# CCC Intelligent Solutions Holdings Inc. (CCC) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CCC Intelligent Solutions Holdings Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1818201/000095017024022253/cccs-20231231.htm
Accession: 0000950170-24-022253
Filing date: 2024-02-28
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/CCC/
All MD&A years: /company/CCC/mda/
Previous year: /company/CCC/mda/fy2022/ (FY 2022)
Next year: /company/CCC/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the forward-looking statements included herein. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements and Risk Factors” and “Risk Factors” as set forth elsewhere in this Annual Report on Form 10-K.

Unless otherwise indicated or the context otherwise requires, references to “CCC,” “we,” “us,” “our” and other similar terms refer to Cypress Holdings Inc. and its consolidated subsidiaries prior to the Business Combination and to CCC Intelligent Solutions Holdings Inc. and its consolidated subsidiaries after giving effect to the Business Combination.

Business Overview

Founded in 1980, CCC is a leading SaaS platform for the multi-trillion-dollar P&C insurance economy powering operations for insurers, repairers, automakers, part suppliers, lenders, and more. CCC cloud technology connects more than 35,000 businesses digitizing mission-critical workflows, commerce, and customer experiences. A trusted leader in AI, IoT, customer experience, network and workflow management, CCC delivers innovations that keep people's lives moving forward when it matters most.

Our business has been built upon two foundational pillars: automotive insurance claims and automotive collision repair. For decades we have delivered leading software solutions to both the insurance and repair industries, including pioneering DRP in the U.S. beginning in 1992. DRP connects auto insurers and collision repair shops to create business value for both parties, and requires digital tools to facilitate interactions and manage partner programs. Insurer-to-shop DRP connections have created a strong network effect for CCC’s platform, as insurers and repairers both benefit by joining the largest network to maximize opportunities. This has led to a virtuous cycle in which more insurers on the platform drives more value for the collision shops on the platform, and vice versa.

We believe we have become a leading insurance and repair SaaS provider in the U.S. by increasing the depth and breadth of our SaaS offerings over many years. Our insurance solutions help insurance carriers manage mission-critical workflows across the claims lifecycle, while building smart, dynamic experiences for their own customers. Our software integrates seamlessly with both legacy and modern systems alike and enables insurers to rapidly innovate on our platform. Our repair solutions help collision repair facilities achieve better performance throughout the collision repair cycle by digitizing processes to drive business growth, streamline operations, and improve repair quality. We have more than 300 insurers on our network, connecting with approximately 29,500 repair facilities through our multi-tenant cloud platform. We believe our software is the architectural backbone of insurance DRP systems and is a primary driver of material revenue for our collision shop customers and a source of material efficiencies for our insurance carrier customers.

Our platform is designed to solve the "many-to-many" problem faced by the insurance economy. There are numerous internally and externally developed insurance software solutions in the market today, with the vast majority of applications focused on insurance-only use cases and not on serving the broader insurance ecosystem. We have prioritized building a leading network around our automotive insurance and collision repair pillars to further digitize interactions and maximize value for our customers. We have tens of thousands of companies on our platform that participate in the insurance economy, including insurers, repairers, parts suppliers, automotive manufacturers, and financial institutions. Our solutions create value for each of these parties by enabling them to connect to our vast network to collaborate with other companies, streamline operations, and reduce processing costs and dollars lost through claims management inefficiencies, or claims leakage. Expanding our platform has added new layers of network effects, further accelerating the adoption of our software solutions.

We have processed more than $1 trillion of historical data across our network, allowing us to build proprietary data assets that leverage insurance claims, vehicle repair, automotive parts and other vehicle-specific information. We believe we are uniquely positioned to provide data-driven insights, analytics, and AI-enhanced workflows that strengthen our solutions and improve business outcomes for our customers. Our AI solutions increase automation across existing insurance and repair processes including vehicle damage detection, claim triage, claim handling, repair estimating, intelligent claim review and claim subrogation. We deliver real-world AI with more than 100 U.S. auto insurers and more than 1,000 U.S. collision repairers actively using AI-powered solutions in production environments.

One of the primary obstacles facing the P&C insurance economy is increasing complexity. Complexity in the P&C insurance economy is driven by technological advancements, IoT data, new business models, supply chain disruption and changing consumer expectations. We believe digitization plays a critical role in managing this growing complexity while meeting consumer expectations. Our technology investments are focused on digitizing complex processes and interactions across our ecosystem, and we believe we are well positioned to power the P&C insurance economy of the future with our data, network, and platform.

While our position in the P&C insurance economy is grounded in the automotive insurance sector, the largest insurance sector in the U.S. representing nearly half of DWP, we believe our integrations and cloud platform are capable of driving innovation across the entire P&C insurance economy. Our customers are increasingly looking for CCC to expand its solutions to other parts of their business where they can benefit from our technology, service, and partnership. In response, we are investing in new solutions that we believe will enable us to digitize the entire automotive claims lifecycle, and over time expand into adjacencies including other insurance lines. For example, CCC's acquisition of Safekeep in February 2022 added subrogation solutions that can span insurance lines including automotive, property, and worker's compensation.

We have strong customer relationships in the end-markets we serve, and these relationships are a key component of our success given the long-term nature of our contracts and the interconnectedness of our network. We have customer agreements with more than 300 insurers (including carriers, self-insurers and other entities processing insurance claims), including 27 of the top 30 automotive insurance carriers in the U.S.,

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based on DWP, and hundreds of regional carriers. We have more than 35,000 total customers, including approximately 29,500 automotive collision repair facilities (including repairers and other entities that estimate damaged vehicles), approximately 5,000 parts suppliers, 13 of the top 15 automotive manufacturers based on new vehicle sales, and numerous other companies that participate in the P&C insurance economy.

We generate revenue through the sale of software subscriptions and other revenue, primarily from professional services. We generated $866.4 million of revenue for the year ended December 31, 2023, an increase of 10.7% from the prior year. Net loss for the year ended December 31, 2023 was $90.1 million, compared to net income for the year ended December 31, 2022 of $38.4 million. The net loss for the year ended December 31, 2023, was mainly due to $82.7 million of goodwill and intangible asset impairment charges specific to the Company's China reporting unit. Adjusted EBITDA increased $48.0 million, or 16%, year-over-year to $353.4 million. See our reconciliation of net (loss) income to Adjusted EBITDA within the section titled “Non-GAAP Financial Measures.”

Basis of Presentation

The Company’s consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K include the accounts of the Company and its consolidated subsidiaries and were prepared in accordance with GAAP. Intercompany transactions and balances are eliminated in consolidation. The consolidated financial statements include 100% of the accounts of wholly-owned and majority-owned subsidiaries. The ownership interest of the minority investor is recorded as a non-controlling interest in a subsidiary.

The Company operates in one operating segment. The chief operating decision maker for the Company is the chief executive officer. The chief executive officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by type of service and geographic region, for purposes of allocating resources and evaluating financial performance.

Recent Developments

Secondary Offering—During January 2024, certain existing stockholders completed a secondary offering where the selling stockholders sold 22,000,000 shares of common stock. The Company did not receive any of the proceeds from the sale of the shares by the selling stockholders.

Key Performance Measures and Operating Metrics

In addition to our GAAP and non-GAAP financial measures, we rely on Software Net Dollar Retention Rate (“Software NDR”) and Software Gross Dollar Retention Rate (“Software GDR”) to measure and evaluate our business to make strategic decisions. Software NDR and Software GDR may not be comparable to or calculated in the same way as other similarly titled measures used by other companies.

Software NDR

We believe that Software NDR provides our management and our investors with insight into our ability to retain and grow revenue from our existing customers, as well as their potential long-term value to us. We also believe the results shown by this metric reflect the stability of our revenue base, which is one of our core competitive strengths. We calculate Software NDR by dividing (a) annualized software revenue recorded in the last month of the measurement period, for example, December for a quarter ending December 31, for unique billing accounts that generated revenue during the corresponding month of the prior year by (b) annualized software revenue as of the corresponding month of the prior year. The calculation includes changes for these billing accounts, such as changes in the solutions purchased, changes in pricing and transaction volume, but does not reflect revenue for new customers added. The calculation excludes: (a) changes in estimates related to the timing of one-time revenue and other revenue, including professional services, and (b) annualized software revenue for smaller customers with annualized software revenue below the threshold of $100,000 for carriers and $4,000 for shops. The customers that do not meet the revenue threshold are small carriers and shops that tend to have different buying behaviors, with a narrower solution focus, and different tenure compared to our core customers (excluded small carriers and shops represent less than 5% of total revenue within these sales channels). Our Software NDR includes carriers and shops who subscribe to our auto physical damage solutions, which account for most of the Company’s revenue, and excludes revenue from smaller emerging solutions with international subsidiaries or other ecosystem solutions, such as parts suppliers and other automotive manufacturers, and also excludes CCC casualty solutions which are largely usage and professional service based.

