CCC Intelligent Solutions Holdings Inc

NASDAQ:CCCS

Earnings Call Transcript 2022-Q2

[Operator]

Greetings, ladies and gentlemen, and welcome to the CCC Intelligent Solutions Second Quarter of 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. William Warmington, Vice President of Investor Relations.

[William Warmington, Vice President-Investor Relations]

Good afternoon, and thank you for joining us today to review CCC’s second quarter 2022 financial results, which we announced in the press release issued after 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 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 2021 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 Incorporated. Any recording or retransmission, reproduction or other use of the same for profit or otherwise without prior consent of CCC is prohibited and a violation of United States copyright and other laws. Additionally, while we have 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 that the discussion on today’s call include 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.

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Thank you, Bill, and thanks to all of you for joining us today. This week marked our one year anniversary of returning to the public markets, an important milestone in our journey as a public company. I’d like to take this opportunity to thank our customers for their continued trust in CCC, thank our CCC team for their tremendous execution and thank our shareholders for their ongoing support.

I am pleased to report that CCC delivered another quarter of strong top and bottom line results, and that we are raising our revenue and adjusted EBITDA guidance for the full year. In the second quarter of 2022, CCC’s total revenue was $193 million, up 16% year-over-year and ahead of our guidance range. Adjusted EBITDA was $73 million, up 22% year-over-year also ahead of our guidance range. Our adjusted EBITDA margin was 38%, up 200 basis points year-over-year.

On today’s call, I’d like to highlight three themes that underpin our performance. The first is the structural resilience of CCC’s business model and end markets through a range of economic cycles. The second is a growing momentum from the adoption of Estimate-STP and the broader opportunity from delivering STP for our customers. And the third is how we are helping our customers deal with increasing vehicle complexity. The example I’ll highlight there is the solid progress we’re making in our diagnostic solutions for the coalition repair market.

Start with our first theme. The resilience of our business model really begins with the durability of the end markets we serve. Auto insurance is mandated for drivers in all 50 United States, and the vast majority of Americans use their own car to move between work and home. This makes auto insurance a less discretionary part of a consumer’s budget and provides meaningful sturdiness to our customer’s businesses and their ability to invest in CCC solutions.

The strategic importance of the auto insurance market to the broader economy was evident in May when we held our first in-person customer conference since 2019. Over 300 clients joined us for this four-day event in Colorado Springs. It was great to see everyone again in person. At the conference, we conduct a number of industry-based round tables, which we call advisory councils. This is where customers discuss their operational challenges and where they would like us to direct our innovation efforts. These sessions are classic win-win exchanges, where our clients help guide us in our creation and refinement of solutions to deliver the business improvements they need.

I can tell you from decades of personal experience that hearing from our clients firsthand about the near and long-term challenges they face across the auto insurance economy is vital to our innovation efforts. Although our customers operate in resilient end markets, they are being impacted by three significant forces concurrently, macroeconomic pressures, complexity, and rising consumer expectations.

The first, macro driven pressures has dominated the headlines for months. Labor shortages from insurance staff appraisers to repair technicians, the people our customers need are in short supply. Supply chain challenges, meaning longer repair times, longer car rentals and less happy consumers and inflation affecting just about everything from parts to cars to wages.

To give you a sense of the magnitude of the impact our customers are dealing with. The average total loss claim has increased almost 50% from about $10,000 in 2019 to $15,000 currently moving on from macroeconomic pressures, the rising complexity of vehicles of the tools and processes to repair vehicles and of the auto insurance claims ecosystem overall. Advanced driver assistance systems, electric vehicles, and the diagnostic systems needed to repair them are impacting the cost and complexity of vehicles and the time to repair them. Clients across the auto insurance economy are struggling with this complexity. Specifically, the challenges complexity presents to assessing and resolving insurance claims in an accurate and efficient manner.

CCC provides the antidote to that growing complexity through a combination of network integrations and AI-driven tools that help clients simplify processes and increase the speed and accuracy of decision making and execution at multiple levels, moving on from complexity to rising consumer expectations in terms of greater speed, convenience and personalization.

There’s also expectation from our customer shareholders in terms of greater operational efficiency to support profitable growth. It was clear from my conversation with clients that no one is an island in this ecosystem. The challenges faced by one constituent ultimately affect all others either directly or indirectly.

Fortunately, for CCC, we are well positioned to help our customers become more efficient by leveraging the power of our connected network, our longstanding customer relationships and our industry leading artificial intelligence, developed using over $1 trillion of historical claims data accumulated over decades.

