Happy Sunday Friends!
SPACs are often synonymous with high-risk, cash-intensive early-stage companies making their public debut, but occasionally, a SPAC deal like CCC Intelligent Solutions emerges and shifts the narrative. CCC is a SaaS business with four decades of operational history in the property and casualty insurance sector that went public through a SPAC in 2021. Over the company's history, it has processed over $1 trillion in transactions for 30,000 businesses. At its core, CCC aids partners in the complex auto insurance market, enhancing their operational efficiency. CCC's strength lies in its ability to capitalize on the complexity of the industry, generating revenue multiple times from a single event. With such a firm grip on the domestic auto market, can CCC extend its reach to other industries and geographies? Or will stiff competition prevent its expansion?
Insurance's Technological Anchors
CCC's core offering—an estimating software for automotive physical damage—provides insurers and repair facilities with accurate cost estimation tools. These not only drive claims—the primary expense for insurers—but also enhance the insured customer's experience. With offerings spanning customer experience, workflow, ai, network management, IoT, and exchange, CCC is strategically positioned to provide the requisite tools for a rapidly evolving industry.
Want to Find the Best De-SPACs? Try Benzinga
(Offer Expires 06-10-2023)
I use tons of trading software to help me better understand the market and make smarter trading decisions. One thing I love about Benzinga Pro is its versatility. It wasn't built for just one type of trader but for a wide range of experienced investors like myself. I can create custom watchlists, and then quickly monitor the performance of my investments.
Some great news – Benzinga is giving all subspac readers a free two week trial!
Insurance Gold Rush
It has forged early alliances with insurers and is poised to establish an ecosystem akin to its US model. Three of the world's top ten insurers, all based in China, use CCC solutions, as do four of China's top five insurers. This international momentum demonstrates CCC's competitive strength, indicating promising growth potential.
Financials and Valuation
CCC's revenues have seen consistent growth over the last 20 years, achieving $782 million in 2022 up from $570 million in 2019, an approximate 11% growth. The company has largely achieved this through solid customer retention rates, with contracts with insurance carrier customers typically spanning 3-5 years, while those with repair facilities are generally last for 3 years. Interestingly, many customers in both segments have repeatedly renewed their contracts over CCC's 40-year existence, underscoring the value and trust the company has built over time.
The company's gross retention stands at close to 98%, while net retention rates have ranged between 105-107% over the last few years, primarily due to the growth seen from the company's core offerings (Casualty, Repair Shop Packages, and Auto Parts), as well as new product introductions (in the future the company is looking to introduce emerging solutions like Diagnostics, Payments, Subrogation, and others).
CCC has maintained gross margins of 76%, while steadily expanding its EBITDA margins from 30% in 2019 to 39% in 2022 through operational improvements and cost efficiencies (long-term EBITDA targets are around 45%).
CCC's current stock price implies a valuation close to $5.4 billion, with a trailing Price/Sales multiple of approximately 7.38x. While this might appear expensive considering the company's slowing growth and potential economic impacts, its growth potential lies in its capacity to expand its offerings and tap into new sectors or regions.
Bottom Line
Source: The Future of Insurance