Good day, and thank you for standing by. Welcome to the CCC Intelligent Solutions First Quarter Fiscal 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker for today, Bill Warmington, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, and thank you all for joining us today to review CCC's first quarter 2024 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 2023 annual report on Form 10-K filed with the SEC. Further, these comments and the Q&A that follows are copyrighted today by CCC Intelligent Solutions Holdings, Inc. Any recording, retransmission or reproduction or other use of the same for profit or otherwise without prior consent of CCC is prohibited and a violation of the United States copyright and other laws. Additionally, while we will provide a transcript of portions of this call and 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 the transcripts. Please note that 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 am pleased to report that CCC began 2024 on a strong note. In the first quarter of 2024, CCC's total revenue was $227 million, up 11% year-over-year and ahead of our guidance range. Adjusted EBITDA was $94 million, also ahead of our guidance range, and our adjusted EBITDA margin was 41%. Our industry continues to be in the early innings of digital transformation, and CCC is well positioned to be our customers' partner of choice for that transformation. On today's call, I'd like to share how the CCC Intelligent Experience Cloud is helping our customers navigate this journey and the growing adoption we are seeing across our recent innovations. I'll also provide an update on the continued progress we have made in broadening our shareholder base. My first topic is the role of the CCC Intelligent Experience Cloud in enabling our customers' digital transformation. CCC was an early pioneer in SaaS and cloud computing with the initial launch of our cloud platform back in 2003. Since then, we have continuously expanded and strengthened our capabilities. And today, our hyperscale 100% multi-tenant platform connects more than 35,000 companies and processes well over $100 billion of commerce annually. This technology backbone powers a wide range of mission-critical applications for the customers we serve: insurers, collision repair facilities, auto manufacturers, parts suppliers and more, and is a key enabler of our ability to provide continuous innovation to customers with a rapid return on investment and minimal effort on deployment. Our client platform is also highly efficient. In 2023, our engineering teams deployed more than 1,400 releases to customers with high operating leverage, scalability and reliability. Our transition from private to public cloud infrastructure last year further reinforces these advantages. Across the markets we serve, customers are increasingly looking to CCC to make it faster and easier to adopt our solutions and drive innovation into their business. This trend is being driven by a wide variety of forces, including macroeconomic changes, labor shortages and increasing complexity in day-to-day operations, challenges that can best be addressed through a highly integrated, highly connected AI-enabled platform. And critically, they're looking to rapidly transform and simplify their businesses without disrupting their existing operations. Doing this at scale requires intelligently orchestrating the data and workflows, not just within a customer's four walls, but across the consumers and businesses they interact with. And with the recent introduction of the CCC Intelligent Experience Cloud, or IX Cloud for short, we are enhancing our customers' ability to solve this many-to-many problem with the cloud platform they already use every day. The CCC IX Cloud overlays a new event-driven architecture into CCC's existing cloud applications, customer workflows and customer and partner systems. This microservices-based approach will make it faster and easier for customers to deploy new CCC solutions and will also increase the number of ways customers can use multiple CCC solutions together. Customers do not need to upgrade as CCC IX Cloud represents an enhancement to the existing CCC cloud platform. It just gets better. Throughout our history, CCC has helped customers navigate the complexity of our industry and use advanced, highly connected technology to solve the most pressing business problems. The CCC IX Cloud is designed to accelerate this journey in a way that is purpose-built to solve for the substantial increase in complexity in the P&C insurance economy we see today. Unlike most industries where an existing supply chain converts raw materials into finished products and distributes them in a predetermined and repeatable manner, in the P&C insurance economy the supply chain is created spontaneously after an accident occurs. Each insurance claim and collision repair is unique, and so are the hundreds of different decisions, tasks, and data flows that go into those claims and repairs. These are crucial moments for our customers and their customers. Our new event-driven architecture helps to align this highly complex supply chain so our customers can drive a step-function improvement in their operating performance and consumer and employee experience. We are excited to see what they invent. My second topic is the growing adoption of our solutions. Our solid performance in Q1 was driven by the continued expansion of our multisided network and traction from new and existing solutions. In