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[[/GREPCENT_TABLE]]

Software GDR

We believe that Software GDR provides our management and our investors with insight into the value our solutions provide to our customers as represented by our ability to retain our existing customer base. We believe the results shown by this metric reflect the strength and stability of our revenue base, which is one of our core competitive strengths. We calculate Software GDR by dividing (a) annualized software revenue recorded in the last month of the measurement period in the prior year, reduced by annualized software revenue for unique billing accounts that are no longer customers as of the current period end by (b) annualized software revenue as of the corresponding month of the prior year. The calculation reflects only customer losses and does not reflect customer expansion or contraction for these billing accounts and does not reflect revenue for new customer billing accounts added. Our Software GDR calculation represents our annualized software revenue that is retained from the prior year and demonstrates that the vast majority of our customers continue to use our solutions and renew their subscriptions. The calculation excludes: (a) changes in estimates related to the timing of one-time revenue and other revenue, including professional services, and (b) annualized

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software revenue for smaller customers with annualized software revenue below the threshold of $100,000 for carriers and $4,000 for shops. The customers that do not meet the revenue threshold are small carriers and shops that tend to have different buying behaviors, with a narrower solution focus, and different tenure compared to our core customers (excluded small carriers and shops which represent less than 5% of total revenue within these sales channels). Our Software GDR includes carriers and shops who subscribe to our auto physical damage solutions, which account for most of the Company’s revenue, and excludes revenue from smaller emerging solutions with international subsidiaries or other ecosystem solutions, such as parts suppliers and other automotive manufacturers, and excludes CCC casualty solutions which are largely usage and professional service based.

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[[/GREPCENT_TABLE]]

Key Factors Affecting Operating Results

The following are key factors affecting our operating results in the years ending December 31, 2023, 2022 and 2021:

•
Conversion and implementation of new customers: We focus significant resources on attracting and onboarding new customers across the various segments of the P&C insurance economy we serve. We have a strong track record of new customer conversion across all our markets. On average, customer implementations take less than three months to complete. A significant portion of our sales force is focused on converting new customer accounts across our industry, and this will continue to be a focus of our business for the foreseeable future.

•
Long-term customer relationships: We have strong customer relationships in the end-markets we serve, and these relationships are a key component of our success given the long-term nature of our contracts and the interconnectedness of our network. We generate revenue through the sale of SaaS subscriptions and our average contract is approximately three to five years in duration. In 2023, our national carrier customers included 27 of the top 30 automotive insurers based on DWP, with average customer relationships spanning more than 10 years, as evidenced by our historical Software GDR of 98%-99%.

•
Expansion of solution adoption from existing customers: A central part of our strategy is expanding solution adoption across our existing customer base. We have developed long-term relationships with our customers and have a proven track record of successfully cross-selling product offerings. We have the opportunity to realize incremental value by selling additional functionality to customers that do not currently utilize our full solution portfolio. As we innovate and bring new technology and solutions to market, we also have the opportunity to realize incremental value by selling new software solutions to our existing customer base. Capitalizing on this opportunity is a significant driver of our revenue growth and Software NDR.

•
Investment in R&D: We have a strong track record of innovation and new solution delivery with our customers. We remain committed to delivering market-leading technology including AI solutions for the P&C insurance economy. We believe that maintaining our software solution leadership is imperative to our growth plan. As a result, we intend to continue making significant investments in research and development to improve and expand our software solutions. Our research and development expenses totaled $173.1 million, $157.0 million and $166.0 million in the years ended December 31, 2023, 2022 and 2021, respectively. In 2022, the decrease in our R&D was primarily due to a reduction in stock-based compensation related to the Business Combination. We expect that research and development will remain a key investment area for the foreseeable future.

•
Investment in Platform, Privacy, and Security: Our technology platform is imperative to our strategy as it enables successful customer implementations, new software delivery, and ongoing performance and delivery. In addition to our investments in R&D, we invest in platform infrastructure, maintenance, privacy, and security protocols to enable performance across our technology platform. We expect investment in these areas to continue to increase in absolute dollars for the foreseeable future.

•
Investment in Sales and Marketing: Our sales and marketing efforts are a key component of our growth strategy. Our investments in this area have enabled us to build and sustain our customer base while creating long-term customer relationships. We plan to continue to invest in our sales and marketing efforts, including adding sales personnel and expanding marketing activities, to support our business growth. Our sales and marketing expenses totaled $140.9 million, $119.6 million and $148.9 million, in the years ended December 31, 2023, 2022 and 2021, respectively. In 2022, the decrease in our sales and marketing was primarily due to a reduction in stock-based compensation related to the Business Combination. As the business continues to grow, we expect sales and marketing expenses to increase in absolute dollars for the foreseeable future.

Components of Results of Operations

Revenue

Revenue is derived from the sale of SaaS subscriptions and other revenue, primarily professional and other non-software services. Software subscription revenues are comprised of fees from customers for the right to use the hosted software over the contract period without taking possession of the software. These revenues are billed on either a subscription or transactional basis with subscription revenue recognized ratably over the contract period and transactional revenue recognized when the transaction for the related service occurs. We generally invoice software subscription agreements monthly either in advance or in arrears, over the subscription period. Software subscription revenue accounted for $830.1 million, $752.5 million and $662.3 million or 96% of total revenue during the years ended December 31, 2023, 2022 and 2021, respectively. We continue to expect software subscription revenue to be a high percentage of total revenue as software subscription revenue continues to be a key strategic priority.

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Other revenue primarily consists of professional services and other non-software services revenue that is generally transaction-based (where a fee per transaction is charged). Revenues related to such services that are billed on a transaction basis are recognized when the transaction for the related service occurs, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

Costs and Expenses

Cost of Revenues

Cost of Revenues, Exclusive of Amortization and Impairment of Acquired Technologies

These costs include costs of software subscription and professional services revenue. Our cost of revenues is primarily comprised of personnel costs, including stock-based compensation and costs of external resources used in the delivery of services to customers, including software configuration, integration services, and customer support activities, third party costs related to hosting the Company's software for its customers, internal support of production infrastructure, information technology (“IT”) security and production environment expenses, depreciation expense, cost of software production, and license and royalty fees paid to third parties. We expect cost of revenues, exclusive of amortization and impairment of acquired technologies, to increase in absolute dollars as we continue to hire personnel, require additional cloud infrastructure and incur data licensing and royalty fees in support of our revenue growth.

Amortization of Acquired Technologies

We amortize to cost of revenues the capitalized costs of technologies acquired in connection with business acquisitions.

Impairment of Acquired Technologies

Impairment of acquired technologies consists of the impairment charges recognized on our China reporting unit's acquired technologies intangible assets.

Operating expenses

Operating expenses are categorized as follows:

Research and Development

Our research and development expenses consist primarily of personnel-related costs, including stock-based compensation, and costs of external development resources involved in the engineering, design and development of new solutions, as well as expenses associated with significant ongoing improvements to existing solutions. Research and development expenses also include costs for certain IT expenses supporting development environments.

We capitalize research and development costs associated with the software development of our new and enhanced customer solutions and platform development. Research and development costs, other than software development costs qualifying for capitalization, are expensed as incurred.

We expect research and development expenses, excluding stock-based compensation, to increase in absolute dollars as we continue to dedicate substantial resources to develop, improve and expand the functionality of our solutions.

Selling and Marketing

Our selling and marketing expenses consist primarily of personnel-related costs for our sales and marketing functions, including sales commissions and stock-based compensation. Additional expenses include advertising costs, marketing costs and event costs, including the Company’s annual industry conference.

