CCC Intelligent Solutions (CCCS) - 2021 Q3 - Quarterly Report

PART I Item 1. Financial Statements (Unaudited) Unaudited Q3 2021 financial statements reflect post-Business Combination capital shifts and a $189.8 million net loss driven by increased operating expenses Condensed Consolidated Balance Sheets Post-Business Combination, balance sheets show total assets at $3.22 billion, long-term debt reduced, and equity increased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 (Unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $299,841 | $281,765 | | Goodwill | $1,466,884 | $1,466,884 | | Total Assets | $3,218,225 | $3,195,555 | | Total Current Liabilities | $153,915 | $125,715 | | Total Long-Term Debt | $780,218 | $1,292,597 | | Warrant Liabilities | $85,348 | $— | | Total Liabilities | $1,367,008 | $1,809,761 | | Total Stockholders' Equity | $1,837,038 | $1,371,615 | Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income Q3 2021 revenue grew 12.0% to $176.6 million, but a $189.8 million net loss resulted from surging operating expenses Q3 2021 vs Q3 2020 Performance (in thousands) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Revenues | $176,628 | $157,754 | | Gross Profit | $118,775 | $107,299 | | Total Operating Expenses | $307,987 | $84,214 | | Operating (Loss) Income | ($189,212) | $23,085 | | Net (Loss) Income | ($189,782) | $4,720 | | Basic (Loss) Income Per Share | ($0.34) | $0.01 | Nine Months 2021 vs 2020 Performance (in thousands) | Metric | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Revenues | $501,205 | $467,677 | | Gross Profit | $353,247 | $312,278 | | Operating (Loss) Income | ($159,974) | $52,847 | | Net Loss | ($191,050) | ($22,494) | | Basic Loss Per Share | ($0.36) | ($0.04) | Unaudited Condensed Consolidated Statements of Cash Flows Nine-month operating cash flow increased to $96.7 million, driven by non-cash charges and significant financing activities Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $96,725 | $66,789 | | Net cash used in investing activities | ($35,299) | ($24,375) | | Net cash used in financing activities | ($62,917) | ($948) | | Net change in cash and cash equivalents | ($1,653) | $41,574 | - Key non-cash adjustments reconciling net loss to operating cash flow included $235.4 million in stock-based compensation, $74.0 million in amortization of intangibles, and a $26.9 million change in fair value of warrant liabilities[28] - Financing activities were dominated by the Business Combination, including $763.3 million in net equity infusion, and debt refinancing, which involved $1.34 billion in principal payments and $789.9 million in proceeds from new debt[28] Notes to Condensed Consolidated Financial Statements Notes detail the Business Combination's accounting impacts, including debt refinancing and significant stock-based compensation - The Business Combination with Dragoneer on July 30, 2021, was accounted for as a reverse recapitalization, with CCCIS as the accounting acquirer[32][41] - In September 2021, the company entered a new $800 million Term B Loan and a $250 million revolving credit facility, repaying its prior First Lien Credit Agreement and recognizing a $15.2 million loss on early debt extinguishment for the quarter[63][193] - A modification to performance-based stock awards upon the Business Combination closing resulted in the recognition of $203.9 million in additional stock-based compensation[76][117] - Public and Private Warrants are accounted for as liabilities, with a fair value of $85.3 million at September 30, 2021, and a $26.9 million expense recognized in Q3 2021 due to the change in their fair value[86] - As of September 30, 2021, the company had approximately $936 million in remaining performance obligations, with $437 million expected to be recognized as revenue in the next twelve months[35] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported Q3 2021 revenue growth, a net loss from Business Combination costs, and 30.9% Adjusted EBITDA growth Business Overview CCC provides a SaaS platform for the P&C insurance economy, connecting thousands of companies and processing $100 billion annually - The company operates a cloud-based SaaS platform for the P&C insurance economy, processing over $100 billion in annual transaction value[100] - The network includes over 31,500 companies, with more than 300 insurers (including 18 of the top 20 in the U.S.) and over 26,500 collision repair facilities[102][108] - The company utilizes over $1 trillion of historical data to power more than 300 AI models in production across over 75 insurers[105] Key Performance Measures and Operating Metrics Key metrics show Software NDR improved to 113% and Software GDR remained