addition, we began rolling out the new top 20 APD insurance client we announced last year and had multiple insurers renewing and expanding their relationships with CCC. We have also continued to add new repair facilities and parts suppliers to the CCC network. We also saw strong demand and adoption of our AI-enabled solutions across our different customer groups. For Estimate-STP, for example, we continue to see progress across volume, adoption and the number of clients testing, piloting and rolling out. Other examples are CCC Subrogation, our suite of solutions that applies AI and workflow automation to both outbound and inbound subrogation, as well as Impact Dynamics, which uses computer vision to predict potential injuries to occupants of a vehicle involved in an accident based on photos of the damaged vehicle. Both of these solutions continue to deliver significantly positive results for customers using them, often in the multiple millions of dollars, resulting in growing interest from more customers. We expect these positive demand and adoption trends to continue given the significant bottom-line benefits insurers are seeing from these solutions. For repair facilities, we are continuing to add new rooftops and are seeing strong adoption of new products like Mobile Jumpstart, the solution we launched at the end of 2023 that uses AI to dramatically reduce the time it takes an estimator at a repair facility to generate an initial estimate, from an industry average of 0.5 hour or more to less than 2 minutes. In Q1, almost 5,000 repair facilities used Jumpstart to complete tens of thousands of repair estimates. We're also continuing to see strong interest in the expansion of CCC ONE beyond its traditional focus on repair operations to help our customers run their businesses overall. Two examples of such solutions are Amplify, a quick and easy way for repair facilities to set up a modern professional-looking website with deep integration into CCC ONE, and our consumer payment solution which has already enabled over $1 billion in partner payment collections for our repair facility customers. We feel good about the early traction and growth potential for both of these solutions and see many additional category expansion opportunities for repair facilities given our platform, network and AI capabilities. The progression of these and other new solutions follows a pattern of innovation that we have observed over multiple decades: building a great product grounded in tangible customer value with a rapid ROI provides a long-term runway for growth and strong referenceable customer relationships, which in turn leads to additional opportunities. The credibility we established with our original product, a tool to help insurers assess total losses, provided a pathway for us to deploy a state-of-the-art solution estimating damage to repairable vehicles. We then extended those same estimating capabilities to repair facilities establishing direct repair and the expansive insurer-repair facility network that exists today. In the years since, a steady stream of industry-first innovations has extended our platform and delivered additional value to customers: workflow tools for insurers to manage the appraisal process, an advanced operating system for repair facilities to help them manage their day-to-day operations, integrated parts ordering with thousands of connected parts suppliers, mobile and then AI-based digital solutions that range from first notice of loss to appraisal to casualty and even subrogation and more. Our track record of delivering these and other innovations has, at its core, been enabled by the depth of our customer relationships with insurers, collision repair facilities, parts suppliers and auto manufacturers. The result is an innovation flywheel that lets us incubate new concepts, test them with initial customers and then deploy reference-level solutions at scale across our customer base. And because we have such a broad portfolio of innovation, different customers can adopt different solutions in different increments based on their particular needs over time. This dynamic is at the heart of our durable long-term business model and enables us to consistently invest in R&D across economic cycles—$150 million last year and well over $1 billion in the past decade. With our projected 2024 revenue representing a fraction of the $10 billion-plus market opportunity we see in digitizing the P&C insurance economy, we believe we have decades of growth ahead of us. My third and final topic is an update on the continued progress we have made in broadening our shareholder base. Since going public, we have made significant advances in expanding our shareholder base and increasing the liquidity of our shares. The secondary offerings and block trades from our private equity investors over the past six months have increased our public float as a percent of total shares outstanding as measured from Bloomberg from about 30% in October of last year to about 60% currently. We see this as an important development towards fulfilling our commitment to our shareholders. Let me conclude by saying that we are excited about what we have planned for 2024. The rising demand for AI-based solutions across our customer base, combined with our track record of driving growth through innovation and increasing the ease of adopting our solutions via the CCC IX Cloud gives us confidence 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 in more detail.