We expect our selling and marketing expenses, excluding stock-based compensation, to increase in absolute dollars as we continue to increase investments to support the growth of our business.

General and Administrative

Our general and administrative expenses consist primarily of personnel-related costs, including stock-based compensation, for our executive management and administrative employees, including finance and accounting, human resources, internal systems IT, facilities and legal functions. Additional expenses include professional service fees, insurance premiums, and other corporate expenses that are not allocated to the above expense categories.

We expect our general and administrative expenses, excluding stock-based compensation, to increase in absolute dollars as we continue to expand our operations, hire additional personnel, and incur costs to support the growth of our business.

Amortization of Intangible Assets

Our amortization of intangible assets consists of the capitalized costs of customer relationships in connection with business acquisitions.

Impairment

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Impairment consists of impairment charges recognized on our China reporting unit's goodwill and intangible assets during the year ended December 31, 2023.

Non-operating income (expense)

Non-operating income (expense) is categorized as follows:

Interest Expense

Interest expense comprises interest incurred on our indebtedness. We expect interest expense to vary each reporting period depending on the amount of outstanding indebtedness and prevailing interest rates.

Interest Income

Interest income comprises interest earned on our cash and cash equivalents balances. We expect interest income to vary each reporting period depending on the amount of our balances in interest bearing accounts and prevailing interest rates.

Change in Fair Value of Warrant Liabilities

Change in fair value of warrant liabilities comprises fair value adjustments of the Public Warrants and Private Warrants assumed in connection with the Business Combination. In December 2021, we redeemed all of our outstanding Public Warrants and none were outstanding as of December 31, 2021 or during subsequent periods. We expect the change in fair value of warrant liabilities to vary each reporting period depending on the fair value adjustments and number of exercises and redemptions of our outstanding Private Warrants during each reporting period.

Gain on Sale of Cost Method Investment

Gain on sale of cost method investment is comprised of proceeds from the sale of the Company's equity interest in an investee in excess of our cost.

Other Income-Net

Other income-net consists primarily of changes in fair value of our interest rate cap derivative instruments and income received from our interest rate cap derivative instruments, as well as foreign currency transaction gains and losses related to the impact of transactions denominated in a foreign currency.

Income Tax Provision

Income tax provision consists of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to current U.S. income tax. Due to cumulative losses, we maintain a full valuation allowance for deferred tax assets in foreign jurisdictions. We expect to maintain this full valuation allowance for the foreseeable future.

42

Results of Operations

Comparison of Fiscal Year Ended December 31, 2023 to Fiscal Year Ended December 31, 2022

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[[/GREPCENT_TABLE]]

NM—Not Meaningful

(1) Includes stock-based compensation expense as follows (in thousands):

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Revenues

Revenue increased by $83.9 million to $866.4 million, or 10.7%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The increase in revenue was primarily a result of an 8% growth from existing customer upgrades and expanding solution offerings to these existing customers as well as 3% growth from new customers.

Cost of Revenues

Cost of revenues increased by $16.3 million to $230.2 million, or 7.6%, for the year ended December 31, 2023, compared to the year ended December 31, 2022.

Cost of Revenues, Exclusive of Amortization and Impairment of Acquired Technologies

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Cost of revenues, exclusive of amortization and impairment of acquired technologies, increased $16.3 million to $203.3 million, or 8.7%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The increase was primarily due to a $10.6 million increase in depreciation expense related to additional investments in platform and customer solution enhancements, a $5.3 million increase in personnel-related costs, including a $3.0 million increase in stock-based compensation, and a $3.1 million increase in third party fees and direct costs associated with our revenue growth, partially offset by a decrease of $3.2 million related to the contract termination fee incurred during the year ended December 31, 2022.

Amortization of Acquired Technologies

Amortization of acquired technologies was $26.5 million and $26.9 million for the years ended December 31, 2023 and 2022, respectively.

Impairment of Acquired Technologies

Impairment of acquired technologies was $0.4 million for the year ended December 31, 2023 due to an impairment charge recognized as a result of lower forecasted earnings and cash flows for the Company's China reporting unit. No impairment was recognized during the year ended December 31, 2022. See Note 12 to the consolidated financial statements included elsewhere in the Annual Report on Form 10-K for additional information.

Gross Profit

Gross profit increased by $67.7 million to $636.2 million, or 11.9%, for the year ended December 31, 2023, compared to the year ended

December 31, 2022. Our gross profit margin increased to 73.4% for the year ended December 31, 2023 compared to 72.7% for the year ended December 31, 2022. The increase in both gross profit and gross profit margin was primarily due to increased software subscription revenues and economies of scale resulting from fixed cost arrangements, partially offset by the increase in depreciation expense related to additional investments in platform and customer solution enhancements.

Research and Development

Research and development expense increased by $16.1 million to $173.1 million, or 10.3%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The increase was due to an $11.1 million increase in IT related costs, an $8.5 million increase in personnel-related costs, including $5.9 million of stock-based compensation, and an $8.3 million increase in consulting and other professional service costs, partially offset by a $11.7 million increase in the amount of capitalized time on new and enhanced customer solutions and platform development.

Selling and Marketing

Selling and marketing expense increased by $21.3 million to $140.9 million, or 17.8%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The increase was primarily due to a $17.6 million increase in personnel and sales incentive related costs, including $7.9 million of stock-based compensation, and a $1.5 million increase in travel costs.

General and Administrative

General and administrative expense increased by $24.1 million to $191.8 million, or 14.4%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The increase was primarily due to a $22.7 million increase in personnel-related costs, including $18.2 million of stock-based compensation, a $5.1 million increase in legal and other professional services costs, and a $2.8 million increase in IT costs, partially offset by a $3.3 million decrease in the Company's facilities costs, a $2.6 million loss on disposal of property and equipment mainly associated with the closure of corporate office facilities during the year ended December 31, 2022, and a $1.8 million decrease in general insurance costs.

Amortization of Intangible Assets

Amortization of intangible assets was $72.0 million and $72.3 million during the years ended December 31, 2023 and 2022, respectively.

Impairment of Goodwill and Intangible Assets

We recorded impairment charges of goodwill and intangible assets of $77.4 million and $4.9 million, respectively, for the year ended December 31, 2023. The impairment charges were the result of lower forecasted earnings and cash flows for the Company’s China reporting unit. There was no impairment charge recognized during the year ended December 31, 2022. See Note 12 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Interest Expense

Interest expense increased by $24.6 million to $63.6 million, or 63.1%, for the year ended December 31, 2023, compared to the year

ended December 31, 2022. The increase was due to higher variable interest rates during the year ended December 31, 2023, compared to the year ended December 31, 2022.

Interest Income

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Interest income increased $15.3 million to $16.3 million for the year ended December 31, 2023. The increase was due to the amount of cash and cash equivalents held in interest bearing accounts during each year and the variable interest rates during the year.

Change in Fair Value of Warrant Liabilities

We recognized expense of $15.1 million from a change in fair value of warrant liabilities for the year ended December 31, 2023, compared to income of $26.1 million for the year ended December 31, 2022. The change in fair value of warrant liabilities during each period was primarily due to changes in the price of the Company's common stock during each respective period.

Gain on Sale for Cost Method Investment

The Company did not recognize any gain or loss on sale for cost method investment during the year ended December 31, 2023. Gain on sale of cost method investment was $3.6 million for the year ended December 31, 2022. The gain recognized was due to the $3.9 million payment received in exchange for its equity interest in an investee as a result of the acquisition of the investee.

Other Income-Net

Other income-net decreased $4.6 million to $1.8 million for the year ended December 31, 2023 compared to $6.4 million for the year ended December 31, 2022. The decrease was primarily due to an $11.4 million difference in the change in fair value of the interest rate cap derivative instruments, partially offset by a $6.5 million increase in income from the interest rate cap derivative instruments.

Income Tax Provision

Income tax provision is $5.5 million for the year ended December 31, 2023, compared to $11.5 million for the year ended December 31, 2022. The income tax provision for the year ended December 31, 2023 was primarily due to the Company's taxable income, after the effect of permanent differences related to stock-based compensation expense and the impairment of certain intangible assets. The income tax provision for the year ended December 31, 2022 was due to the Company's pretax income.

