Newswires
CCC INTELLIGENT SOLUTIONS HOLDINGS INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
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
Intelligent Solutions Holdings Inc.
Business Overview
Founded in 1980, CCC is a leading provider of innovative cloud, mobile,
artificial intelligence ("AI"), telematics, hyperscale technologies and
applications for the property and casualty ("P&C") insurance economy. Our SaaS
platform connects trading partners, facilitates commerce, and supports
mission-critical, AI-enabled digital workflows. Leveraging decades of deep
domain experience, our industry-leading platform processes more than $100
billion in annual transaction value across this ecosystem, digitizing workflows
and connecting more than 30,000 companies across the P&C insurance economy,
including insurance carriers, collision repairers, parts suppliers, automotive
manufacturers, financial institutions and others.
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 United States ("U.S.")
beginning in 1992. Direct Repair Programs connect auto insurers and collision
repair shops to create business value for both parties, and require 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 over 28,500 repair facilities through
our multi-tenant cloud platform. We believe our software is the architectural
backbone of insurance DRP programs and is the 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 Smart Suite of AI solutions increases automation
across existing insurance and repair processes including vehicle damage
detection, claim triage, repair estimating, and intelligent claims review. We
deliver real-world AI with more than 100 U.S. auto insurers actively using
AI-powered solutions in production environments. We have processed more than 14
million unique claims using CCC deep learning AI as of December 31, 2022 , an
increase of more than 50% over December 31, 2021 .
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, Internet of Things ("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
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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 theU.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. For example, our acquisition of Safekeep inFebruary 2022 added subrogation solutions that can span insurance lines including automotive, property, and worker's compensation. 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 18 of the top 20 automotive insurance carriers in theU.S. , based on DWP, and hundreds of regional carriers. We have more than 30,000 total customers, including over 28,500 automotive collision repair facilities (including repairers and other entities that estimate damaged vehicles), thousands of automotive dealers, 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 endingMarch 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 change 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. Quarter Ending 2023 2022 Software NDR March 31 106% 114% June 30 111% September 30 110% December 31 106% 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 26 -------------------------------------------------------------------------------- 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. Quarter Ending 2023 2022 Software GDR March 31 99% 99% June 30 99% September 30 99% December 31 99% 27
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Results of Operations
Comparison of the three months ended
Three Months Ended March 31,
(dollar amounts in thousands, except
share and per share data) 2023 2022 $ %
Revenues $ 204,919 $ 186,823 $ 18,096 9.7 %
Cost of revenues, exclusive of
amortization of acquired technologies 50,447 42,701 7,746 18.1 %
Amortization of acquired technologies 6,685 6,695 (10 ) -0.1 %
Cost of revenues(1) 57,132 49,396 7,736 15.7 %
Gross profit 147,787 137,427 10,360 7.5 %
Operating expenses:
Research and development(1) 40,996 35,681 5,315 14.9 %
Selling and marketing(1) 33,531 26,802 6,729 25.1 %
General and administrative(1) 41,865 44,207 (2,342 ) -5.3 %
Amortization of intangible assets 18,066 18,080 (14 ) -0.1 %
Total operating expenses 134,458 124,770 9,688 7.8 %
Operating income 13,329 12,657 672 5.3 %
Other income (expense):
Interest expense (13,832 ) (7,341 ) (6,491 ) -88.4 %
Interest income 3,259 - 3,259 NM
Change in fair value of derivative
instruments (2,604 ) - (2,604 ) NM
Change in fair value of warrant
liabilities 1,195 2,136 (941 ) -44.1 %
Gain on sale of cost method
investment - 3,578 (3,578 ) NM
Other income, net 54 82 (28 ) -34.1 %
Total other income (expense) (11,928 ) (1,545 ) (10,383 ) -672.0 %
Income before income taxes 1,401 11,112 (9,711 ) -87.4 %
Income tax benefit 783 863 (80 ) NM
Net income $ 2,184 $ 11,975 $ (9,791 ) -81.8 %
Net income per share attributable to
common stockholders:
Basic $ 0.00 $ 0.02
Diluted $ 0.00 $ 0.02
Weighted-average shares used in
computing net income per share
attributable to common stockholders:
Basic 616,217,176 603,104,839
Diluted 646,380,961 641,028,410
(1) Includes stock-based compensation
expense as follows (in thousands):
Three Months Ended March 31,
2023 2022
Cost of revenues $ 1,901 $ 849
Research and development 5,875 3,530
Sales and marketing 7,258 4,830
General and administrative 14,200 14,435
Total stock-based compensation
expense $ 29,234 $ 23,644
NM-Not Meaningful
Revenues
Revenues increased by $18.1 million to $204.9 million , or 9.7%, for the three
months ended March 31, 2023 , compared to the three months ended March 31, 2022 .
