CCC Intelligent Solutions Holdings Inc.: Form 10-Q for the period ended Jun 30, 2024

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the forward-looking statements included herein. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" as set forth elsewhere in this Quarterly Report on Form 10-Q.

Unless otherwise indicated or the context otherwise requires, references to "CCC," the "Company," "we," "us," "our" and other similar terms refer to CCC Intelligent Solutions Holdings Inc. and its consolidated subsidiaries.

Business Overview

Founded in 1980, CCC is a leading SaaS platform for the multi-trillion-dollar P&C insurance economy powering operations for insurers, repairers, automakers, part suppliers, lenders and more. CCC cloud technology connects more than 35,000 businesses digitizing mission-critical workflows, commerce and customer experiences. A trusted leader in AI, Internet of Things ("IoT"), customer experience, network and workflow management, CCC delivers innovations that keep people's lives moving forward when it matters most.

Our business has been built upon two foundational pillars: automotive insurance claims and automotive collision repair. For decades we have delivered leading software solutions to both the insurance and repair industries, including pioneering Direct Repair Programs ("DRP") in the U.S. beginning in 1992. DRP connects auto insurers and collision repair shops to create business value for both parties, and requires digital tools to facilitate interactions and manage partner programs. Insurer-to-shop DRP connections have created a strong network effect for CCC’s platform, as insurers and repairers both benefit by joining the largest network to maximize opportunities. This has led to a virtuous cycle in which more insurers on the platform drives more value for the collision shops on the platform, and vice versa.

We believe we have become a leading insurance and repair SaaS provider in the U.S. by increasing the depth and breadth of our SaaS offerings over many years. Our insurance solutions help insurance carriers manage mission-critical workflows across the claims lifecycle, while building smart, dynamic experiences for their own customers. Our software integrates seamlessly with both legacy and modern systems alike and enables insurers to rapidly innovate on our platform. Our repair solutions help collision repair facilities achieve better performance throughout the collision repair cycle by digitizing processes to drive business growth, streamline operations and improve repair quality. We have more than 300 insurers on our network, connecting with more than 30,000 repair facilities through our multi-tenant cloud platform. We believe our software is the architectural backbone of insurance DRP systems and is a primary driver of material revenue for our collision shop customers and a source of material efficiencies for our insurance carrier customers.

Our platform is designed to solve the "many-to-many" problem faced by the insurance economy. There are numerous internally and externally developed insurance software solutions in the market today, with the vast majority of applications focused on insurance-only use cases and not on serving the broader insurance ecosystem. We have prioritized building a leading network around our automotive insurance and collision repair pillars to further digitize interactions and maximize value for our customers. We have tens of thousands of companies on our platform that participate in the insurance economy, including insurers, repairers, parts suppliers, automotive manufacturers, and financial institutions. Our solutions create value for each of these parties by enabling them to connect to our vast network to collaborate with other companies, streamline operations, and reduce processing costs and dollars lost through claims management inefficiencies, or claims leakage. Expanding our platform has added new layers of network effects, further accelerating the adoption of our software solutions.

We have processed more than $1 trillion of historical data across our network, allowing us to build proprietary data assets that leverage insurance claims, vehicle repair, automotive parts and other vehicle-specific information. We believe we are uniquely positioned to provide data-driven insights, analytics and AI-enhanced workflows that strengthen our solutions and improve business outcomes for our customers. Our AI solutions increase automation across existing insurance and repair processes including vehicle damage detection, claim triage, claim handling, repair estimating, intelligent claim review and claim subrogation. We deliver real-world AI with more than 100 U.S. auto insurers and more than 8,000 U.S. collision repairers actively using AI-powered solutions in production environments.

One of the primary obstacles facing the P&C insurance economy is increasing complexity. Complexity in the P&C insurance economy is driven by technological advancements, IoT data, new business models, supply chain disruption and changing consumer expectations. We believe digitization plays a critical role in managing this growing complexity while meeting consumer expectations. Our technology investments are focused on digitizing complex processes and interactions across our ecosystem, and we believe we are well positioned to power the P&C insurance economy of the future with our data, network and platform.