Thanks, Githesh. As Githesh highlighted, we are seeing strong innovation and momentum across the business as reflected in our track record of driving growth through category expansions and cross-selling. Our IX Cloud architecture enables easier client adoption of our solutions and our durable business model. We are pleased with both top- and bottom-line performance which reflects a balance between investment in our growth initiatives and ongoing margin discipline. Now as we turn to the numbers, I will review first quarter 2024 results and then provide guidance for the second quarter and full year 2024. Total revenue in the first quarter was $227.2 million, up 11% from the prior year period. Approximately 8 points of our growth in Q1 was driven by cross-sell, upsell and adoption of our solutions across our client base, including repair shop package upgrades, continued adoption of our digital solutions and the ongoing strength in casualty and parts. Approximately 3 points of growth came from our new logos, mostly with repair facilities and parts suppliers. About 1 point of growth in Q1 came from our emerging solutions, mainly diagnostics, Estimate-STP and Subrogation. 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 Q1 2024, our GDR was 99%, which is in line with last quarter. Note that since the first quarter of 2020, our GDR has been between 98% and 99% and is either rounded up or down, driven primarily by repair shop industry churn. We believe our strong GDR reflects the value we provide and the significant benefits that accrue to our customers from participating in the broader CCC network. Our strong 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 Q1 2024, our NDR was 107%, consistent with our average across 2023. Now I'll review the income statement in more detail. As a reminder, unless otherwise noted, all metrics are non-GAAP. We provide a reconciliation of GAAP to non-GAAP metrics in our press release. Adjusted gross profit in the quarter was $177 million. Adjusted gross profit margin was 78%, down slightly from 79% in Q4 and up against 76% in Q1 of 2023. The stronger year-over-year adjusted gross profit margin primarily reflects operating leverage on the incremental revenue. Overall, we feel good about the operating leverage and scalability of our business model and our ability to deliver against our long-term adjusted gross profit margin target of 80%. In terms of expenses, adjusted operating expense in Q1 2024 was $92.9 million, which is up 8% year-over-year. This was mainly driven by higher IT-related costs as well as investment in our customer-facing functions. Adjusted EBITDA for the quarter was $93.7 million, up 18% year-over-year with an adjusted EBITDA margin of 41%. Now turning to the balance sheet and cash flows. We ended the quarter with $191 million in cash and cash equivalents and $782 million of debt. At the end of the quarter, our net leverage was 1.6x adjusted EBITDA. Free cash flow in Q1 was $39.6 million compared to $18.5 million in the prior year period. Free cash flow on a trailing 12-month basis was $216 million, which is up 56% year-over-year. Our trailing 12-month free cash flow margin in Q1 2024 was 24% compared to 17% a year ago. Unlevered free cash flow in Q1 was $52 million or approximately 55% of our adjusted EBITDA. Q1 is usually our lowest conversion quarter because it's when we pay our annual incentives. While our level of free cash flow can vary quarter-to-quarter, we expect it to continue to average out in the mid-60% range of our adjusted EBITDA on an annual basis. I'll now cover guidance beginning in Q2 2024. We expect total revenue of $228.5 million to $230.5 million, which represents 8% to 9% growth year-over-year. We expect adjusted EBITDA of $89 million to $91 million, a 39% adjusted EBITDA margin at the midpoint. For the full year 2024, we expect revenue of $944 million to $950 million, which represents 9% to 10% year-over-year growth. We expect adjusted EBITDA of $389 million to $395 million, which represents a 41% adjusted EBITDA margin at the midpoint. So three things to keep in mind as you think about our second quarter and full year guidance for 2024. The first point is that we remain confident in our 2024 financial target and have increased the midpoint of our guidance ranges. We're pleased with the broad-based strength that we saw across the business in Q1. But keep in mind that year-over-year revenue growth rates can vary quarter-to-quarter because of contract timings, variations in subscription revenue contracts with volume-based elements and the pace of client adoption of new solutions. The second point is that the Emerging Solutions contributed about 1 point of growth in Q1, and we expect the upsell and cross-sell of these new solutions will contribute about 2 points of growth in 2024 as they continue to scale. Githesh mentioned in his remarks we are seeing positive feedback in client engagement around these emerging solutions and this gives us confidence about the contribution to growth in the back half of 2024. The third point is that in prior years, we experienced seasonality in our adjusted EBITDA margin with the second half levels being above our first half levels and Q2 being the low point for the year. We expect 2024 to be consistent with this pattern, with the first half margins being constrained by the reset of employee-related expenses and the cost of our industry conference. Overall, the strong trends we're seeing in renewals, relationship expansions and new solution adoption reinforce our confidence in the underlying strength of the business. The combination of our durable business model, advanced AI capabilities, interconnected network and the broad solution set puts us in a unique position to help our customers in the P&C insurance economy reduce their cycle times and administrative costs while improving their consumers' experience throughout the claims process. We are confident in our ability to deliver against our long-term target of 7% to 10% organic revenue growth and mid-40s adjusted EBITDA margin as we continue to execute on our strategic priorities and generate value for both our customers and our shareholders. With that, operator, we're now ready to take questions. Thank you.

