UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ________________
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(IRS Employer Identification No.) |
(Address Of Principal Executive Offices) |
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(Zip Code) |
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Registrant’s telephone number, including area code
Not Applicable
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Trading |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of October 28, 2022,
CCC INTELLIGENT SOLUTIONS HOLDINGS INC.
Form 10-Q
For the Quarter Ended September 30, 2022
Table of Contents
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Page |
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3 |
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Item 1. |
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5 |
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Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021 |
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6 |
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10 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
30 |
Item 3. |
46 |
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Item 4. |
46 |
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Item 1. |
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Item 1A. |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities |
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Item 3. |
47 |
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Item 4. |
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Item 5. |
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Item 6. |
47 |
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In this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company” and “CCC” mean CCC Intelligent Solutions Holdings Inc. (formerly Dragoneer Growth Opportunities Corp.) and our subsidiaries. On July 30, 2021, Dragoneer Growth Opportunities Corp., a Cayman Islands exempted company (“Dragoneer”), consummated a business combination (the “Business Combination”) pursuant to the terms of the Business Combination Agreement, dated as of February 2, 2021 (the “Business Combination Agreement”), as amended, by and among Dragoneer and Cypress Holdings Inc., a Delaware corporation (“CCCIS”). Immediately upon the consummation of the Business Combination and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”, and such completion the “Closing”), CCCIS merged with and into Chariot Merger Sub, a wholly-owned direct subsidiary of Dragoneer, with CCCIS surviving the Business Combination as a wholly-owned direct subsidiary of Dragoneer (the “Merger”). In connection with the Transactions, Dragoneer changed its name to “CCC Intelligent Solutions Holdings Inc.”
2
FORWARD-LOOKING STATEMENTS
The section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as other parts of this Quarterly Report on Form 10-Q and certain information incorporated herein by reference contain “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future, including those relating to the future financial performance and business strategies and expectations for our business. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements may include information concerning our possible or assumed future results of operations, client demand, business strategies, technology developments, financing and investment plans, competitive position, our industry and regulatory environment, potential growth opportunities and the effects of competition.
Important factors that could cause actual results to differ materially from our expectations include:
3
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described above and under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. It is not possible to predict or identify all such risks. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
CCC INTELLIGENT SOLUTIONS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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September 30, |
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December 31, |
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2022 |
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2021 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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Accounts receivable—Net of allowances of $ |
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Income taxes receivable |
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Deferred contract costs |
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Other current assets |
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Total current assets |
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SOFTWARE, EQUIPMENT, AND PROPERTY—Net |
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OPERATING LEASE ASSETS |
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INTANGIBLE ASSETS—Net |
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GOODWILL |
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DEFERRED FINANCING FEES, REVOLVER—Net |
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DEFERRED CONTRACT COSTS |
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EQUITY METHOD INVESTMENT |
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OTHER ASSETS |
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TOTAL |
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LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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Accrued expenses |
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Income taxes payable |
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Current portion of long-term debt |
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Current portion of long-term licensing agreement—Net |
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Operating lease liabilities |
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Deferred revenues |
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Total current liabilities |
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LONG-TERM DEBT—Net |
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DEFERRED INCOME TAXES—Net |
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LONG-TERM LICENSING AGREEMENT—Net |
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OPERATING LEASE LIABILITIES |
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WARRANT LIABILITIES |
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OTHER LIABILITIES |
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Total liabilities |
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AND CONTINGENCIES (Notes 19 and 20) |
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MEZZANINE EQUITY: |
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Redeemable non-controlling interest |
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STOCKHOLDERS’ EQUITY: |
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Preferred stock—$ |
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Common stock—$ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders’ equity |
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TOTAL |
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See notes to condensed consolidated financial statements.
5
CCC INTELLIGENT SOLUTIONS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share data)
(Unaudited)
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For the Three Months Ended |
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For the Nine Months Ended |
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September 30, |
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September 30, |
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2021 |
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2021 |
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REVENUES |
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$ |
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COST OF REVENUES |
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Cost of revenues, exclusive of amortization of acquired technologies |
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Amortization of acquired technologies |
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Total cost of revenues |
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GROSS PROFIT |
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OPERATING EXPENSES: |
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Research and development |
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Selling and marketing |
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General and administrative |
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Amortization of intangible assets |
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Total operating expenses |
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OPERATING INCOME (LOSS) |
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INTEREST EXPENSE |
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CHANGE IN FAIR VALUE OF DERIVATIVE INSTRUMENTS |
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CHANGE IN FAIR VALUE OF WARRANT LIABILITIES |
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GAIN ON SALE OF COST METHOD INVESTMENT |
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LOSS ON EARLY EXTINGUISHMENT OF DEBT |
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OTHER INCOME (LOSS)—Net |
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PRETAX INCOME (LOSS) |
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INCOME TAX (PROVISION) BENEFIT |
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NET INCOME (LOSS) INCLUDING NON-CONTROLLING |
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Less: net income (loss) attributable to non-controlling interest |
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NET INCOME (LOSS) ATTRIBUTABLE TO CCC INTELLIGENT |
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Net income (loss) per share attributable to common stockholders: |
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Basic |
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$ |
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Diluted |
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Weighted-average shares used in computing net income (loss) per share |
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Basic |
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Diluted |
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COMPREHENSIVE INCOME (LOSS): |
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Net income (loss) including non-controlling interest |
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Other comprehensive income (loss)—Foreign currency translation |
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COMPREHENSIVE INCOME (LOSS) INCLUDING |
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Less: comprehensive income (loss) attributable to non-controlling |
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COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CCC |
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$ |
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See notes to condensed consolidated financial statements.
6
CCC INTELLIGENT SOLUTIONS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
(In thousands, except number of shares)
(Unaudited)
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Redeemable |
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Non-Controlling |
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Accumulated |
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Interest |
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Preferred Stock—Issued and Outstanding |
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Common Stock—Issued and Outstanding |
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Additional |
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Other |
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Total |
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Number of |
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Par |
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Number of |
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Par |
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Paid-In |
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Accumulated |
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Comprehensive |
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Stockholders’ |
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Shares |
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Value |
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Shares |
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Value |
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Capital |
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Deficit |
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Loss |
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Equity |
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BALANCE—December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options—net of tax |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of warrants—net |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock upon |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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BALANCE—March 31, 2022 |
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— |
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— |
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( |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options—net of tax |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock upon |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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BALANCE—June 30, 2022 |
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— |
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— |
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( |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options—net of tax |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock under |
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— |
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— |
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— |
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|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of common stock upon |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Foreign currency translation |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
BALANCE—September 30, 2022 |
|
$ |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
See notes to condensed consolidated financial statements.
7
CCC INTELLIGENT SOLUTIONS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
(In thousands, except number of shares)
(Unaudited)
|
|
Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Non-Controlling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
||||||||||||
|
|
Interest |
|
|
|
Preferred Stock—Issued and Outstanding |
|
|
Common Stock—Issued and Outstanding |
|
|
Additional |
|
|
|
|
|
Other |
|
|
Total |
|
|||||||||||||||
|
|
|
|
|
|
Number of |
|
|
Par |
|
|
Number of |
|
|
Par |
|
|
Paid-In |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Stockholders’ |
|
|||||||||
|
|
|
|
|
|
Shares |
|
|
Value |
|
|
Shares |
|
|
Value |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
|||||||||
BALANCE—December 31, 2020 |
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||||
Issuance of common stock |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Stock-based compensation expense |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Exercise of stock options—net of tax |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Dividend to CCCIS stockholders |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Foreign currency translation |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Net loss |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
BALANCE—March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||||||
Stock-based compensation expense |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Foreign currency translation |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
BALANCE—June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||||||
Stock-based compensation expense |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||
Net equity infusion from the Business |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Dividend to CCCIS stockholders |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Deemed distribution to CCCIS option |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Company Vesting Shares granted to |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
Foreign currency translation |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Net loss |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
BALANCE—September 30, 2021 |
|
$ |
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||||
See notes to condensed consolidated financial statements.
8
9
CCC INTELLIGENT SOLUTIONS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
For the Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization of software, equipment, and property |
|
|
|
|
|
|
||
Amortization of intangible assets |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation |
|
|
|
|
|
|
||
Amortization of deferred financing fees |
|
|
|
|
|
|
||
Amortization of discount on debt |
|
|
|
|
|
|
||
Change in fair value of derivative instruments |
|
|
( |
) |
|
|
( |
) |
Change in fair value of warrant liabilities |
|
|
( |
) |
|
|
|
|
Loss on early extinguishment of debt |
|
|
|
|
|
|
||
Non-cash lease expense |
|
|
|
|
|
|
||
Loss on disposal of software, equipment and property |
|
|
|
|
|
|
||
Gain on sale of cost method investment |
|
|
( |
) |
|
|
|
|
Other |
|
|
|
|
|
|
||
Changes in: |
|
|
|
|
|
|
||
Accounts receivable—Net |
|
|
( |
) |
|
|
( |
) |
Deferred contract costs |
|
|
( |
) |
|
|
( |
) |
Other current assets |
|
|
|
|
|
( |
) |
|
Deferred contract costs—Non-current |
|
|
|
|
|
( |
) |
|
Other assets |
|
|
( |
) |
|
|
( |
) |
Operating lease assets |
|
|
|
|
|
|
||
Income taxes |
|
|
|
|
|
( |
) |
|
Accounts payable |
|
|
|
|
|
|
||
Accrued expenses |
|
|
( |
) |
|
|
|
|
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
Deferred revenues |
|
|
|
|
|
|
||
Extinguishment of interest rate swap liability |
|
|
|
|
|
( |
) |
|
Other liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
||
Purchases of software, equipment, and property |
|
|
( |
) |
|
|
( |
) |
Acquisition of Safekeep, Inc., net of cash acquired |
|
|
( |
) |
|
|
|
|
Purchase of equity method investment |
|
|
|
|
|
( |
) |
|
Proceeds from sale of cost method investment |
|
|
|
|
|
|
|
|
Purchase of intangible asset |
|
|
|
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Proceeds from employee stock purchase plan |
|
|
|
|
|
|
||
Payments for employee taxes withheld upon vesting of equity awards |
|
|
( |
) |
|
|
|
|
Principal payments on long-term debt |
|
|
( |
) |
|
|
( |
) |
Deemed distribution to CCCIS option holders |
|
|
|
|
|
( |
) |
|
Net proceeds from equity infusion from the Business Combination |
|
|
|
|
|
|
||
Proceeds from issuance of long-term debt, net of fees paid to lender |
|
|
|
|
|
|
||
Proceeds from issuance of common stock |
|
|
|
|
|
|
||
Payment of fees associated with early extinguishment of long-term debt |
|
|
|
|
|
( |
) |
|
Dividends to CCCIS stockholders |
|
|
|
|
|
( |
) |
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
( |
) |
|
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
|
|
( |
) |
|
|
( |
) |
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
|
|
|
|
( |
) |
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
||
Beginning of period |
|
|
|
|
|
|
||
End of period |
|
$ |
|
|
$ |
|
||
NONCASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Noncash purchases of software, equipment, and property |
|
$ |
|
|
$ |
|
||
Leasehold improvements acquired by tenant improvement allowance |
|
$ |
|
|
$ |
|
||
Contingent consideration related to business acquisition |
|
$ |
|
|
$ |
|
||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Cash paid for income taxes—Net |
|
$ |
|
|
$ |
|
||
See notes to condensed consolidated financial statements.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CCC Intelligent Solutions Holdings Inc., a Delaware corporation, is a leading provider of innovative cloud, mobile, telematics, hyperscale technologies, and applications for the property and casualty (“P&C”) insurance economy. Our cloud-based software as a service (“SaaS”) platform connects trading partners, facilitates commerce, and supports mission-critical, artificial intelligence ("AI") enabled digital workflows. Our platform digitizes workflows and connects companies across the P&C insurance economy, including insurance carriers, collision repairers, parts suppliers, automotive manufacturers, financial institutions, and others.