Comparison of Fiscal Year Ended December 31, 2022 to Fiscal Year Ended December 31, 2021

Refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations located in our Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 1, 2023, for the discussion of the comparison of the year ended December 31, 2022 to the year ended December 31, 2021, the earliest of the three fiscal years presented in the consolidated financial statements.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe that Adjusted Gross Profit, Adjusted Operating Expenses, Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share, and Free Cash Flow, which are each non-GAAP measures, are useful in evaluating our operational performance. We use this non-GAAP financial information to evaluate our ongoing operations and for internal planning, budgeting and forecasting purposes and setting management bonus programs. We believe that non-GAAP financial information, when taken collectively with GAAP measures, may be helpful to investors in assessing our operating performance and comparing our performance with competitors and other comparable companies, which may present similar non-GAAP financial measures to investors. Our computation of these non-GAAP measures may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate these measures in the same fashion. We endeavor to compensate for the limitation of the non-GAAP measure presented by also providing the most directly comparable GAAP measure and a description of the reconciling items and adjustments to derive the non-GAAP measure. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures on a supplemental basis.

Adjusted Gross Profit

We believe that Adjusted Gross Profit, as defined below, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our recurring core business operating results. Adjusted Gross Profit is defined as gross profit adjusted for amortization of acquired technologies, stock-based compensation and related employer payroll tax, impairment of acquired technologies, contract termination costs, and Business Combination transaction and related costs. The Adjusted Gross Margin is defined as Adjusted Gross Profit divided by Revenue.

45

The following table reconciles Gross Profit to Adjusted Gross Profit for the years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["(amounts in thousands, except percentages)","","2023","","","2022","","","2021"],["Gross Profit","","$","636,159","","","$","568,509","","","$","492,633"],["Amortization of acquired technologies","","","26,464","","","","26,938","","","","26,320"],["Stock-based compensation and related employer payroll tax","","","9,129","","","","6,090","","","","13,644"],["Impairment of acquired technologies","","","431","","","","\u2014","","","","\u2014"],["Contract termination costs","","","\u2014","","","","3,248","","","","\u2014"],["Business combination transaction and related costs","","","\u2014","","","","\u2014","","","","905"],["Adjusted Gross Profit","","$","672,183","","","$","604,785","","","$","533,502"],["Gross Profit Margin","","","73","%","","","73","%","","","72","%"],["Adjusted Gross Profit Margin","","","78","%","","","77","%","","","78","%"]]
[[/GREPCENT_TABLE]]

Adjusted Operating Expenses

We believe that Adjusted Operating Expenses, as defined below, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our recurring core business operating results. Adjusted Operating Expenses is defined as operating expenses adjusted for amortization of intangible assets, stock-based compensation expense and related employer payroll tax, goodwill and intangible asset impairment charges, litigation costs in legal matters in which the Company is the plaintiff, merger and acquisition ("M&A") and integration costs, Business Combination transaction and related costs, including secondary offering costs, lease abandonment charges, lease overlap costs for the incremental expenses associated with the Company’s new corporate headquarters prior to termination of its then existing headquarters’ lease, change in fair value of contingent consideration and income (costs) related to divestiture, net.

The following table reconciles operating expenses to Adjusted Operating Expenses for the years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["(dollar amounts in thousands)","","2023","","","2022","","","2021"],["Operating expenses","","$","660,084","","","$","516,587","","","$","637,308"],["Amortization of intangible assets","","","(71,972",")","","","(72,278",")","","","(72,358",")"],["Stock-based compensation expense and related employer payroll tax","","","(138,578",")","","","(105,775",")","","","(248,351",")"],["Goodwill and intangible asset impairment charges","","","(82,311",")","","","\u2014","","","","\u2014"],["Plaintiff litigation costs","","","(5,068",")","","","(894",")","","","\u2014"],["M&A and integration costs","","","(3,372",")","","","(1,772",")","","","\u2014"],["Business combination transaction and related costs, including secondary offering costs","","","(2,031",")","","","(1,330",")","","","(11,480",")"],["Lease abandonment","","","\u2014","","","","(6,137",")","","","(2,582",")"],["Lease overlap costs","","","\u2014","","","","(1,338",")","","","(3,697",")"],["Change in fair value of contingent consideration","","","\u2014","","","","100","","","","\u2014"],["Income (costs) related to divestiture, net","","","\u2014","","","","877","","","","(2,177",")"],["Adjusted operating expenses","","$","356,752","","","$","328,040","","","$","296,663"]]
[[/GREPCENT_TABLE]]

Adjusted Operating Income

We believe that Adjusted Operating Income, as defined below, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our recurring core business operating results. Adjusted Operating Income is defined as operating (loss) income adjusted for amortization, stock-based compensation expense and related employer payroll tax, goodwill and intangible asset impairment charges, lease abandonment charges, contract termination costs, M&A and integration costs, lease overlap costs for the incremental expenses associated with the Company’s new corporate headquarters prior to termination of its then existing headquarters’ lease, Business Combination transaction and related costs, including secondary offering costs, litigation costs in legal matters in which the Company is the plaintiff, change in fair value of contingent consideration and (income) costs related to divestiture, net.

46

The following table reconciles operating (loss) income to Adjusted Operating Income for the years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["(dollar amounts in thousands)","","2023","","","2022","","","2021"],["Operating (loss) income","","$","(23,925",")","","$","51,922","","","$","(144,675",")"],["Amortization of intangible assets","","","71,972","","","","72,278","","","","72,358"],["Amortization of acquired technologies\u2014Cost of revenue","","","26,464","","","","26,938","","","","26,320"],["Stock-based compensation expense and related employer payroll tax","","","147,707","","","","111,865","","","","261,995"],["Goodwill and intangible asset impairment charges","","","82,742","","","","\u2014","","","","\u2014"],["Plaintiff litigation costs","","","5,068","","","","894","","","","\u2014"],["M&A and integration costs","","","3,372","","","","1,772","","","","\u2014"],["Business combination transaction and related costs, including secondary offering costs","","","2,031","","","","1,330","","","","12,385"],["Lease abandonment","","","\u2014","","","","6,137","","","","2,582"],["Contract termination costs","","","\u2014","","","","3,248","","","","\u2014"],["Lease overlap costs","","","\u2014","","","","1,338","","","","3,697"],["Change in fair value of contingent consideration","","","\u2014","","","","(100",")","","","\u2014"],["(Income) costs related to divestiture, net","","","\u2014","","","","(877",")","","","2,177"],["Adjusted operating income","","$","315,431","","","$","276,745","","","$","236,839"]]
[[/GREPCENT_TABLE]]

Adjusted EBITDA

We believe that Adjusted EBITDA, as defined below, is useful in evaluating our operational performance distinct and apart from financing costs, certain expenses that may not be indicative of our recurring core business operating results and non-operational expenses. Adjusted EBITDA is defined as net (loss) income adjusted for interest, taxes, amortization, depreciation, stock-based compensation expense and related employer payroll tax, goodwill and intangible asset impairment charges, change in fair value of warrant liabilities, change in fair value of derivative instruments, change in fair value of interest rate swap agreements, litigation costs in legal matters in which the Company is the plaintiff, M&A and integration costs, Business Combination transaction and related costs, including secondary offering costs, income from derivative instruments, lease abandonment charges, contract termination costs, lease overlap costs for the incremental expenses associated with the Company’s new corporate headquarters prior to termination of its then existing headquarters’ lease, change in fair value of contingent consideration, (income) costs related to divestiture, net, gain on sale of cost method investment, and loss on early extinguishment of debt. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Revenue.

