Business overview
Founded in 1980, CCC Intelligent Solutions Inc. (CCCS, Financial) is a leading software as a service (SaaS) technology platform powering the multi-trillion-dollar property and casualty insurance economy. CCC digitizes mission-critical AI-enabled workflows, facilitates commerce and connects more than 30,000 businesses across the insurance economy, including insurance carriers, collision repairers, parts suppliers, automotive manufacturers, financial institutions and others.
The company is headquartered in Chicago, Illinois and went public in July 2021 via a special purpose acquisition company (SPAC) merger. The current market capitalization is approximately $6.6 billion.
The company believes their addressable market is over $35 billion with even more growth adjacencies. CCC has a competitive advantage driven by multiple network effects, deep integrations and unique, proprietary applications and data. The business model is structured under a SaaS style process with strong recurring revenues and high customer retention, expanding margins and sustained long-term growth.
The company’s historical focus on automobile claims has allowed them create effective solutions for P&C insurers. The complexity seen in one auto claim grows exponentially more difficult to manage at scale, and this complexity is continuing to increase across the P&C insurance economy. In the automotive sector, this is due to several converging factors, including:
- Vehicle parts proliferation: Repairable parts per auto claim have increased 48% since 2010
- Internal technology systems: An average new vehicle uses more than 100 million lines of code
- Growing connected car capabilities: 86% of new vehicles to be sold in 2022 are forecasted to have embedded cellular connectivity
- Transportation as a Service (TaaS) and other new business models: More than 40 million rides are shared per month in the U.S.
- Advanced Driver Assistance Systems (ADAS) and diagnostics systems: The number of vehicles receiving a diagnostic scan as part of a collision repair has increased 1,000% since 2017
- Vehicle Electrification and related infrastructure: Recent OEM announcements translate to estimated cumulative electric light-duty vehicle sales of 55 million to 72 million by 2025
The company’s solution to these problems is digitization and a comprehensive software-based network.
Recent financial results
The company's most recent annual results were for full-year 2021. In 2021, total revenue was $688.3 million compared to $633.1 million for the full year of 2020, an increase of 8.7%. Adjusted for the impact of a major divestiture in December 2020, total revenue grew 15% in the full-year 2021.
The GAAP operating loss was $144.7 million for 2021, compared with GAAP operating income of $77.0 million for the full year of 2020. Adjusted operating income was $236.8 million for 2021 compared with adjusted operating income of $184.7 million for 2020.
Like many companies that have recently gone public or been through a SPAC transaction, CCC is burdened with unusually high stock compensation espenses, which depresses GAAP earnings (hopefully this won't persist for too long).
Balance sheet
CCC had $182.5 million in cash and cash equivalents and $800.0 million of total debt as of year-end 2021. The company generated $127.3 million in operating cash flow, and with capital expenditures of $38.3 million, free cash flow for the year was $89 million.
The company does not pay a common dividend and free cash flow is primarily used for debt reduction and acquisitions.
Valuation
Guidance provided by the company for 2022 called for revenues in the $760 million to $780 million range and adjusted Ebitda in the range of $286 million to $292 million. With an enterprise value of approximately $7.2 billion, CCC trades at 24 times Ebitda.
Analysts' earnings per share estimates call for EPS of $0.27 for 2022 and $0.31 in 2023. Even though the company’s long-term growth targets call for 7% to 10% annual organic revenue growth, a gross margin of 80% and an adjusted Ebitda margin target of 45% over a five-to-seven-year time frame, the math still doesn’t work out to create an undervalued situation.
Conclusion
CCCS appears to be overvalued at this time. It is perhaps the victim of late bull market SPAC irrationality, as well as the inherent nature of SPACs themselves. The core business does have growth potential ahead of it and a very large addressable market, but a lower entry point may be appropriate at this time in order to create a margin of safety.