And I’ve also noticed an interesting shift inclined attitudes towards new solutions. In the past, insurers usually wanted someone else to be first to try a new product. But with speed now becoming increasingly vital, many of our customers are now asking to be first. These close long-term relationships combined with technology leadership and deep industry expertise are why our clients rely on us for the mission critical functions handling over a $100 billion in auto insurance claims paid out in the United States each year.

This combination is also the underpinning of our resilient and predictable financial model. We have a gross dollar retention rate of 99%. About 96% of our revenue is from software under three to five year contracts. And less than 20% of our revenue is tied to transaction volumes, which comes from regional carriers, medical claims bill reviews and a portion of our parts suppliers.

As a result, CCC has delivered reliable year-over-year revenue growth for decades. And over the time, our revenue base has become increasingly large and diversified. We began with one product digital total loss solutions sold to one customer segment insurers. Today, we provide dozens of products across multiple customer groups, including insurers repair facilities, parts suppliers, OEMs, dealers, and others. That resilience held up during the Black Swan event of the pandemic where CCC’s revenue still grew 5% year-over-year.

Another differentiating characteristic of CCC’s business model is that we sell solutions into the business side of the insurer versus the IT side and delivering ROI based on tangible claims results that directly impact the issues I mentioned before, inflation, supply chain challenges and labor shortages and vehicle complexity. Because all our clients are already on the CCC cloud, most implementations take place in less than 90 days.

What we are not doing is multi-year tech modernization projects for insurers’ core policy and underwriting systems. This means we are able to deliver fast time to value that can deliver better business results in a matter of weeks or months and not years. The durability of our customers’ businesses has enabled us to structure our business in a way that we can operate profitably throughout economic cycles and ensure our ability to continuously invest in R&D on our customers’ behalf. This wraps up my first theme, resiliency of our business model.

The second broad theme I’d like to talk about today is a growing momentum of Estimate-STP with insurers. The pressure is being felt throughout the auto insurance economy are increasing demand for straight through processing or STP. STP refers to the processing of transactions digitally and automatically, and is most commonly associated with a financial services industry, particularly areas like payments and securities trading. I believe that the financial services vertical is running several years ahead of the insurance industry in their adoption of STP. We estimate there are tens of billions of dollars of efficiencies that we can help our customers unlock over time.

CCC’s most recent STP innovation is Estimate-STP. There are hundreds of potential applications of STP within the auto insurance economy. We chose the auto claims estimate writing process, not because we thought it would be an easy first step, but because we knew it would be the toughest application to figure out. And we knew that if we could get that right, actually create an industrial grade AI-system that could write line item insurance claims estimates requiring minimal human intervention. Then that would pave the way for the adoption of a much broader suite of applications. We rolled out Estimate-STP to our first insurer in November last year. Six months later on our Q1 earnings call in May, that number of insurers was up to eight. Since then we have added three more and are now up to 11 insurers, which includes more than half of the top 10 auto insurers in the United States.

That said, it’s still early days for Estimate-STP. Adoption varies greatly by insurer and aggregate volume today doesn’t yet move the needle. But insurers are becoming increasingly comfortable with less and less manual interventions in the automated estimate creation process. Another exciting aspect of this phase for us is the substantial scale of real time feedback we are receiving on a daily basis. This enables our teams to refine and adapt our AI-models to solve for various edge cases that you only see at our scale.

Consumers are also increasingly comfortable taking and uploading photos of the damaged car and delighted when the estimate is processed in minutes. We therefore expect adoption of Estimate-STP to accelerate meaningfully over the next 36 months. We believe the majority of the more than 15 million repairable claims in the U.S. will be eligible for Estimate-STP over time. And with insurers currently spending as much as $150 to $200 to manually prepare an estimate, digitizing that process with a strong ROI to customers represents a multi $100 million long-term opportunity for CCC. Given the number of decisions and manual touchpoints that exist in processing a claim today, we believe Estimate-STP represents a foundational entry point into a much broader opportunity set across the insurance economy.

We have dozens of use cases we are evaluating to add digitization or automation ranging from subrogation to total loss to casualty. We believe that a key differentiator, which position CCC to successfully create and deliver STP solutions, while the auto insurance economy is our self-reinforcing and connected ecosystem. This ecosystem connects to many diverse participants in the auto insurance economy, including insurers, repair facilities, parts suppliers, OEMs, lenders, and many others. Ultimately to truly deliver the automation and streamlining of that ecosystem and industry participant needs to be connected to all other participants. CCC enables that interconnectivity and the growing operational efficiency that interconnectivity delivers to the network participants.