The following table reconciles net (loss) income to Adjusted EBITDA for the years ended December 31, 2023, 2022 and 2021:

47

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["(dollar amounts in thousands)","","2023","","","2022","","","2021"],["Net (loss) income","","$","(90,071",")","","$","38,406","","","$","(248,919",")"],["Interest expense","","","63,577","","","","38,990","","","","58,990"],["Interest income","","","(16,252",")","","","(908",")","","","\u2014"],["Income tax provision (benefit)","","","5,524","","","","11,456","","","","(26,000",")"],["Amortization of intangible assets","","","71,972","","","","72,278","","","","72,358"],["Amortization of acquired technologies\u2014Cost of revenue","","","26,464","","","","26,938","","","","26,320"],["Depreciation and amortization related to software, equipment and property","","","8,577","","","","10,161","","","","12,511"],["Depreciation and amortization related to software, equipment and property\u2014Cost of revenue","","","28,325","","","","17,772","","","","11,940"],["Stock-based compensation expense and related employer payroll tax","","","147,707","","","","111,865","","","","261,995"],["Goodwill and intangible asset impairment charges","","","82,742","","","","\u2014","","","","\u2014"],["Change in fair value of warrant liabilities","","","15,096","","","","(26,073",")","","","64,501"],["Change in fair value of derivative instruments","","","5,743","","","","(5,663",")","","","\u2014"],["Change in fair value of interest rate swap agreements","","","\u2014","","","","\u2014","","","","(8,373",")"],["Income from derivative instruments","","","(6,460",")","","","\u2014","","","","\u2014"],["Plaintiff litigation costs","","","5,068","","","","894","","","","\u2014"],["M&A and integration costs","","","3,372","","","","1,772","","","","\u2014"],["Business combination transaction and related costs, including secondary offering costs","","","2,031","","","","1,330","","","","12,385"],["Lease abandonment","","","\u2014","","","","6,137","","","","2,582"],["Contract termination costs","","","\u2014","","","","3,248","","","","\u2014"],["Lease overlap costs","","","\u2014","","","","1,338","","","","3,697"],["Change in fair value of contingent consideration","","","\u2014","","","","(100",")","","","\u2014"],["Gain on sale of cost method investment","","","\u2014","","","","(3,587",")","","","\u2014"],["(Income) costs related to divestiture, net","","","\u2014","","","","(877",")","","","2,177"],["Loss on early extinguishment of debt","","","\u2014","","","","\u2014","","","","15,240"],["Adjusted EBITDA","","$","353,415","","","$","305,377","","","$","261,404"],["Adjusted EBITDA Margin","","","41","%","","","39","%","","","38","%"]]
[[/GREPCENT_TABLE]]

Adjusted Net Income and Adjusted Earnings Per Share

We believe that Adjusted Net Income, as defined below, and Adjusted Earnings Per Share are useful in evaluating our operational performance distinct and apart from certain expenses that may not be indicative of our recurring core business operating results. Adjusted Net Income is defined as net (loss) income adjusted for the after-tax effects of amortization, stock-based compensation expense and related employer payroll tax, income from derivative instruments, change in fair value of interest rate swap agreements, goodwill and intangible asset impairment charges, change in fair value of warrant liabilities, change in fair value of derivative instruments, litigation costs in legal matters in which the Company is the plaintiff, M&A and integration costs, Business Combination transaction and related costs, including secondary offering costs, lease abandonment charges, contract termination costs, lease overlap costs for the incremental expenses associated with the Company’s new corporate headquarters prior to termination of its then existing headquarters’ lease, change in fair value of contingent consideration, (income) costs related to divestiture, net, gain on sale of cost method investment, and loss on early extinguishment of debt.

48

The following table reconciles net (loss) income to Adjusted Net Income and Adjusted Earnings per Share for the years ended December 31, 2023, 2022 and 2021.

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["(dollar amounts in thousands)","","2023","","","2022","","","2021"],["Net (loss) income","","$","(90,071",")","","$","38,406","","","$","(248,919",")"],["Amortization of intangible assets","","","71,972","","","","72,278","","","","72,358"],["Amortization of acquired technologies\u2014Cost of revenue","","","26,464","","","","26,938","","","","26,320"],["Stock-based compensation expense and related employer payroll tax","","","147,707","","","","111,865","","","","261,995"],["Goodwill and intangible asset impairment charges","","","82,742","","","","\u2014","","","","\u2014"],["Change in fair value of warrant liabilities","","","15,096","","","","(26,073",")","","","64,501"],["Change in fair value of derivative instruments","","","5,743","","","","(5,663",")","","","\u2014"],["Change in fair value of interest rate swap agreements","","","\u2014","","","","\u2014","","","","(8,373",")"],["Plaintiff litigation costs","","","5,068","","","","894","","","","\u2014"],["M&A and integration costs","","","3,372","","","","1,772","","","","\u2014"],["Business combination transaction and related costs, including secondary offering costs","","","2,031","","","","1,330","","","","12,385"],["Lease abandonment","","","\u2014","","","","6,137","","","","2,582"],["Contract termination costs","","","\u2014","","","","3,248","","","","\u2014"],["Lease overlap costs","","","\u2014","","","","1,338","","","","3,697"],["Change in fair value of contingent consideration","","","\u2014","","","","(100",")","","","\u2014"],["(Income) costs related to divestiture, net","","","\u2014","","","","(877",")","","","2,177"],["Gain on sale of cost method investment","","","\u2014","","","","(3,587",")","","","\u2014"],["Loss on early extinguishment of debt","","","\u2014","","","","\u2014","","","","15,240"],["Tax effect of adjustments","","","(59,638",")","","","(51,495",")","","","(73,684",")"],["Adjusted net income","","$","210,486","","","$","176,411","","","$","130,279"],["Adjusted net income per share attributable to common stockholders"],["Basic","","$","0.34","","","$","0.29","","","$","0.24"],["Diluted","","$","0.32","","","$","0.27","","","$","0.23"],["Weighted average shares outstanding"],["Basic","","","617,889,384","","","","607,760,886","","","","543,558,222"],["Diluted","","","651,587,360","","","","642,841,596","","","","575,619,243"]]
[[/GREPCENT_TABLE]]

Free Cash Flow

We believe that Free Cash Flow, as defined below, provides meaningful supplemental information regarding our ability to generate cash and fund our operations and capital expenditures. Free Cash Flow is defined as net cash provided by operating activities less cash used for the purchases of software, equipment and property, and purchase of intangible assets.

The following table reconciles net cash provided by operating activities to Free Cash Flow for the years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["(dollar amounts in thousands)","","2023","","","2022","","","2021"],["Net cash provided by operating activities","","$","250,033","","","$","199,907","","","$","127,335"],["Less: Purchases of software, equipment, and property","","","(55,032",")","","","(47,951",")","","","(38,321",")"],["Less: Purchase of intangible assets","","","\u2014","","","","\u2014","","","","(49",")"],["Free Cash Flow","","$","195,001","","","$","151,956","","","$","88,965"]]
[[/GREPCENT_TABLE]]

Liquidity and Capital Resources

We have financed our operations with cash flows from operations. The Company generated $250.0 million of cash flows from operating activities for the year ended December 31, 2023. As of December 31, 2023, the Company had cash and cash equivalents of $195.6 million and a working capital surplus of $197.1 million. As of December 31, 2023, the Company had an accumulated deficit totaling $1,126.5 million and $784.0 million principal outstanding on our term loan.

We believe that our existing cash and cash equivalents, our cash flows from operating activities and our borrowing capacity under our 2021 Revolving Credit Facility will be sufficient to fund our operations, fund required long-term debt repayments and meet our commitments for capital expenditures for at least the next twelve months.

We are not currently a party to any material definitive agreement regarding potential investments in, or acquisitions of, complementary business, applications or technologies. However, we may enter into these types of arrangements, which could reduce our cash and cash equivalents or require us to seek additional equity or debt financing. Additional funds from financing arrangements may not be available on terms favorable to us or

49

at all. We may require additional borrowings under our credit arrangements and alternative forms of financings or investments to achieve our longer-term strategic plans.

Debt

On September 21, 2021, CCC Intelligent Solutions Inc., an indirect wholly owned subsidiary of the Company, together with certain of the Company’s subsidiaries acting as guarantors entered into a credit agreement (the "2021 Credit Agreement").

The 2021 Credit Agreement replaced the Company’s 2017 First Lien Credit Agreement (the “First Lien Credit Agreement”), dated as of April 27, 2017, as amended as of February 14, 2020.

The proceeds of the 2021 Credit Agreement were used to repay all outstanding borrowings under the First Lien Credit Agreement.

2021 Credit Agreement—The 2021 Credit Agreement consists of the $800.0 million term loan (the "Term B Loan") and a revolving credit facility for an aggregate principal amount of $250.0 million (the "2021 Revolving Credit Facility" and together with the Term B Loan, the "2021 Credit Facilities"). The 2021 Revolving Credit Facility has a sublimit of $75.0 million for letters of credit. The Company received proceeds of $798.0 million, net of debt discount of $2.0 million, related to the Term B Loan.

