May 13, 2021 – On today’s podcast, we welcome special guest Githesh Ramamurthy, Chairman and CEO of CCC Information Services, a leading SaaS platform for the property and casualty insurance economy. CCC recently announced a merger with Dragoneer Growth Opportunities in a $7 billion deal.
On the podcast, Githesh discusses:
- How CCC has evolved over the 30 years in which Githesh has been at the company
- What it is like taking CCC public, then private, and now public again
- Why they only considered Dragoneer Growth Opportunities out of all SPACs
- Key growth opportunities and their approach to M&A
- The investment case for CCC stock
- And more
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Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.com
Julian Klymochko: Okay. So, we have Githesh from CCC on today’s Absolute Return Podcast, really intriguing business, a lot of action going on with respect to the big changes at the corporation undergoing a going public transaction for the second time in its history. So, the first thing I wanted to touch on is the history with CCC as a business. It’s been around for a while, and Githesh, your history specifically with the company. You’ve been with CCC Information Services for nearly 30 years, becoming President and COO in 1997, being elected Chairman to the board about 21 years ago, taking the company public back in 1996, taking that private a decade later and now public again, can you walk us through your journey at the company and how CCC has evolved over the past three decades?
Githesh Ramamurthy: Absolutely. Absolutely. Happy to do it. So first of all, you know, if you think about CCC, we are the cloud provider, were a SAS company, we’re the leading SAS platform, basically powering the multi-trillion-dollar P&C Insurance Economy. That means that the CCC cloud powers applications for insurance companies, collision repairs, parts providers. So, it’s a very vast ecosystem and we provide the connectivity across all of these different participants in helping, you know, bring basically respiration to claims after a claim event happens. And if you look at, you know, the complexity involved is pretty substantial, right? You’ve done a literally a billion [Inaudible 00:01:51] in the United States alone that laps every year between auto claims being created and auto claims being closed.
Julian Klymochko: Right. How did the company change over that time period that you been there?
Githesh Ramamurthy: Yeah. So, by way of background, I’m an electrical engineer by training and, you know, the very first step, few years of electrical engineering, I started working with microprocessors as part of my undergraduate thesis. You know, it was the world’s first microprocessor based hard monitor. And that was a fascinating exercise because it became very, very clear. This was almost back in the early eighties. I decided I’d focus on software and a personal background. Because I ended up at Georgia Tech pursuing a master’s in computer science and it was doing operating system development for IBM Light and, you know, joined up with three fellows from you know, McKinsey. And we built what became the world’s leading Salesforce automation company in the eighties. And that was really my introduction to large scale. And I was the chief technology officer of the company. To large scale software and platforms.
And it was very clear that the world was going to be moving towards software and technology. So, after we sold the company through Dun and Bradstreet, I joined CCC almost 30 years ago as set chief technology officer, to really focused on this industry, which $250 billion dollar spent, lots of different players. I always loved cars. But if you think about the players involved, you got hundreds of insurance companies, parts providers, rental providers, all kinds of people involved in really settling in auto claim. And I joined as the chief technology officer and built a team, a technology team who build out our first product, which was called pathways, which was the first digital estimating system. And back then, I don’t know, you may or may not recall. Back then these manuals were stack about seven feet high of manual. So, after a collision, if you really want to repair a vehicle, you had to dig through these stacks of seven-foot manuals.
Julian Klymochko: Wow.
Githesh Ramamurthy: And we digitize that process, right
Julian Klymochko: Right.
Githesh Ramamurthy: Right, which means with CD-ROM, digitized all of that. Made that available on CD-ROM, connected to a laptop. So that was really the first step, a few years at CCC that allowed us to really leapfrog and really deliver that solution to insurers and repairers. So that was my first couple of years, few years at CCC with our development.
Julian Klymochko: And you really built off that over the past few decades. Now you have at CCC, significant SAS platform for the P&C insurance economy. Could you explain to our listeners exactly how some of your products work in the market? What’s the company’s value proposition and how does CCC differentiate itself in the marketplace from other perhaps company?
