pay workflow tool have received positive feedback, particularly from multi-store operators. However, the sales process is slower due to the tool's complexity, and it is still in early stages.
Q:On the dimensions you called out with large customers kind of moving from pilot to production, I wonder if there's any kind of additional granularity you can kind of go into. Is it something that, hey, it's validation and confidence in the value afforded by these systems that's allowing them to maybe push forward a little bit faster here. Is it we've got our internal teams in place, so now we're more comfortable to kind of lean in. Maybe help me think through some of the puts and takes that are pushing forward and how maybe that correlates to some of the trends you've seen in the past given you've had kind of multiple new cycles over time as well.
A:Githesh Ramamurthy attributed the transition from pilot to production to increased reliability and quality of AI solutions, strong ROI, and second-order benefits like faster onboarding of new employees. Customers are seeing tangible results, which drives adoption.
Q:Within the casualty side of the equation, there's a lot of inflation and severity on the claims side that helped historically kind of drive a lot of adoption on the APD business, wondering if you kind of -- if you can make any parallels there as maybe the casualty side is starting to see maybe more of that claims pressure, which is really emphasizing kind of carriers to digitize and get more efficient.
A:Githesh Ramamurthy noted that inflation in casualty claims is higher than general healthcare, driving interest in their solutions. Customers are adopting and expanding usage of their tools to address these challenges.
Q:Could you just clarify, are you seeing that show up in terms of multiyear contracts. It sounds like you have better visibility, but maybe if you could just be a little bit more specific in terms of the types of deals like are these ramp structures, where you expect people to be layering the stuff in, in 2026, 2027. How many of your top clients did you see this that, that would be helpful.
A:Githesh Ramamurthy confirmed that the solutions apply broadly across their customer base and involve multiyear contracts. Customers are expanding usage post-contract, and reference customers are driving adoption among others. These contracts are multimillion-dollar deals.
Q:On the competitive landscape, we've seen some of the horizontal SaaS and workflow players sort of announced industry-specific solutions for the insurance market, whether that's ServiceNow. Just curious, are you seeing any attempts from sort of the horizontal folks kind of getting more into the claims processing in your side of the market, it would just be great to get your thoughts on the potential threat, if at all, from some of the horizontal players?
A:Githesh Ramamurthy stated that horizontal providers lack the deep vertical expertise and ecosystem CCC offers. He emphasized their specialized AI capabilities and broad network, which differentiate them from horizontal players.
Q:Is the EvolutionIQ, you kind of channel down the revenue attainment this year? Is it still going to impact margins, adjusted EBITDA margins by about 200 basis points?
A:Brian Herb confirmed that EvolutionIQ's moderate loss is consistent with expectations and impacts adjusted EBITDA margins by about 200 basis points. Core CCC is achieving 100 basis points of margin progression.
Q:When you look at the overall business, and we're seeing claims volume decline, there's a lot of reasons for that, a lot of it mostly economic but how much of that claims volume decrease in your opinion, is really coming from more ADAS proliferating through the car park?
A:Githesh Ramamurthy stated that the decline in claims volume is primarily due to economic factors, not ADAS. He noted a disconnect between accident frequency and filed claims, driven by consumer behavior changes like higher deductibles and reduced coverage.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific timeline for claims weakness cycle improvement beyond 2025, stating uncertainty about underlying factors. They also provided limited detail on the rollout timeline and adoption rates for the pay workflow tool, citing early stages and complexity.
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Earnings Word Cloud
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CCCS Transcript
CCC Intelligent Solutions Holdings Inc. (CCCS) Q3 2025 Earnings Call Transcript
Positive10-30
The earnings call highlights positive financial performance, with strong EBITDA margins and revenue growth. The Q&A session reveals optimism regarding AI solutions, casualty business growth, and successful client wins like Liberty Mutual. Despite minor setbacks like EvolutionIQ's delayed contribution and lower gross margins, the overall sentiment remains positive due to strategic investments and operational changes. Share repurchases further enhance shareholder returns, and the guidance remains optimistic. These factors collectively indicate a likely positive stock price movement.
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CCC Intelligent Solutions Holdings Inc. (CCCS) Q2 2025 Earnings Call Transcript
Positive7-31
The earnings call summary indicates strong financial performance with revenue and EBITDA exceeding guidance, and optimistic guidance for the future. Despite some concerns about claim volumes and EvolutionIQ's impact on margins, the company's strategic initiatives, such as the integration of EvolutionIQ and positive feedback on new products, are well-received. The Q&A section reveals a positive sentiment from analysts, with management providing reassuring insights on customer adoption and competitive positioning. These factors, combined with positive revenue growth and guidance, suggest a positive stock price movement.
CCCS Slides
CCCS Report
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