The Company's software subscription revenues accounted for $196.3 million and
$179.8 million , or 96% of total revenue during the three months ended March 31,
2023 and 2022, respectively.
The increase in revenue was primarily a result of 6% growth from existing
customer upgrades and expanding solution offerings to these existing customers
as well as 4% growth from new customers.
28 --------------------------------------------------------------------------------
Cost of Revenues
Cost of revenues increased by$7.7 million to$57.1 million , or 15.7%, for the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 .
Cost of Revenues, exclusive of amortization of acquired technologies
Cost of revenues, exclusive of amortization of acquired technologies, increased by$7.7 million to$50.4 million , or 18.1%, for the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 . The increase was primarily due to a$3.1 million increase in depreciation expense related to additional investments in platform and infrastructure enhancements, a$2.8 million increase in personnel-related costs, including stock-based compensation, a$0.9 million increase in information technology ("IT") related costs and a$0.8 million increase in third party fees and direct costs associated with our revenue growth.
Amortization of Acquired Technologies
Amortization of acquired technologies was
ended
Gross Profit
Gross profit increased by$10.4 million to$147.8 million , or 7.5%, for the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 . Our gross profit margin was 72.1% for the three months endedMarch 31, 2023 , compared to 73.6% for the three months endedMarch 31, 2022 . The increase in gross profit was due to increased software subscription revenues and economies of scale resulting from fixed cost arrangements, partially offset by the increase in depreciation expense related to additional investments in platform and infrastructure enhancements.
Research and Development
Research and development expense increased by$5.3 million to$41.0 million , or 14.9%, for the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 . The increase was primarily due to a$5.5 million increase in personnel-related costs, including stock-based compensation, a$3.5 million increase in consulting and other professional service costs and a$1.1 million increase in IT related costs, partially offset by a$4.9 million increase in the amount of capitalized time on platform and infrastructure enhancements.
Selling and Marketing
Selling and marketing expense increased by$6.7 million to$33.5 million , or 25.1%, for the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 . The increase was primarily due to a$5.4 million increase in personnel-related costs, including stock-based compensation and sales incentives and a$0.5 million increase in travel costs.
General and Administrative
General and administrative expense decreased by$2.3 million to$41.9 million , or 5.3%, for the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 . The decrease was primarily due to a$1.3 million decrease in the Company's facilities costs and a$0.6 million loss on disposal recognized during the three months endedMarch 31, 2022 due to the closure of the Company's previous headquarters inMarch 2022 and a$1.1 million decrease in consulting and other professional service costs. These items were partially offset by a$1.1 million increase in personnel-related costs, including stock-based compensation.
Amortization of Intangible Assets
Amortization of intangible assets was
Interest Expense Interest expense increased by$6.5 million to$13.8 million , or 88.4%, for the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 , due to higher variable interest rates during the three months endedMarch 31, 2023 . Interest Income
Interest income was
interest income was due to interest earned on our cash balances. We did not
recognize any interest income for the three months ended
Change in Fair Value of Derivative Instruments
Change in fair value of derivative instruments was a loss of$2.6 million for the three months endedMarch 31, 2023 . The change in fair value recognized for the three months endedMarch 31, 2023 is related to the interest rate cap agreement entered into inAugust 2022 and driven by the proximity of the maturity date and changes in the forward yield curve during the quarter. 29 --------------------------------------------------------------------------------
Change in Fair Value of Warrant Liabilities
We recognized income of$1.2 million from a change in fair value of warrant liabilities for the three months endedMarch 31, 2023 , compared to$2.1 million for the three months endedMarch 31, 2022 . The income recognized for the three months endedMarch 31, 2023 was due to the decrease in the estimated fair value of the Private Warrants, primarily from the lower price of the Company's common stock as ofMarch 31, 2023 , compared toDecember 31, 2022 .
Income Tax Benefit
Income tax benefit was$0.8 million for the three months endedMarch 31, 2023 , compared to a benefit of$0.9 million for the three months endedMarch 31, 2022 . The income tax benefit during each period was due to the tax benefits from discrete items related to share-based compensation expense, as well as the tax benefit associated with the re-measurement of the Company's deferred tax liability for changes in state tax rates being greater than the tax expense related to pre-tax income.