The Company is headquartered in Chicago, Illinois. The Company’s primary operations are in the United States (“US”) and it also has operations in China.
The Company was originally incorporated as a Cayman Islands exempted company on July 3, 2020 as a special purpose acquisition company under the name Dragoneer Growth Opportunities Corp. On February 2, 2021, CCCIS entered into the Business Combination Agreement with Dragoneer. In connection with the closing of the Business Combination (see Note 3), Dragoneer changed its jurisdiction of incorporation by deregistering as an exempted company in the Cayman Islands and continuing and domesticating as a Delaware corporation on July 30, 2021, upon which Dragoneer changed its name to CCC Intelligent Solutions Holdings Inc.
Basis of Presentation—The condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statements of mezzanine equity and stockholders’ equity for the three and nine months ended September 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021 have been prepared by the Company and have not been audited. In the opinion of management, all adjustments (which include only normal recurring adjustments except where disclosed) necessary for the fair presentation of the financial position, results of operations and cash flows have been made. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or any future period.
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission (“SEC”). The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, the condensed consolidated financial statements may not include all the information and footnotes necessary for a complete presentation of financial position, results of operations or cash flows. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
The Company's significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to the significant accounting policies since December 31, 2021.
Basis of Accounting—The accompanying condensed consolidated financial statements are prepared in accordance with GAAP and include the accounts of the Company and its wholly-owned subsidiaries and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements include 100% of the accounts of wholly-owned and majority-owned subsidiaries and the ownership interest of the minority investor is recorded as a non-controlling interest in a subsidiary.
Use of Estimates—The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts, and the disclosures of contingent amounts in the Company’s condensed consolidated financial statements and the accompanying notes. Although the Company regularly assesses these estimates, actual
11
Business Combinations—The Company allocates the purchase consideration of acquired companies to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date, with the excess recorded to goodwill. These estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, adjustments may be recorded to the fair value of these tangible and intangible assets acquired and liabilities assumed, including uncertain tax positions and tax-related valuation allowances, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the condensed consolidated statements of operations and comprehensive income (loss).
The Company estimates the fair value of contingent consideration related to business combinations on the date of acquisition (see Note 4). The fair value of the contingent consideration is remeasured each reporting period, with any change in the fair value recorded within the condensed consolidated statements of operations and comprehensive income (loss).
Recently Adopted Accounting Pronouncements—Effective January 1, 2022, the Company adopted Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU is intended to reduce the complexity of accounting for income taxes. Changes include treatment of hybrid tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of legal entities not subject to tax, intra period tax allocation, ownership changes in investments, interim-period accounting for enacted changes in tax law, and year-to-date loss limitation in interim-period tax accounting. The adoption of ASU 2019-12 did not have a material impact on the Company's condensed consolidated financial statements.
Recently Issued Accounting Pronouncements—In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2020-03. This new guidance replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The Company plans to adopt ASU 2016-13 on January 1, 2023 and does not expect its adoption to have a material impact on its condensed consolidated financial statements.
On July 30, 2021, the Company consummated the Business Combination pursuant to the terms of the Business Combination Agreement, dated as of February 2, 2021, as amended, by and among Dragoneer, Chariot Opportunity Merger Sub, Inc. (“Chariot Merger Sub”), a Delaware corporation, and CCCIS, a Delaware corporation.
Immediately upon the consummation of the Business Combination and the Transactions, Chariot Merger Sub, a wholly-owned direct subsidiary of Dragoneer, merged with and into CCCIS, with CCCIS surviving the Business Combination as a wholly-owned direct subsidiary of Dragoneer (“Merger”). In connection with the Transactions, Dragoneer changed its name to “CCC Intelligent Solutions Holdings Inc.”
The Merger was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Dragoneer was treated as the acquired company for accounting purposes and the Business Combination was treated as the equivalent of CCCIS issuing stock for the net assets of Dragoneer, accompanied by a recapitalization.
The net assets of Dragoneer are stated at historical cost, with no goodwill or other intangible assets recorded. Reported shares and earnings per share available to holders of CCCIS’s capital stock and equity awards prior to the Business Combination have been retroactively restated reflecting the exchange ratio of
12
Pursuant to the Merger, at the Effective Time of the Merger (the “Effective Time”):
Concurrently with the execution of the Business Combination Agreement, the Company entered into subscription agreements with certain institutional investors (the “PIPE Investors”), pursuant to which the PIPE Investors purchased, immediately prior to the Closing, an aggregate of
Prior to the Closing, the Company entered into forward purchase agreements with Dragoneer Funding LLC and Willett Advisors LLC, pursuant to which the Company issued an aggregate of
Effective upon Closing,
As part of the Business Combination,
Of the 15.0 million Company Earnout Shares,
The Company Earnout Shares are not issued shares and are excluded from the Company's issued and outstanding shares within its condensed consolidated statements of mezzanine equity and stockholders' equity.
In connection with the Business Combination, the Company incurred underwriting fees and other costs considered direct and incremental to the transaction totaling $
The following table reconciles the elements of the Business Combination to the consolidated statement of cash flows for the nine months ended September 30, 2021 and the consolidated statement of mezzanine equity and stockholders’ equity for the three and nine months ended September 30, 2021 (in thousands):
13
Cash - Dragoneer trust and cash |
|
$ |
|
|
Cash - PIPE Financing |
|
|
|
|
Cash - Forward Purchase Agreements |
|
|
|
|
Less: transaction costs and advisory fees |
|
|
( |
) |
Net cash contributions from Business Combination |
|
|
|
|
Less: non-cash fair value of Public Warrants and Private Warrants |
|
|
( |
) |
Net equity infusion from Business Combination |
|
$ |
|
On February 8, 2022, the Company completed its acquisition of Safekeep, Inc. (“Safekeep”), a privately held company that leverages AI to streamline and improve subrogation management across auto, property, workers’ compensation and other insurance lines of business. Leveraging Safekeep’s AI-enabled subrogation solutions, the acquisition will broaden the Company’s portfolio of cloud-based solutions available to its insurance customers.
In exchange for all the outstanding shares of Safekeep, the Company paid total cash consideration of $
As additional consideration for the shares, the acquisition agreement includes a contingent earnout for additional cash consideration. The potential amount of the earnout is calculated as a multiple of revenue, above a defined floor, during the 12-month measurement period ending December 31, 2024 and is not to exceed $
The acquisition date fair value of the consideration transferred was $
Cash paid through closing |
|
$ |
|
|
Fair value of contingent earnout consideration |
|
|
|
|
Total acquisition date fair value of the consideration transferred |
|
$ |
|
The acquisition was accounted for as a business combination and reflects the application of acquisition accounting in accordance with Accounting Standards Codification ("ASC") Topic 805, Business Combinations. The total purchase consideration was allocated to the assets acquired and liabilities assumed based on their fair values as of the acquisition date with the excess purchase price assigned to goodwill. The goodwill was primarily attributable to the expected synergies from the combined service offerings and the value of the acquired workforce. The goodwill is not deductible for tax purposes.
The Company’s estimates of the fair values of the assets acquired, liabilities assumed and contingent consideration are based on information that was available at the date of the acquisition and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the date of acquisition. There have been no material changes to the preliminary purchase price allocation.
The following table summarizes the allocation of the consideration to the fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):
Assets acquired: |
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Current assets |
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$ |
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Intangible asset - acquired technology |
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Deferred tax assets |
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Total assets acquired |
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Liabilities assumed: |
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Current liabilities |
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Total liabilities assumed |
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Net assets acquired |
|
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|
|
Goodwill |
|
|
|
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Total purchase price |
|
$ |
|
|
14
The acquired technology intangible asset has an estimated useful life of
The fair value of the acquired technology intangible asset was determined by a valuation model based on estimates of future operating projections as well as judgments on the discount rate and other variables. This fair value measurement is based on significant unobservable inputs, including management estimates and assumptions and thus represents a Level 3 measurement.
The transaction costs associated with the acquisition were $
Disaggregation of Revenue—The Company provides disaggregation of revenue based on type of service as it believes these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
The following table summarizes revenue by type of service for the three and nine months ended September 30, 2022 and 2021 (in thousands):
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
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||||||||||
|
|
September 30, |
|
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September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Software subscriptions |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other |
|
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|
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|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Transaction Price Allocated to the Remaining Performance Obligations—Remaining performance obligations represent contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. As of September 30, 2022, approximately $
Deferred Revenue—Revenue recognized for the three months ended September 30, 2022 from amounts in deferred revenue as of June 30, 2022 was $
Revenue recognized for the nine months ended September 30, 2022 from amounts in deferred revenue as of December 31, 2021 was $
Contract Assets and Liabilities—
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September 30, |
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December 31, |
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||
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2022 |
|
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2021 |
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||
Accounts receivables-net of allowances |
|
$ |
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$ |
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||
Deferred contract costs |
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Long-term deferred contract costs |
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Other assets (accounts receivable, non-current) |
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Deferred revenues |
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Other liabilities (deferred revenues, non-current) |
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15
A summary of the activity impacting deferred revenue balances during the three and nine months ended September 30, 2022 and 2021, is presented below (in thousands):
|
For the Three Months Ended |
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For the Nine Months Ended |
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||||||||||
|
September 30, |
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September 30, |
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||||||||||
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2022 |
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2021 |
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2022 |
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2021 |
|
||||
Balance at beginning of period |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenue recognized1 |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Additional amounts deferred1 |
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||||
Balance at end of period |
$ |
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$ |
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$ |
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$ |
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||||
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||||
Classified as: |
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||||
Current |
$ |
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$ |
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$ |
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$ |
|
||||
Non-current |
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||||
Total deferred revenue |
$ |
|
|
$ |
|
|
$ |
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$ |
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||||
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||||
1
A summary of the activity impacting the deferred contract costs during the three and nine months ended September 30, 2022 and 2021 is presented below (in thousands):
|
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For the Three Months Ended |
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For the Nine Months Ended |
|
||||||||||
|
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September 30, |
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September 30, |
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||||||||||
|
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2022 |
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2021 |
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2022 |
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2021 |
|
||||
Balance at beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Costs amortized |
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( |
) |
|
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( |
) |
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( |
) |
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( |
) |
Additional amounts deferred |
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|
||||
Balance at end of period |
|
$ |
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|
$ |
|
|
$ |
|
|
$ |
|
||||
|
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|
||||
Classified as: |
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|
||||
Current |
|
$ |
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$ |
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|
$ |
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|
$ |
|
||||
Non-current |
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|
|
|
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|
||||
Total deferred contract costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Private Warrants—As of September 30, 2022, the Company's Private Warrants and contingent consideration liability related to a business acquisition are measured at fair value on a recurring basis.