Githesh Ramamurthy: Sure. So, first to describe our solutions, right. The industry is going through a massive digitization effort. And in fact, during COVID, digitization force really expanded even more dramatically. You know, our customers had to send thousands of their employees to work from home.
Julian Klymochko: Right.
Githesh Ramamurthy: And at the same time, as claims are taking place, there was this absolute need to service the customers. So, we have seen the adoption of our mobile platforms, our artificial intelligence platforms and the like that really provided social distancing for employees and for customers and to provide this digitization capability. So, the last three decades, we started out with digitizing more and more of the insurance process.
Julian Klymochko: Right.
Githesh Ramamurthy: From the point at which a claim happens, to routing the claim within the carrier, the ability to write the estimate, to do the loss valuations, to be able to audit what was going through, to do analytics. So that was really where we had started. And then over the last 30 years, we’ve also built out our solutions for the repair market. So, for the collision repairs, there are probably close to 40,000 collision repairs in the country. And our customers are about 26,000 at CCC. And for them, we are the operating platform. That means from a vehicle coming in the door to information about the vehicle, how do I repair the vehicle? How do I order the parts? How do I manage the labor? All of that complexity that is involved, we help manage. And we also provide a network that connects insurers to repairs.
Julian Klymochko: Right.
Githesh Ramamurthy: Repairs, then have to order parts. $15 billion dollars of parts to ordered by our collision repair customers. So, we then built a network connecting thousands of parts dealers back to the repairs, so that’s really the way we’ve continued to expand and build our solutions. So, your question about differentiation is that, what CCC uniquely delivers is incredible value, on two specific fronts. First and foremost, we provide incredible operating efficiencies, or whether you’re a car company or a collision repairer, your insurer, parts provider. We provide tremendous operating efficiencies. The second piece of work we also bring in is, we help deliver revenue for repairs, parts providers, and a whole host of other players. So those are the twin value propositions, if you would, that we deliver. And what really differentiates the company more than anything is a maniacal focus on delivering for our customers. And, you know, we have crafted various parts of the company’s ecosystem from training through software development, to running our cloud. We delivered for example, 1400 software releases. So, you ask yourself, that’s all great, but is there an objective measure? The objective measure that we’ve used is a measure called net promoter score and our net promoter score is 80. So, an 80-point net promoter score puts you at the absolute top of any technology provider in the world.
Julian Klymochko: Yeah, so to provide context for our listeners, that’s a very high score.
Githesh Ramamurthy: And it’s taken years to build that, you know, to get that score, that means you have owned every asset of your values. And it’s also a great way to continue to measure, are we delivering for our customers? So, we keep that delivery. And a huge piece of the delivery is really innovation, right? CCC has been a growth company for all of these years. And virtually every facet of our growth has come from innovation. That means the innovation is driven by superior technology, by having great people, but also the network I described continues to get richer and richer.
Michael Kesslering: And so, in terms of further innovation, I mean, your company CCC did announce a going public transaction in early February with your SPAC merger, with Dragoneer Growth Opportunities where you were valued at a $7 billion dollar enterprise value. How did this deal come about?
Githesh Ramamurthy: Sure. so first and foremost, you know, we’ve grown through, you know, innovation for a long period of time. And as you described early on, I was part of the team that took the company public in 96 and then ended up taking, you know, we ended up taking the company private in 2006. So, we are actually used to operating as a public company. We did it for a decade. We know I’ve operated as a public company and over the last 15 years, we’ve been a private company. And if you look at our returns, even the last five years, we were public, our shareholders had a 400 plus percent return for the last five years we were public way back. You know, that way back in the last five years, almost [Inaudible 00:12:01] public, and 15 years later, we have spent massively on a whole bunch of innovations, right? We’ve delivered the world’s first commercial artificial intelligence, where you can take your own pictures around your car. Our AI kicks in, looks at the damage, looks at the panel damage and can literally start processing the claim right from that step. And then all the way through connecting you to a repair facility, scheduling it. We also are the connected car platform for telematics. So, we built a lot of innovation over the last 15 years, and we started thinking about the next five years and where we were going to go, where the industry was going to go. And as we listened carefully to our customers across all of the different markets that we operate in, it was very clear that force of digitization was going to continue to accelerate. So, we thought, Hey, it’d be a great time to have a source of abundant capital, which gives us enormous flexibility. Maybe give us a little more visibility, but mostly you get the scale to continue to drive innovation on behalf of our customers.
