CCC Intelligent Solutions Holdings Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial statements are unaudited; amounts below are in U.S. dollars, with financial amounts generally shown in millions. CCC provides cloud-based software and AI-enabled workflows for the property and casualty insurance economy. Revenue is predominantly software subscriptions.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $186.8m | $157.8m | +18.4% |
| Gross profit | $137.4m | $113.2m | +21.4% |
| Gross margin | 73.6% | 71.7% | +1.9 percentage points |
| Operating income | $12.7m | $7.2m | +74.8% |
| Net income (loss) | $12.0m | $(5.1)m | Improved $17.1m |
| Diluted EPS | $0.02 | $(0.01) | — |
| Operating cash flow | $46.9m | $38.2m | +$8.6m |
- Software subscription revenue was $179.8m, up from $152.0m, and represented 96% of revenue in both periods. Management attributed revenue growth primarily to upgrades and broader solution adoption by existing customers (15%) and new customers (3%).
- Adjusted EBITDA, a non-GAAP measure, was $73.7m versus $55.4m, up 33.1%. Adjusted net income was $48.9m versus $25.0m, up 95.4%; adjusted diluted EPS was $0.08 versus $0.05. These measures exclude specified items and are not substitutes for GAAP results.
- Management reported Software net dollar retention of 114% (106% in Q1 2021) and gross dollar retention of 99% (98%). These measures exclude certain customer groups and revenue categories as described in the filing.
Cash, debt and liquidity
- Cash and cash equivalents were $195.5m at March 31, 2022, versus $182.5m at year-end 2021. Working capital was a surplus of $187.5m.
- Cash from operations was $46.9m. Investing used $42.6m, including $32.2m for the Safekeep acquisition and $14.3m for software, equipment and property purchases, partly offset by $3.9m proceeds from an investment sale. Financing provided $8.7m, primarily from option exercises, net of $2.0m of debt repayments. Cash increased $13.0m during the quarter.
- Term loan principal outstanding was $798.0m; the balance-sheet carrying amount of long-term debt, net of fees and discount, was $787.0m, including $8.0m classified as current. The weighted-average term-loan rate was 3.0% for the quarter. The $250m revolver had $249.3m available, after a $0.7m letter of credit.
- Management stated existing cash, operating cash flow and revolver capacity should be sufficient for operations, required debt payments and capital expenditures for at least the next 12 months. The loan has quarterly principal payments and covenants; at quarter-end the company was not subject to the leverage covenant’s testing condition.
Material changes, outlook and notable items
- Gross margin improvement reflected subscription growth and economies of scale from fixed-cost arrangements. Operating expenses rose 17.8%, including higher personnel and stock-based compensation; stock-based compensation expense increased to $23.6m from $12.7m.
- Interest expense fell to $7.3m from $18.8m, primarily reflecting lower debt and a lower variable rate following the 2021 refinancing. Q1 2022 also included a $3.6m gain on sale of a cost-method investment and $2.1m income from a reduction in warrant-liability fair value. These gains are not necessarily recurring.
- CCC acquired Safekeep on February 8 for $32.3m cash, with $0.2m preliminary fair value assigned to contingent consideration. The earnout could reach $90m, based on revenue performance through 2024. Purchase accounting remains preliminary; $27.4m of goodwill was recorded.
- General and administrative expense included a $0.8m loss on disposal of assets associated with closing the former headquarters. The company also incurred acquisition/integration and business-combination-related costs.
- In April, existing shareholders sold 20m shares at $9.70 per share, with an underwriters’ option for up to 3m additional shares. CCC received no proceeds. The filing provides no quantified forward revenue or earnings guidance.
- Risks identified include customer concentration and retention, industry and claim-volume conditions, competition, execution of growth and product development, cybersecurity and third-party technology/data reliance, economic and geopolitical conditions, and the ability to service debt. The company reported pending or threatened ordinary-course legal matters but did not expect them, based on current information, to materially affect its financial position or results.
- Disclosure controls were assessed as effective. CCC implemented a new customer billing system in January 2022 and updated related internal controls; no other material control changes were reported.
Important facts for investors to verify
- Whether customer expansion and new-customer growth sustain the reported 18.4% revenue growth, retention rates and margin improvement.
- How much reported earnings and adjusted results depend on stock-based compensation add-backs and other excluded or nonrecurring items.
- Debt-service capacity under variable interest rates, the terms and availability of the revolver, and future covenant compliance.
- Safekeep’s performance against earnout targets, the final purchase-price allocation, and the potential cash impact of up to $90m of contingent consideration.
- Share-based compensation, outstanding awards and potential dilution; common shares outstanding were 613.8m at March 31, with 614.2m reported as issued and outstanding at April 29.