Our first question comes from Saket Kalia of Barclays.

Okay. Great. Nice strong start to the year.

Thanks.

Thanks.

Sure. Githesh, maybe to start with you. The quarter and the guide are pretty straightforward to the earlier point. So maybe I'll just start with a higher-level educational question. Can we talk a little bit about the competitive environment in the casualty market? I think you've talked about how there's plenty of room for adoption for casualty within your APD customer base. What types of solutions do you need to displace to make that happen? And maybe just qualitatively, how are those conversations sounding more recently?

Sure. Saket, just to dial back a little further. First and foremost, what we're seeing across the board for our customers is the complexity of managing medical claims and the dollars involved are increasing significantly, and they vary by geography and jurisdiction. There's a lot more complexity and a lot more costs starting to creep in. One of the key advantages that we bring to the table that is fairly unique is that one in every five auto claims results in a medical claim. When you have visibility to the breadth of the auto physical damage claims that we have, the physics of the accident actually helps inform what may or may not happen downstream, and that's a very important connection between the auto physical damage side of the business and what happens when you have to deal with the medical claim. So there are some very unique things we have visibility to. One example is when we introduced Impact Dynamics, which is an AI-based solution that takes the physics of the accident and the photos of the accident and imputes the potential impact on medical claims and projections down the road. That's a very unique offering and it can be adopted by existing customers or new customers. I think we mentioned that a top-five carrier adopted that solution and saw a significant impact. So that's the linkage. Broadly, we've continued to see over the last year more clients adopt our casualty solutions. There are always unique aspects in terms of challenges they are trying to solve, and we've been focused on working with customers to solve those problems. Bottom line is we are continuing to see adoption of customers on casualty.

Got it. That's very clear, very helpful. Brian, maybe for my follow-up for you, you talked about the growing contribution from emerging solutions. You said it will go from 1 point of growth here in Q1 to maybe 2 points for the year. Can you just talk a little bit about what degree of visibility you have into that? Is that growth dependent on volume usage? Or is there some element of contracted visibility that gives you confidence in that increase in growth contribution?

Yes. Saket, on the metrics: Q1 had 1 point of growth from the emerging solutions. We expect that to step up and continue to scale through the year. We're expecting 2 points of growth contribution from emerging for the full year. To the question around visibility, we look at it across three areas. One is existing clients that are using the product and paying for the product where they continue to adopt volume and ramp up their usage—there we have visibility. Two, we have clients that are testing the product and will move from test into pay and full production rollout, which again provides good visibility. Three, converting pipeline—signing new clients onto these new solutions. Across those three areas, we have good visibility and feel confident in the step-up we're expecting in the second half. As Githesh noted, the positive feedback from clients testing and using the product and the operating metrics we are seeing are encouraging. Over the long term, we talk about emerging solutions being more like 3 to 4 points of growth, and that will develop over time.