And that’s really the path we’re on. And we were actually, you may be surprised to see here that we were actually looking at an ideal and had actually never even considered a SPAC, never spent much time on really understanding or looking at the SPAC market. And we were approached by the team at Dragoneer and Dragoneer as we know is one of the most preeminent investors. And they have been a big technology investor. They’ve invested in Airbnb and Spotify, Snowflake and other world-leading companies. And while we were not pursuing, you know, had any other conversations with SPAC, we started meet with Mark’s dad and the rest of the Dragoneer team. We really started to understand their philosophy, which has been very similar to ours, which is build a great business for a long period of time, continue to invest aggressively in innovation, continue to invest in people, talent and make sure you do right by your customers.
And so that combination, as opposed to any short term, as opposed to anything short term. So, there’s long-term nature of compounded growth, which we delivered. What was very attractive to them. And what was attractive to us was, that the SPAC process allowed us, you know, some simplicity in going to market going, coming back to the public market than even a traditional IPO. Does that help answer the question of why? And that’s why we did the deal with Dragoneer and the announcement we made, I think on February 2nd or 3rd, to go down this route.
Julian Klymochko: Oh, definitely. And I listened to the subsequent conference call as well. And you also indicated that, you know, is different than the traditional SPAC merger. I believe you didn’t speak to any other SPAC aside from Dragoneer. So that certainly was unique.
Githesh Ramamurthy: Yes, and that is what is unique about this, which is, we did not speak or engage in any conversations other than when Dragoneer came, because look, we know how to take a company public, our investors, they can, you know, dozens and dozens of company’s publics, and really, it felt the values that are represented in terms of doing the right by your customers, by your employees, by your shareholders, you have to do all three right. I hope that answered your question in terms of agreement, but I also wanted to give you some broader context.
Julian Klymochko: Yeah, no, that makes a lot of sense. And the other aspect that I wanted to touch on is the notion that this is not your first time taking CCC public. In fact, you did so 25 years ago and are now doing so again, I was wondering once this deal closed and you’re, once again, public is the business model or the structure of the company going to change, are your growth initiatives going to change perhaps, or even it could be that the balance sheet is going to utilize less leverage. And how do you feel out there taking CCC public for a second time?
Githesh Ramamurthy: Yeah, first of all, I feel great about taking the company public, right. We have an awesome management team. We have a lot of depth in the management team, I think in terms of product solutions for the customers compared to the first time we went public, we have substantially more scale, more depth and more penetration. And so, all of that feels really good. I would say that the core values that have driven this company, or, you know, at least in 30 plus years, I’ve been a part of the company, those values haven’t changed and those values are, I’ve just summarized into really three categories.
First and foremost, I have an extraordinary, deep understanding of your customer’s problems. What do you need to solve them? And, you know, be surgically focused on that. That’s always number one. Number two is really building great technology, investing heavily ahead of the curve in basic technology and platforms. For example, when we first delivered an internet-based platform where the world’s first to deliver commercial AI. So, there’s a number of industries first we delivered. So that will continue to be the case. And we’re continuing to build, recruit, add more engineers, more talent, more capability to our technology stack, so that’s number two. And number three, one of the things I’m most proud of is really the values we have inside the company, the culture, the value, the accessibility. We all know each other on a first name basis and having a light and informal culture has been super important in making sure that people feel great about what they do and how we’re able to work with each other. So those three things in terms of what we do, do not change, but you’re right. Leverage will drop. I think we’ll end up with somewhere around two and a half times the leverage as a public company, we’ll also take it in about close to a billion dollars of capital. That gives us flexibility to accelerate innovation. So occasionally we need to buy a company, to fill out a product line or to do those things. We have more flexibility to do that. We also have more permanent capital to do that.