The Term B Loan requires quarterly principal payments of $2.0 million until June 30, 2028, with the remaining outstanding principal amount required to be paid on the maturity date, September 21, 2028. Beginning with fiscal year ended December 31, 2022, if the Company's leverage ratio, as defined in the 2021 Credit Agreement is greater than 3.5, the Term B Loan requires a prepayment of principal, subject to certain exceptions, in connection with the receipt of proceeds from certain asset sales, casualty events, and debt issuances by the Company, and up to 50% of annual excess cash flow, as defined in and as further set forth in the 2021 Credit Agreement. When a principal prepayment is required, the prepayment offsets the future quarterly principal payments of the same amount. As of December 31, 2023 and 2022, the Company's leverage ratio did not exceed the 3.5 threshold and the Company was not subject to the annual excess cash flow calculation, and as such, not required to make a prepayment of principal.

As of December 31, 2023 and 2022, the amount outstanding under the Term B Loan is $784.0 million and $792.0 million, respectively, of which, $8.0 million is classified as current.

Borrowings under the 2021 Credit Facilities bear interest at rates based on the ratio of the Company’s and its subsidiaries’ consolidated first lien net indebtedness to the Company’s and its subsidiaries’ consolidated EBITDA for applicable periods specified in the 2021 Credit Agreement.

On May 19, 2023, the Company entered into Amendment No. 1 to the 2021 Credit Agreement (the “Amendment”) to establish SOFR as the benchmark rate for determining the applicable interest rate, replacing LIBOR. No other terms, including the amount of borrowings, required payments or maturity date, were changed as a result of the Amendment. The Company did not incur any significant costs associated with the Amendment.

Subsequent to the execution of the Amendment, the interest rate per annum applicable to the loans is based on a fluctuating rate of interest equal to the sum of an applicable rate and term SOFR (other than with respect to Euros, Euribor and with respect to British Pounds Sterling, SONIA) with a term as selected by the Company, of one, three or six months (subject to (x) in the case of term loans, a 0.50% per annum floor and (y) in the case of revolving loans, a 0.00% per annum floor.

Prior to the execution of the Amendment, the interest rate per annum applicable to the loans was based on a fluctuating rate of interest equal to the sum of an applicable rate and, at the Company’s election from time to time, either:

(1)
a base rate determined by reference to the highest of (a) the rate last quoted by the Wall Street Journal as the “prime rate,” (b) the federal funds effective rate plus 0.50%, (c) one-month LIBOR plus 1.00% and (d) with respect to the Term B Loan, 1.50% and with respect to the 2021 Revolving Credit Facility, 1.00%, or

(2)
a Eurocurrency rate determined by reference to LIBOR (other than with respect to Euros, Euribor and with respect to British Pounds Sterling, SONIA) with a term as selected by the Company, of one, three or six months (subject to (x) in the case of term loans, a 0.50% per annum floor and (y) in the case of revolving loans, a 0.00% per annum floor).

A quarterly commitment fee of up to 0.50% is payable on the unused portion of the 2021 Revolving Credit Facility. The 2021 Revolving Credit Facility matures on September 21, 2026.

During the years ended December 31, 2023, 2022, and 2021 the weighted-average interest rate on the outstanding borrowings under the Term B Loan was 7.5%, 4.2%, and 3.0%, respectively. The Company made Term B Loan interest payments of $58.6 million, $33.5 million, and $6.7 million during the years ended December 31, 2023, 2022, and 2021 respectively.

During the year ended December 31, 2021, the Company issued a standby letter of credit for $0.7 million which reduces the amount available to be borrowed under the 2021 Revolving Credit Facility and at December 31, 2023 and 2022, $249.3 million was available to be borrowed.

Borrowings under the 2021 Credit Agreement are guaranteed by Cypress Holdings Intermediate Holdings II, Inc., and certain of its US

subsidiaries by a perfected first priority lien on the stock of CCC Intelligent Solutions Inc., and substantially all of its assets, subject to various limitations and exceptions.

The 2021 Credit Agreement contains representations and warranties, and affirmative and negative covenants, that among other things, restrict, subject to certain exceptions, our ability to: incur additional indebtedness, incur liens, engage in mergers, consolidations, liquidations or

50

dissolutions; pay dividends and distributions on, or redeem, repurchase or retire our capital stock; and make certain investments, acquisitions, loans, or advances.

The terms of the 2021 Credit Agreement include a financial covenant which requires that, at the end of each fiscal quarter, if the aggregate amount of borrowings under the 2021 Revolving Credit Facility exceeds 35% of the aggregate commitments, the Company’s leverage ratio cannot exceed 6.25 to 1.00. Borrowings under the 2021 Revolving Credit Facility did not exceed 35% of the aggregate commitments and the Company was not subject to the leverage test during the years ended December 31, 2023 and 2022.

First Lien Credit Agreement—In April 2017, the Company entered into the First Lien Credit Agreement. The First Lien Credit Agreement initially consisted of a $1.0 billion term loan (“First Lien Term Loan”), a $65.0 million dollar revolving credit facility (“Dollar Revolver”), and a $35.0 million multicurrency revolving credit facility (“Multicurrency Revolver” and together with the Dollar Revolver, the “First Lien Revolvers”), with a sublimit of $30.0 million for letters of credit under the First Lien Revolvers. The Company received proceeds of $997.5 million, net of debt discount of $2.5 million, related to the First Lien Term Loan.

In February 2020, the Company refinanced its long-term debt (“2020 Refinancing”) and entered into the First Amendment to the First Lien Credit Agreement (“First Lien Amendment”). The First Lien Amendment provided an incremental term loan in the amount of $375.0 million.

Using a portion of the proceeds from the Business Combination, the Company made a principal prepayment of $525.0 million on July 30, 2021. Subsequently, in September 2021, using the proceeds from the Term B Loan provided in the 2021 Credit Agreement and cash on hand, the Company fully repaid the remaining $804.2 million of outstanding borrowings on the First Lien Term Loan.

During the year ended December 31, 2021, the weighted-average interest rate on the outstanding borrowings under the First Lien Term Loan was 4.1%. The Company made interest payments of $36.1 million during the year ended December 31, 2021.

Interest Rate Cap—In August 2022, the Company entered into two interest rate cap agreements to reduce its exposure to increases in interest rates applicable to its floating rate long-term debt. The fair value of the interest rate cap agreements was estimated using inputs that were observable or that could be corroborated by observable market data and therefore, was classified within Level 2 of the fair value hierarchy as of December 31, 2023 and 2022.

The Company did not designate its interest rate cap agreements as hedging instruments and records the changes in fair value within earnings.

During the year ended December 31, 2023, the Company transitioned the referenced interest rate within the two interest rate cap agreements from LIBOR to SOFR by terminating the original agreements and simultaneously entering into new agreements. The terms of the new agreements were unchanged except for the referenced interest rate. The Company elected the optional expedients available within ASC 848 to allow for this transition without any modification to the derivative classification of the interest rate cap agreements.

As of December 31, 2023 and 2022, the interest rate cap agreements had a fair value of $6.2 million and 12.0 million, respectively, classified within other assets in the accompanying consolidated balance sheets.

Cash received related to the interest rate cap agreements was $6.5 million for the year ended December 31, 2023. The Company received an insignificant amount of cash related to the interest rate cap agreements during the year ended December 31, 2022.

Interest Rate Swaps—In June 2017, the Company entered into three floating to fixed interest rate swap agreements (“Swap Agreements”) to reduce its exposure to the variability from future cash flows resulting from interest rate risk related to its floating rate long-term debt. On September 21, 2021, the Company made an aggregate payment of $10.0 million to extinguish the Swap Agreements that were scheduled to expire in June 2022.

Contractual Obligations and Commitments

Our estimated future contractual obligations and commitments as of December 31, 2023 consist of:

•
Principal payments related to our long-term debt and related periodic interest payments;

•
Routine tax payments;

•
Operating lease liabilities;

•
Long-term licensing agreement; and

•
Other contractual purchase obligations.