The third and final theme I wanted to touch on today is the notable progress we are making in dealing with the complexity of vehicles. A good example of this is our diagnostic solution, which can be utilized by anyone in our growing network of 27,500 repair facilities. On our Q1 call, we talked about the growing importance of diagnostics in the accident repair process as vehicles include increasingly sophisticated technology such as automated cruise control, lane departure warning systems, and multiple cameras.

The proliferation of these technologies has amplified complexity and increase the necessity of scanning, diagnostics and calibration in the repair process. Our solution CCC Diagnostics integrates diagnostics data and invoicing into the repair facilities, workflow and collaboration with insurers, increasing efficiency for everyone involved. This solution is also seamlessly integrated into the CCC ONE repair platform, which currently processes about $60 billion of collision repairs a year.

In July, AirPro Diagnostics became part of the CCC Diagnostics network. AirPro joins three other leading diagnostic service providers, asTech, Opus and Honda, in integrating directly into CCC ONE. It’s still early days for Diagnostics. Today only about 10% of our 27,500 repair facility customers subscribe to CCC Diagnostics. We continue to see growth in the number of vehicles requiring scans as well as a long-term potential to deploy additional Diagnostics related solutions, repair facilities, insurers, and OEMs. We feel increasingly confident about Diagnostics as a $50 million to $100 million revenue opportunity for CCC.

We continue to invest in innovation. That’ll help solve a broad array of challenges across the auto insurance economy. And one of the benefits of having a balanced portfolio is that we are not dependent on the timing of any one opportunity to drive growth. Payments for example is a large opportunity that continues to move forward as we validate use cases and workflows with customers. And we’re pleased with the progress we have made there.

Diagnostics is an example of an innovation with strong early adoption. And given the space, we expect that Diagnostics will contribute a full point of revenue growth in 2022. Our diversified portfolio of solutions solves multiple use cases for customers, regardless of which operational challenge any given customer is most focused on solving in the near term. Our product pipeline is as full of opportunities today, as I’ve ever seen in decades. Our clients need our help to become more efficient and are actively engaged with us as we develop solutions that meet their needs.

We have a time tested resilient business model that has delivered revenue growth and profitability for 30 years. Today, I focused on two products from our portfolio of growth opportunities. The insurance industry’s growing adoption of Estimate-STP to drive a step change improvement in operational efficiency and consumer experience and repair facilities increased use of our Diagnostics related capabilities to streamline their workflows.

That said, we continue to see progress across our portfolio of sizable growth opportunities and are excited about the potential in front of us.

I will now turn the call over to Brian who will walk you through our results.

[Brian Herb, Chief Financial Officer]

Thanks, Githesh. Before we jump into the numbers, I wanted to take a moment to acknowledge that we passed our one year anniversary as a public company earlier this week. It’s been a gratifying year operating as a public company, and at the same time, a challenging year overall for the capital markets. We remained focused on what we can control, which is delivering innovation to our clients, to support them in solving some of their more difficult operational challenges. And so we continue to be confident in our ability to achieve our near term and long-term operational targets and to generate value for our customers and our shareholders.

As we turn to the numbers, first, I’d like to review our second quarter 2022 results and then discuss our updated guidance for the second half and full year 2022. Total revenue for the second quarter was $192.8 million, up 16% from the prior year period. Approximately 12% of our revenue growth in Q2 was driven by cross-sell and upsell into our installed client base include broad base adoption of our digital solutions like mobile, AI and Engage. About four percentage points of the 12% came from the large expansion deals signed in the second half of last year that we’ve been talking about for the past several quarters. An incremental 4% came from new logos mostly repair shops and parts suppliers.

I’d also note that 99% of our revenue in the second 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 Q2 at 2022, GDR was 99% consistent with last quarter. We believe our software GDR reflects the value we provide our customers and the stickiness of the network effect.

Software GDR is a core tenant of our predictable and resilient revenue 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 Q2 2022, software NDR was 111%, which is above our historical average.

The consistently strong NDR performance in recent quarters reflects the success we’ve had with our cross-sell and upsell opportunities across our client base, including the large expansion deals signed in the second half of last year. NDR is a core driver in our business, and we have excellent opportunities to execute this for the foreseeable future.

