CCC Intelligent Solutions Holdings Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. CCC provides cloud-based software and AI-enabled workflows for the property and casualty insurance economy. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $204.9 | $186.8 | +9.7% |
| Gross profit / margin | $147.8 / 72.1% | $137.4 / 73.6% | Profit +7.5%; margin down 1.5 percentage points |
| Operating income / margin | $13.3 / 6.5% | $12.7 / 6.8% | Income +5.3% |
| Net income | $2.2 | $12.0 | Down 81.8% |
| Adjusted EBITDA / margin | $79.5 / 39% | $73.7 / 39% | Adjusted EBITDA increased |
| Operating cash flow | $33.1 | $46.9 | Down $13.8 |
| Free cash flow | $18.5 | $32.6 | Down $14.0 |
Software subscriptions generated $196.3 million, about 96% of revenue. Management attributed revenue growth primarily to 6% growth from existing-customer upgrades and broader solutions, plus 4% from new customers. Software net dollar retention was 106%, versus 114% a year earlier; gross dollar retention remained 99%.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $338.4 million at March 31, 2023, up from $323.8 million at year-end. Working capital was $360.3 million.
- Term B Loan principal was $790.0 million; its balance net of discount and financing fees was $780.5 million, including $8.0 million classified as current. The loan matures in September 2028 and requires quarterly principal payments of $2.0 million.
- The weighted-average Term B Loan interest rate rose to 6.9% from 3.0% in Q1 2022. CCC had $249.3 million available under its $250 million revolving facility, net of a $0.7 million standby letter of credit.
- Operating cash flow was lower partly because of payment timing, including declines in accrued expenses and accounts payable. Capital purchases of software, equipment and property were $14.5 million.
Material changes and unusual items
- Net income was pressured by higher interest expense, which increased $6.5 million to $13.8 million as variable rates rose, and a $2.6 million loss from changes in the fair value of derivative instruments. Q1 2022 included a $3.6 million gain on sale of an investment that did not recur.
- Interest income was $3.3 million in Q1 2023, reflecting returns on cash balances. The interest-rate cap generated a fair-value loss; the caps cover $600 million of debt at a 4.0% cap rate and expire in July 2025.
- Stock-based compensation expense increased to $29.2 million from $23.6 million. Adjusted EBITDA and other non-GAAP measures exclude specified items; they supplement, and are not substitutes for, GAAP results.
- There was no impairment recorded. The China reporting unit’s fair value exceeded carrying value by approximately 5% in the November 2022 test, leaving it relatively susceptible to future impairment if performance or assumptions weaken.
Outlook, risks and contingencies
CCC provided no specific quarterly or annual numerical guidance in the supplied filing text. Management said cash, operating cash flows and available revolver capacity should be sufficient for operations, required debt repayments and capital expenditures for at least the next 12 months. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
- Risks identified include customer concentration and retention, customer pricing negotiations, industry and claim-volume conditions, competition, execution of growth and product-development plans, cybersecurity and data protection, reliance on third-party data and technology, and the ability to service debt.
- CCC said pending or threatened legal matters were not expected, based on current information, to have a material adverse effect, while noting litigation outcomes are inherently uncertain.
- The company disclosed customer and supplier commitments and customary customer indemnification provisions; it reported no material indemnification costs or related accrued liabilities.
Investor verification points
- Check whether revenue growth and customer expansion sustain as Software NDR has declined to 106% from 114% year over year.
- Monitor gross margin, operating cash flow and free cash flow, including the effect of infrastructure investment and working-capital payment timing.
- Assess exposure to floating interest rates, the effectiveness and accounting volatility of the interest-rate caps, and debt covenant and repayment terms.
- Review the scale and potential dilution of equity compensation: unrecognized compensation was $234.6 million for time-based awards and $71.3 million for performance-based awards.
- Track the China reporting unit’s performance and impairment headroom, as well as customer concentration and receivables allowances.