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

Yes. Githesh, first one for you. You mentioned a few times on the call that customers are very early in the cloud transformation and you highlighted the benefit from emerging solutions. Maybe remind us of the revenue opportunity from products like Estimate-STP and Subrogation. These highly repeatable human interaction events are attractive to replace with AI. Where are we in that transformation? Do you expect a tipping point in adoption as you ramp toward the revenue opportunity you discussed?

Sure, Michael. Let me start with broad patterns we've seen over decades. Customers are continuously looking to deal with complexity. For example, the number of parts per vehicle used to be 8 and today we're up to 14 parts per vehicle. Complexity is increasing, and the supply of experienced people in the industry is decreasing, so customers must solve more complex problems more efficiently. As pricing normalizes, customers are becoming more thoughtful about digital transformation. When we introduced our first AI solution from photo to estimate in late 2021, AI was less widely discussed than it has been over the last 12 to 18 months. Now people are getting comfortable that AI can amplify people's capabilities to handle more decisions quickly. Specifically, Estimate-STP speeds the ability for staff appraisers and consumers to send pictures and get estimates, and Jumpstart reduces the time for repair facilities to generate initial estimates dramatically. For solutions like Subrogation, where you might receive a large demand package, our solution can provide a fast, precise response in minutes, improving accuracy. Each solution we develop aims to increase efficiency, effectiveness and productivity with a clear ROI, which is why we innovate across many solutions.

Maybe one more for Brian. You've talked about transitioning from private to public cloud infrastructure. Any comment on how to think about that impacting operating leverage or margin as you've made that transition?

Mike, we have fully transitioned to the new infrastructure and are serving clients and deploying solutions through it. We do still have some legacy cloud environment that we are winding down over time. IT hosting costs were up in the quarter, partly due to growth of the business and building against the pipeline and innovation, and partly due to the decommissioning of the legacy platform environment, which will wind down as we go forward. Overall, we're happy with margin progression: about 240 basis points of margin progression year-over-year. We feel we're in a good spot within our cost base.

Our next question is coming from Tyler Radke of Citi.

I wanted to ask, Githesh, about the new event-driven architecture you referenced on the call. Can you talk about the theoretical future use cases, what you're doing from a back-end technology perspective to enable that? And is there an opportunity for monetization, either price increases or new SKUs with this new architecture?

Sure, Tyler. We've been running a multi-tenant cloud platform for many years. One of the key ways to give customers a step-up in performance is taking events and decisions that happen across the network—things like a repair that turns into a total loss, a medical development, or a consumer change—and moving those events quickly from one place to another. Many decisions and events take a lot of time to move across participants in the ecosystem. We've developed an event-based architecture that very quickly moves events to maximize overall claim performance because there are literally hundreds of decisions in every claim with intense permutations and data needs. We're seeing that combining AI with this event-driven architecture, delivered within existing workflows, can deliver major new capabilities. The platform, which we call the CCC IX Cloud, is an overlay on our existing architecture. Customers get it automatically; there's no upgrade path required. It works without disrupting what they have and it enables us to deliver many more innovations across the entire supply chain, with those solutions having unique ROIs and pricing, but not for the architecture itself.

Very helpful. Brian, on the emerging solutions contribution, the 1 point this quarter stepping to 2 points for the full year—should we think about an exit rate of 3 points or something above 2? Or should we think it ramps up to 2 points by Q4?

Tyler, we're going to continue to see step-up through the year and the contribution will be larger in the second half. We're not breaking down a specific exit run rate today beyond the 2 points for the full year. Over time, we've guided emerging solutions to step up to 3 to 4 points, and we'll show progress as we exit this year into 2025 and beyond. We won't be more specific at this stage.

