High-Level Thoughts On CCC (tkr: CCCS)
For those interested in CCCS, here is a partially redacted high-level response that I provided to someone recently about the company. I don’t know the CCCS folks personally. I used to compete with the company years ago when I was with SLH. Frankly, back then I did not give much thought to other companies in the space. My efforts were concentrated around which companies would make for ideal SLH acquisition targets that could provide Solera with products and services that could drive strategic value for its customers.
“If I were ______ I would ask Githesh (CCCS CEO), what he focuses on in his Op Reviews and drill down from there as a first step. If ______ wishes to see more growth in exchange for margin, they should say so. Ask Gitesh how he allocates variable comp - what type of performance attributes does he value among his team?
U.S. passenger auto claims frequency is flattish over the past 17 years, I don't see that changing. CCCS could counter that industry truth by pushing into Western Europe. I know they are in China, but the culture is so different that building a sizeable operation in China would take 20 years to build the right way.
As for new products, I suspect that Githesh will continue to take a low risk, low capital requirement approach and look to extend wallet share within the existing customer base.
Insurance Carriers: There is only so much you can do with insurers on the Claims side, I learned that with SLH and with our old Scoprire Identity Hub offering. The carriers want to reduce processing costs and reduce manual workflow. FNOL (First Notice of Loss), is likely an opportunity here as well as is leveraging RPA (Robotic Process Automation), to automate discrete workflows within the carrier. CCCS would bump up against the RPA companies and the policy admin vendors. Underwriting is where the larger revenue opportunity exists within the carriers.
Auto Repair shops: I feel like this is where CCCS could make inroads with NLP (natural language processing) to help auto repair technicians. YouTube videos are the crutch that repair technicians lean on when they have a question and lack experience. It would be cool to have an NLP-based tool that has been trained on auto OEM repair manuals so that repair technicians could run a natural language query to find answers. I have been waiting for someone to build this for the past decade. There are many other software based tools that could be sold into the repair side to help drive efficiency and throughput. Knowing the customer is one such opportunity so that shops can drive recurring revenue with customers.
Dealers and Retail: This is an entirely different opportunity. Despite CarGurus (CARG), there's not a ton of real-time data in the marketplace. This is outside of CCCS' sweet spot and I don't think they would play here.
Valuation: I hate these post 2020 Tech valuations. 27x MV to 2024 Operating Cash Flow feels rich for CCCS, but not as bad as some of the other equities out there. Someday the Fed won't be able to bail out the market and when that happens... or perhaps the 10-year Treasury yield will keep climbing as the Fed lowers the front-end of the yield curve. That's when companies such as CCCS will pay down chunks of debt.
I believe that CCCS can be as mediocre or good or great as it chooses to be. That is why I would want to know what Githesh's aspirations are.”