CCC Intelligent Solutions Holdings Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. CCC provides cloud-based SaaS and AI-enabled software for the property and casualty insurance ecosystem. Figures below are in U.S. dollars; financial-statement amounts are unaudited.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $221.1m | $198.7m | $637.8m | $578.3m |
| Gross profit | $163.1m | $145.6m | $463.5m | $423.0m |
| Gross margin | 73.8% | 73.3% | 72.7% | 73.1% |
| Operating income (loss) | $16.6m | $17.1m | $(43.3)m | $42.2m |
| Net income (loss) attributable to common stockholders | $(22.2)m | $9.8m | $(117.7)m | $37.3m |
| Diluted EPS | $(0.04) | $0.02 | $(0.19) | $0.06 |
| Adjusted EBITDA (non-GAAP) | $92.9m | $78.1m | $253.4m | $225.3m |
| Adjusted EBITDA margin (non-GAAP) | 42% | 39% | 40% | 39% |
| Adjusted net income (non-GAAP) | $57.2m | $46.6m | $151.5m | $132.4m |
- Revenue mix and growth: Software subscriptions were $212.5m in Q3 and $611.6m for the first nine months, about 96% of revenue in both periods. Management attributed Q3 growth of 11.3% chiefly to existing-customer upgrades and expanded solutions (8%) and new customers (3%); nine-month growth was 10.3%, attributed to existing customers (7%) and new customers (3%).
- Cash flow: Nine-month operating cash flow was $163.1m, versus $118.4m a year earlier. Capital expenditures were $43.2m; company-defined free cash flow was $120.0m, versus $79.6m. Cash and cash equivalents increased by $124.9m to $448.7m.
- Liquidity and debt: Current assets were $613.7m and current liabilities $148.6m, for reported working capital of $465.2m. Term-loan principal was $786.0m ($777.1m net carrying amount, including current portion); $8.0m was current. The $250m revolver had $249.3m available, net of a letter of credit. Q3 weighted-average term-loan interest rate was 7.7%, up from 4.6%. Debt matures September 2028; the revolver matures September 2026.
Material changes versus prior comparable periods
- Q3 revenue rose 11.3%, and gross margin improved by 0.5 percentage points. Nine-month revenue rose 10.3%, while gross margin declined by 0.4 percentage points.
- Q3 turned to a GAAP net loss from net income a year earlier, despite higher revenue and gross profit. Higher interest expense and a $26.2m expense from revaluing warrant liabilities were significant factors. The warrant fair-value charge was $45.4m for the first nine months, compared with a $23.5m gain in 2022.
- Nine-month operating results included $77.4m of goodwill impairment and $4.9m of intangible-asset impairment, primarily tied to CCC’s China reporting unit. The company also recorded $0.4m impairment of acquired technologies in cost of revenue.
- Stock-based compensation rose to $39.8m in Q3 from $28.7m and to $104.5m for nine months from $80.8m. Common shares outstanding increased to 634.6m at September 30, from 622.1m at December 31, 2022.
- Software Net Dollar Retention was 107% in Q3, down from 110% in Q3 2022; Software Gross Dollar Retention was 98%, versus 99%.
Outlook, commentary, risks, and unusual items
- Outlook: The filing provides no specific financial guidance. Management stated existing cash, operating cash flows, and revolver capacity should be sufficient for operations, required debt payments, and capital expenditures for at least the next 12 months. Remaining performance obligations were approximately $1.423bn, with $561m expected to be recognized in the next 12 months; these estimates exclude unexercised renewals and certain usage-based revenue.
- China impairment: Management cited adverse market conditions and higher interest rates, which lowered forecast revenue and future cash flows. The goodwill impairment valuation used a 12.5% weighted-average cost of capital and Level 3 assumptions.
- Interest-rate exposure: Floating-rate debt costs rose materially. Interest-rate caps cover $600m of notional debt at a 4.0% cap rate and expire July 2025; the company transitioned the benchmark from LIBOR to SOFR in 2023.
- Other risks: The filing highlights customer concentration and retention, industry and claims-market conditions, competition, technology execution, cybersecurity and data security, reliance on third-party data and technology, and the ability to service debt. Two customers accounted for 16% and 12% of receivables at September 30, 2023.
- Contingencies and controls: CCC reported ordinary-course litigation but said pending or threatened matters were not expected to materially affect financial position or results, based on current information. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during Q3.
Investor verification priorities
- Assess recurring operating performance against the large difference between GAAP losses and non-GAAP adjusted results; review the company’s reconciliation and exclusions, including stock-based compensation and litigation costs.
- Review the China unit’s updated forecasts, impairment assumptions, and exposure to further impairment.
- Track variable-rate borrowing costs, interest-cap coverage and maturity, debt repayment requirements, and covenant conditions.
- Monitor customer retention and concentration, particularly the decline in Q3 Software NDR and the two large receivable balances.
- Reconcile cash generation and free cash flow with capitalized software investment, working-capital movements, and equity compensation.