Refer to Note 7 "Income Taxes," Note 11 "Leases," Note 16 "Long-Term Debt," Note 17 "Long-Term Licensing Agreement," and Note 23 "Commitments" to our consolidated financial statements included in this Annual Report on Form 10-K for more information regarding our material contractual obligations and commitments.

51

Cash Flows

The following table provides a summary of cash flow data for the years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["(dollar amounts in thousands)","2023","","","2022","","","2021"],["Net cash provided by operating activities","$","250,033","","","$","199,907","","","$","127,335"],["Net cash used in investing activities","","(55,032",")","","","(76,292",")","","","(48,598",")"],["Net cash (used in) provided by financing activities","","(323,026",")","","","17,875","","","","(58,440",")"],["Net effect of exchange rate change","","(191",")","","","(246",")","","","129"],["Change in cash and cash equivalents","$","(128,216",")","","$","141,244","","","$","20,426"]]
[[/GREPCENT_TABLE]]

2023

Net cash provided by operating activities was $250.0 million for the year ended December 31, 2023. Net cash provided by operating activities consists of net loss of $90.1 million, adjusted for $341.0 million of non-cash items, $1.8 million for changes in working capital and $(2.7) million for the effect of changes in other operating assets and liabilities. Significant non-cash adjustments include stock-based compensation expense of $144.5 million, depreciation and amortization of $135.3 million, impairment of goodwill and intangible assets of $82.7 million, change in fair value of warrant liabilities of $15.1 million, change in fair value of derivative instruments of $5.7 million and deferred income tax benefits of ($46.3) million. The change in working capital was primarily a result of an $8.3 million increase in deferred revenues due to revenue growth and timing of customer payments, a $5.0 million change in income taxes due to timing of payments and a $4.0 million decrease in other current assets due to timing of payments for prepaid and other deferred costs, partially offset by a decrease in accounts payable of $11.3 million due to timing of payments and an increase in accounts receivable of $4.0 million due to revenue growth.

Net cash used in investing activities was $55.0 million for the year ended December 31, 2023. Net cash used in investing activities was due to purchases of software, equipment and property, primarily from capitalized time on new and enhanced customer solutions and platform development.

Net cash used in financing activities was $323.0 million for the year ended December 31, 2023. Net cash used in financing activities was due to a $328.5 million repurchase of common stock, $16.7 million of payroll tax payments related to the net share settlement of equity awards, and $8.0 million of long-term debt payments, partially offset by $25.4 million of proceeds from stock options exercises and $4.8 million of proceeds from shares purchased through the Company's Employee Stock Purchase Plan.

2022

Net cash provided by operating activities was $199.9 million for the year ended December 31, 2022. Net cash provided by operating activities consists of net income of $38.4 million, adjusted for $175.4 million of non-cash items, $2.7 million for changes in working capital and ($16.7) million for the effect of changes in other operating assets and liabilities. Non-cash adjustments include stock-based compensation expense of $109.4 million, depreciation and amortization of $127.1 million, non-cash lease expense of $3.7 million, amortization of deferred financing fees and debt discount of $2.1 million, change in fair value of warrant liabilities of ($26.1) million, deferred income tax benefits of ($34.6) million and a change in fair value of derivative instruments of ($5.7) million. The change in working capital was primarily a result of an increase in accounts payable of $15.5 million due to timing of payments, a decrease in other current assets of $9.8 million due to timing of payments for prepaid and other deferred costs, an increase in accrued expenses of $4.8 million and an increase in deferred revenue of $4.2 million due to revenue growth and timing of customer payments, partially offset by an increase in accounts receivable of $19.8 million due to revenue growth and timing of receipt of customer payments and a change in income taxes of $10.0 million due to timing of payments. The change in other operating assets and liabilities was a result of an increase in non-current other assets of $14.5 million due to timing of payments for prepaid and other deferred costs, including the $6.3 million interest rate cap premium payment.

Net cash used in investing activities was ($76.3) million for the year ended December 31, 2022. Net cash used in investing activities was due to $48.0 million of purchases of software, equipment and property, including capitalized internally developed software projects and $32.2 million for a business acquisition, partially offset by $3.9 million of proceeds from the sale of a cost method investment.

Net cash provided by financing activities was $17.9 million for the year ended December 31, 2022. Net cash provided by financing activities was due to $27.7 million of proceeds from stock option exercises and $3.2 million of proceeds from shares purchased through the Company's Employee Stock Purchase Plan, partially offset by $8.0 million of principal payments of long-term debt and $5.0 million of tax payments related to the net share settlement of employee equity awards.

2021

Net cash provided by operating activities was $127.3 million for the year ended December 31, 2021. Net cash provided by operating activities consists of net loss of $248.9 million, adjusted for $420.1 million of non-cash items, ($4.5) million for changes in working capital and ($39.4) million for the effect of changes in other operating assets and liabilities. Non-cash adjustments include stock-based compensation expense of $262.0 million, depreciation and amortization of $123.1 million, change in fair value of warrant liabilities of $64.5 million, a loss on early extinguishment of debt of $15.2 million, $6.3 million in non-cash lease expense, amortization of deferred financing fees and debt discount of $4.3 million, deferred income tax benefits of ($46.9) million and a change in fair value of interest rate swaps of ($8.4) million. The change in working capital was primarily a result of an increase in other current assets of $12.3 million due to timing of payments for prepaid and other deferred costs, an increase in accounts receivable of $4.7 million due to revenue growth and an increase in the current portion of deferred contract costs of $3.1 million due to higher employee sales incentives, partially offset by an increase in accrued expenses of $8.3 million due to timing of payments, an increase in

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deferred revenue of $4.5 million due to revenue growth and timing of customer payments and an increase in income taxes of $3.8 million due to timing of payments. The change in other operating assets and liabilities was primarily a result of an increase in non-current other assets of $7.8 million due to timing of payments and other deferred costs, an increase in non-current deferred contract costs of $7.7 million due to higher employee sales incentives, a $10.2 million cash settlement of vested phantom stock, and a $10.0 million payment for the early extinguishment of the Company’s interest rate swap agreements.

Net cash used in investing activities was $48.6 million for the year ended December 31, 2021. Net cash used in investing activities is primarily related to capitalized time on internally developed software projects and purchases of software, equipment and property of $38.3 million and an investment in a limited partnership of $10.2 million.

Net cash used in financing activities was $58.4 million for the year ended December 31, 2021. Net cash used in financing activities was primarily related to principal payments of long-term debt of $1,336.2 million, dividends to shareholders prior to the Business Combination of $269.2 million and a deemed distribution to CCCIS option holders of $9.0 million, partially offset by borrowings from the Term B Loan, net of fees paid to the lender, of $789.9 million, and net proceeds from the Business Combination of $763.3 million.

Recent Accounting Pronouncements

See Note 2 to our audited consolidated financial statements for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures. Our estimates are based on our historical experience, trends and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material.

For information on our significant accounting policies, see Note 2 to our audited consolidated financial statements.

We believe the following critical accounting policies affect our most significant judgments and estimates used in preparation of our consolidated financial statements:

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Revenue Recognition

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Valuation of Goodwill and Intangible Assets

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Stock-based Compensation

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Valuation of Warrant Liabilities

Revenue Recognition

Revenue recognition requires judgment and the use of estimates. The Company generates revenue from subscription-based contracts that are billed either on a subscription or transactional basis. Revenue is derived from the sale of SaaS subscriptions, and other revenue, primarily professional and non-software services.

The estimates and assumptions requiring significant judgment under our revenue recognition policy in accordance with ASC 606, Revenue from Contracts with Customers, are as follows:

Determine the transaction price

The transaction price is determined based on the consideration to which we expect to be entitled in exchange for services to the customer. Variable consideration is included in the transaction price if, in our judgment, it is probable that no significant future reversal of cumulative revenue under the contract will occur. The sale of our SaaS subscriptions may include variable consideration related to usage-based contracts and provisions for additional fees when the volume of a customer’s transactions exceeds agreed upon maximums within defined reporting periods. We estimate variable consideration based on the most likely amount, to the extent that a significant revenue reversal is not probable to occur.

