CCC Intelligent Solutions Holdings Inc. Q4 FY2022 Earnings Call

Thank you for standing by, and welcome to CCC Intelligent Solutions Fourth Quarter and Fiscal 2022 Earnings Conference Call. I would now like to hand the call over to Vice President, Investor Relations, Bill Warmington.

Good afternoon, and thank you for joining us today to review CCC's fourth quarter 2022 financial results, which we announced in the press release issued following the close of the market today. Joining me on the call are Githesh Ramamurthy, CCC's Chairman and CEO; and Brian Herb, CCC's CFO. The forward-looking statements we make today about the company's results and plans are subject to risks and uncertainties that may cause the actual results and the implementation of the company's plans to vary materially. These risks are discussed in the earnings releases available on our Investor Relations website and under the heading Risk Factors in our 2022 annual report on Form 10-K filed today with the SEC. Further, these comments and the Q&A that follows are copyrighted today by CCC Intelligent Solutions Holdings, Inc. Any recording, retransmission, reproduction, or other use of the same for profit or otherwise without prior consent of CCC is prohibited and may be a violation of United States copyright and other laws. Additionally, while we've approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in that transcript. Please note the discussion on today's call includes certain non-GAAP financial measures as defined by the SEC. The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the company's financial condition and the results of operations. A reconciliation of GAAP to non-GAAP measures is available in our earnings release that is available on our Investor Relations website. Thank you. And now I'll turn the call over to Githesh.