Now I’ll review 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 $148.4 million with adjusted gross profit margin of 77%, which is consistent with the second quarter of last year. We continue to feel good about the operating leverage and scalability of our business and being able to deliver against our long-term target of 80%.

In terms of expenses, adjusted operating expenses were $81.7 million, which grew 12% year-over-year. Growth in these expenses were largely driven by headcount additions, public company costs in the increase in discretionary spend as these expenses continue to normalize, including hosting our in-person industry conference during the quarter.

On the headcount point, we are pleased with the progress made to advance our operational capabilities by adding key positions across product management and product development. We feel we’re in a strong position to continue to deliver ongoing innovation into the market and executing against our strategic agenda.

Adjusted EBITDA for the quarter with $73.4 million with a 38% adjusted EBITDA margin. Adjusted EBITDA grew 22% year-over-year and margins improved 200 basis points compared to Q2 of last year. Margin expansion reflects operating leverage from our efficient and scalable business model as we continue to scale revenue.

Turning to the balance sheet and cash flow, we ended the quarter with $228 million in cash and cash equivalent and $796 million of debt. At the end of the quarter, our net leverage was approximately 1.9 times adjusted EBITDA. Free cash flow in the quarter was $29.6 million compared to $13.1 million in the prior year period.

Year-to-date, we’ve converted approximately 49% of our adjusted EBITDA into unlevered free cash flow. Normalizing for the timing of our annual incentive payout and estimated tax payments, in addition to the completion of the build out of our new headquarters in Chicago, adjusted unlevered free cash flow would’ve been in the low 60% range year-to-date consistent with historical results.

Now I’d like to finish with guidance, beginning with the third quarter. We expect revenue of $194 million to $196 million. This represents 10% year-over-year growth at the midpoint. We expect adjusted EBITDA between $72 million to $74 million, which represents a 37% adjusted EBITDA margin at the midpoint.

For the full year 2022, we expect revenue of $773 million to $777 million, which represents 13% year-over-year growth at the midpoint. We expect adjusted EBITDA between $294 million to $298 million, which represents a 38% adjusted EBITDA margin at the midpoint. Implicit in our Q3 and full year guidance is the guidance for the fourth quarter for which we expect revenue between $199 million to $201 million, which represents 7% year-over-year growth at the midpoint.

We expect adjusted EBITDA between $75 million to $77 million, which represents a 38% adjusted EBITDA margin at the midpoint. Three points to keep in mind about our second half guidance. The first is that we are lapping the large expansion deals we signed in the second half of last year. These deals contributed 5% of growth in the first quarter of 2022, four points of growth in the second quarter of 2022. We will get about one point of benefit from these deals in this third quarter and no benefit in the fourth quarter.

The second point is that we had two percentage point contribution from non-recurring revenue in the fourth quarter of last year. This now creates a two-point revenue headwind for us in the fourth quarter of this year. My point is the implied fourth quarter revenue range of 7% to 8% of growth without the two-point headwind would be 9% to 10% growth in the fourth quarter. The third point is that our adjusted EBITDA margin forecast for the full year remains unchanged. We expect adjusted EBITDA margin will be flat for the full year 2022 following 800 basis points of expansion between 2019 and 2021. We continue to be focused on investing in innovation to support our growth ambitions, while at the same time progressing towards our long-term mid 40s adjusted EBITDA margin targets.

Overall, our guidance reflects our confidence in the underlying momentum of the business. We feel good about the strategic position of the long-term opportunities in our product portfolio. Today, we highlighted two of our emerging solutions, Estimate-STP and Diagnostics. But we have many other exciting opportunities in the portfolio across both our emerging solutions like subrogation and payments, as well as our more established solutions like casualty, the repair shop packages and Engage.

CCC is well positioned to deliver on our financial and operating targets for the year. The need for digitization across the P&C insurance economy continues to accelerate and CCC is well positioned to drive durable growth in revenue and profitability in the near and long term. We are confident in our ability to deliver on our long-term organic revenue growth targets of 7% to 10% next year and beyond. 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 ready to take questions. Thank you.

[Operator]

Thank you, sir. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question comes from Dylan Becker of William Blair.