While our position in the P&C insurance economy is grounded in the automotive insurance sector, the largest insurance sector in the U.S. representing nearly half of direct written premiums ("DWP"), we believe our integrations and cloud platform are capable of driving innovation across the entire P&C insurance economy. Our customers are increasingly looking for CCC to expand its solutions to other parts of their business where they can benefit from our technology, service and partnership. In response, we are investing in new solutions that we believe will enable us to digitize the entire automotive claims lifecycle, and over time expand into adjacencies including other insurance lines.

We have strong customer relationships in the end-markets we serve, and these relationships are a key component of our success given the long-term nature of our contracts and the interconnectedness of our network. We have customer agreements with more than 300 insurers (including carriers, self-insurers and other entities processing insurance claims), including 27 of the top 30 automotive insurance carriers in the U.S., based on DWP, and hundreds of regional carriers. We have more than 35,000 total customers, including more than 30,000 automotive collision repair facilities (including repairers and other entities that estimate damaged vehicles), more than 5,500 parts suppliers, 13 of the top 15 automotive manufacturers based on new vehicle sales, and numerous other companies that participate in the P&C insurance economy.

Key Performance Measures and Operating Metrics

In addition to our GAAP and non-GAAP financial measures, we rely on Software Net Dollar Retention Rate ("Software NDR") and Software Gross Dollar Retention Rate ("Software GDR") to measure and evaluate our business to make strategic decisions. Software NDR and Software GDR may not be comparable to or calculated in the same way as other similarly titled measures used by other companies.

Software NDR

We believe that Software NDR provides our management and our investors with insight into our ability to retain and grow revenue from our existing customers, as well as their potential long-term value to us. We also believe the results shown by this metric reflect the stability of our revenue base, which is one of our core competitive strengths. We calculate Software NDR by dividing (a) annualized software revenue recorded in the last month of the measurement period, for example, March for a quarter ending March 31, for unique billing accounts that generated revenue during the corresponding month of the prior year by (b) annualized software revenue as of the corresponding month of the prior year. The calculation includes changes for these billing accounts, such as changes in the solutions purchased, changes in pricing and transaction volume, but does not reflect revenue for new customers added. The calculation excludes: (a) changes in estimates related to the timing of one-time revenue and other revenue, including professional services, and (b) annualized software revenue for smaller customers with annualized software revenue below the threshold of $100,000 for carriers and $4,000 for shops. The customers that do not meet the revenue threshold are small carriers and shops that tend to have different buying behaviors, with a narrower solution focus, and different tenure compared to our core customers (excluded small carriers and shops represent less than 5% of total revenue within these sales channels). Our Software NDR includes carriers and shops who subscribe to our auto physical damage solutions, which account for most of the Company’s revenue, and excludes revenue from smaller emerging solutions with international subsidiaries or other ecosystem solutions, such as parts suppliers and other automotive manufacturers, and also excludes CCC casualty solutions which are largely usage and professional service based.

Software GDR

We believe that Software GDR provides our management and our investors with insight into the value our solutions provide to our customers as represented by our ability to retain our existing customer base. We believe the results shown by this metric reflect the strength and stability of our revenue base, which is one of our core competitive strengths. We calculate Software GDR by dividing (a) annualized software revenue recorded in the last month of the measurement period in the prior year, reduced by annualized software revenue for unique billing accounts that are no longer customers as of the current period end by (b) annualized software revenue as of the corresponding month of the prior year. The calculation reflects only customer losses and does not reflect customer expansion or contraction for these billing accounts and does not reflect revenue for new customer billing accounts added. Our Software GDR calculation represents our annualized software revenue that is retained from the prior year and demonstrates that the vast majority of our customers continue to use our solutions and renew their subscriptions. The calculation excludes: (a) changes in estimates related to the timing of one-time revenue and other revenue, including professional services, and (b) annualized software revenue for smaller customers with annualized software revenue below the threshold of $100,000 for carriers and $4,000 for shops.