Tyler, one more thing: all revenue we deliver today were emerging solutions at one point. Many solutions have very long runways—some that were emerging continue to grow 10, 15, even 25 years later. We focus on building solutions with long runways.

Our next question comes from Alexei Gogolev of JPMorgan.

Githesh, I wanted to ask about payments. You mentioned the $100 billion in transactions on your platform. When do you expect to see a more pronounced tailwind to revenue growth from greater involvement in the payments flow?

Alexei, good to hear from you. The opportunities and complexities our payment solutions can solve are significant. We expect payments to run at a slower pace compared to other solutions. Towards the latter part of the year we hope to give a more pronounced update. We have continued to expand capabilities and the problems our customers want us to solve, and we are working on it.

Brian, could you elaborate a bit on the sequential increase in stock-based compensation in the quarter?

Yes. Stock-based compensation went up in the quarter versus recent trending. Q1 is expected to be the high watermark for the year as a percent of revenue. We expect it to step down as we go through the year. In 2025, we expect it to look more normalized in the 12% to 14% of revenue range. So the Q1 step-up should moderate and normalize into next year.

Our next question comes from Josh Baer of Morgan Stanley.

Congrats on a strong quarter. Another question on the growth algorithm. Emerging solutions increasing contribution is exciting. If emerging solutions were 1 point contribution on 11% overall growth this quarter moving to 2 points on 9% total, that's several points of growth less elsewhere. Where is that coming from? Why wouldn't growth in logos or established solutions be more durable?

Yes. We frame the long term as 7% to 10% organic revenue growth. About 80% of that will be from existing clients via cross-sell and upsell and 20% from new logos. Today we're seeing about 30% growth from new logos in the current mix, and for the rest, established solutions deliver a high percentage of cross-sell and upsell. Over time, we expect emerging solutions to become a larger part of the equation. It's a glide path rather than a hard cutover.

Understood. If new logo growth or established solutions held more durably and you had confidence in the emerging step-up, that would be upside for the full year, correct?

Yes. We're always looking to deliver against or outperform our guide. We're pushing on the core, established solutions, new logos, and building momentum behind the emerging solutions. We're driving on all three fronts.

Our next question comes from Dylan Becker of William Blair.

It's Faith on for Dylan. First question on a high-level industry trend: as premiums increase, we're seeing an uptick in drivers being uninsured or underinsured. How is this playing into complexity in the claims ecosystem? How are stakeholders reacting?

We are seeing some variation state by state in that mix. Customers are noticing and have started to deal with that both at first notice of loss and in how it manifests in medical claims. It hasn't materially changed what our customers pay for—frequency times cost of claim—but it has increased complexity, particularly around how you recover dollars in Subrogation when policyholders are not involved. That's where we see specific differences and where our solutions help.

Thanks. My second question: you discussed AI advancements between Inbound Subrogation and the IX Cloud. How do these fit together to drive better outcomes? What's ahead on the AI roadmap as stakeholders become more comfortable with the technology and adopt it?

We've taken this industry from paper-based estimates to laptop, mobile and now AI. Adoption varies by customer segment: OEM customers have sophisticated needs, repair facilities have been adopting quickly—over 5,000 repair facility customers used Jumpstart—while insurers have used solutions for several years. Transparency and traceability of algorithms, and the accuracy of outputs, are critical. We provide confidence intervals and traceability with our outputs so customers can understand how confident we are in the answers their people use to make decisions. Overall, we're seeing strong interest and thoughtful adoption.

Our next question comes from Gary Prestopino of Barrington Research.

A couple of questions. With the introduction of inbound subrogation, is that automatically attached to entities that were using outbound subrogation, or are inbound and outbound sold a la carte?

Gary, the short answer is it can be adopted individually. Some customers adopt both inbound and outbound at the same time; others start with outbound and then add inbound. Our solutions are modular and can be adopted in any combination because they work seamlessly together.

Are customers using outbound rapidly adopting inbound to have an end-to-end solution?

We're seeing much more interest in inbound due to its complexity, and many customers that adopt inbound are choosing to add outbound for an end-to-end solution. Some customers start with both.