[Dylan Becker, William Blair]

Hey guys. Nice job. And I appreciate you taking the question here. I guess maybe first for Githesh, I do think about growing that product adoption, kind of within your existing customer base here. You touched on the immediate ROI side of the equation. How valuable is that, especially in the current environment where they’re kind of trying to hammer down relative to the expense side of the equation and to deliver that value and align it with customer interests that maybe contributes to that initial kind of faster inflection point, just given the fact that you’ve been able to deliver so much value to these customers historically?

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Hey, thanks for joining. Absolutely. In fact, that’s one of the big benefits of being on the CCC cloud and having a very short implementation cycle. Again, what we’re seeing is the ability to deliver pilot and put into production, not just put into production a single product or a solution, but to be able to deploy it on a national scale across 50 states. Many of our customers operate in every state, many are regional. They usually try and test in one or two geographies. And once it works and solutions deliver the results, we’re able to also scale it pretty rapidly. So we are seeing increased demand from customers to be able to move faster, which is why I made the comment that many of our customers for many of our early solutions are actually saying, hey, I would like to do first.

[Dylan Becker, William Blair]

Yes. That makes a ton of sense. And I want to dig into the scale side as well, since you’ve talked about some of the traction you’re seeing in particular maybe with you touching on STP here. How valuable is again, the scale of your network, the scale of that data infrastructure to deliver upon those automation capabilities, right? It seems like a big pain point in the industry, something people are looking to address, but it’s probably not something that can just be put together overnight, right? You have to have the historical data which you guys have on your platform. But how do you think about the complexity of that offering, the data advantage you guys have and how that speaks from a competitive standpoint as well? Thanks.

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Sure. So scale really comes in the following very specific ways, right. So first and foremost, when you are thinking about refining our AI solutions like Estimate-STP that I talked about. The fact that we collect 500 million photographs a year, and we are processing literally billions of dollars of repairable and total losses per month. What we’re getting is as more and more customers deploy. And I think I mentioned that over half our – half of the national carriers representing, I guess the majority of repairables and total loss in the country have started to adopt the solution. So what that does is the scale of feedback, when you have thousands of people using your solution, especially to refine your AI, the speed at which we can refine the AI deal with edge cases, sunlight reflecting on a light blue car standing under a tree in South Florida, right.

So there’s all these edge conditions and our scale allows us to do that pretty rapidly. So that's one element of scale, which is pure volume across every state across different functions.

The second aspect of scale is that we are running and have been running on a highly efficient cloud based platform. So with the elastic cloud, we are able to scale up and down and take a customer and deploy them often that is one of the hardest things for a customer to do is how do I change the behavior of tens of thousands of people across the country with my tools. And what we are able to do is to deploy that at the point at which decisions are made by individual adjusters a parts providers and a like, and actually deploy that pretty rapidly and that is a second element of scale.

The third and maybe the last element of scale I’ll point out is the network itself. When you have 300 insurance customers, 27,500 collision repair facilities, thousands of parts providers, almost every OEM, that third element of that interconnected model, where sometimes to actually implement a solution, you don’t need to just do it for that one customer, but you have to be able to do it across the ecosystem. That is the third element of scale. Hope that answers your question.

[Dylan Becker, William Blair]

No, it's incredibly in-depth. I appreciate it and congrats again, guys.

[Operator]

The next question comes from Gabriela Borges of Goldman Sachs.

[Unidentified Analyst]

Hi, this is Kelly on for Gabriela. Congrats on the quarter. My question would be kind of building off the competitive question from before. How are things going on the casualty side of the business, and have you noticed anything different on that side? And has anything changed regarding your confidence that CCC can take share in that market?

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Yes, I would say – thanks for joining us. I would say, we absolutely are seeing that the years of investments that we have made in the casualty platform, particularly for third party and also for first party and the technology and the investments we’ve made, we are continuing to see adoption, increased adoption of customers and feel pretty confident about what we’re seeing and how we are engaging with customers. And again, as you well know, casualty in terms of share of customers, we have a much smaller scale of customers, much smaller customer base and casualty when you compare it to our Auto Physical Damage products. So it represents a very nice growth opportunity.

[Unidentified Analyst]

Okay, great. And then my follow-up is just, can you give us an update on Safekeep? How is adoption trending? And what have you been hearing from customers?

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Sure. On Safekeep, customers seem delighted. And it’s really done two things for us. For many customers who are already using CCC solutions this is a very natural fit in terms of both for subrogation, which is whereas, billions of dollars are spent. So we’ve also trained our own teams that work with customers and the receptivity across the board has been terrific. So that’s on one end.