Thank you, Bill, and thanks to all of you for joining us today. I'm pleased to report that CCC delivered another quarter of strong top- and bottom-line performance to complete another record year in 2022. For the fourth quarter of 2022, CCC's total revenue was $204 million, up 9% year-over-year and ahead of our guidance range. Adjusted EBITDA was $80 million, also ahead of our guidance range. Adjusted EBITDA margin for the fourth quarter was 39%. Revenue for the full year 2022 was $782 million, up 14% year-over-year, 2% above the high end of our initial 2022 guidance range. Adjusted EBITDA for the full year 2022 was $305 million, 4% above the high end of our initial guidance range and more than twice our 2018 adjusted EBITDA of $148 million, for a compounded annual growth rate of 20%. We believe our strong performance reflects both the nondiscretionary nature of the P&C insurance economy we serve and the durability of our business as we continue to deliver innovation and operational efficiency for our customers. Based on our performance in 2022 and our confidence in the growth trajectory, we are providing revenue and adjusted EBITDA guidance for the first quarter and full year 2023, which Brian will walk through. Today, I'd like to discuss three important topics with you: CCC's focus on growth, innovation, and our industry-leading AI platform. Our customers continue to face a difficult operating environment with multiple challenges. One challenge is a severe labor shortage of claims adjusters at insurers and repair technicians at collision repair facilities. Another challenge is inflation across labor rates, parts prices, medical cost, new and used vehicle prices as well as supply chain issues affecting the availability of parts. You can add to that the increasing complexity of the vehicles themselves that now require more parts and labor hours to fix as well as diagnostic scans and recalibration of the growing number of cameras and sensors on the vehicles. The average time to get a vehicle repaired after an accident has gone up from about four weeks in 2019 to about ten weeks currently, a real headwind for consumer satisfaction. These are important challenges for our customers. The solutions to which require them to find ways to do more with less while simultaneously improving their consumer experience. To solve these problems in a seamlessly integrated way, our customers are adopting a broader suite of CCC solutions. These solutions increasingly leverage CCC's AI capabilities and interconnected network to deliver operational efficiency and a more holistic experience for their customers. We are delivering solutions to our customers at scale, touching more claims with more solutions than ever before. Our insurance customers, for example, processed more claims using CCC solutions in 2022 than in any other year in the company's 42-year history. The number of claims processed by our insurance customers using four or more of CCC's AI applications doubled year-over-year in 2022. During Q4, we also renewed one of our top 10 insurers based on direct premium written for a five-year extension. Q4 also saw numerous successes delivering additional solutions to existing customers, including several insurance clients who added casualty solutions to their portfolio of existing CCC products for the first time. Casualty remains one of our biggest growth opportunities with insurers. We added over 1,000 rooftops in our repair facility customer group in 2022, ending the year with over 28,000 repair facilities in our network. In addition to new rooftops, we also delivered a number of incremental solutions, which were important drivers of growth for our repair facility customer group. In Q4, for example, we expanded our relationship with a leading multi-store operator, or MSO, looking to bring platform standardization across the collision, fleet, and paint operations for an additional 400 locations. In addition, the number of shops using four or more solutions has increased by 20% since 2020. An example of an emerging solution that we believe can continue our growth in average annual revenue per repair facility is Diagnostics. Today, only about 10% of industry repairs are being scanned through integrated solutions with CCC. As adoption increases, we believe Diagnostics could become a $50 million to $100 million revenue opportunity for CCC. Our parts customer group now has over 4,500 parts suppliers in its network. We are still in the early stages of adoption for electronic parts ordering, but that adoption is growing quickly. The industry volume of parts ordered electronically by repair facilities in the CCC network increased from about 10% in 2020 to about 15% in 2022. We continue to believe parts is an attractive growth opportunity. Innovation, the second topic I'd like to talk to you about today, has been a key factor in how we continually identify additional ways we can help our customers improve their operational performance. Each new insurance claim leads to hundreds of decisions. Our goal is to develop new solutions that help our clients bring greater efficiency to more and more decision points in the insurance claims life cycle. Innovation is foundational to CCC's success, which is why we have invested over $1 billion in R&D over the past 10 years. But it's not just capital that has made our product development efforts successful. I believe an organization needs three things to produce innovation on a sustained basis. The first is close relationships