The Private Warrants are valued using Level 1 and Level 2 inputs within the Black-Scholes option-pricing model. The assumptions utilized under the Black-Scholes option pricing model require judgments and estimates. Changes in these inputs and assumptions could affect the measurement of the estimated fair value of the Private Warrants. Accordingly, the Private Warrants are classified within Level 2 of the fair value hierarchy.
The valuation of the Private Warrants as of September 30, 2022 and December 31, 2021 was determined using the Black-Scholes option pricing model using the following assumptions:
|
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September 30, |
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December 31, |
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2022 |
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2021 |
|
||
Expected term (in years) |
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||
Expected volatility |
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% |
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% |
||
Expected dividend yield |
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% |
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% |
||
Risk-free interest rate |
|
|
% |
|
|
% |
||
The estimated fair value of each Private Warrant using the Company's stock price on the valuation date and above assumptions was $
16
Contingent Consideration Liability—The contingent consideration liability related to the acquisition of Safekeep (see Note 4), recognized within other liabilities on the condensed consolidated balance sheet, is adjusted each reporting period for changes in fair value, which can result from changes in anticipated payments and changes in assumed discount rates. These inputs are unobservable in the market and therefore categorized as Level 3 inputs.
The estimated fair value of the contingent consideration at the date of acquisition was determined using probability-weighted discounted cash flows and a Monte Carlo simulation model. The discount rate, based on the Company's estimated cost of debt, was
Since the date of the business acquisition of Safekeep, there has been no change in the estimated fair value of the Company's contingent consideration liability and the Company has not recognized any gain or loss for a change in the estimated fair value of contingent consideration since the date of acquisition.
Interest Rate Cap—In August 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 (See Note 15). The fair value of the interest rate cap agreements was estimated using inputs that were observable or that could be corroborated by observable market data and therefore, was classified within Level 2 of the fair value hierarchy as of September 30, 2022.
The Company did not designate its interest rate cap agreements as hedging instruments and records the changes in fair value within earnings. As of September 30, 2022, the interest rate cap agreements had a fair value of $
The following table presents the fair value of the assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 (in thousands):
|
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Fair Value |
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Level 1 |
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Level 2 |
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Level 3 |
|
||||
Assets |
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|
||||
Interest rate cap |
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|
||||
Total Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration related to business acquisition |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Private warrants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table presents the fair value of the assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 (in thousands):
Liabilities |
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Private warrants |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis—The Company has assets that under certain conditions are subject to measurement at fair value on a nonrecurring basis. These assets include those associated with acquired businesses, including goodwill and other intangible assets. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired. During the three and nine months ended September 30, 2022 and 2021, the Company recognized
Fair Value of Other Financial Instruments—
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
||||
Description |
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Amount |
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Fair Value |
|
|
Amount |
|
|
Fair Value |
|
||||
Term B Loan, including current portion |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The fair value of the Company’s long-term debt, including current maturities, was estimated based on the quoted market prices for the same or similar instruments and fluctuates with changes in applicable interest rates among other factors. The fair value of long-term debt is classified as a Level 2 measurement in the fair value hierarchy and is established based on observable inputs in less active markets.
17
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law. The IRA contains several revisions to the Internal Revenue Code, including a
The Company’s effective tax rate for the three months ended September 30, 2022 and 2021 was
The Company's effective tax rate for the nine months ended September 30, 2022 and 2021 was
The Company made income tax payments of $
The Company made income tax payments of $
As of September 30, 2022, unrecognized tax benefits were materially consistent with the amount as of December 31, 2021. We anticipate this amount will decrease from $
Accounts receivable–Net as of September 30, 2022 and December 31, 2021, consists of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Accounts receivable |
|
$ |
|
|
$ |
|
||
Allowance for doubtful accounts and sales reserves |
|
|
( |
) |
|
|
( |
) |
Accounts receivable–net |
|
$ |
|
|
$ |
|
||
As of September 30, 2022, one customer represented 16% of the Company's net accounts receivable. As of December 31, 2021, no customer represented more than 10% of the Company's net accounts receivable.
Changes to the allowance for doubtful accounts and sales reserves during the three and nine months ended September 30, 2022 and 2021, consist of the following (in thousands):
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Balance at beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Charges to bad debt and sales reserves |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Write-offs, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
18
Other current assets as of September 30, 2022 and December 31, 2021, consist of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Prepaid SaaS costs |
|
|
|
|
|
|
||
Prepaid insurance |
|
|
|
|
|
|
||
Prepaid service fees |
|
|
|
|
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|
||
Prepaid software and equipment maintenance |
|
|
|
|
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|
||
Non-trade receivables |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Software, equipment, and property as of September 30, 2022 and December 31, 2021, consist of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Software, licenses and database |
|
$ |
|
|
$ |
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Computer equipment |
|
|
|
|
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|
||
Building and land |
|
|
|
|
|
|
||
Furniture and other equipment |
|
|
|
|
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|
||
Total software, equipment, and property |
|
|
|
|
|
|
||
Less accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Software, equipment, and property—Net |
|
$ |
|
|
$ |
|
||
The Company leases real estate in the form of office space and data center facilities. Generally, at the inception of the contract, the term for real estate leases ranges from
The components of lease expense for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Operating lease costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Variable lease costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total lease costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
19
Supplemental cash flow and other information related to leases for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cash payments for operating leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating lease assets obtained in exchange for lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Goodwill—Goodwill was recorded in connection with business acquisitions.
The Company performs its annual impairment assessment as of September 30 of each fiscal year. As of September 30, 2022, the annual impairment assessment indicated
Based on the quantitative assessment as of September 30, 2022, the Company determined that its China reporting unit had an estimated fair value that was not significantly in excess of its carrying value. While it was concluded that the goodwill assigned to the China reporting unit was not impaired, it could be at risk of future impairment if the Company's long-term financial objectives are not achieved or if there are changes to estimates and assumptions from a number of factors, many of which are outside the Company's control. As a result of the assessment, the Company did
As of September 30, 2021, the annual impairment assessment indicated
Changes in the net carrying amount of goodwill during the nine months ended September 30, 2022 were as follows (in thousands):
|
|
Net |
|
|
|
|
Carrying |
|
|
|
|
Amount |
|
|
|
|
|
|
|
Balance as of December 31, 2021 |
|
$ |
|
|
Acquisition of Safekeep, Inc. |
|
|
|
|
Balance as of September 30, 2022 |
|
$ |
|
|
Intangible Assets—The Company’s intangible assets are primarily the result of business acquisitions.
During the three and nine months ended September 30, 2022 and 2021, the Company did
20
The Company performs its annual impairment assessment of indefinite life intangible assets as of September 30 of each fiscal year. As of September 30, 2022 and 2021, the annual impairment assessment indicated
During February 2022, the Company recorded $
The intangible assets balance as of September 30, 2022, is reflected below (in thousands):
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Estimated |
|
Remaining |
|
|
Gross |
|
|
|
|
|
Net |
|
||||
|
|
Useful Life |
|
Useful Life |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
||||
|
|
(Years) |
|
(Years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
||||
Customer relationships |
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Acquired technologies |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Subtotal |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Trademarks—indefinite life |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total intangible assets |
|
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
The intangible assets balance as of December 31, 2021, is reflected below (in thousands):
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Estimated |
|
|
Remaining |
|
|
Gross |
|
|
|
|
|
|
Net |
|
||||||
|
|
Useful Life |
|
|
Useful Life |
|
|
Carrying |
|
|
|
Accumulated |
|
|
Carrying |
|
||||||
|
|
(Years) |
|
|
(Years) |
|
|
Amount |
|
|
|
Amortization |
|
|
Amount |
|
||||||
Customer relationships |
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
||||||
Acquired technologies |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||||
Favorable lease terms |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Trademarks—indefinite life |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||
Total intangible assets |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|||||
Amortization expense for intangible assets was $
Future amortization expense for the remainder of the year ended December 31, 2022 and the following four years ended December 31 and thereafter for intangible assets as of September 30, 2022, is as follows (in thousands):
Years Ending December 31: |
|
|
|
|
2022 |
|
$ |
|
|
2023 |
|
|
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|
2024 |
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2025 |
|
|
|
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2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
21
Accrued expenses as of September 30, 2022 and December 31, 2021, consist of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Compensation |
|
$ |
|
|
$ |
|
||
Professional services |
|
|
|
|
|
|
||
Software license agreement |
|
|
|
|
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|
||
Royalties and licenses |
|
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|
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|
||
Employee insurance benefits |
|
|
|
|
|
|
||
Sales tax |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Other liabilities as of September 30, 2022 and December 31, 2021, consist of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
|
|
|
|
|
|
|
||
Deferred revenue-non-current |
|
$ |
|
|
$ |
|
||
Software license agreement |
|
|
|
|
|
|
||
Contingent consideration |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
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 (the “2021 Credit Agreement”).
The 2021 Credit Agreement replaced the Company’s 2017 First Lien Credit Agreement (the “First Lien Credit Agreement”), dated as of April 27, 2017, as amended as of February 14, 2020.
The proceeds of the 2021 Credit Agreement were used to repay all outstanding borrowings under the First Lien Credit Agreement.
2021 Credit Agreement—The 2021 Credit Agreement consists of an $
The Company incurred $
The Company incurred $
Beginning with the quarter ended March 31, 2022, the Term B Loan requires quarterly principal payments of $
22
September 30, 2022, the Company was not subject to the annual excess cash flow calculation and
As of September 30, 2022 and December 31, 2021, the amount outstanding on the Term B Loan is $
Borrowings under the 2021 Credit Facility bear interest at rates based on the ratio of the Company’s and its subsidiaries’ consolidated first lien net indebtedness to the Company’s and its subsidiaries’ consolidated EBITDA for applicable periods specified in the 2021 Credit Facility. A quarterly commitment fee of up to
During the three months ended September 30, 2022 and 2021, the weighted-average interest rate on the outstanding borrowings under the Term B Loan was
During the nine months ended September 30, 2022 and 2021, the weighted-average interest rate on the outstanding borrowings under the Term B Loan was
The Company issued a standby letter of credit for $
In addition, beginning with the three months ended March 31, 2022, 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
First Lien Credit Agreement—In April 2017, the Company entered into the First Lien Credit Agreement.
The First Lien Credit Agreement consisted of a $
In February 2020, the Company refinanced its long-term debt and entered into the First Amendment to the First Lien Credit Agreement (“First Lien Amendment”). The proceeds of the refinance were used to repay the outstanding balance of the Company's Second Lien Credit Agreement, entered into in April 2017.
