CCCS

Publicly traded companies mentioned herein: CCC Intelligent Solutions Holdings Inc (CCCS), Mastercard Inc (MA), Progressive Corp/The (PGR), Visa Inc (V)

Highlights

The presenter is bullish on CCCS, a leading software interface/network that connects commercial auto insurers with auto repair shops, which de-SPAC’d on August 2nd following the closure of its business combination with Dragoneer (sponsor). 

The view here is that this company can become a one-decision growth annuity over time, and one with a highly strategic competitive moat. The company has 19 of 20 major auto insurers who use their software/platform including State Farm which is being onboarded now. Progressive will likely always do theirs in-house, leaving CCCS in position to service the entire industry ex-Progressive by the end of this year. On the flip side of this equation, CCCS has a growing share in collision repair shops and a good reputation, with an NPS score of 80. If you think about an auto insurance claim from start-to-finish using an insurance adjuster in the middle of each claim, CCCS is looking to re-engineer that process and eliminate the cost of the adjuster. CCCS envisions itself becoming the AI, ML, deep-learning background that allows insurance carriers to save 5% off $35B in claims – roughly $1.75B in adjuster fees-- because they can just get rid of that cost entirely by relying instead on their enormously valuable data to build algorithms from catalogs of accident pictures, repair records, and claims adjudication.

The company generates slightly under $700MM in revenue, and we think the TAM is $4B which would put them at 18% - 19% penetrated. Even though they’re with most of the insurers on the carrier side of a claim, they’re not yet with all the collision repair shops on the other side of a claim, and we think that they will be growing that share significantly. If you’re a collision repair shop and you’re not signing up with CCCS (now almost 20% of collision claims), you run the risk of missing out on your referrals as the carriers increasingly want to steer claims to their narrow networks of shops that make their own business more profitable.

Dragoneer, the sponsor, is a very high-quality company—more in the private to cross-over arena, and we think they were careful in their diligence on CCCS, which was their first SPAC. They have two others in the marketplace. 

The stock is expensive trading now at 23x 2022 EBITDA and 19.5x 2023 EBITDA, but the comps here trade at 35x, and we believe CCCS is the better business. The company is modeled for 7% - 10% revenue growth long-term, however, they’re doing 16% growth this year and we think they’ll do 16% next year as well. 

There are a few call options that are material to the business relative to the $675MM of total revenues today. The biggest is a payments opportunity. There is no automated payment today between insurers and auto repair shops. It’s all wire transfers, and Visa/MC is too expensive. There’s an opportunity here to become a payments network which could add another $1B - $2B (based on $4B TAM) with 70% incremental gross margins. Since they are the largest player by far, they have a huge advantage to win in payments.

Other call options: Consolidation of purchasing of parts on behalf of their dealer/repair network. Also, they’re basically US-only today and could move toward highly accretive acquisitions in Europe relying on the same exact software architecture / interface that they use here.

The SPAC market has been oversupplied and under-researched. We think it will take a few quarters for that to play out. While the valuation is high here at 19x EBITDA, we love the management team, and believe all the incremental balance sheet firepower and free cash flow will be dedicated to M&A rather than share repurchase and we’re fine with that, believing that M&A will be highly accretive.