with customers. Before we can solve our customers' problems, we need to understand them. We spend a lot of time with our customers trying to understand the challenges they face at both an industry and company-specific level, including consulting projects, quarterly business reviews, and semiannual advisory councils. We believe the intimacy of our customer relationships is a part of what drives our 99% gross dollar retention and industry-leading Net Promoter Score, or NPS. CCC's NPS increased from 80 to 82 in 2022, a year in which the national average NPS declined four points. For context, an NPS of 82 is about 4.5 times higher than the insurance industry average of 18 and about six times higher than the software industry average NPS of 14. The second thing an organization needs to produce innovation is a technology platform on which we can develop and deliver solutions to address our customers' problems. Our multi-tenant cloud architecture is highly scalable with 99.95% uptime that enables us to deliver new products and well over 1,000 new releases per year quickly and cost effectively. Our sizable R&D investment over the past decade has enabled us to build a significant lead in the development and application of artificial intelligence capabilities. And the third element is a strong customer-focused culture that emphasizes innovation. Our 2022 survey results place CCC in the top quartile for employee engagement and I believe that is an important component in how we achieve a strong Net Promoter Score. We are focused on expanding our innovation culture by adding world-class talent across the organization, especially in product development and product management. During 2022, we grew our engineering staff capacity by about 20% and we view the current disruption in the technology markets as an opportunity for us to continue to attract best-in-class talent. The confirmation that our strategy around innovation is working is that in 2022, about one-third of our revenue came from products introduced in the last five years. The third and final topic I'd like to discuss with you today is our industry-leading AI platform, where we have put a significant portion of our R&D spend over the last ten years. A key requirement in building large-scale AI models is massive data sets, and more than $1 trillion of accident-related data has been processed across our network. You also need to find, recruit, and retain the best talent, which we have been able to do because we offer people the opportunity to work on industrial-grade real-world commercial AI applications that are changing how the auto insurance economy operates. As a result, we are increasingly using AI across our solution sets to help our clients make decisions faster. Today, over 100 of our 300-plus insurance customers are actively using CCC's AI-powered capabilities. Application of advanced computer vision AI for claims processing increased 60% year-over-year and a total of over 14 million unique claims have been processed using a CCC AI solution with 2022 at three times the level of 2019. We are still early in the adoption cycle for AI-driven solutions. These solutions are poised for even greater adoption going forward as the P&C insurance economy moves increasingly towards straight-through processing to drive operating efficiency and better consumer experiences. In a survey of over 100 insurance executives in September 2022, for example, 90% of respondents stated that implementing straight-through processing is a high priority for them. In late 2021, we introduced the auto insurance industry's first AI-powered touchless estimating solution, Estimate-STP. This industrial-strength AI solution can auto-generate a complete repair estimate on a qualified repairable claim in seconds without human intervention. We announced our first customer in November 2021 and have since signed up 15 insurers including seven of the top ten carriers, representing over 50% of U.S. auto claims volume. Volumes are growing quickly, but still remain a small fraction of the overall claim volumes as insurers align their internal processes to leverage the new technology. Another reason the adoption of Estimate-STP is so significant for our customers and for CCC is that it is an important proof point for much broader adoption of AI-driven straight-through processing solutions that improve speed and consumer experience across the auto insurance economy. Increasingly, these new solutions rely on a combination of our artificial intelligence and our interconnected network to deliver results. CCC's interconnected network is large and complex and includes a growing number of participants, including insurers, collision repair facilities, part suppliers, lenders, OEMs and more. Last year, our network connected over 30,000 of our customers to tens of millions of their customers, generating value for all participants and supporting mission-critical processes across more than $100 billion of commerce. We believe that CCC's interconnected network is an essential enabler of the auto insurance economy's digital transformation and a great way for our customers to address the rapidly increasing complexity they face. Let me conclude by saying that we are incredibly proud of what our team accomplished in 2022. We're excited about what we have planned for 2023, and we remain confident in our ability to continue to deliver on our strategic and financial objectives. I will now turn the call over to Brian, who will walk you through our results.