On the second side, I would say that the team we have brought on board on several has been fantastic. Their depth, their knowledge, and frankly, the development of the solutions, the integration of various components, even things as mundane like building, for example, it's not mundane, it's important, right, security. So many of those integration components are also coming along well. So we feel good from those two perspectives.

[Unidentified Analyst]

Thank you for the color and congrats again in the quarter.

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Thank you.

[Operator]

The next question comes from David Kelley of Jefferies.

[David Kelley, Jefferies]

Hey, good afternoon. Thanks for taking my question. Wanted to start with Diagnostics in light of the addition of AirPro to your network. Last quarter, I believe you spoke about the potential for $50 million to $100 million revenue opportunity. You highlighted today a point of growth potentially this year from Diagnostics. From our end, it seems like you’ve cornered both the remote scanning and OEM markets. So I guess my question is, can you talk about the process of getting more of those repair facility customers on the Diagnostics network and maybe how you think about the potential timeline to ramping revenues up to that $50 million to $100 million run rate?

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Sure David. Again, you have to think about Diagnostics and really maybe three components. First is the absolute need for Diagnostics. And over the years, what we’ve seen is as vehicle complexity has increased, there is a substantial need to essentially scan the car after an accident so that the Diagnostics report tells you what is actually damaged in the car. And after you complete the process of repair that the scan and the calibration sometimes has to be done.

So as for older cars, it was not mandatory, but for almost every new car in the last – produced in the last few years. So first and foremost, the need to do scanning across the board and to have consistency of that and transparency for repairers, insurers, that’s been super, super critical. So what we’ve done is that the second thing we’ve done, so that’s first and foremost.

Secondly, when you look at the way our solution works is that we have integrated deep into CCC ONE. So if you think about any given day, you’ve got tens of thousands of people who are engaged in the process of repairing vehicles, living in the CCC system every day, whether it is on the CCC tablet, whether it is our mobile tools, whether it is on the desktop, as they’re going about ordering parts, repairing the cars, doing production scheduling and like.

So integrating Diagnostics directly into that repair process and into that step, so that it is a seamless component of it and making that available to our entire collision repair customer base is super important. Where we are today is after literally a few months, we rolled this out to 10% of our customer base. And so that’s another element of scaling. It is to make sure that the process of all of that works really tightly.

The last element of scaling Diagnostics and maybe a very important element is as we work with different providers, we started with Opus. They were our first engagement on Diagnostics. We’ve added as you know, Honda, we’ve added asTech, and now we’ve added AirPro and we will continue to add other providers because it makes it very, very seamless for these diagnostics providers to be able to service their end customer, which is a repair facility. So those are really kind of three ways, three components on how to think about how we scale diagnostics. Hence our confidence in continuing to scale this to that $50 million to $100 million mark.

[David Kelley, Jefferies]

Okay, got it. That’s helpful. Thank you. And then just as a follow-up wanted to touch on the new logo contribution. Believe it was 4% in the quarter, stands out given it’s typically a secondary growth contributor for you. So can you talk a bit more about where you solve new logo traction in the quarter and maybe some breakout between repair facilities versus your growing parts supplier network?

[Brian Herb, Chief Financial Officer]

Yes. Hi. It’s Brian here. Yes. I can cover that. Yes. So four points for the quarter, as you said, it largely comes in two areas. It is the repair facilities. So the shops and it’s the parts supplier. We don’t break those out on percentages, but the repair facility shops is the largest piece. If you look over at a historical average, we add about a 1,000 new rooftops a year from repair facilities, and we’re trending again towards a metric like that. So that’s the largest driver of the 4% on new logo.

[David Kelley, Jefferies]

Okay, perfect. Thanks for taking the questions.

[Brian Herb, Chief Financial Officer]

Thank you.

[Operator]

The next question comes from Kirk Materne of Evercore ISI.

[Adi Ahire, Evercore ISI]

Hey guys. This is Adi Ahire dialing in for Kirk. Thanks for taking the question. I guess just a question on payments. What kind of conversations are you guys having? I know you mentioned that you signed your first customer there last quarter. But – and in terms of like contributing to revenue, do you kind of see that being more meaningful in 2023 or 2024?

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Yes. First of all, as you know, joking aside, we're not providing guidance today for 2023 or 2024. And what we are doing on the payments front is, our first goal as you know, was to get the payments infrastructure in place, we did that. Second was to work with customers to refine use cases and then start building out the customer pipeline. So we worked through all of those things, and then we are working closely right now with customers. And going into kind of some of the specific nuances of different conditions, right? Whether it’s shop to – carrier to shop payments or other areas. And we’re kind of working through those specific use cases with customers. Again, as I mentioned, it will not be a material contributor this year.