The First Lien Amendment provided an incremental term loan in the amount of $
In addition, the First Lien Amendment reduced the amount of commitments under the First Lien Revolvers to an aggregate principal amount of $
The Company incurred $
The First Lien Term Loan required (after giving effect to the First Lien Amendment) quarterly principal payments of approximately $
Using a portion of the proceeds of the Business Combination, the Company made a principal prepayment of $
23
Amounts outstanding under the First Lien Credit Agreement bore interest at a variable rate of LIBOR, plus up to
During the three months ended September 30, 2021, the weighted-average interest rate on the outstanding borrowings under the First Lien Term Loan was
During the nine months ended September 30, 2021, the weighted-average interest rate on the outstanding borrowings under the First Lien Term Loan was
Long-term debt as of September 30, 2022 and December 31, 2021, consists of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Term B Loan |
|
$ |
|
|
$ |
|
||
Term B Loan—discount |
|
|
( |
) |
|
|
( |
) |
Term B Loan—deferred financing fees |
|
|
( |
) |
|
|
( |
) |
Term B Loan—net of discount & fees |
|
|
|
|
|
|
||
Less: Current portion |
|
|
( |
) |
|
|
( |
) |
Total long-term debt—net of current portion |
|
$ |
|
|
$ |
|
||
Interest Rate Cap—In August 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 $
Interest Rate Swaps—In June 2017, the Company entered into three floating to fixed interest rate swap agreements ("Swap Agreements") to reduce its exposure to the variability from future cash flows resulting from interest rate risk related to its floating rate long-term debt. In September 2021, the Company made an aggregate payment of $
Preferred Stock—The Company is authorized to issue up to
Common Stock—The Company is authorized to issue up to
There were
During April 2022, certain existing shareholders completed a secondary offering where the selling shareholders sold
Dividends—In July 2021, the board of directors of CCCIS declared a cash dividend on its common stock. The aggregate cash dividend of $
24
In March 2021, the board of directors of CCCIS declared a cash dividend on its common stock. The aggregate cash dividend of $
In connection with the closing of the Business Combination, the 2021 Equity Incentive Plan (the "2021 Plan") was adopted and approved by the Company's board of directors.
Prior to the Business Combination, the Company maintained its 2017 Stock Option Plan (the “2017 Plan”).
Upon the adoption and approval of the 2021 Plan, the 2017 Plan was terminated and each outstanding vested or unvested option, as required under the 2017 Plan, was converted to the 2021 Plan, multiplied by the Exchange Ratio, with the same key terms and vesting requirements. Additionally, the Company maintained a Phantom Stock Plan (the “Phantom Plan”), which provided for the issuance of phantom shares of CCCIS’s common stock (“Phantom Shares”) to eligible employees under the 2017 Plan.
Awards granted under the 2017 Plan and Phantom Plan had time-based vesting or performance-based with a market condition vesting requirements.
The board of directors of CCCIS approved a modification that resulted in vesting of the performance-based awards with a market condition and the Phantom Shares upon Closing of the Business Combination. At the time of modification, the Company estimated a new fair value of the modified awards and recognized $
Stock Options—
|
|
|
|
|
|
|
|
Weighted- |
|
|
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|
||||
|
|
|
|
|
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|
|
Average |
|
|
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|
||||
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
Aggregate |
|
||||
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Intrinsic |
|
||||
|
|
|
|
|
Exercise |
|
|
Life |
|
|
Value |
|
||||
|
|
Shares |
|
|
Price |
|
|
(in years) |
|
|
(in thousands) |
|
||||
Options outstanding—December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited and canceled |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Options outstanding—September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options exercisable—September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options vested and expected to vest—September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The fair value of the options vested during the nine months ended September 30, 2022 was $
Restricted Stock Units—Restricted Stock Units (“RSUs”) are convertible into shares of the Company’s common stock upon vesting.
During the nine months ended September 30, 2022, the Company granted
The valuation of the performance-based RSUs with a market condition granted during the nine months ended September 30, 2022 was determined using a Monte Carlo simulation model using the following assumptions:
Expected term (in years) |
|
|
Expected volatility |
|
|
Expected dividend yield |
|
|
Risk-free interest rate |
|
The estimated fair value of the performance-based RSUs with a market condition granted during the nine months ended September 30, 2022 was $
The table below summarizes the RSU activity for the nine months ended September 30, 2022:
25
|
|
|
|
|
Weighted- |
|
||
|
|
|
|
|
Average |
|
||
|
|
Shares |
|
|
Fair Value |
|
||
Non-vested RSUs—December 31, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Non-vested RSUs—September 30, 2022 |
|
|
|
|
|
|
||
Employee Stock Purchase Plan—As of September 30, 2022,
As of September 30, 2022,
The fair value of ESPP purchase rights sold during the nine months ended September 30, 2022 was estimated using the Black Scholes option pricing model with the following assumptions:
Expected term (in years) |
|
|
Expected volatility |
|
|
Expected dividend yield |
|
|
Risk-free interest rate |
|
Company Earnout Shares—Pursuant to the Business Combination Agreement, CCCIS shareholders and option holders, subject to continued employment, have the right to receive up to an additional
The fair value of the Company Earnout Shares was estimated on the date of grant, using the Monte Carlo simulation method. Compensation expense on the shares granted to option holders was recorded ratably over the implied service period of five months beginning on July 30. 2021. During the three months ended September 30, 2021, the Company recognized $
Stock-Based Compensation—Stock-based compensation expense has been recorded in the accompanying condensed consolidated statements of operations and comprehensive income (loss) as follows for the three and nine months ended September 30, 2022 and 2021 (in thousands):
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cost of revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
As of September 30, 2022, there was $
Upon consummation of the Business Combination (see Note 3), the Company assumed the outstanding Public Warrants and Private Warrants issued by Dragoneer.
Public Warrants were only able to be exercised for a whole number of shares of the Company’s common stock. All Public Warrants had an exercise price of $
26
On November 29, 2021, the Company announced that it had elected to redeem all of the outstanding Public Warrants on December 29, 2021. Each Public Warrant not exercised before 5:00 p.m. Eastern Daylight Time on December 29, 2021 was redeemed by the Company for $
Of the
The Private Warrants are identical to the Public Warrants underlying the shares sold in Dragoneer’s initial public offering. Additionally, the Private Warrants are exercisable on a cashless basis and are non-redeemable, so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
Private Warrants may only be exercised for a whole number of shares of the Company’s common stock. Each whole Private Warrant entitles the registered holder to purchase one share of the Company’s common stock. All warrants have an exercise price of $
There were no exercises or redemptions of the Private Warrants during the three and nine months ended September 30, 2022. As of September 30, 2022 and December 31, 2021, the Company had
The Company recognized income of $
The Company recognized an expense of $
As of September 30, 2022 and December 31, 2021, the Company’s warrant liability was $
Purchase Obligations—The Company has long-term agreements with suppliers and other parties related to licensing data used in its products and services, outsourced data center, disaster recovery, and software as a service that expire at various dates through
Guarantees—The Company’s services and solutions are typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable and substantially in accordance with the Company’s services and solutions documentation under normal use and circumstances. The Company’s services and solutions are generally warranted to be performed in a professional manner and to materially conform to the specifications set forth in the related customer contract. The Company’s arrangements also include certain provisions for indemnifying customers against liabilities if its services and solutions infringe a third party’s intellectual property rights.
To date, the Company has not incurred any material costs as a result of such indemnifications or commitments and has not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.
Employment Agreements—The Company is a party to employment agreements with key employees that provide for compensation and certain other benefits. These agreements also provide for severance and bonus payments under certain circumstances.
In the ordinary course of business, the Company is from time to time, involved in various pending or threatened legal actions. The litigation process is inherently uncertain, and it is possible that the resolution of such matters might have a material adverse effect upon the Company’s consolidated financial condition and/or results of operations. The Company’s management believes, based on current information, matters currently pending or threatened are not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.
27
The Company has engaged in transactions within the ordinary course of business with entities affiliated with its principal equity owners.
The following table summarizes revenues and incurred expenses with entities affiliated with one of its principal equity owners for the three and nine months ended September 30, 2022 and 2021 (in thousands):
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Credit card processing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Employee health insurance benefits |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Human resources support services |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales tax processing and license fees for tax information |
|
|
|
|
* |
|
|
|
|
|
* |
|
||||
*Not material
The following table summarizes amounts receivable and due to entities affiliated with one of its principal equity owners as of September 30, 2022 and December 31, 2021 (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Receivables |
|
|
|
|
|
|
||
Credit card processing |
|
* |
|
|
* |
|
||
Payables |
|
|
|
|
|
|
||
Employee health insurance benefits |
|
$ |
|
|
$ |
|
||
Human resources support services |
|
* |
|
|
* |
|
||
Sales tax processing and license fees for tax information |
|
* |
|
|
* |
|
||
*Not material
The Company calculates basic earnings per share by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. The diluted earnings per share is computed by assuming the exercise, settlement and vesting of all potential dilutive common stock equivalents outstanding for the period using the treasury stock method. The Company excludes common stock equivalent shares from the calculation if their effect is anti-dilutive. In a period where the Company is in a net loss position, the diluted loss per share is calculated using the basic share count.
The
The following table sets forth a reconciliation of the numerator and denominator used to compute basic and diluted earnings per share of common stock (in thousands, except for share and per share data).
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares of common stock - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of stock-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares of common stock - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Diluted |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Approximately
28
Approximately
The Company operates in
Revenues by geographic area, presented based upon the location of the customer are as follows (in thousands):
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
China |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Software, equipment and property, net by geographic area are as follows (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
United States |
|
$ |
|
|
$ |
|
||
China |
|
|
|
|
|
|
||
Total software, equipment and property-net |
|
$ |
|
|
$ |
|
||
During February 2022, the Company received cash proceeds of $
29
Item 2. 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 Cypress Holdings Inc. and its consolidated subsidiaries prior to the Business Combination and to CCC Intelligent Solutions Holdings Inc. and its consolidated subsidiaries after giving effect to the Business Combination.
Business Overview
Founded in 1980, CCC is a leading provider of innovative cloud, mobile, 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, from claims to underwriting, 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 27,500 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 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 suite of AI solutions increases automation across existing insurer processes including vehicle damage detection, claim triage, repair estimating, intelligent claims review, and subrogation. We deliver real-world AI with more than 95 U.S. auto insurers actively using AI-powered solutions in production environments. We have processed more than 9 million unique claims using CCC deep learning AI as of December 31, 2021, an increase of more than 80 percent over December 31, 2020.
