CCC Intelligent Solutions Holdings Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited interim results; dollar amounts below are in millions unless otherwise noted. CCC provides cloud-based SaaS and AI-enabled workflow software for the property and casualty insurance economy.
Financial performance
| Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 |
|---|---|---|---|---|
| Revenue | $211.7 | $192.8 | $416.6 | $379.6 |
| Gross profit / margin | $152.6 / 72.1% | $139.9 / 72.6% | $300.4 / 72.1% | $277.4 / 73.1% |
| Operating income (loss) | $(73.2) | $12.5 | $(59.9) | $25.2 |
| Net income (loss) attributable to common stockholders | $(97.7) | $15.6 | $(95.5) | $27.5 |
| Diluted EPS | $(0.16) | $0.02 | $(0.15) | $0.04 |
| Adjusted EBITDA (non-GAAP) | $80.9 | $73.4 | $160.4 | $147.2 |
| Adjusted EBITDA margin (non-GAAP) | 38% | 38% | 39% | 39% |
Software subscriptions generated $202.9 million, or 96% of Q2 revenue. Management attributed revenue growth primarily to existing-customer upgrades and expanded solutions (7%) and new customers (3%).
- Cash flow: H1 operating cash flow was $102.6 million, versus $87.7 million a year earlier. Free cash flow, a non-GAAP measure defined as operating cash flow less purchases of software, equipment and property, was $73.5 million, versus $62.2 million.
- Liquidity: June 30 cash and cash equivalents were $403.6 million; working capital surplus was $416.3 million. Management believes cash, operating cash flow and borrowing capacity will fund operations, debt payments and capital expenditures for at least the next 12 months.
- Debt: Term B Loan principal was $788.0 million; net carrying value was $778.8 million. The company had $249.3 million available under its $250 million revolving facility, net of a $0.7 million letter of credit. The term loan matures in September 2028; $8 million is classified as current.
Changes versus comparable periods
- Q2 and H1 revenue each grew 9.8% year over year. Gross profit increased, but gross margin declined year over year, reflecting higher depreciation and infrastructure investment costs.
- GAAP operating and net results shifted to losses, principally due to $77.4 million of goodwill impairment and approximately $5.3 million of intangible-asset and acquired-technology impairment relating to the China reporting unit.
- Interest expense increased as the Term B Loan’s weighted-average rate rose to 7.4% in Q2 and 7.1% in H1, from 3.3% and 3.2%, respectively, in 2022.
- Q2 included a $20.4 million loss from the change in fair value of warrant liabilities, versus $21.0 million of income in Q2 2022. This noncash valuation item contributed to the GAAP earnings swing.
- Software net dollar retention was 107% at June 30, down from 111% a year earlier; software gross dollar retention remained 99%.
Outlook, commentary and risks
- The filing provides no specific full-year revenue or earnings guidance. Management cited growth from existing-customer expansion and new customers, and described ongoing investment in platform, infrastructure, AI and new solutions.
- Management’s China reporting-unit impairment assessment reflected adverse market conditions, higher interest rates and reduced revenue and cash-flow forecasts. The discounted-cash-flow valuation used a 12.5% weighted-average cost of capital; further forecast changes could affect asset values.
- The company transitioned its credit agreement and interest-rate caps from LIBOR to SOFR. The caps cover $600 million of notional debt at a 4.0% cap rate and expire in July 2025; they reduce, but do not eliminate, floating-rate exposure.
- Key disclosed risks include customer concentration and retention, claims volumes and industry conditions, competition, execution of growth and technology strategies, cybersecurity and third-party dependencies, international operations, and ability to service debt. One customer represented 11% of accounts receivable at June 30.
- Management said pending or threatened legal matters were not expected, based on current information, to have a material adverse effect. The filing notes litigation outcomes are inherently uncertain. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether core subscription growth and customer expansion can sustain revenue growth as software NDR has declined from the prior year.
- The assumptions and sensitivity behind the China impairment, and whether further deterioration could require additional charges.
- Interest-rate exposure, debt repayment capacity and the status of credit-agreement covenants; the revolving-facility leverage test was not triggered at quarter-end.
- The quality and sustainability of cash generation, including capitalized software investment and working-capital movements.
- The impact of stock-based compensation and potential dilution: stock-based compensation was $64.7 million in H1, and common shares outstanding increased to approximately 632.0 million by June 30.
- The effect of warrant remeasurement on reported earnings: the warrant liability was $55.6 million at June 30, compared with $36.4 million at year-end 2022.