[Adi Ahire, Evercore ISI]

Got it. And then just a quick-follow up if you have any color on hiring your headcount kind of with the market today, just curious on that?

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Sure. I’ll give you kind of a macro thought and then Brian will give you maybe a couple more specifics. I would say that in some ways what we have seen more lately than we did say towards the end of Q1 is that we are able to hire faster in terms of some of the key talent that we need in terms of people servicing our customers, engineering talent, product management talent. So we’ve actually seen a pick up in our ability to recruit as and we’ve seen that shift and change in the employment markets. And we feel good about our ability to continue to recruit. And I don’t know, Brian, if you want to add anything specifically to that.

[Brian Herb, Chief Financial Officer]

Yes. I would just add that, we’ve been focused largely in product development and product management where we’ve been adding heads really thinking about the innovation funnel on the roadmap, bringing new products and new capabilities into market. So that’s been the area we’ve been really focused on. And the pacing has been good. We’ve talked about this year, holding margins at 38% and a large part of that reason we’re holding it is really around bringing on the headcount, both at a capability and capacity perspective. So we feel good on how we’re executing against that.

[Adi Ahire, Evercore ISI]

Got it. Thank you for the color guys. Appreciate it.

[Brian Herb, Chief Financial Officer]

Thanks, Adi.

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Thanks.

[Operator]

The next question comes from Chris Moore of CJS Securities.

[Chris Moore, CJS Securities]

Hey, good afternoon, guys. Thanks for taking a question or two. Coming up, it’s about a year since you guys went public, maybe just one or two kind of more big picture questions. Obviously, you’re already the clear leader in the U.S. I recognize there’s lots of white space in the U.S. to attack. Looking at Europe, understanding it’s a much more fragmented market, is the race on there? Is there still an opportunity for CCC longer term to be an important player there?

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Sure. First things first, Chris. Exactly the big picture as you pointed out is the white space, especially for our products, especially as you think about Estimate-STP and the broader opportunity for STP is substantial. And if you take the combination of our new products that we’re building, including STP, the existing solutions we have, which have a lot of opportunity, we have first and foremost feel we can address all our growth with just the white space in the United States.

With that said, we continue to get invited by customers who keep asking us to come into, as you know, the five countries of Europe, amount for the largest number of auto claims and auto insurance. And the opportunity continues to exist, and we're going to be very selective and very thoughtful in terms of where and how we enter the European market.

[Chris Moore, CJS Securities]

Got it. I appreciate that. Staying with that theme. So, I mean, you have talked about the P&C industry, generally not being cutting edge, the digitization can be painfully slow. Do you expect it to continue at that same pace in the foreseeable future? Or is there reason to expect there would be a meaningful inflection point at some point in the next three to five years?

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

That was one of the things Chris that we saw at, for example, even the latest industry conference. We’ve been holding these conferences with our customers for so many years. And what is really exciting to see is the amount of innovation our customers are interested in deploying, not just testing or trying, but testing and trying with an eye towards deployment. And it is that deployment capability for example, the example we quoted to you about Estimate-STP.

So the precursor to Estimate-STP was a product called Smart Estimate. So when we built Smart Estimate, we introduced the ability to jumpstart an estimate using photo and AI. We had dozens of customers adopt them the first year. And then as we moved from there to Estimate-STP, many of our customers are doing a lot of fine tuning and adopting. So we are actually seeing that many of our customers, and we’re so blessed with some amazing customers. We’re also working very closely with us on many of these innovations with an eye towards not testing, but towards an eye towards rolling out. So I do think the pace of digitization is going to continue to pick up. And that's, hence, our desire to continue to invest on a pretty broad set of solutions.

[Chris Moore, CJS Securities]

I appreciate it. I will leave it there. Thanks guys.

[Operator]

The next question comes from Tyler Radke of Citi.

[Tyler Radke, Citi]

Hey, thanks for taking the question and great to see you at the conference a few months ago. Just on that note, obviously, it was a strong new logo quarter. I’m curious why you think that was it just timing and on the theme of the conference just being back in person, any observed impact that you’ve seen that had just in terms of pipeline generation or expansion activity? Thank you.