30
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, and changing customer expectations. We believe digitization plays a critical role in managing this growing complexity while meeting customer 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 18 of the top 20 automotive insurance carriers in the U.S., based on DWP, and hundreds of regional carriers. We have more than 30,000 total customers, including over 27,500 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 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 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 diagnostic providers, smaller emerging solutions with international subsidiaries or other ecosystem solutions, such as parts suppliers and other automotive manufacturers, and also excludes CCC Casualty which are largely usage and professional service based solutions.
|
|
Quarter Ending |
|
2022 |
|
2021 |
Software NDR |
|
March 31 |
|
114% |
|
106% |
|
|
June 30 |
|
111% |
|
110% |
|
|
September 30 |
|
110% |
|
113% |
|
|
December 31 |
|
|
|
115% |
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
31
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 diagnostic providers, smaller emerging solutions with international subsidiaries or other ecosystem solutions, such as parts suppliers and other automotive manufacturers, and excludes CCC’s casualty solutions which are largely usage and professional service based solutions.
|
|
Quarter Ending |
|
2022 |
|
2021 |
Software GDR |
|
March 31 |
|
99% |
|
98% |
|
|
June 30 |
|
99% |
|
98% |
|
|
September 30 |
|
99% |
|
98% |
|
|
December 31 |
|
|
|
98% |
Results of Operations
Comparison of the three months ended September 30, 2022 to the three months ended September 30, 2021
32
|
|
Three Months Ended September 30, |
|
|
|
|
||||||||||
(dollar amounts in thousands, except share and per share data) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
Revenues |
|
$ |
198,734 |
|
|
$ |
176,628 |
|
|
$ |
22,106 |
|
|
|
12.5 |
% |
Cost of revenues, exclusive of amortization of |
|
|
46,379 |
|
|
|
51,273 |
|
|
|
(4,894 |
) |
|
|
-9.5 |
% |
Amortization of acquired technologies |
|
|
6,748 |
|
|
|
6,580 |
|
|
|
168 |
|
|
|
2.6 |
% |
Cost of revenues(1) |
|
|
53,127 |
|
|
|
57,853 |
|
|
|
(4,726 |
) |
|
|
-8.2 |
% |
Gross profit |
|
|
145,607 |
|
|
|
118,775 |
|
|
|
26,832 |
|
|
|
22.6 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development(1) |
|
|
40,273 |
|
|
|
67,016 |
|
|
|
(26,743 |
) |
|
|
-39.9 |
% |
Selling and marketing(1) |
|
|
30,838 |
|
|
|
80,382 |
|
|
|
(49,544 |
) |
|
|
-61.6 |
% |
General and administrative(1) |
|
|
39,376 |
|
|
|
142,511 |
|
|
|
(103,135 |
) |
|
|
-72.4 |
% |
Amortization of intangible assets |
|
|
18,066 |
|
|
|
18,078 |
|
|
|
(12 |
) |
|
|
-0.1 |
% |
Total operating expenses |
|
|
128,553 |
|
|
|
307,987 |
|
|
|
(179,434 |
) |
|
|
-58.3 |
% |
Operating income (loss) |
|
|
17,054 |
|
|
|
(189,212 |
) |
|
|
206,266 |
|
|
NM |
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
(10,501 |
) |
|
|
(13,878 |
) |
|
|
3,377 |
|
|
|
24.3 |
% |
Change in fair value of derivative instruments |
|
|
5,991 |
|
|
|
2,007 |
|
|
|
3,984 |
|
|
|
198.5 |
% |
Change in fair value of warrant liabilities |
|
|
312 |
|
|
|
(26,889 |
) |
|
|
27,201 |
|
|
NM |
|
|
Loss on early extinguishment of debt |
|
|
— |
|
|
|
(15,240 |
) |
|
|
15,240 |
|
|
NM |
|
|
Gain on sale of cost method investment |
|
|
9 |
|
|
|
— |
|
|
|
9 |
|
|
NM |
|
|
Other income (loss), net |
|
|
382 |
|
|
|
(93 |
) |
|
|
475 |
|
|
NM |
|
|
Total other income (expense) |
|
|
(3,807 |
) |
|
|
(54,093 |
) |
|
|
50,286 |
|
|
|
93.0 |
% |
Income (loss) before income taxes |
|
|
13,247 |
|
|
|
(243,305 |
) |
|
|
256,552 |
|
|
NM |
|
|
Income tax (provision) benefit |
|
|
(3,452 |
) |
|
|
53,523 |
|
|
|
(56,975 |
) |
|
NM |
|
|
Net income (loss) |
|
$ |
9,795 |
|
|
$ |
(189,782 |
) |
|
$ |
199,577 |
|
|
NM |
|
|
Net income (loss) per share attributable to common |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.02 |
|
|
$ |
(0.34 |
) |
|
|
|
|
|
|
||
Diluted |
|
$ |
0.02 |
|
|
$ |
(0.34 |
) |
|
|
|
|
|
|
||
Weighted-average shares used in computing net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
609,421,073 |
|
|
|
566,454,782 |
|
|
|
|
|
|
|
||
Diluted |
|
|
643,582,922 |
|
|
|
566,454,782 |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1) Includes stock-based compensation expense as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
||||
Cost of revenues |
|
$ |
1,657 |
|
|
$ |
12,169 |
|
|
|
|
|
|
|
||
Research and development |
|
|
5,373 |
|
|
|
35,472 |
|
|
|
|
|
|
|
||
Sales and marketing |
|
|
6,890 |
|
|
|
58,770 |
|
|
|
|
|
|
|
||
General and administrative |
|
|
14,802 |
|
|
|
113,465 |
|
|
|
|
|
|
|
||
Total stock-based compensation expense |
|
$ |
28,722 |
|
|
$ |
219,876 |
|
|
|
|
|
|
|
||
NM—Not Meaningful
Revenues
Revenue increased by $22.1 million to $198.7 million, or 12.5%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The Company's software subscription revenues accounted for $191.2 million and $170.0 million, or 96% and 96%, of total revenue during the three months ended September 30, 2022 and 2021, respectively.
33
The increase in revenue was primarily a result of 10% 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 $4.7 million to $53.1 million, or 8.2%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.
Cost of Revenues, exclusive of amortization of acquired technologies
Cost of revenues, exclusive of amortization of acquired technologies, decreased by $4.9 million to $46.4 million, or 9.5%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease was primarily due to a $10.5 million reduction in stock-based compensation, mainly from the vesting term modification completed in conjunction with the Business Combination in the prior year, partially offset by a $1.1 million increase in personnel-related costs, a $2.2 million increase in third party license and royalty fees, a $1.6 million increase in depreciation expense related to additional investments in platform and infrastructure enhancements and a $0.5 million increase in consulting and other professional service costs.
Amortization of Acquired Technologies
Amortization of acquired technologies was $6.7 million for the three months ended September 30, 2022, compared to $6.6 million for the three months ended September 30, 2021.
Gross Profit
Gross profit increased by $26.8 million to $145.6 million, or 22.6%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Our gross profit margin was 73.3% for the three months ended September 30, 2022 compared to 67.2% for the three months ended September 30, 2021. The increase in gross profit was due to a reduction in stock-based compensation, increased software subscription revenues and economies of scale resulting from fixed cost arrangements.
Research and Development
Research and development expense decreased by $26.7 million to $40.3 million, or 39.9%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease was primarily due to a reduction of $30.1 million in stock-based compensation, mainly from the vesting term modification completed in conjunction with the Business Combination in the prior year and a $4.3 million increase in the amount of capitalized time on development projects, partially offset by a $6.8 million increase in resource costs.
Selling and Marketing
Selling and marketing expense decreased by $49.5 million to $30.8 million, or 61.6%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease was primarily due to a reduction of $51.9 million in stock-based compensation, mainly from the vesting term modification completed in conjunction with the Business Combination in the prior year, partially offset by a $2.1 million increase in personnel-related costs, including sales incentives and travel costs.
General and Administrative
General and administrative expense decreased by $103.1 million to $39.4 million, or 72.4%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease was primarily due to a reduction of $98.7 million in stock-based compensation, mainly from the vesting term modification completed in conjunction with the Business Combination in the prior year, a $1.6 million decrease in the Company's facilities costs due to the closure of the Company's previous headquarters in March 2022 and a $0.8 million decrease in consulting and other professional service costs.
Amortization of Intangible Assets
Amortization of intangible assets was $18.1 million for the three months ended September 30, 2022 and 2021.
34
Interest Expense
Interest expense decreased by $3.4 million to $10.5 million, or 24.3%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, due to less outstanding long-term debt, partially offset by higher interest rates during the three months ended September 30, 2022.
Change in Fair Value of Derivative Instruments
Change in fair value of derivative instruments was $6.0 million for the three months ended September 30, 2022, compared to $2.0 million for the three months ended September 30, 2021. The $6.0 million change in fair value recognized for the three months ended September 30, 2022 is related to the interest rate cap agreement entered into in August 2022 and driven by the increase in the forward yield curve since the inception of the agreement. The $2.0 million change in fair value of derivative instruments for the three months ended September 30, 2021 is related to the interest rate swap agreements in effect during the prior year. The interest rate swap agreements were extinguished in September 2021.
Change in Fair Value of Warrant Liabilities
We recognized income of $0.3 million from a change in fair value of warrant liabilities for the three months ended September 30, 2022, compared to expense of $26.9 million for the three months ended September 30, 2021. The income recognized for the three months ended September 30, 2022 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 of September 30, 2022, compared to June 30, 2022. The expense for the three months ended September 30, 2021 was due to the increase in the estimated fair value of the Public Warrants and Private Warrants.
Loss on Early Extinguishment of Debt
There was no loss on early extinguishment of debt during the three months ended September 30, 2022. Loss on early extinguishment of debt for the three months ended September 30, 2021 was $15.2 million due to the early repayments of the total balance outstanding under the Company's First Lien Term Loan.
Income Tax (Provision) Benefit
Income tax provision was $3.5 million for the three months ended September 30, 2022, compared to a benefit of $53.5 million for the three months ended September 30, 2021. The income tax provision was due to the Company having pretax income during the three months ended September 30, 2022 compared to a pretax loss during the three months ended September 30, 2021.