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 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 months ended
Three Months Ended March 31 ,
(amounts in thousands, except percentages) 2023
2022
Gross Profit$ 147,787 $ 137,427 Amortization of acquired technologies 6,685
6,695
Stock-based compensation and related employer payroll tax 2,116 933 Adjusted Gross Profit$ 156,588 $ 145,055 Gross Profit Margin 72 % 74 % Adjusted Gross Profit Margin 76 % 78 % 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, stock-based compensation expense and related employer payroll tax, plaintiff litigation costs, merger and acquisition ("M&A") and integration costs, lease overlap costs for the incremental expenses associated with the Company's new corporate headquarters prior to termination of its then existing headquarters' lease, lease abandonment charges, Business Combination transaction costs and net costs related to divestiture. 30 --------------------------------------------------------------------------------
The following table reconciles operating expenses to Adjusted Operating Expenses
for the three months ended
Three Months Ended March 31,
(dollar amounts in thousands) 2023 2022
Operating expenses $ 134,458 $ 124,770
Amortization of intangible assets (18,066 ) (18,080 )
Stock-based compensation expense and related
employer payroll tax (29,094 ) (23,723 )
Plaintiff litigation costs (986 ) -
M&A and integration costs - (1,407 )
Lease overlap costs - (1,338 )
Lease abandonment - (1,222 )
Business Combination transaction and related costs - (732 )
Net costs related to divestiture - (60 )
Adjusted operating expenses $ 86,312 $ 78,208
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 adjusted for
amortization, stock-based compensation expense and related employer payroll tax,
plaintiff litigation costs, M&A and integration costs, lease overlap costs for
the incremental expenses associated with the Company's new corporate
headquarters prior to termination of its then existing headquarters' lease,
lease abandonment charges, Business Combination transaction costs and net costs
related to divestiture.
The following table reconciles operating income to Adjusted Operating Income for
the three months ended
Three Months Ended March 31,
(dollar amounts in thousands) 2023 2022
Operating income $ 13,329 $ 12,657
Amortization of intangible assets 18,066
18,080
Amortization of acquired technologies-Cost of revenue 6,685
6,695
Stock-based compensation expense and related employer payroll tax 31,210 24,656 Plaintiff litigation costs 986 - M&A and integration costs - 1,407 Lease overlap costs - 1,338 Lease abandonment - 1,222 Business Combination transaction and related costs -
732
Net costs related to divestiture - 60 Adjusted operating income$ 70,276 $ 66,847 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 adjusted for interest, taxes, amortization, depreciation, stock-based compensation expense and related employer payroll tax, change in fair value of derivative instruments, plaintiff litigation costs, change in fair value of warrant liabilities, M&A and integration costs, lease overlap costs for the incremental expenses associated with the Company's new corporate headquarters prior to termination of its then existing headquarters' lease, lease abandonment charges, Business Combination transaction costs, net costs related to divestiture and gain on sale of cost method investment. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Revenue. 31 --------------------------------------------------------------------------------
The following table reconciles net income to Adjusted EBITDA for the three
months ended
Three Months Ended March 31,
(dollar amounts in thousands) 2023 2022
Net income $ 2,184 $ 11,975
Interest expense 13,832 7,341
Interest income (3,259 ) -
Income tax benefit (783 ) (863 )
Amortization of intangible assets 18,066
18,080
Amortization of acquired technologies-Cost of revenue 6,685
6,695
Depreciation and amortization of software, equipment and property 2,227
2,962
Depreciation and amortization of software, equipment and property-Cost of revenue 6,979
3,845
EBITDA 45,931
50,035
Stock-based compensation expense and related employer payroll tax 31,210
24,656
Change in fair value of derivative instruments 2,604 - Plaintiff litigation costs 986 - Change in fair value of warrant liabilities (1,195 ) (2,136 ) M&A and integration costs - 1,407 Lease overlap costs - 1,338 Lease abandonment - 1,222 Business Combination transaction and related costs -
732
Net costs related to divestiture - 60 Gain on sale of cost method investment - (3,578 ) Adjusted EBITDA$ 79,536 $ 73,736 Adjusted EBITDA Margin 39 % 39 %
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 adjusted for the after-tax effects of
amortization, stock-based compensation expense and related employer payroll tax,
change in fair value of derivative instruments, plaintiff litigation costs,
change in fair value of warrant liabilities, M&A and integration costs, lease
overlap costs for the incremental expenses associated with the Company's new
corporate headquarters prior to termination of its then existing headquarters'
lease, lease abandonment charges, Business Combination transaction costs, net
costs related to divestiture and gain on sale of cost method investment.