The customers that do not meet the revenue threshold are small carriers and shops that tend to have different buying behaviors, with a narrower solution focus, and different tenure compared to our core customers (excluded small carriers and shops which represent less than 5% of total revenue within these sales channels). Our Software GDR includes carriers and shops who subscribe to our auto physical damage solutions, which account for most of the Company’s revenue, and excludes revenue from smaller emerging solutions with international subsidiaries or other ecosystem solutions, such as parts suppliers and other automotive manufacturers, and excludes CCC casualty solutions which are largely usage and professional service based.

28

Results of Operations

Comparison of the three months ended June 30, 2024 to the three months ended June 30, 2023

(dollar amounts in thousands, except share and per share data)

29

Revenues

Revenues increased by $20.9 million to $232.6 million, or 9.9%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The Company's software subscription revenues accounted for $223.0 million and $202.9 million, or 96% of total revenue during the three months ended June 30, 2024 and 2023.

The increase in revenue was primarily a result of 7% growth from existing customer upgrades and expanding solution offerings to these existing customers as well as 3% growth from new customers.

Cost of Revenues

Cost of revenues decreased by $3.8 million to $55.3 million, or 6.4%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

Cost of Revenues, exclusive of amortization and impairment of acquired technologies

Cost of revenues, exclusive of amortization and impairment of acquired technologies, increased by $1.2 million to $53.2 million, or 2.3%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase was primarily due to a $1.4 million increase in third party fees and direct costs associated with our revenue growth and a $0.8 million increase in depreciation expense related to additional investments in platform and customer solution enhancements, partially offset by a $1.1 million decrease in information technology ("IT") related costs.

Amortization of Acquired Technologies

Amortization of acquired technologies decreased $4.6 million, or 68.6%, to $2.1 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The decrease was due to certain acquired technology intangible assets reaching the end of their useful life during the three months ended June 30, 2024.

Impairment of Acquired Technologies

There was no impairment of acquired technologies recognized during the three months ended June 30, 2024. Impairment of acquired technologies was $0.4 million for the three months ended June 30, 2023 due to an impairment charge recognized as a result of a downward revision of projected earnings and cash flows of our China reporting unit.

Gross Profit

Gross profit increased by $24.7 million to $177.3 million, or 16.2%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Our gross profit margin was 76.2% for the three months ended June 30, 2024, compared to 72.1% for the three months ended June 30, 2023. The increase in gross profit and gross profit margin was due to increased software subscription revenues, economies of scale resulting from fixed cost arrangements and lower amortization of acquired technologies.

Research and Development

Research and development expense increased by $5.9 million to $49.3 million, or 13.6%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase was primarily due to a $4.9 million increase in stock-based compensation and a $1.8 million increase in IT related costs, partially offset by a $0.8 million decrease in personnel and resource costs.

Selling and Marketing

Selling and marketing expense increased by $0.4 million to $36.3 million, or 1.1%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase was due to a $0.4 million increase in marketing related costs.

General and Administrative

General and administrative expense increased by $5.1 million to $51.3 million, or 11.1%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase was primarily due to a $2.5 million increase in personnel-related costs, including a $1.3 million increase in stock-based compensation, a $1.6 million increase in professional service costs, and a $1.0 million increase in IT related costs.

Amortization of Intangible Assets

Amortization of intangible assets was $17.9 million and $18.0 million for the three months ended June 30, 2024 and 2023, respectively.

Impairment of Goodwill and Intangible Assets

There was no impairment charge recognized during the three months ended June 30, 2024. We recorded impairment charges of goodwill and intangible assets of $77.4 million and $4.9 million, respectively, for the three months ended June 30, 2023. The impairment charges were the result of lower forecasted earnings and cash flows for the Company’s China reporting unit.

Interest Expense

Interest expense increased by $2.6 million to $16.6 million, or 18.5%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase was primarily due to higher variable interest rates during the three months ended June 30, 2024.