Comparison of the nine months ended September 30, 2022 to the nine months ended September 30, 2021
35
|
|
Nine Months Ended September 30, |
|
|
|
|
||||||||||
(dollar amounts in thousands, except share and per share data) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
Revenue |
|
$ |
578,342 |
|
|
$ |
501,205 |
|
|
$ |
77,137 |
|
|
|
15.4 |
% |
Cost of revenue, exclusive of amortization of |
|
|
135,174 |
|
|
|
128,218 |
|
|
|
6,956 |
|
|
|
5.4 |
% |
Amortization of acquired technologies |
|
|
20,193 |
|
|
|
19,740 |
|
|
|
453 |
|
|
|
2.3 |
% |
Cost of revenues(1) |
|
|
155,367 |
|
|
|
147,958 |
|
|
|
7,409 |
|
|
|
5.0 |
% |
Gross profit |
|
|
422,975 |
|
|
|
353,247 |
|
|
|
69,728 |
|
|
|
19.7 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development(1) |
|
|
114,711 |
|
|
|
128,894 |
|
|
|
(14,183 |
) |
|
|
-11.0 |
% |
Selling and marketing(1) |
|
|
88,731 |
|
|
|
121,350 |
|
|
|
(32,619 |
) |
|
|
-26.9 |
% |
General and administrative(1) |
|
|
123,093 |
|
|
|
208,745 |
|
|
|
(85,652 |
) |
|
|
-41.0 |
% |
Amortization of intangible assets |
|
|
54,212 |
|
|
|
54,232 |
|
|
|
(20 |
) |
|
|
0.0 |
% |
Total operating expenses |
|
|
380,747 |
|
|
|
513,221 |
|
|
|
(132,474 |
) |
|
|
-25.8 |
% |
Operating income (loss) |
|
|
42,228 |
|
|
|
(159,974 |
) |
|
|
202,202 |
|
|
NM |
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
(25,786 |
) |
|
|
(51,548 |
) |
|
|
25,762 |
|
|
|
50.0 |
% |
Change in fair value of derivative instruments |
|
|
5,991 |
|
|
|
8,373 |
|
|
|
(2,382 |
) |
|
|
-28.4 |
% |
Change in fair value of warrant liabilities |
|
|
23,452 |
|
|
|
(26,889 |
) |
|
|
50,341 |
|
|
NM |
|
|
Loss on early extinguishment of debt |
|
|
— |
|
|
|
(15,240 |
) |
|
|
15,240 |
|
|
NM |
|
|
Gain on sale of cost method investment |
|
|
3,587 |
|
|
|
— |
|
|
|
3,587 |
|
|
NM |
|
|
Other income, net |
|
|
576 |
|
|
|
1 |
|
|
|
575 |
|
|
NM |
|
|
Total other income (expense) |
|
|
7,820 |
|
|
|
(85,303 |
) |
|
|
93,123 |
|
|
NM |
|
|
Income (loss) before income taxes |
|
|
50,048 |
|
|
|
(245,277 |
) |
|
|
295,325 |
|
|
NM |
|
|
Income tax (provision) benefit |
|
|
(12,714 |
) |
|
|
54,227 |
|
|
|
(66,941 |
) |
|
NM |
|
|
Net income (loss) |
|
$ |
37,334 |
|
|
$ |
(191,050 |
) |
|
$ |
228,384 |
|
|
NM |
|
|
Net income (loss) per share attributable to common |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.06 |
|
|
$ |
(0.36 |
) |
|
|
|
|
|
|
||
Diluted |
|
$ |
0.06 |
|
|
$ |
(0.36 |
) |
|
|
|
|
|
|
||
Weighted-average shares used in computing net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
606,181,316 |
|
|
|
525,877,533 |
|
|
|
|
|
|
|
||
Diluted |
|
|
642,208,622 |
|
|
|
525,877,533 |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1) Includes stock-based compensation expense as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
||||
Cost of revenues |
|
$ |
4,167 |
|
|
$ |
12,563 |
|
|
|
|
|
|
|
||
Research and development |
|
|
14,433 |
|
|
|
36,748 |
|
|
|
|
|
|
|
||
Sales and marketing |
|
|
18,331 |
|
|
|
60,060 |
|
|
|
|
|
|
|
||
General and administrative |
|
|
43,838 |
|
|
|
126,042 |
|
|
|
|
|
|
|
||
Total stock-based compensation expense |
|
$ |
80,769 |
|
|
$ |
235,413 |
|
|
|
|
|
|
|
||
NM—Not Meaningful
Revenues
Revenue increased by $77.1 million to $578.3 million, or 15.4%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The Company's software subscription revenues accounted for $556.5 million and $481.8 million, or 96% and 96%, of total revenue during the nine months ended September 30, 2022 and 2021, respectively.
The increase in revenue was primarily a result of 12% growth from existing customer upgrades and expanding solution offerings to these existing customers as well as 3% growth from new customers.
36
Cost of Revenues
Cost of revenues increased by $7.4 million to $155.4 million, or 5.0%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.
Cost of Revenues, exclusive of amortization of acquired technologies
Cost of revenues, exclusive of amortization of acquired technologies, increased by $7.0 million to $135.2 million, or 5.4%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was due to a $6.1 million increase in third party license and royalty fees, a $3.3 million increase in depreciation expense related to additional investments in platform and infrastructure enhancements, a $2.6 million increase in consulting and other professional service costs and a $3.9 million increase in personnel-related costs, partially offset by a $8.4 million reduction in stock-based compensation, mainly from the vesting term modification completed in conjunction with the Business Combination in the prior year.
Amortization of Acquired Technologies
Amortization of acquired technologies was $20.2 million for the nine months ended September 30, 2022, compared to $19.7 million for the nine months ended September 30, 2021.
Gross Profit
Gross profit increased by $69.7 million to $423.0 million, or 19.7%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Our gross profit margin increased to 73.1% for the nine months ended September 30, 2022 compared to 70.5% for the nine months ended September 30, 2021. The increase in both gross profit and gross profit margin was primarily due to a reduction in stock-based compensation, increased software subscription revenues and economies of scale resulting from fixed cost arrangements.
Research and Development
Research and development expense decreased by $14.2 million to $114.7 million, or 11.0%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The decrease was due to a $22.3 million reduction in stock-based compensation, mainly from the vesting term modification completed in conjunction with the Business Combination in the prior year and a $12.0 million increase in the amount of capitalized time on development projects, partially offset by a $17.5 million increase in resource costs and a $2.1 million increase in information technology related costs.
Selling and Marketing
Selling and marketing expense decreased by $32.6 million to $88.7 million, or 26.9%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The decrease was primarily due to a $41.7 million reduction in stock-based compensation, mainly from the vesting term modification completed in conjunction with the Business Combination in the prior year, partially offset by a $6.7 million increase of personnel-related costs including sales incentives and travel costs and a $1.1 million increase in marketing and event costs mainly due to the Company's annual Industry Conference, held in person in 2022 while held virtually in 2021.
General and Administrative
General and administrative expense decreased by $85.7 million to $123.1 million, or 41.0%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The decrease was primarily due to a $82.2 million reduction in stock-based compensation, mainly from the vesting term modification completed in conjunction with the Business Combination in the prior year, a $4.5 million decrease in consulting and other professional service costs and a $3.9 million decrease in in the Company's facilities costs due to the Company's closure of its previous headquarters in March 2022, partially offset by a $3.8 million increase in insurance costs.
Amortization of Intangible Assets
Amortization of intangible assets was $54.2 million for the nine months ended September 30, 2022 and 2021.
37
Interest Expense
Interest expense decreased by $25.8 million to $25.8 million, or 50.0%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021 primarily due to less outstanding long-term debt and a lower variable interest rate during the nine months ended September 30, 2022.
Change in Fair Value of Derivative Instruments
The change in fair value of derivative instruments was $6.0 million for the nine months ended September 30, 2022, compared to $8.4 million for the nine months ended September 30, 2021. The $6.0 million change in fair value recognized for the nine months ended September 30, 2022 was related to the interest rate cap agreement the Company entered into in August 2022 and driven by the changes in the forward yield curve. The $8.4 million change in fair value of derivative instruments in the prior year was related to the interest rate swap agreements in effect during the prior year. The interest rate swap agreements were extinguished in September 2021.
Change in Fair Value of Warrant Liabilities
We recognized income of $23.5 million from a change in fair value of warrant liabilities for the nine months ended September 30, 2022, compared to expense of $26.9 million for the nine months ended September 30, 2021. The income from the change in fair value 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 of September 30, 2022, compared to December 31, 2021. The expense for the nine months ended September 30, 2021 was due to the increase in the estimated fair value of the Public Warrants and Private Warrants.
Loss on Early Extinguishment of Debt
There was no loss on early extinguishment of debt during the nine months ended September 30, 2022. Loss on early extinguishment of debt for the nine months ended September 30, 2021 was $15.2 million due to the early repayments of the total balance outstanding under the Company's First Lien Term Loan.
Gain on Sale of Cost Method Investment
Gain on sale of cost method investment was $3.6 million for the nine months ended September 30, 2022. The gain recognized was due to the $3.9 million payment received in exchange for its equity interest in an investee as a result of the acquisition of the investee. The Company did not recognize any gain or loss on sale of cost method investment during the nine months ended September 30, 2021.
Income Tax (Provision) Benefit
Income tax provision was $12.7 million for the nine months ended September 30, 2022, compared to an income tax benefit of $54.2 million for the nine months ended September 30, 2021. The income tax provision was due to the Company having pretax income during the nine months ended September 30, 2022, compared to a pretax loss during the nine months ended September 30, 2021.
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.
38
Adjusted Gross Profit
Adjusted Gross Profit is defined as gross profit, adjusted for amortization of acquired technologies, business combination transaction costs 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 nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(amounts in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Gross Profit |
|
$ |
145,607 |
|
|
$ |
118,775 |
|
|
$ |
422,975 |
|
|
$ |
353,247 |
|
Amortization of acquired technologies |
|
|
6,748 |
|
|
|
6,580 |
|
|
|
20,193 |
|
|
|
19,740 |
|
Business combination transaction costs |
|
|
— |
|
|
|
905 |
|
|
|
— |
|
|
|
905 |
|
Stock-based compensation and related employer payroll |
|
|
1,765 |
|
|
|
12,169 |
|
|
|
4,378 |
|
|
|
12,563 |
|
Adjusted Gross Profit |
|
$ |
154,120 |
|
|
$ |
138,429 |
|
|
$ |
447,546 |
|
|
$ |
386,455 |
|
Gross Profit Margin |
|
|
73 |
% |
|
|
67 |
% |
|
|
73 |
% |
|
|
70 |
% |
Adjusted Gross Profit Margin |
|
|
78 |
% |
|
|
78 |
% |
|
|
77 |
% |
|
|
77 |
% |
Adjusted Operating Expenses
Adjusted Operating Expenses is defined as operating expenses adjusted for amortization, stock-based compensation expense and related employer payroll tax, business combination transaction costs, lease abandonment charges, lease overlap costs for the incremental expenses associated with the Company’s new corporate headquarters prior to termination of its then existing headquarters’ lease, net income (costs) related to divestiture and merger and acquisition ("M&A") and integration costs.
The following table reconciles operating expenses to Adjusted Operating Expenses for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(dollar amounts in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Operating expenses |
|
$ |
128,553 |
|
|
$ |
307,987 |
|
|
$ |
380,747 |
|
|
$ |
513,221 |
|
Stock-based compensation expense and related |
|
|
(27,800 |
) |
|
|
(207,707 |
) |
|
|
(78,496 |
) |
|
|
(222,850 |
) |
Lease abandonment |
|
|
— |
|
|
|
(438 |
) |
|
|
(1,222 |
) |
|
|
(2,256 |
) |
Lease overlap costs |
|
|
— |
|
|
|
(924 |
) |
|
|
(1,338 |
) |
|
|
(2,773 |
) |
Net income (costs) related to divestiture |
|
|
471 |
|
|
|
(338 |
) |
|
|
418 |
|
|
|
(2,605 |
) |
Business combination transaction and related costs |
|
|
(101 |
) |
|
|
(5,516 |
) |
|
|
(1,156 |
) |
|
|
(10,471 |
) |
M&A and integration costs |
|
|
(6 |
) |
|
|
— |
|
|
|
(1,761 |
) |
|
|
— |
|
Amortization of intangible assets |
|
|
(18,066 |
) |
|
|
(18,078 |
) |
|
|
(54,212 |
) |
|
|
(54,232 |
) |
Adjusted operating expenses |
|
$ |
83,051 |
|
|
$ |
74,986 |
|
|
$ |
242,980 |
|
|
$ |
218,034 |
|
Adjusted Operating Income
Adjusted Operating Income is defined as operating income (loss) adjusted for amortization, stock-based compensation expense and related employer payroll tax, business combination transaction costs, lease abandonment charges, lease overlap costs for the incremental expenses associated with the Company’s new corporate headquarters prior to termination of its then existing headquarters’ lease, net (income) costs related to divestiture and M&A and integration costs.