Thanks, Githesh. As we now turn to the numbers, I'd like to review our fourth quarter and fiscal year 2022 results and then provide guidance for the first quarter and full year 2023. Total revenue for the fourth quarter was $204.1 million, up 9% from the prior year period. Total revenue for fiscal 2022 was $782 million, up 14% from 2021. Our $1 billion-plus investment in R&D that's been made over the last ten years is producing returns in innovation as our newer solutions contribute to our financial performance. Approximately one-third of our revenue growth in 2022, for example, came from solutions introduced in the past several years, confirming that our strategy around innovation is taking hold. Approximately six points of our revenue growth in Q4 was driven by cross-sell and upsell into our installed client base, including continued adoption of solutions like mobile, Engage and our digital solutions around total loss. An incremental three percentage points came from new logos, mostly through repair shops and parts suppliers. There was no growth contribution in Q4 from the large expansion deals signed in the second half of 2021 as we have fully lapped that growth impact. Also worth noting is that 99% of our revenue in the fourth quarter was domestic. Now turning to our key metrics. Software gross dollar retention, or GDR, captures the amount of revenue retained from our client base compared to the prior year period. In Q4 2022, GDR was 99%. That is consistent with the last quarter and all of 2022. We believe our strong software GDR reflects the value we provide and the significant benefits that accrue to our customers from participating in the broader CCC network. Software GDR is a core tenet to our predictable and resilient business model. Software net dollar retention, or NDR, captures the amount of cross-sell and upsell from our existing customers compared to the prior year period as well as volume movements in our auto physical damage client base. In Q4 2022, software NDR was 106%. One last point to note on revenue: in Q4, we had about two percentage points of contribution to total growth from revenue not included in our NDR calculation, such as casualty, parts volume and the normal year-end true-ups. This offset the two points of headwind from Q4 2021 that we've been referencing in the prior earnings call. Now I'll move to the income statement in more detail. As a reminder, unless otherwise noted, all metrics are non-GAAP, and we've provided a reconciliation of GAAP to non-GAAP in our press release. Adjusted gross profit in the quarter was $157 million, with an adjusted gross profit margin of 77%. That's down from 79% in the fourth quarter of last year, which included the benefit of higher nonrecurring revenue in Q4 2021. Adjusted gross profit in fiscal 2022 was $605 million, with an adjusted gross profit margin of 77%, down slightly from 78% in fiscal 2021. We feel good about the operating leverage and scalability of our business and being able to deliver against our long-term target of 80% in gross margin. Adjusted operating expense in Q4 2022 was $81.8 million, up 5% year-over-year. Adjusted operating expense in fiscal 2022 was $324.8 million, up 9% year-over-year. In Q4, growth in these expenses was largely driven by headcount additions and, to a lesser extent, recovering travel and other discretionary spend that have now mostly normalized. On the headcount point, we are pleased with the progress made to advance both operational capabilities and capacity for new product innovation. We added key positions across the company, including increasing our staff capacity in product development by approximately 20%. We feel we are in a strong position to continue to deliver ongoing innovation to the market and execute against our strategic agenda. Adjusted EBITDA for the quarter was $80.1 million, up 6% year-over-year and an adjusted EBITDA margin of 39.2%. Adjusted EBITDA for the full year 2022 was $305.4 million, up 17% year-over-year with an adjusted EBITDA margin of 39%. This is another year of 100 basis point plus margin improvement and an increase of 900 basis points over the last three years. Now turning to the balance sheet and cash flow. We ended the quarter with $324 million in cash and cash equivalents and $792 million of debt. At the end of the quarter, our net leverage was approximately 1.5x adjusted EBITDA. Free cash flow in the quarter was $72.4 million compared to $17.3 million in the prior year period. Free cash flow for fiscal 2022 was $152 million compared to $89 million in fiscal 2021. For fiscal 2022, we converted approximately 59% of our adjusted EBITDA into unlevered free cash flow. If you adjust for the interest rate cap, the completion of the headquarters build-out and the determination and buyout of a real estate lease at year-end, our adjusted unlevered free cash flow would have been in the mid-60s range for the full year 2022, which is consistent with historical results. I'd like to finish with guidance beginning with the first quarter of 2023. We expect total revenue of $202 million to $204 million. This represents 8% to 9% year-over-year growth. We expect adjusted EBITDA of $76 million to $78 million, which represents a 38% adjusted EBITDA margin at the midpoint. For the full year 2023, we expect revenue of $842 million to $850 million, which represents 8% to 9% year-over-year growth. We expect adjusted EBITDA of $330 million to $338 million, which represents a 39% adjusted EBITDA margin at the midpoint. Three points to keep in mind as you think about our first quarter and full year guidance: The first is our emerging solutions contributed about one point of growth in 2022 with Diagnostics being the largest contributor. We do expect this set of solutions to be a more significant contributor in 2023. The second point is that we expect adjusted EBITDA margin in the first half of 2023 to be constrained by the reset of employee-related expenses and multiple client and internal events. We expect most of the year-over-year margin progression to take place in the second half of 2023 as we lap the higher costs we did in the second half of 2022, and we benefit from continued operating leverage in the business. The third point is that we will continue to focus on investing in innovation to support our growth ambitions while at the same time progressing towards our long-term target of mid-40s adjusted EBITDA margin. Overall, our guidance reflects our confidence in the underlying momentum of the business. The combination of our advanced AI capabilities and our interconnected network puts us in a unique position to help our customers improve the speed and accuracy of their decision-making, support cost efficiency across their operations and their overall customer experience. We believe we have many shots on goal across our solution set. This includes solutions that we've had in the market for some time, light casualty and repair shop package upsells, and solutions that have launched in the past few years that are contributing to growth like mobile and Engage as well as our new set of emerging solutions such as Diagnostics, Estimate-STP and Subrogation. The need for digitization across the P&C insurance economy continues to accelerate, and CCC is well positioned to drive durable growth in both revenue and profitability in the near and long term. We are confident in our ability to deliver against our long-term target of 7% to 10% organic revenue growth and adjusted EBITDA margins expanding into the mid-40s. As we continue to execute on our strategic priorities, we believe we will generate significant value for both our customers and our shareholders. With that, operator, we're now ready to take questions.