Interest Income

Interest income decreased by $1.4 million to $2.6 million, or 34.8%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, due to lower average balances on interest earning deposits and money market funds during the three months ended June 30, 2024.

Change in Fair Value of Warrant Liabilities

We recognized income of $16.0 million from a change in fair value of warrant liabilities for the three months ended June 30, 2024, compared to expense of $20.4 million for the three months ended June 30, 2023. The change in fair value of warrant liabilities was primarily due to changes in the price of the Company's common stock during each respective period. During the three months ended June 30, 2024, the Company redeemed the outstanding warrants and as of June 30, 2024, no warrants remain outstanding.

Other Income—Net

We recognized other income—net of $1.3 million for the three months ended June 30, 2024 compared to other income—net of $3.9 million for the three months ended June 30, 2023. The change was primarily due to the change in fair value of the interest rate cap derivative instruments during each period, driven by changes in the forward yield curves and time to maturity, and the income recognized from the interest rate cap derivative instruments during the three months ended June 30, 2024.

Income Tax (Provision) Benefit

The Company recognized an income tax provision of $4.3 million and an income tax benefit of $2.3 million for the three months ended June 30, 2024 and 2023, respectively. The income tax provision during the three months ended June 30, 2024 was due to the tax provision related to pre-tax book income.

Comparison of the six months ended June 30, 2024 to the six months ended June 30, 2023

(dollar amounts in thousands, except share and per share data)

Revenues

Revenues increased by $43.2 million to $459.9 million, or 10.4%, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The Company's software subscription revenues accounted for $441.1 million and $399.1 million, or 96% of total revenue during the six months ended June 30, 2024 and 2023.

The increase in revenue was primarily a result of 7% growth from existing customer upgrades and expanding solution offerings to these existing customers as well as 3% growth from new customers.

Cost of Revenues

Cost of revenues decreased by $1.6 million to $114.7 million, or 1.3%, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Cost of Revenues, exclusive of amortization and impairment of acquired technologies

Cost of revenues, exclusive of amortization and impairment of acquired technologies, increased by $3.5 million to $106.0 million, or 3.5%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase was primarily due to a $2.9 million increase in third party fees and direct costs associated with our revenue growth, a $1.4 million increase in depreciation expense related to additional investments in platform and customer solution enhancements, and a $0.8 million increase in personnel-related costs, including stock-based compensation, partially offset by a $1.9 million decrease in IT related costs.

Amortization of Acquired Technologies

Amortization of acquired technologies decreased by $4.7 million, or 35.1%, to $8.7 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The decrease was due to certain acquired technology intangible assets reaching the end of their useful life during the six months ended June 30, 2024.

Impairment of Acquired Technologies

There was no impairment charge recognized during the six months ended June 30, 2024. Impairment of acquired technologies was $0.4 million for the six months ended June 30, 2023 due to an impairment charge recognized as a result of a downward revision of projected earnings and cash flows of our China reporting unit.

Gross Profit

Gross profit increased by $44.8 million to $345.2 million, or 14.9%, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Our gross profit margin was 75.1% for the six months ended June 30, 2024, compared to 72.1% for the six months ended June 30, 2023. The increase in gross profit and gross profit margin was due to increased software subscription revenues and economies of scale resulting from fixed cost arrangements.

Research and Development

Research and development expense increased by $14.4 million to $98.7 million, or 17.0%, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The increase was primarily due to an $11.2 million increase in personnel-related costs, including a $10.1 million increase in stock-based compensation, and a $5.1 million increase in IT related costs, partially offset by a $1.0 million decrease in consulting costs and a $0.6 million increase in the amount of capitalized time on platform and customer solution enhancements.

Selling and Marketing

Selling and marketing expense increased by $2.4 million to $71.9 million, or 3.5%, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The increase was primarily due to a $4.2 million increase in personnel-related costs, including sales incentives and travel costs, a $0.9 million increase in marketing and event related expenses, and a $0.3 million increase in consulting costs, partially offset by a $3.5 million decrease in stock-based compensation.