stable at 98% Software Net Dollar Retention (NDR) | Quarter Ending | 2021 | 2020 | | :--- | :--- | :--- | | March 31 | 106% | 105% | | June 30 | 110% | 103% | | September 30 | 113% | 103% | Software Gross Dollar Retention (GDR) | Quarter Ending | 2021 | | :--- | :--- | | March 31 | 98% | | June 30 | 98% | | September 30 | 98% | Results of Operations Q3 2021 revenue grew 12.0%, but significant net losses resulted from one-time compensation and debt extinguishment charges Comparison of Three Months Ended September 30 (in thousands) | Metric | 2021 | 2020 | Change % | | :--- | :--- | :--- | :--- | | Revenue | $176,628 | $157,754 | 12.0% | | Gross Profit | $118,775 | $107,299 | 10.7% | | Operating (Loss) Income | ($189,212) | $23,085 | NM | | Net (Loss) Income | ($189,782) | $4,720 | NM | - Q3 2021 operating expenses surged to $308.0 million from $84.2 million in Q3 2020, primarily due to a $218.0 million increase in stock-based compensation related to the Business Combination[141][144][147][148][149] Comparison of Nine Months Ended September 30 (in thousands) | Metric | 2021 | 2020 | Change % | | :--- | :--- | :--- | :--- | | Revenue | $501,205 | $467,677 | 7.2% | | Gross Profit | $353,247 | $312,278 | 13.1% | | Operating (Loss) Income | ($159,974) | $52,847 | NM | | Net Loss | ($191,050) | ($22,494) | -749.3% | Non-GAAP Financial Measures Non-GAAP measures show Adjusted EBITDA increased 30.9% to $70.1 million for Q3 2021, reflecting core business performance Reconciliation of Net (Loss) Income to Adjusted EBITDA (in thousands) | | Three Months Ended Sep 30, | Nine Months Ended Sep 30, | | :--- | :--- | :--- | :--- | :--- | | | 2021 | 2020 | 2021 | 2020 | | Net (loss) income | $(189,782) | $4,720 | $(191,050) | $(22,494) | | Adjustments... | | | | | | Stock-based compensation expense | 219,876 | 1,869 | 235,413 | 7,471 | | Loss on early extinguishment of debt | 15,240 | — | 15,240 | 8,615 | | Business combination transaction costs | 5,516 | 93 | 10,471 | 93 | | Change in fair value of warrant liabilities | 26,889 | — | 26,889 | — | | Other adjustments | (17,530) | (4,256) | (11,298) | 16,092 | | Adjusted EBITDA | $70,139 | $53,601 | $185,678 | $144,676 | Reconciliation of Gross Profit to Adjusted Gross Profit (in thousands) | | Three Months Ended Sep 30, | Nine Months Ended Sep 30, | | :--- | :--- | :--- | :--- | :--- | | | 2021 | 2020 | 2021 | 2020 | | Gross Profit | $118,775 | $107,299 | $353,247 | $312,278 | | Adjustments | 19,654 | 6,072 | 33,208 | 17,070 | | Adjusted Gross Profit | $138,429 | $113,371 | $386,455 | $329,348 | | Adjusted Gross Profit Margin | 78% | 76% | 77% | 75% | Liquidity and Capital Resources The company maintains $160.5 million in cash, with new debt facilities supporting liquidity - The company held $160.5 million in cash and cash equivalents as of September 30, 2021[187] - In September 2021, the company entered a new credit agreement for an $800 million Term B Loan and a $250 million revolving credit facility, replacing its prior First Lien Credit Agreement[191][192] - Net cash from operating activities for the first nine months of 2021 was $96.7 million, compared to $66.8 million for the same period in 2020[214][217] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on $800.0 million of floating-rate debt, with a 100-basis point increase impacting annual interest expense - The company is exposed to interest rate risk on $800.0 million of floating-rate debt[228] - A 100-basis point increase in interest rates would result in an estimated $8.0 million increase in annual interest expense[230] - Foreign currency risk is present due to operations in China, but a 10% change in exchange rates is not expected to have a material impact[232] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes - Management concluded that disclosure controls and procedures were effective as of September 30, 2021[233] - No material changes to internal control over financial reporting were identified during the third quarter of 2021[234] PART II Item 1. Legal Proceedings The company is involved in various legal actions, none expected to materially affect its financial position or operations - The company is involved in various legal actions from time to time in the ordinary course of business[238] - Management does not expect currently pending or threatened legal matters to have a material adverse effect on the company's financial condition or operations[238] Item 1A. Risk Factors Risk factors have changed post-Business Combination, with relevant details available in the July 6, 2021 Proxy Statement/Prospectus - Following the Business Combination, relevant risk factors are detailed in the Proxy Statement/Prospectus filed on July 6, 2021[239]