Our first question comes from the line of Gabriela Borges of Goldman Sachs.

This is Kelly on for Gabriela. Congrats on the quarter. First one for me is just you talked about one of your focus areas within payments as the carrier to repair facility payments. How is that progressing from a technical perspective? And how have customer conversations been going? And then as a follow-up, how has progress been with Subrogation? Is there any difference in how you're approaching the go-to-market with that product? And how has that trended relative to your initial expectations?

Thanks for joining. I would say that the conversations are going well. We are continuing to see a fair amount of interest in not only carrier-to-repair payments—there's a lot of complexity there—so people are excited about that. We also expect that our payment solutions will generate revenue, and we are finding broader applications. So it's coming along. On Subrogation, we've done three things. First and foremost, we have substantially upgraded some of the technology underpinnings in terms of platform and architecture from the acquisition. That development work is complete so that we can actually execute at scale. The early conversations with customers in terms of pilots, capability, and product expansion are going well. The integration is going well. So we feel good about the strategic direction as well as the work to date to integrate Subrogation to be a key part of our offering.

Our next question comes from the line of Dylan Becker of William Blair.

This is an analyst on for Dylan. I know you guys touched on the Estimate-STP, but can you elaborate on that journey and what the typical rollout looks like as you have a large share of the DWP customers but relatively low overall penetration? How are you thinking of that value realization driving the ramp towards greater wallet share over time? Also, as a follow-up, can you talk about the broader medical opportunity and how the data, the claim structure and the overall complexity differs from other aspects of your business and what it takes to build out that piece of the claims equation?

Yes. So here's how the solution itself is developing. As you recall, we delivered the product after many years of R&D in November of 2021, and we started working with early customers who wanted to test these capabilities and see how it works. What we are really seeing is that the ramp follows three particular ways. First, people test the solution for accuracy and capability, because this is the first of its kind. Before people are willing to make a commitment, that testing can take a fair amount of time. We're truly excited that today 15 of our customers have selected it, including, as you pointed out, seven of the top ten. The second thing people do once they feel very comfortable with the solution is to start rolling it out in limited geographies. People might start in one state or two states or three states, and as they get more comfortable, make adjustments, they start rolling it out to all states. Third, we've been very careful and thoughtful in terms of which claims qualify for Estimate-STP and the AI. The percentage of claims that go through Estimate-STP will gradually increase as it applies to more and more qualified claims. Those are really the three ways in terms of adoption. It's similar to adoption we've seen for other products where people start and then expand over time. The early design wins with customers making decisions on the platform we view as very fundamental. On Casualty and medical, we've been delivering Casualty solutions for almost a decade now. Roughly one in five auto claims results in a casualty claim, so there's a fair amount of linkage between what happens in an auto claim and what results in a medical or casualty claim. We have a number of solutions for medical bill review, workflow solutions, and a couple of mobile solutions to work directly with consumers, both first party and third party. We've also spent a fair amount of R&D upgrading these platforms over the last several years, and we are now starting to see the benefit of customers adopting more casualty solutions. One metric to keep in mind is that while we have 300 insurance customers, we only have about 50 Casualty customers as of now. So we view the growth opportunity as significant.

Our next question comes from the line of Michael Funk of Bank of America.

Yes. A couple if I could. First, for a high level, any change in spending plans or activity from your customers? And then you mentioned AI earlier in your script—massive data set, strong adoption to date, STP, for example. But can you talk more broadly about the opportunity longer term incorporating AI, maybe quantifying the potential market there for you looking forward?