General and Administrative

General and administrative expense increased by $20.3 million to $108.3 million, or 23.1%, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The increase was primarily due to a $16.9 million increase in personnel-related costs, including a $13.2 million increase in stock-based compensation, a $2.2 million increase in IT related costs and a $1.3 million increase in professional service costs.

Amortization of Intangible Assets

Amortization of intangible assets was $35.9 million and $36.1 million for the six months ended June 30, 2024 and 2023, respectively.

Impairment of Goodwill and Intangible Assets

There was no impairment charge recognized during the six months ended June 30, 2024. We recorded impairment charges of goodwill and intangible assets of $77.4 million and $4.9 million, respectively, for the six months ended June 30, 2023. The impairment charges were the result of lower forecasted earnings and cash flows for the Company’s China reporting unit.

Interest Expense

Interest expense increased by $5.2 million to $33.1 million, or 18.7%, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The increase was primarily due to higher variable interest rates during the six months ended June 30, 2024.

Interest Income

Interest income decreased by $2.2 million to $5.1 million, or 30.1%, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, due to lower average balances on interest earning deposits and money market funds during the six months ended June 30, 2024.

Change in Fair Value of Warrant Liabilities

We recognized income of $14.4 million from a change in fair value of warrant liabilities for the six months ended June 30, 2024, compared to expense of $19.2 million for the six months ended June 30, 2023. The change in fair value of warrant liabilities was primarily due to changes in the price of the Company's common stock during each respective period. During the six months ended June 30, 2024, the Company redeemed the outstanding warrants and as of June 30, 2024, no warrants remain outstanding.

Other Income—Net

We recognized other income—net of $4.2 million for the six months ended June 30, 2024 compared to other income—net of $1.4 million for the six months ended June 30, 2023. The change was primarily due to the change in fair value of the interest rate cap derivative instruments during each period, driven by changes in the forward yield curves and time to maturity, and the income recognized from the interest rate cap derivative instruments during the six months ended June 30, 2024.

Income Tax (Provision) Benefit

The Company recognized an income tax provision of $0.1 million and an income tax benefit of $3.1 million for the six months ended June 30, 2024 and 2023, respectively. The income tax provision during the six months ended June 30, 2024 was due to the tax provision related to pre-tax book income, primarily offset by the tax benefit related to stock-based compensation.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe that Adjusted Gross Profit, Adjusted Operating Expenses, Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share, and Free Cash Flow, which are each non-GAAP measures, are useful in evaluating our operational performance. We use this non-GAAP financial information to evaluate our ongoing operations and for internal planning, budgeting and forecasting purposes and setting management bonus programs. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors in assessing our operating performance and comparing our performance with competitors and other comparable companies, which may present similar non-GAAP financial measures to investors. Our computation of these non-GAAP measures may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate these measures in the same fashion. We endeavor to compensate for the limitation of the non-GAAP measure presented by also providing the most directly comparable GAAP measure and a description of the reconciling items and adjustments to derive the non-GAAP measure. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures on a supplemental basis.

Adjusted Gross Profit

We believe that Adjusted Gross Profit, as defined below, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our recurring core business operating results. Adjusted Gross Profit is defined as gross profit, adjusted for amortization of acquired technologies, impairment of acquired technologies, and stock-based compensation and related employer payroll tax, which are not indicative of our recurring core business operating results. Adjusted Gross Profit Margin is defined as Adjusted Gross Profit divided by Revenue.

The following table reconciles Gross Profit to Adjusted Gross Profit for the three and six months ended June 30, 2024 and 2023:

(amounts in thousands, except percentages)

Adjusted Operating Expenses

We believe that Adjusted Operating Expenses, as defined below, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our recurring core business operating results. Adjusted Operating Expenses is defined as operating expenses adjusted for amortization of intangible assets, impairment of goodwill, impairment of intangible assets, stock-based compensation expense and related employer payroll tax, litigation costs for matters in which we are the plaintiff and related antitrust matters, costs associated with the acquisition and integration of completed and potential mergers and acquisitions ("M&A") and costs related to equity transactions, including secondary offerings.