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Hey, Tyler, first of all, thanks for coming to the conference. And as you saw, with the products and the solutions we displayed at the conference, it was a great meeting, but the conference itself doesn’t really change things dramatically one way or the other. What it does is give a very broad exposure and allows us to really tune our solutions a lot more. So I would not say it was the conference per se. It is just that we’ve continued to roll and adopt, roll out our solutions. But the speed of digitization as it picks up and as customers feel more of the macro pressures, they are more driven towards deploying these solutions. I don’t know, Brian, if you want to add any quantification to it.

[Brian Herb, Chief Financial Officer]

No, I think you covered it well, I – to the earlier point, I would say the momentum at the repair shops have been particularly strong over the last several quarters and really underpinning the new logo performance. And we see that – we see the opportunity for that to continue going forward. So we feel really good about the momentum and traction we have in the marketplace. And I think that the 4% reflects that.

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

And also volume is increasing at the repair facilities, right? As collisions are increasing, the ability to hire people is continues to be a shortage on the repair side. So people are also looking for more and more efficiency to service the demand.

[Tyler Radke, Citi]

Yes. Makes a lot of sense. Just as you think, obviously, you’re not – don’t have things like for foreign currency exposure and not particularly large deal dependent. I guess where you do have larger deals with some of the Tier 1 insurance carriers. How are you just thinking about the pipeline there for expansions? And what – are you assuming anything different in terms of expansion rates in the back half, just given the changes in the macro environment for where you do have kind of larger deal exposure?

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Tyler, the short answer is really no major change. Again, for exactly the reasons I described at the beginning, which is we’re fully deployed. We can bring these solutions up and running. It does not require a multi-year hundreds of millions of dollars of IT expense. It’s basically the solutions can be integrated for relatively small dollars and the ROI and the payoff is relatively huge. So we don’t see any change, especially given the architecture of our platform and the way we deploy our solutions.

[Brian Herb, Chief Financial Officer]

Yes, Tyler. It’s Brian. I would – the only thing I would add is, clearly we feel good about the pipeline, the resiliency of the business model and that also reflects, the raise we put in the second half of the year as we have line of sight to the key deals that need to land and our overall confidence for delivering the second half and the full year?

[Tyler Radke, Citi]

Great. Appreciate it.

[Operator]

The next question comes from Gary Prestopino of Barrington Research.

[Gary Prestopino, Barrington Research]

Hey, good afternoon all. Hey, Githesh with this Estimate-STP that I’m assuming this is a fairly new product that insurance carriers are uptaking. What have you seen as far as the adoption once they get this product of usage to process claims within their organization?

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Hey, Gary I would say, we’re seeing a wide variation, right? So because it has literally hundreds and hundreds of parameters that required tuning of the AI and making adjustments. So customers have different requirements, different needs. And what we’re seeing is some of the early adopters move faster, some people use it for relatively small amount of volume and even products like the photo channel where we’re almost up to now, we’ve gone from 20% to 30% adoption. Even there, we’ve got some customers using it at 3% and some customers at 97%.

So with Estimate-STP, everyone is across the board, super excited, because it’s integrated deeply into our estimating platform. And so I’d just say it varies, but customers, as I also mentioned, have tried it out in one or two states, some of people have tried in three states and then some are in the process of rolling out. So we have a pretty broad range of adoption. But the exciting thing is half of – we now have line of sight to half of the – over half of the industry adopting this solution.

[Gary Prestopino, Barrington Research]

Okay. And do realizing this is a software product. I mean do you have a mechanism to price this based on increased usage as you go forward?

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

The short answer is yes.

[Gary Prestopino, Barrington Research]

Okay. Thank you.

[Operator]

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn over the call to CEO Githesh Ramamurthy for closing remarks.

[Githesh Ramamurthy, Chairman and Chief Executive Officer]

Well, thank you all for joining us today. We are proud of our performance during our first year back in the public markets. And most of all, I want to say thank you to our customers, our CCC team members and our shareholders, where they help in making that a reality. As we mentioned, we remain confident in our ability to continue to deliver on our strategic and financial objectives and the strategic resilience of our business model continues to come through as we deliver innovation and operational efficiency for our customers.

We’ll look forward to talking with you on the third quarter call in early November, if not sooner. Thank you again for your continued interest in CCC on behalf of all of my colleagues at CCC.

[Operator]

Thank you. Ladies and gentlemen, that concludes today's conference. Thank you for your participation and you may now disconnect your lines.