One more: with IX Cloud taking events and decisions across the network to improve claims processing, could it also help with disputes about who was at fault in an accident? You have a data set of accidents with liability determinations. Can this product help with that?

Yes. You're talking about liability determination. We have intersection data, weather data, timing, and capabilities for accident reconstruction. These are all capabilities we can introduce, and IX Cloud's strength is putting those pieces together in a seamless way so that at an individual claim level you can get better performance on liability determination and related processes.

Our next question comes from Samad Samana of Jefferies.

This is Jeremy on for Samad. Question on emerging products: to achieve 3 to 4 points of growth longer term, what percent of the client base do you see adopting these products? What's the penetration you need and the terminal penetration?

We view this as deployment of solutions across the existing base. Many participants already have established solutions, and we expect penetration of emerging solutions to step up over time. We're not calling out a specific percent conversion today; rather, we expect adoption to ramp across the base as customers deploy these offerings.

Got you. And you mentioned you began rolling out the new top-20 APD insurance client you announced last year. Can you remind us what a rollout like this looks like and when you expect the full revenue contribution?

Yes. It will start to contribute in Q2 but will not be fully rolled out until the second half of the year. So it will partially come into Q2 and fully roll out in the second half.

We have just started that rollout.

The next question is coming from Kirk Materne.

This is Bill on for Kirk. Auto insurance has been up recently based on inflation. With that in mind, how are companies thinking about IT spend in your industry?

I was just talking to a customer today. They are looking for solutions that give rapid ROI. Customers are open to solutions that can be deployed easily and deliver ROI. Over the last two years, companies have understood they need to be competitive, and that has driven investment in solutions that improve efficiency and outcomes.

The next question is coming from Chris Moore of CJS Securities.

Given the investments you're making in IX Cloud and across the board, R&D was higher than normal—close to 22% this quarter, almost $50 million. How should we think about that level going forward? Is this the new normal?

That figure may include stock-based compensation.

Yes. If you exclude stock-based compensation, that's the biggest driver. Excluding stock comp, R&D growth continues but is more moderate. We had a meaningful step-up in capacity built into the system, and we feel that capacity is what we need to drive innovation going forward. We're comfortable R&D will continue to grow at a reasonable pace and continue to drive leverage across the business. We're comfortable with the margin progression we're talking about for the full year and the progression to our long-term target of mid-40s EBITDA margin over time.

Our next question is coming from Gabriela Borges of Goldman Sachs.

I wanted to ask about new levers in a couple of ways. First, regarding success in the repair shop community, remind us how to think about penetration there and what the limiting factor is on new logos in any given year within that ecosystem given there is a little bit of network effect in repair?

We look at the shop network as about 40,000 repair shops in the marketplace. Today we have 29,500. Over the past several years we've been adding about 1,000 net new logos a year, and we continue to see that pacing and are comfortable with that near-term pacing. There's good momentum in new logo adoption at the shops.

Helpful. Second, when you talked about expanding overseas in the past, it was often with a lens toward M&A. How do you think about expanding new logos organically versus M&A? Any update on when the timing might be right to be more aggressive with M&A and international expansion?

Our first priority in M&A is domestic opportunities to expand our product set—for example, Subrogation was an acquisition and a strong expansion. We continue to look at opportunities. On the international front, we are looking at Europe and are already present in China, but international is not a major focus right now.

There are no more questions in the queue. And I would like to turn the call over to Githesh for closing remarks. Please go ahead, sir.

Thank you all for joining us today. I'd like to thank our customers, our CCC team members and our shareholders for a great start to 2024. The durability of our business model continues to come through. We remain confident in our ability to deliver on our strategic and financial objectives while helping our customers and investing in future solutions at the same time. We look forward to talking to you again in late July when we report our second quarter results, if not sooner. Again, thank you so much for your continued interest and your support of CCC.

This does conclude today's conference call. Thank you for your participation. You may all disconnect.