The following table reconciles operating expenses to Adjusted Operating Expenses for the three and six months ended June 30, 2024 and 2023:

(dollar amounts in thousands)

Adjusted Operating Income

We believe that Adjusted Operating Income, as defined below, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our recurring core business operating results. Adjusted Operating Income is defined as operating income (loss) adjusted for amortization of intangible assets and acquired technologies, impairment of goodwill, impairment of intangible assets and acquired technologies, stock-based compensation expense and related employer payroll tax, litigation costs for matters in which we are the plaintiff and related antitrust matters, costs associated with the acquisition and integration of completed and potential M&A and costs related to equity transactions, including secondary offerings.

The following table reconciles operating income (loss) to Adjusted Operating Income for the three and six months ended June 30, 2024 and 2023:

(dollar amounts in thousands)

Adjusted EBITDA

We believe that Adjusted EBITDA, as defined below, is useful in evaluating our operational performance distinct and apart from financing costs, certain expenses and non-operational expenses. Adjusted EBITDA is defined as net income (loss) adjusted for interest, taxes, amortization of intangible assets and acquired technologies, depreciation, stock-based compensation expense and related employer payroll tax, impairment of goodwill, impairment of acquired technologies and intangible assets, change in fair value of warrant liabilities, change in fair value of derivative instruments, income from derivative instruments, litigation costs for matters in which we are the plaintiff and related antitrust matters, costs associated with the acquisition and integration of completed and potential M&A and costs related to equity transactions, including secondary offerings. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Revenue.

The following table reconciles net income (loss) to Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023:

(dollar amounts in thousands)

36

Adjusted Net Income and Adjusted Earnings Per Share

We believe that Adjusted Net Income, as defined below, and Adjusted Earnings Per Share are useful in evaluating our operational performance distinct and apart from financing costs, certain expenses and non-operational expenses. Adjusted Net Income is defined as net income (loss) adjusted for the after-tax effects of amortization of intangible assets and acquired technologies, impairment of goodwill, impairment of intangible assets and acquired technologies, stock-based compensation expense and related employer payroll tax, change in fair value of warrant liabilities, change in fair value of derivative instruments, litigation costs for matters in which we are the plaintiff and related antitrust matters, costs associated with the acquisition and integration of completed and potential M&A and costs related to equity transactions, including secondary offerings.

The following table reconciles net income (loss) to Adjusted Net Income and Adjusted Earnings per Share for the three and six months ended June 30, 2024 and 2023:

(dollar amounts in thousands)

Free Cash Flow

We believe that Free Cash Flow, as defined below, provides meaningful supplemental information regarding our ability to generate cash and fund our operations and capital expenditures. Free Cash Flow is defined as net cash provided by operating activities less cash used for the purchases of software, equipment, and property.

The following table reconciles net cash provided by operating activities to Free Cash Flow for the three and six months ended June 30, 2024 and 2023:

(dollar amounts in thousands)

Liquidity and Capital Resources

We have financed our operations with cash flows from operations. The Company generated $107.0 million of cash flows from operating activities during the six months ended June 30, 2024. As of June 30, 2024, the Company had cash and cash equivalents of $237.9 million, a working capital surplus of $262.3 million and an accumulated deficit totaling $1,105.6 million. As of June 30, 2024, the Company had $780.0 million aggregate principal outstanding on its term loan.

We believe that our existing cash and cash equivalents, our cash flows from operating activities and our borrowing capacity under our 2021 Revolving Credit Facility will be sufficient to fund our operations, fund required long-term debt repayments and meet our commitments for capital expenditures for at least the next twelve months.

Although we are not currently a party to any material definitive agreement regarding potential investments in, or acquisitions of, complementary businesses, applications or technologies, we may enter into these types of arrangements, which could reduce our cash and cash equivalents or require us to seek additional equity or debt financing. Additional funds from financing arrangements may not be available on terms favorable to us or at all.