39
The following table reconciles operating income (loss) to Adjusted Operating Income for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
|
|
|
||||||||||
(dollar amounts in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Operating income (loss) |
|
$ |
17,054 |
|
|
$ |
(189,212 |
) |
|
$ |
42,228 |
|
|
$ |
(159,974 |
) |
Stock-based compensation expense and related employer |
|
|
29,565 |
|
|
|
219,876 |
|
|
|
82,874 |
|
|
|
235,413 |
|
Lease abandonment |
|
|
— |
|
|
|
438 |
|
|
|
1,222 |
|
|
|
2,256 |
|
Lease overlap costs |
|
|
— |
|
|
|
924 |
|
|
|
1,338 |
|
|
|
2,773 |
|
Net (income) costs related to divestiture |
|
|
(471 |
) |
|
|
338 |
|
|
|
(418 |
) |
|
|
2,605 |
|
Business combination transaction and related costs |
|
|
101 |
|
|
|
5,516 |
|
|
|
1,156 |
|
|
|
10,471 |
|
M&A and integration costs |
|
|
6 |
|
|
|
— |
|
|
|
1,761 |
|
|
|
— |
|
Amortization of intangible assets |
|
|
18,066 |
|
|
|
18,078 |
|
|
|
54,212 |
|
|
|
54,232 |
|
Amortization of acquired technologies—Cost of revenue |
|
|
6,748 |
|
|
|
6,580 |
|
|
|
20,193 |
|
|
|
19,740 |
|
Adjusted operating income |
|
$ |
71,069 |
|
|
$ |
62,538 |
|
|
$ |
204,566 |
|
|
$ |
167,516 |
|
Adjusted EBITDA
Adjusted EBITDA is defined as net income (loss) adjusted for interest, taxes, depreciation, amortization, change in fair value of derivative instruments, change in fair value of warrant liabilities, stock-based compensation expense and related employer payroll tax, loss on early extinguishment of debt, business combination transaction costs, lease abandonment charges, lease overlap costs for the incremental expenses associated with the Company’s new corporate headquarters prior to termination of its then existing headquarters’ lease, net (income) costs related to divestiture, M&A and integration costs and gain on sale of cost method investment. 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 nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(dollar amounts in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income (loss) |
|
$ |
9,795 |
|
|
$ |
(189,782 |
) |
|
$ |
37,334 |
|
|
$ |
(191,050 |
) |
Interest expense |
|
|
10,501 |
|
|
|
13,878 |
|
|
|
25,786 |
|
|
|
51,548 |
|
Income tax provision (benefit) |
|
|
3,452 |
|
|
|
(53,523 |
) |
|
|
12,714 |
|
|
|
(54,227 |
) |
Amortization of intangible assets |
|
|
18,066 |
|
|
|
18,078 |
|
|
|
54,212 |
|
|
|
54,232 |
|
Amortization of acquired technologies—Cost of |
|
|
6,748 |
|
|
|
6,580 |
|
|
|
20,193 |
|
|
|
19,740 |
|
Depreciation and amortization of software, |
|
|
6,665 |
|
|
|
7,694 |
|
|
|
20,155 |
|
|
|
18,161 |
|
EBITDA |
|
|
55,227 |
|
|
|
(197,075 |
) |
|
|
170,394 |
|
|
|
(101,596 |
) |
Change in fair value of derivative |
|
|
(5,991 |
) |
|
|
(2,007 |
) |
|
|
(5,991 |
) |
|
|
(8,373 |
) |
Change in fair value of warrant liabilities |
|
|
(312 |
) |
|
|
26,889 |
|
|
|
(23,452 |
) |
|
|
26,889 |
|
Loss on early extinguishment of debt |
|
|
— |
|
|
|
15,240 |
|
|
|
— |
|
|
|
15,240 |
|
Stock-based compensation expense and related employer |
|
|
29,565 |
|
|
|
219,876 |
|
|
|
82,874 |
|
|
|
235,413 |
|
Business combination transaction and related costs |
|
|
101 |
|
|
|
5,516 |
|
|
|
1,156 |
|
|
|
10,471 |
|
Lease abandonment |
|
|
— |
|
|
|
438 |
|
|
|
1,338 |
|
|
|
2,256 |
|
Lease overlap costs |
|
|
— |
|
|
|
924 |
|
|
|
1,222 |
|
|
|
2,773 |
|
Net (income) costs related to divestiture |
|
|
(471 |
) |
|
|
338 |
|
|
|
(418 |
) |
|
|
2,605 |
|
M&A and integration costs |
|
|
6 |
|
|
|
— |
|
|
|
1,761 |
|
|
|
— |
|
Gain on sale of cost method investment |
|
|
(9 |
) |
|
|
— |
|
|
|
(3,587 |
) |
|
|
— |
|
Adjusted EBITDA |
|
$ |
78,116 |
|
|
$ |
70,139 |
|
|
$ |
225,297 |
|
|
$ |
185,678 |
|
Adjusted EBITDA Margin |
|
|
39.3 |
% |
|
|
39.7 |
% |
|
|
39.0 |
% |
|
|
37.0 |
% |
40
Adjusted Net Income and Adjusted Earnings Per Share
Adjusted Net Income is defined as net income (loss) adjusted for the after-tax effects of amortization, change in fair value of derivative instruments, change in fair value of warrant liabilities, stock-based compensation expense and related employer payroll tax, loss on early extinguishment of debt, business combination transaction costs, lease abandonment charges, lease overlap costs for the incremental expenses associated with the Company’s new corporate headquarters prior to termination of its then existing headquarters’ lease, net (income) costs related to divestiture, M&A and integration costs and gain on sale of cost method investment.
The following table reconciles net income (loss) to Adjusted Net Income and Adjusted Earnings per Share for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(dollar amounts in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income (loss) |
|
$ |
9,795 |
|
|
$ |
(189,782 |
) |
|
$ |
37,334 |
|
|
$ |
(191,050 |
) |
Amortization of intangible assets |
|
|
18,066 |
|
|
|
18,078 |
|
|
|
54,212 |
|
|
|
54,232 |
|
Amortization of acquired technologies— |
|
|
6,748 |
|
|
|
6,580 |
|
|
|
20,193 |
|
|
|
19,740 |
|
Change in fair value of |
|
|
(5,991 |
) |
|
|
(2,007 |
) |
|
|
(5,991 |
) |
|
|
(8,373 |
) |
Change in fair value of warrant liabilities |
|
|
(312 |
) |
|
|
26,889 |
|
|
|
(23,452 |
) |
|
|
26,889 |
|
Loss on early extinguishment of debt |
|
|
— |
|
|
|
15,240 |
|
|
|
— |
|
|
|
15,240 |
|
Stock-based compensation expense and related employer |
|
|
29,565 |
|
|
|
219,876 |
|
|
|
82,874 |
|
|
|
235,413 |
|
Business combination transaction and related costs |
|
|
101 |
|
|
|
5,516 |
|
|
|
1,156 |
|
|
|
10,471 |
|
Lease abandonment |
|
|
— |
|
|
|
438 |
|
|
|
1,222 |
|
|
|
2,256 |
|
Lease overlap costs |
|
|
— |
|
|
|
924 |
|
|
|
1,338 |
|
|
|
2,773 |
|
Net (income) costs related to divestiture |
|
|
(471 |
) |
|
|
338 |
|
|
|
(418 |
) |
|
|
2,605 |
|
M&A and integration costs |
|
|
6 |
|
|
|
— |
|
|
|
1,761 |
|
|
|
— |
|
Gain on sale of cost method investment |
|
|
(9 |
) |
|
|
— |
|
|
|
(3,587 |
) |
|
|
— |
|
Tax effect of adjustments |
|
|
(10,894 |
) |
|
|
(72,360 |
) |
|
|
(34,193 |
) |
|
|
(89,134 |
) |
Adjusted net income |
|
$ |
46,604 |
|
|
$ |
29,730 |
|
|
$ |
132,449 |
|
|
$ |
81,062 |
|
Adjusted net income per share attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.08 |
|
|
$ |
0.05 |
|
|
$ |
0.22 |
|
|
$ |
0.15 |
|
Diluted |
|
$ |
0.07 |
|
|
$ |
0.05 |
|
|
$ |
0.21 |
|
|
$ |
0.15 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
609,421,073 |
|
|
|
566,454,782 |
|
|
|
606,181,316 |
|
|
|
525,877,533 |
|
Diluted |
|
|
643,582,922 |
|
|
|
599,675,416 |
|
|
|
642,208,622 |
|
|
|
554,818,300 |
|
Free Cash Flow
Free Cash Flow is defined as net cash provided by operating activities less cash used for the purchases of software, equipment and property, and purchase of intangible assets.
The following table reconciles net cash provided by operating activities to Free Cash Flow for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(dollar amounts in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net cash provided by operating activities |
|
$ |
30,753 |
|
|
$ |
36,905 |
|
|
$ |
118,438 |
|
|
$ |
96,725 |
|
Less: Purchases of software, equipment, and property |
|
|
(13,375 |
) |
|
|
(11,864 |
) |
|
|
(38,844 |
) |
|
|
(25,022 |
) |
Less: Purchase of intangible assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(49 |
) |
Free Cash Flow |
|
$ |
17,378 |
|
|
$ |
25,041 |
|
|
$ |
79,594 |
|
|
$ |
71,654 |
|
41
Liquidity and Capital Resources
We have financed our operations with cash flows from operations. The Company generated $118.4 million of cash flows from operating activities during the nine months ended September 30, 2022. As of September 30, 2022, the Company had cash and cash equivalents of $248.2 million, a working capital surplus of $252.5 million and an accumulated deficit totaling $ 709.0 million. As of September 30, 2022, the Company had $794.0 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 (the "2021 Credit Agreement").
The 2021 Credit Agreement replaced the Company’s 2017 First Lien Credit Agreement (the “First Lien Credit Agreement”), dated as of April 27, 2017, as amended as of February 14, 2020.
The proceeds of the 2021 Credit Agreement were used to repay all outstanding borrowings under the First Lien Credit Agreement.
2021 Credit Agreement—The 2021 Credit Agreement consists of the $800.0 million Term B Loan and 2021 Revolving Credit Facility for an aggregate principal amount of $250.0 million. 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.
Beginning with the quarter ending March 31, 2022, 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.
Beginning with the year ending December 31, 2022, the Term B Loan requires a prepayment of principal, 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 September 30, 2022, the Company is not subject to the annual excess cash flow calculation and no such principal prepayments are required.
As of September 30, 2022, the amount outstanding on the Term B Loans was $794.0 million, of which, $8.0 million is classified as current.
Borrowings under the 2021 Credit Facility bear interest at rates based on the ratio of the Company’s and its subsidiaries’ consolidated first lien net indebtedness to the Company’s and its subsidiaries’ consolidated EBITDA for applicable periods specified in the 2021 Credit Facility.