Look, we are monitoring the macro environment very carefully, and we have not seen a material change. I would attribute that to a handful of things. One, what we deliver is mission critical. The operational efficiencies to address inflation, labor shortages, and vehicle complexity are directly addressed by our solutions. Two, the ROI for these solutions is very tight. We can deploy a solution and our customers can see the impact in 30, 60, or 90 days. So it does not require a multiyear forklift platform upgrade. Three, since we are already integrated deeply into our customers' platforms and systems, additional functionality is easier to deploy in terms of training and rollout. Those things are helping, and we have not seen material changes. On the broader AI opportunity, we have not publicly quantified every market, but one specific thing Estimate-STP has done is demonstrate the ability to apply AI to a very complex problem: from photographs understanding three-dimensional vehicle structure, extent of damage, which parts are damaged across a wide variety of vehicle types. That requires many layers of neural networks and significant model complexity. By deploying this first and solving that complexity, it's given us credibility to pursue much broader applications of AI—particularly straight-through processing. Straight-through processing applies across everything from claim intake, routing, scheduling, parts ordering, repair decisions, subrogation decisions, salvage decisions, and across many decisions on the repair side where technicians face complex combinations of parts and procedures. So we think AI applies across a very broad range. The heart of it is two things: one, maintaining the quality and currency of our dataset so we can run and rev many AI models, and two, deploying models in-line inside the workflows where we already operate.

No, no, I apologize, I cut you off. Thanks.

Yes. We continue to build those capabilities and model rev cycles in production to manage drift and to keep the models updated with changing market conditions.

Our next question comes from the line of Arvind Ramnani of Piper Sandler.

I just wanted to ask you about some of the investments you are making. You mentioned roughly 100 basis points margin expansion this year and 900 basis points of margin expansion over the past several years. With that said, I'm trying to get an understanding of this AI and automation opportunity that lies in front of you. Would it make sense to increase efforts and investments in that regard?

Maybe we'll handle it in two parts, with me and Brian jumping in. At the heart of it, what we've done over the last decade is build enormous core AI capability—the ability to build models, iterate models, deploy models, and attract talent from neural nets to applied ML. We have built a lot of those capabilities. What we are doing now is being judicious in terms of applying AI to a number of use cases. As I mentioned earlier, our Net Promoter Score of 82 means we have to be careful about the quality of what we deliver and the speed and rate of adoption. AI will be deployed broadly because we see it as a secular, multi-year opportunity, but there's a certain cadence at which you invest or the money is wasted. So we're being balanced and prudent.

I would echo Githesh's point. We remain focused on a balanced approach—investing in innovation while also driving operational efficiency. We believe we can do both. You highlighted the 900 basis points of improvement over the past several years while also putting $1 billion into R&D and adding 20% more capacity focused on product development. We believe we can continue to invest in AI capabilities while progressing margins toward our long-term mid-40s target.

Perfect. And on the ChatGPT and generative AI commentary—your data set is more real-time and transactional than much of the public data used in general-purpose models. Can you talk about how real-time your data is? Is it days, weeks, months? How frequently can you update models and how does that compare to public generative AI models?

I'll take this in two parts. Your point is very relevant—used car prices, for example, have changed dramatically, sometimes week to week or month to month. One benefit we have is the scale of transactional data—repairs, estimates, supply chain info—flowing through our network is massive. We have experience revving software frequently—we did over 1,000 software releases last year while maintaining 99.95% uptime—and we've applied that approach to AI. We can rev some models on a monthly basis. Model drift management also governs update frequency. All of these capabilities take time, compute power, and the ability to scale and deploy across a large customer base. On ChatGPT and large public generative models, they often rely on public web data and are not updated with transactional insurance data in real time. We are excited about those technologies and may deploy them where appropriate, but much of the critical data we're talking about changes in real-time and is only visible to participants embedded in the transaction flow. That currency is critical for our applications.

Yes, that was helpful. It makes me realize your solution is more relevant in this environment where prices are moving up and down, so it's a lot more compelling to use a solution that can get more real-time data. Thanks.

Our next question comes from the line of David Kelley of Jefferies.

I was hoping you could talk a bit more about the MSO relationship expansion that you announced—to add 400 locations—which seems like a nice add-on for quarters. How impactful are those MSO contract expansions typically for you, particularly as customers continue to consolidate the repair facility sector at their level?