Debt

On September 21, 2021, CCC Intelligent Solutions Inc., an indirect wholly owned subsidiary of the Company, together with certain of the Company’s subsidiaries acting as guarantors entered into a credit agreement (as amended, the "2021 Credit Agreement").

The proceeds of the 2021 Credit Agreement and cash on hand were used to repay all outstanding borrowings under the Company's previous credit agreement.

The 2021 Credit Agreement consists of an $800.0 million term loan ("Term B Loan") and a revolving credit facility for an aggregate principal amount of $250.0 million (the "2021 Revolving Credit Facility" and together with the Term B Loan, the "2021 Credit Facilities"). The 2021 Revolving Credit Facility has a sublimit of $75.0 million for letters of credit. The Company received proceeds of $798.0 million, net of debt discount of $2.0 million, related to the Term B Loan.

The Term B Loan requires quarterly principal payments of $2.0 million until June 30, 2028, with the remaining outstanding principal amount required to be paid on the maturity date, September 21, 2028. If the Company's leverage ratio, as defined in the 2021 Credit Agreement is greater than 3.5, the Term B Loan requires a principal prepayment, subject to certain exceptions, in connection with the receipt of proceeds from certain asset sales, casualty events and debt issuances by the Company, and up to 50% of annual excess cash flow, as defined in and as further set forth in the 2021 Credit Agreement. When a principal prepayment is required, the prepayment offsets the future quarterly principal payments of the same amount. As of December 31, 2023, the Company's leverage ratio did not exceed the 3.5 threshold and the Company was not subject to the annual excess cash flow calculation and, as such, was not required to make a principal prepayment.

As of June 30, 2024, the amount outstanding on the Term B Loan was $780.0 million, of which, $8.0 million is classified as current.

Borrowings under the 2021 Credit Facilities bear interest at rates based on the ratio of CCC Intelligent Solutions Inc. and certain of its subsidiaries’ consolidated first lien net indebtedness to consolidated EBITDA for applicable periods specified in the 2021 Credit Agreement.

During May 2023, the Company entered into Amendment No. 1 to the 2021 Credit Agreement (the "Amendment") to establish the Secured Overnight Financing Rate ("SOFR") as the benchmark rate for determining the applicable interest rate, replacing the London Interbank Offer Rate ("LIBOR"). No other terms, including the amount of borrowings, required payments or maturity date, were changed as a result of the Amendment.

Subsequent to the execution of the Amendment, the interest rate per annum applicable to the loans is based on a fluctuating rate of interest equal to the sum of an applicable rate and term SOFR (other than with respect to Euros, the Euro Interbank Offer Rate ("EURIBOR") and with respect to British Pounds Sterling, Sterling Overnight Indexed Average ("SONIA")) with a term, as selected by the Company, of one, three or six months (subject to (x) in the case of term loans, a 0.50% per annum floor and (y) in the case of revolving loans, a 0.00% per annum floor.

Prior to the execution of the Amendment, the interest rate per annum applicable to the loans was based on a fluctuating rate of interest equal to the sum of an applicable rate and, at the Company’s election from time to time, either:

(1) a base rate determined by reference to the highest of (a) the rate last quoted by the Wall Street Journal as the "prime rate," (b) the federal funds effective rate plus 0.50%, (c) one-month LIBOR plus 1.00% and (d) with respect to the Term B Loan, 1.50% and with respect to the 2021 Revolving Credit Facility, 1.00%, or

(2) a Eurocurrency rate determined by reference to LIBOR (other than with respect to Euros, EURIBOR and with respect to British Pounds Sterling, SONIA) with a term, as selected by the Company, of one, three or six months (subject to (x) in the case of term loans, a 0.50% per annum floor and (y) in the case of revolving loans, a 0.00% per annum floor).

A quarterly commitment fee of up to 0.50% is payable on the unused portion of the 2021 Revolving Credit Facility. The 2021 Revolving Credit Facility matures on September 21, 2026.