The Company may occasionally recognize an adjustment in revenue in the current period for performance obligations partially or fully satisfied in the previous periods resulting from changes in estimates for the transaction price, including any changes to the Company’s assessment of whether an estimate of variable consideration is constrained. For the years ended December 31, 2023, 2022 and 2021, the impact on revenue recognized in the respective period, from performance obligations partially or fully satisfied in the previous period, was not significant.

Determine the amortizable life of contract assets

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial contracts are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to generally be between three and five years. We determined the period of benefit by taking into consideration our customer contracts, our technology,

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and other factors. Most often with larger customers, a new contract or amended master agreement will not include a renewal period that requires assessment of whether the new business and renewal business commissions are commensurate. This is because the solutions and services offered as part of the new contract or amended agreement will be different from the original due to changes in technology and offerings. While the renewal period may be reached, most often a new multi-year agreement is signed that includes new services and features which will pay out a commission on the new services and features at the new business percentage and the renewal services and features at the renewal commission percentage. In situations when the renewal period is triggered, it is typically with smaller customers where the sales commission paid is insignificant. Thus, sales commissions are amortized on a systematic basis over three to five years which corresponds to the period and pattern in which revenue is recognized. Sales commissions for renewal contracts are deferred and then amortized on a straight-line basis over the related contractual renewal period. Amortization expense is included in selling and marketing expenses on the consolidated statements of operations and comprehensive (loss) income.

Valuation of Goodwill and Intangible Assets

We perform an annual assessment for impairment of goodwill and indefinite-lived intangible assets each fiscal year, or whenever events occur or circumstances indicate that it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is below its carrying value.

The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment. In estimating the fair value of a reporting unit for the purposes of our annual or periodic impairment analyses, we make estimates and significant judgments about the future cash flows of that reporting unit. Our cash flow forecasts are based on assumptions that represent the highest and best use for our reporting units. Changes in judgment on these assumptions and estimates could result in goodwill impairment charges. We believe that the assumptions and estimates utilized are appropriate based on the information available to management.

We have two reporting units, Domestic and China, for purposes of analyzing goodwill. As a result of adverse macroeconomic impacts due to changes in market conditions and increases in interest rates, which contributed to downward revisions to future projected earnings and cash flows, we performed an interim quantitative goodwill test of our China reporting unit during the three months ended June 30, 2023. As a result of our quantitative impairment test, we determined the fair value of our China reporting unit was less than its carrying value and we recorded a goodwill impairment charge of $77.4 million during the year ended December 31, 2023.

We used a quantitative approach to measure the fair value of the China reporting unit using a discounted cash flow approach, which is a Level 3 measurement. The discounted cash flow analysis requires significant judgments, including estimates of future cash flows, which are dependent on internal forecasts and determination of the Company’s weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used for the China reporting unit in the Company’s analysis was 12.5%.

During the year ended December 31, 2023, the Company performed a qualitative assessment for its Domestic reporting unit's goodwill and trademark indefinite life intangible assets. For the qualitative analysis, the Company assessed several events and circumstances that could affect the significant inputs used to determine the fair values of the reporting unit and trademarks, including the significance of the amount of excess fair value over carrying value, consistency of operating margins and cash flows, budgeted-to-actual performance from prior year, overall change in economic climate, changes in the industry and competitive environment, key management turnover, and earnings quality and sustainability. There were no unanticipated changes or negative indicators in the above qualitative factors that would impact the fair values as of the annual impairment date. As such, the Company determined there were no indicators of impairment and that it is more likely than not that the fair value of the reporting unit and trademarks are greater than their carrying values and therefore performing the next step of the impairment test was unnecessary.

For the years ended December 31, 2022 and 2021 the Company performed a quantitative impairment test which indicated no impairment and there was no change to the carrying amount of goodwill or trademarks due to impairment.

If management's estimates of future operating results change or if there are changes to other assumptions due to these factors, the estimate of the fair value may change significantly. Such change could result in impairment charges in future periods, which could have a significant impact on our operating results and financial condition.

Intangible assets with finite lives are amortized over their estimated useful life on a straight-line basis. We monitor conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization period. We test these assets for potential impairment whenever our management concludes events or changes in circumstances indicate that the carrying amount may not be recoverable. The original estimate of an asset’s useful life and the impact of an event or circumstance on either an asset’s useful life or carrying value involve significant judgment regarding estimates of the future cash flows associated with each asset.

During the year ended December 31, 2023, the Company recorded an impairment charge to its China reporting unit's customer relationships and acquired technologies intangible assets. The Company's forecast of the China reporting unit's expected cash flows indicated the carrying amounts of the intangible assets were not recoverable and therefore the Company recorded an impairment charge of $5.3 million.

There was no impairment charge recorded during the years ended December 31, 2022 and 2021.

Stock-based Compensation

The Company accounts for stock-based compensation plans in accordance with ASC 718, Compensation—Stock Compensation, which requires the recognition of expense measured based on the grant date fair value of the stock-based awards. Our stock-based awards include stock options, restricted stock units (“RSUs”), shares issued through our employee stock purchase program, and phantom shares. Stock-based payment awards that are settled in cash are accounted for as liabilities. Our stock-based awards have service-based vesting, performance-based vesting and performance-based vesting subject to a market condition.

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The grant date fair value of our service-based awards, excluding RSUs, is determined using the Black-Scholes option-pricing model. The fair value of each service-based and performance-based RSU is determined using the fair value of the underlying common stock on the date of grant. The fair value of each award with performance-based vesting subject to a market condition is determined using a Monte Carlo simulation model.

For stock-based awards with only service conditions, we recognize stock-based compensation expense on a straight-line basis over the requisite service period only for the portion of awards expected to vest, based on an estimated forfeiture rate. For stock-based awards with only performance conditions, we recognize stock-based compensation expense on a straight-line basis over the explicit performance period when the performance targets are probable of being achieved. As of each reporting period, we estimate the number of RSUs with a performance-based vesting component that are expected to vest based on our current estimate of performance compared to the target metrics and record a cumulative-effect adjustment to stock-based compensation expense when necessary. We recognize stock-based compensation expense on awards with performance-based vesting subject to a market condition when the performance targets are considered probable of being achieved. The determination of the grant date fair value for these awards is affected by assumptions regarding a number of complex and subjective variables, including expected stock price volatility over the expected term of the award, the risk-free interest rate for the expected term of the award and expected dividends. The market condition of these awards impacts the fair value at the grant date and is the reason the Monte Carlo simulation method is utilized to determine fair value. For stock-based awards that are accounted for as liabilities, we remeasure the fair value of the associated liability at each reporting date through settlement using the Black-Scholes option pricing model and recognize the adjustment as stock-based compensation expense.

Key assumptions used in the Black-Scholes option pricing model and Monte Carlo simulation method include:

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Fair Value of Common Stock—Prior to the Business Combination, there was no public market for our common stock. For those periods included in our consolidated financial statements, fair values of the shares of common stock underlying our stock-based awards were estimated on each grant date by our board of directors. Our board of directors, with input from management considered, among other things, valuations of our common stock, which were prepared in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation as well as the most recent acquisition of the Company for grants in 2017.

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Expected Term—The expected term represents the period that stock-based awards are expected to be outstanding and, for time-based awards, is determined using the simplified method that uses the weighted average of the time-to-vesting and the contractual life of the awards.

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Expected Volatility—As we have limited trading history for our common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty.

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Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of awards.

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Expected Dividend Yield—Historically, we have not paid regular dividends on our common stock and have no plans to pay dividends on our common stock on a regular basis. We do not have a dividend policy. Therefore, we used an expected dividend yield of zero.

See Note 21 to our consolidated financial statements for more information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model and Monte Carlo simulation method to determine the estimated fair value of our stock-based awards with service vesting and performance vesting. Some of these assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

Valuation of Warrant Liabilities

We account for our Private Warrants in accordance with the guidance contained in ASC 815-40. The warrants do not meet the criteria for equity treatment, thus we classify the warrants as liabilities at their fair value and adjust the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the warrants are exercised or redeemed. Any change in fair value is recognized in our consolidated statements of operations and comprehensive (loss) income. The fair value of the Private Warrants was determined using the Black-Scholes option pricing model.

See Note 6 to our consolidated financial statements for more information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the fair value of our Private Warrants. Some of these assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our warrant liabilities could be materially different.