Yes, David. The MSO relationships are a meaningful part of our business and continue to contribute to our runway. If you step back and look at our metrics on new logos, over the past five years we've been adding about 1,000 new rooftops per year, and MSOs have contributed to that. We feel good about where that's going. The 400 locations we talked about were signed late in the year and the onboarding will bleed into next year, so it will be part of our new logo growth in repair facilities into 2023. We feel really good about continuing the cadence of adding roughly 1,000 shops a year.

Got it, thanks. And on Diagnostics ramp within the emerging solutions: should we expect Diagnostics to be the leading driver of emerging growth in 2023? Could you speak to customer appetite to adopt the CCC Diagnostic solution and how quickly they're looking to adopt that solution set?

First, as the vehicle mix changes, many vehicles now require a scan to understand which sensors are broken and what recalibrations are needed. Scans typically take place before and after repairs. There has been inconsistency in how scans are done across the market. We've brought order and integration to that process by integrating popular diagnostics providers into CCC ONE, providing transparency and seamless integration. The amount of diagnostic scans going through our platform is still relatively low, but we believe it will continue to grow nicely over the next several years. Diagnostics is one important element of a broader portfolio of solutions we're bringing to market.

Our next question comes from the line of Chris Moore of CJS Securities.

First, the real-time conversation you just had was fascinating and very helpful. I'm trying to get a better handle on the evolution of the CCC model. You talked about growth coming roughly 20% from new logos and 80% from cross-sell and upsell, whereas historically it's been more like one-third new logo and two-thirds cross-sell. Is that current level something that will change over time, or is it a mix within the 80% that could change between newer versus more mature products?

Chris, the shift toward more of the growth coming from cross-sell and upsell is happening. In 2022 we are closer to 25% new logo and 75% cross-sell/upsell, and over time we expect that progression to continue toward roughly 20% new logo and 80% cross-sell/upsell. Breaking down the 80%, about half should come from existing solutions that have been in market for several years and half from newer emerging solutions like Diagnostics, Estimate-STP, and Subrogation. Those newer solutions will have a meaningful impact, but they will build out over time.

Got it. And a quick follow-up—Brian, you talked about cash conversion for 2022. Did you give any expectations for 2023 free cash flow or cash conversion?

I did not specifically guide to 2023 free cash flow. I noted that in 2022 we converted about 59% of adjusted EBITDA into unlevered free cash flow. Adjusting for certain items gets you into the mid-60s, which is consistent with historical performance. That's a reasonable benchmark for modeling going forward, using a low- to mid-60s percent cash conversion metric.

Our next question comes from the line of Saket Kalia of Barclays.

Great. Githesh, on Casualty, can you remind us who CCC usually displaces in a Casualty sale? You mentioned about 50 insurance customers are using Casualty. When you cross-sell Casualty to those customers who are already using the auto physical damage pieces, what's the typical increase in run rate or revenue impact from that cross-sell?

Saket, when we compete in Casualty, there are multiple providers in the market for various casualty capabilities. Our differentiation is analytic capability and deep integration into a single platform that ties into the broader CCC network. Some capabilities are new-to-the-industry, like our mobile consumer engagement tools, while others compete with existing players. We generally don't call out specific competitors, but our advantage is integration, analytics, and workflow.

From a sizing perspective, it depends on the size of the carrier and the specific Casualty solutions they adopt. At a macro level today, our insurance auto physical damage (APD) clients represent about 40% of revenue and our Casualty clients about 10% of total revenue. Over time, as Casualty adoption grows, that mix can balance out and present roughly a 30% incremental revenue opportunity as those areas scale.

Got it. Thanks, that's helpful.

At this time, I'd like to turn the call back over to Githesh Ramamurthy for closing remarks.

Thank you all for joining us today, and I would like to thank our customers, our CCC team members and our shareholders for a great 2022. We are excited about what we have planned for 2023. The durability of our business model continues to come through, and we remain confident in our ability to deliver on our strategic and financial objectives while helping our customers and investing in future solutions. On behalf of all my colleagues at CCC, we look forward to talking to you again in early May when we report first quarter results, if not sooner. Thank you so much for your continued interest and your trust in CCC.

This concludes today's conference call. Thank you for participating. You may now disconnect.