32
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The following table reconciles net income to Adjusted Net Income and Adjusted
Earnings per Share for the three months ended
Three Months Ended March 31,
(dollar amounts in thousands) 2023 2022
Net income $ 2,184 $ 11,975
Amortization of intangible assets 18,066
18,080
Amortization of acquired technologies-Cost of revenue 6,685
6,695
Stock-based compensation expense and related employer payroll tax 31,210
24,656
Change in fair value of derivative instruments 2,604
-
Plaintiff litigation costs 986
-
Change in fair value of warrant liabilities (1,195 ) (2,136 ) M&A and integration costs - 1,407 Lease overlap costs - 1,338 Lease abandonment - 1,222 Business Combination transaction and related costs -
732
Net costs related to divestiture -
60
Gain on sale of cost method investment - (3,578 ) Tax effect of adjustments (14,046 ) (11,577 ) Adjusted net income$ 46,494 $ 48,874 Adjusted net income per share attributable to common stockholders: Basic $ 0.08$ 0.08 Diluted $ 0.07$ 0.08 Weighted average shares outstanding: Basic 616,217,176 603,104,839 Diluted 646,380,961 641,028,410 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 months ended
Three Months Ended March 31 ,
(dollar amounts in thousands) 2023
2022
Net cash provided by operating activities$ 33,078 $ 46,865 Less: Purchases of software, equipment, and property (14,534 ) (14,280 ) Free Cash Flow$ 18,544 $ 32,585
Liquidity and Capital Resources
We have financed our operations with cash flows from operations. The Company generated$33.1 million of cash flows from operating activities during the three months endedMarch 31, 2023 . As ofMarch 31, 2023 , the Company had cash and cash equivalents of$338.4 million , a working capital surplus of$360.3 million and an accumulated deficit totaling$705.8 million . As ofMarch 31, 2023 , the Company had$790.0 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
OnSeptember 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 (the "2021 Credit Agreement"). 33 --------------------------------------------------------------------------------
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 untilJune 30, 2028 , with the remaining outstanding principal amount required to be paid on the maturity date,September 21, 2028 . Beginning with the fiscal year endedDecember 31, 2022 , 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 ofDecember 31, 2022 , 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
million
Borrowings under the 2021 Credit Facilities bear interest at rates based on the ratio ofCCC 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. 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 onSeptember 21, 2026 . During the three months endedMarch 31, 2023 and 2022, the weighted-average interest rate on the outstanding borrowings under the Term B Loan was 6.9% and 3.0%, respectively. During the three months endedMarch 31, 2023 and 2022, the Company made interest payments of$13.6 million and$5.9 million , respectively.
The Company has an outstanding standby letter of credit for
reduces the amount available to be borrowed under the 2021 Revolving Credit
Facility. As of
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 ofCCC 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 ofMarch 31, 2023 . Interest Rate Cap-InAugust 2022 , the Company entered into two interest rate cap agreements to reduce its exposure to increases in interest rates applicable to its floating rate long-term debt. The aggregate notional value of the interest rate cap agreements is$600.0 million with a cap rate of 4.0% and an expiration date ofJuly 31, 2025 . Cash Flows
The following table provides a summary of cash flow data for the three months
ended
Three Months Ended March 31 ,
(dollar amounts in thousands) 2023
2022
Net cash provided by operating activities$ 33,078 $ 46,865 Net cash used in investing activities (14,534 ) (42,615 ) Net cash (used in) provided by financing activities (4,014 )
8,691
Net effect of exchange rate change 36 12 Change in cash and cash equivalents$ 14,566
Net cash provided by operating activities was$33.1 million for the three months endedMarch 31, 2023 . Net cash provided by operating activities consists of net income of$2.2 million , adjusted for$59.3 million of non-cash items,($19.7) million for changes in working capital and($8.7) million for the effect of changes in other operating assets and liabilities. Significant non-cash adjustments include depreciation and amortization of$34.0 million , stock-based compensation expense of$29.2 million , a change in fair value of derivative instruments of$2.6 million , non-cash lease expense of$0.9 million , deferred income tax benefits of($6.8) million , and a change in fair value of warrant liabilities of($1.2) million . The change in net operating assets and liabilities was primarily a result of a decrease in accrued expenses of$25.7 million due to timing of cash disbursements and employee incentive plan payments, a 34 -------------------------------------------------------------------------------- decrease in accounts payable of$11.9 million due to timing of cash disbursements, an increase in non-current other assets of$8.6 million due to timing of payments for prepaid and other deferred costs and a change in income taxes of$5.8 million due to timing of payments, partially offset by a decrease in accounts receivable of$6.1 million due to timing of receipts of payments from customers and an increase in deferred revenue of$5.0 million due to timing of customer receipts and revenue recognition. Net cash used in investing activities was$14.5 million for the three months endedMarch 31, 2023 . 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$4.0 million for the three months endedMarch 31, 2023 . Net cash used in financing activities was due to$11.4 million of tax payments related to the net share settlement of employee equity awards and$2.0 million of principal payments of long-term debt, partially offset by$8.1 million of proceeds from stock option exercises and$1.3 million of proceeds from shares purchased through the Company's ESPP.
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
Prudential: Q1 Earnings Snapshot
Assurant: Q1 Earnings Snapshot
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