A quarterly commitment fee of up to 0.50% is payable on the unused portion of the 2021 Revolving Credit Facility.
During the three months ended September 30, 2022 and 2021, the weighted-average interest rate on the outstanding borrowings under the Term B Loan was 4.6% and 3.0%, respectively. The Company made interest payments of $9.2 million during the three months ended September 30, 2022. There were no interest payments made during the three months ended September 30, 2021.
During the nine months ended September 30, 2022 and 2021, the weighted-average interest rate on the outstanding borrowings under the Term B Loan was 3.6% and 3.0%, respectively. The Company made interest payments of $21.6 million during the nine months ended September 30, 2022. There were no interest payments made during the nine months ended September 30, 2021.
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 September 30, 2022, $249.3 million was available to be borrowed under the 2021 Revolving Credit Facility.
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In addition, beginning with the three months ended March 31, 2022, 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 Company’s leverage ratio cannot exceed 6.25 to 1.00. As of September 30, 2022, the Company was not subject to the financial covenant.
First Lien Credit Agreement—In April 2017, the Company entered into the First Lien Credit Agreement.
The First Lien Credit Agreement initially consisted of a $1.0 billion term loan and revolving credit facilities for an aggregate principal amount of $100.0 million, with a sublimit of $30.0 million for letters of credit under the First Lien Revolvers.
In February 2020, the Company refinanced its long-term debt and entered into the First Amendment to the First Lien Credit Agreement. The First Lien Amendment provided an incremental term loan, amended the amount of commitments and the maturity dates of the First Lien Credit Agreement’s revolving credit facilities.
The First Lien Amendment provided an incremental term loan in the amount of $375.0 million and reduced the amount of commitments under the First Lien Revolvers to an aggregate principal amount of $91.3 million. The First Lien Revolvers continued to have a sublimit of $30.0 million for letters of credit.
The First Lien Term Loan required (after giving effect to the First Lien Amendment) quarterly principal payments of approximately $3.5 million until March 31, 2024, with the remaining outstanding principal amount required to be paid on the maturity date, April 27, 2024. The First Lien Term Loan required a prepayment of principal, 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 First Lien Credit Agreement. When a principal prepayment was required, the prepayment offset the future quarterly principal payments of the same amount. As of December 31, 2020, subject to the request of the lenders of the First Lien Term Loan, a principal prepayment of up to $21.9 million was required. In April 2021, the Company made a principal prepayment of $1.5 million to those lenders who made such a request.
The Company made a principal prepayment of $525.0 million on July 30, 2021. Subsequently, in September 2021, using the proceeds from the Term B Loan provided in the 2021 Credit Agreement and cash on hand, the Company fully repaid the remaining $804.2 million of outstanding borrowings on the First Lien Term Loan.
Amounts outstanding under the First Lien Credit Agreement bore interest at a variable rate of LIBOR, plus up to 3.00% per annum based upon the Company’s leverage ratio, as defined in the First Lien Credit Agreement. A quarterly commitment fee of up to 0.50% was payable on the unused portion of the First Lien Revolvers.
During the three months ended September 30, 2021 the weighted-average interest rate on the outstanding borrowings under the First Lien Term Loan was 4.1%. The Company made interest payments of $9.3 million during the three months ended September 30, 2021.
During the nine months ended September 30, 2021 the weighted-average interest rate on the outstanding borrowings under the First Lien Term Loan was 4.1%. The Company made interest payments of $36.1 million during the nine months ended September 30, 2021.
Interest Rate Cap—In August 2022, the Company entered into an interest rate cap agreement 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 of July 31, 2025.
Interest Rate Swaps—In June 2017, the Company entered into three floating to fixed interest rate swap agreements to reduce its exposure to the variability from future cash flows resulting from interest rate risk related to its floating rate long-term debt. In September 2021, the Company made an aggregate payment of $10.0 million to extinguish the Swap Agreements which were scheduled to expire in June 2022.
43
Cash Flows
The following table provides a summary of cash flow data for the nine months ended September 30, 2022 and 2021:
|
|
Nine Months Ended September 30, |
|
|||||
(dollar amounts in thousands) |
|
2022 |
|
|
2021 |
|
||
Net cash provided by operating activities |
|
$ |
118,438 |
|
|
$ |
96,725 |
|
Net cash used in investing activities |
|
|
(67,185 |
) |
|
|
(35,299 |
) |
Net cash provided by (used in) financing activities |
|
|
15,006 |
|
|
|
(62,917 |
) |
Net effect of exchange rate change |
|
|
(650 |
) |
|
|
(162 |
) |
Change in cash and cash equivalents |
|
$ |
65,609 |
|
|
$ |
(1,653 |
) |
Net cash provided by operating activities was $118.4 million for the nine months ended September 30, 2022. Net cash provided by operating activities consists of net income of $37.3 million, adjusted for $94.8 million of non-cash items, $4.5 million for changes in working capital and ($18.2) million for the effect of changes in other operating assets and liabilities. Significant non-cash adjustments include depreciation and amortization of $94.6 million, stock-based compensation expense of $80.8 million, non-cash lease expense of $3.1 million, deferred income tax benefits of ($53.1), a change in fair value of derivative instruments of ($6.0) million and a change in fair value of warrant liabilities of ($23.5) million. The change in net operating assets and liabilities was primarily a result of an increase in accounts receivable of $19.5 million due to timing of receipts of payments from customers and an increase in other assets of $18.2 million due to timing of payments for prepaid and other deferred costs including the $6.3 million interest rate cap premium payment, partially offset by a decrease in other current assets of $12.4 million due to timing of cash receipts of non-trade receivables and timing of payments for other deferred costs.
Net cash used in investing activities was $67.2 million for the nine months ended September 30, 2022. Net cash used in investing activities was due to $38.8 million of capitalized internally developed software projects and purchases of software, equipment and property and $32.2 million for a business acquisition, partially offset by $3.9 million of proceeds from the sale of a cost method investment.
Net cash provided by financing activities was $15.0 million for the nine months ended September 30, 2022. Net cash provided by financing activities was due to $22.8 million of proceeds from stock option exercises and $3.2 million of proceeds from shares purchased through the Company's ESPP, partially offset by $6.0 million of principal payments of long-term debt and $5.0 million of tax payments related to the net share settlement of employee equity awards.
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.
Except as described below, 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, 2021, included in our Annual Report on Form 10-K.
Valuation of Goodwill and Intangible Assets
We perform an annual assessment for impairment of goodwill and indefinite-lived intangible assets as of September 30 each fiscal year, or whenever events occur or circumstances indicate that it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is below its carrying value. For the three and nine months ended September 30, 2022 and 2021, our annual impairment analysis performed indicated no impairments of goodwill or changes in carrying values due to impairment.
The September 30, 2022 quantitative goodwill impairment test performed primarily uses an income approach based on a number of key estimates and assumptions, including revenue and expense growth factors along with applying a discount rate to the estimated
44
cash flows. The discount rates are based on the estimated weighted average cost of capital for each reporting unit and may change from year to year. Weighted average cost of capital includes certain assumptions such as market capital structures, market betas, risk-free rates of return and estimated costs of borrowing.
The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment. In estimating the fair value of a reporting unit for the purposes of our annual or periodic impairment analyses, we make estimates and significant judgments about the future cash flows of that reporting unit. Our cash flow forecasts are based on assumptions that represent the highest and best use for our reporting units. Changes in judgment on these assumptions and estimates could result in goodwill impairment charges. We believe that the assumptions and estimates utilized are appropriate based on the information available to management.
We have two reporting units, Domestic and China, for purposes of analyzing goodwill. As of September 30, 2022, the annual impairment assessment indicated no impairment for our China reporting unit. The quantitative assessment for the China reporting unit had an estimated fair value that exceeded its carrying value by approximately 10%. Key financial assumptions utilized to determine the fair value of the reporting unit included revenue growth levels that reflect the rollout of new services and solutions, improving profit margins and a 13.5% discount rate. The reporting unit’s fair value would approximate its carrying value with a 60 basis point increase in the discount rate.
As noted above, a considerable amount of management judgment and assumptions are required in performing the annual goodwill impairment assessment. While we believe our judgments and assumptions are reasonable, different assumptions could change the estimated fair values. A number of factors, many of which we have no ability to control, could cause actual results to differ from the estimates and assumptions we employed. These factors include:
If management's estimates of future operating results change or if there are changes to other assumptions due to these factors, the estimate of the fair value may change significantly. Such change could result in impairment charges in future periods, which could have a significant impact on our operating results and financial condition.
Intangible assets with finite lives and software, equipment and property are amortized or depreciated over their estimated useful life on a straight-line basis. We monitor conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization or depreciation period. We test these assets for potential impairment whenever our management concludes events or changes in circumstances indicate that the carrying amount may not be recoverable. The original estimate of an asset’s useful life and the impact of an event or circumstance on either an asset’s useful life or carrying value involve significant judgment regarding estimates of the future cash flows associated with each asset.
There was no impairment charge related to intangible assets recorded during the three and nine months ended September 30, 2022 and 2021.
Fair Value of Contingent Consideration
Earnout liabilities arising from business acquisitions represent contingent consideration that may be payable in cash and recorded as a liability at fair value upon acquisition and re-measured at fair value in each subsequent reporting period. Changes in fair value are recorded in the consolidated statements of operations.
Determining the fair value of contingent consideration requires us to make assumptions and judgments. We estimate the fair value of contingent consideration using a Monte Carlo simulation model. These estimates involve inherent uncertainties and if different assumptions had been used, including but not limited to forecast inputs and discount rates, the fair value of contingent consideration could have been materially different from the amounts recorded. We have estimated the fair value of the contingent consideration associated with the acquisition of Safekeep as of the acquisition date and reassess our estimate each reporting period.
45
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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, 2021.
Item 4. Controls and Procedures
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 September 30, 2022, 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
There were no changes in our internal control over financial reporting during the three months ended September 30, 2022 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.
46
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, the Company is from time to time, involved in various pending or threatened legal actions. The litigation process is inherently uncertain, and it is possible that the resolution of such matters might have a material adverse effect upon the Company’s consolidated financial condition and/or results of operations. The Company’s management believes, based on current information, matters currently pending or threatened are not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.
Item 1A. Risk Factors
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, 2021. Any of these factors could result in a significant or material adverse effect on our results of 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
Exhibit Number |
|
Description |
31.1* |
|
|
31.2* |
|
|
32.1** |
|
|
32.2** |
|
|
101.INS* |
|
Inline XBRL Instance Document |
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104* |
|
Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
__________
* Filed herewith
** Furnished herewith
47
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: November 4, 2022 |
CCC INTELLIGENT SOLUTIONS HOLDINGS INC. |
|
|
|
|
|
By: |
/s/ Githesh Ramamurthy |
|
Name: |
Githesh Ramamurthy |
|
Title: |
Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)
|
Dated: November 4, 2022 |
|
|
|
|
|
|
By: |
/s/ Brian Herb |
|
Name: |
Brian Herb |
|
Title: |
Executive Vice President, Chief Financial and Administrative Officer (Principal Financial Officer) |
48