During the three months ended June 30, 2024 and 2023, the weighted-average interest rate on the outstanding borrowings under the Term B Loan was 7.8% and 7.4%, respectively.

During the six months ended June 30, 2024 and 2023, the weighted-average interest rate on the outstanding borrowings under the Term B Loan was 7.8% and 7.1%, respectively.

The Company has an outstanding standby letter of credit for $0.7 million which reduces the amount available to be borrowed under the 2021 Revolving Credit Facility. As of June 30, 2024, $249.3 million was available to be borrowed under the 2021 Revolving Credit Facility.

The terms of the 2021 Credit Agreement include a financial covenant which requires that, at the end of each fiscal quarter, if the aggregate amount of borrowings under the 2021 Revolving Credit Facility exceeds 35% of the aggregate commitments, the leverage ratio of CCC Intelligent Solutions Inc. and certain of its subsidiaries cannot exceed 6.25 to 1.00. Borrowings under the 2021 Revolving Credit Facility did not exceed 35% of the aggregate commitments and the Company was not subject to the leverage test as of June 30, 2024.

*Interest Rate Caps—*In August 2022, the Company entered into two interest rate cap agreements, as amended, to reduce its exposure to increases in interest rates applicable to its floating rate long-term debt. The amended interest rate cap agreements have an aggregate notional amount of $600.0 million and a one-month SOFR cap rate of 4.00% through their expiration in July 2025.

Cash Flows

The following table provides a summary of cash flow data for the six months ended June 30, 2024 and 2023:

(dollar amounts in thousands)

Net cash provided by operating activities was $107.0 million for the six months ended June 30, 2024. Net cash provided by operating activities consists of net income of $20.8 million, adjusted for $111.2 million of non-cash items, ($25.7) million for changes in working capital and $0.6 million for the effect of changes in other operating assets and liabilities. Significant non-cash adjustments include stock-based compensation expense of $85.1 million and depreciation and amortization of $63.7 million, partially offset by deferred income taxes of $24.7 million, and a change in fair value of warrant liabilities of $14.4 million. The change in working capital was primarily a result of an increase in accounts receivable of $18.6 million due to timing of payments, a decrease in accrued expenses of $12.7 million due to timing of cash disbursements and employee incentive plan payments, and a change in income taxes of $5.8 million, partially offset by a decrease in other current assets of $5.9 million and an increase in accounts payable of $4.6 million due to timing of payments to suppliers.

Net cash used in investing activities was $31.2 million for the six months ended June 30, 2024. Net cash used in investing activities was due to capitalized internally developed software projects and purchases of software, equipment, and property.

Net cash used in financing activities was $33.3 million for the six months ended June 30, 2024. Net cash used in financing activities was due to $52.7 million payments for employee tax liabilities related to the net share settlement of employee equity awards and $4.0 million of principal payments of long-term debt, partially offset by $21.6 million of proceeds from stock option exercises and $1.8 million of proceeds from the issuance of stock under the employee stock purchase plan.

Recent Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations.

Critical Accounting Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures. Our estimates are based on our historical experience, trends and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material.

There have been no material changes to our critical accounting estimates as compared to the critical accounting policies and estimates disclosed in our audited consolidated financial statements and notes thereto for the year ended December 31, 2023, included in our Annual Report on Form 10-K.

There have been no material changes in our market risk compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2023.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that as of June 30, 2024, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

In April 2024, we implemented a new customer billing system for our auto physical damage insurance services customers that changed our internal control over financial reporting. In connection with this implementation, we updated our internal controls over financial reporting, as necessary, to accommodate modifications to our business processes

Except as described above, there were no changes in our internal control over financial reporting during the three months ended June 30, 2024 identified in management’s evaluation pursuant to in Rules 13a-15(d) and 15d-15(d) of the Exchange Act that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

For risk factors relating to our business, please refer to the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023. Any of these factors could result in a significant or material adverse effect on the results of our operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.