Julian Klymochko: Right. And so, talking about accelerating innovation, going through the investor presentation, you outline key growth drivers and growth expectations for the company on a go-forward basis, specifically forecast revenue growth in 2021, of 13%, and a long-term target revenue growth of 7 to 10% growth rate. What are some of the key growth drivers that you plan on utilizing to drive this future performance?
Githesh Ramamurthy: So, I would say first and foremost, if you look at the products and solutions we have today, just what is in production. That alone will enable CCC to be, you know, two to three times the size it is today, right? So, continuing to roll out products and solutions to our customers where we can generate value would is huge, but there are certain areas where we think that are great opportunities or continuing to grow e-commerce with [Inaudible 00:24:10], continue to move with the payment processing, where we are in the middle of a hundred plus billion dollars of flow throughout this ecosystem. So, if you’re looking at the P&C Insurance Economy and where we operate, more than a hundred million dollars move between insurers, repair and repairs to parts providers to medical providers and so on and so forth. So, there’s a fantastic opportunity to digitize a lot of the payment’s capability.
And I would say the single largest growth opportunity we see is a concept called straight-through processing. As we’ve talked to more and more and more of our customers, this notion of straight through processing means, I am much, much more digital in everything I do as a customer. So, our customers are trying to go, you know, and by the way, literally for every single claim event, there are dozens of decisions that have to be made. Should I throw this vehicle? Should I repair this car? Should I total [Inaudible 00:25:21]? Does this have a title? Does this have a lien? Do I need to interface with the bank? You know, what parts do I order for this vehicle? So, there are literally dozens and dozens and dozens of decisions to be made. And so, this notion of straight through processing, where you’re using artificial intelligence, and by the way, we have over 500 models, industrial strength models we build that can continue to scale to solve this problem of, you know, straight through processing. So, you know, we’ve remained very excited about that. And I would also say that there are a number of adjacent markets that we’re also looking at.
Michael Kesslering: One other thing that was mentioned in your investor presentation in terms of future growth would be M&A opportunities. And so, could you describe your typical approach to M&A and how you would identify potential acquisition candidates?
Githesh Ramamurthy: Sure. So first of all, you know, for us M&A is only in the context of our strategy, we will not do M&A because it is a means to grow, or it is, you know, it’s a means for something else. So, M&A only fits in the context of our strategy. So, as we build out solutions to, there may be areas where it may be faster to buy a company and to build a piece of technology. We’ll look at that as we enter and look at adjacent markets. There might be someone we respect or want in terms of their capabilities. And we might look at a company like that. So, we actually have a full-blown team that is continuously analyzing, you know M&A potential candidates, but all in the context of our strategy,
Michael Kesslering: Now, that makes complete sense. And something else that you mentioned earlier was, is really your value proposition and differentiators that your surgical focus on the customer. And I mean, you had the background with Salesforce. And so, there was certainly probably some inspiration drawn from that company, but are there any other companies that in the early stages that CCC was really drawing inspiration from, in terms of that intense focus on the customer?
Githesh Ramamurthy: Yeah. just to be clear, I’m talking about the first company, my partners and I created called Sales Technologies, which was actually a precursor to salesforce.com. We actually created that a company called Sales Technologies, which we eventually sold through Dun and Bradstreet. And I would say the inspiration really came from a number of companies that over the long haul I’ve continued to build out, as opposed to, you know, during the .com phase, it was as much about what not to do, right? During the.com phase. In the 2000 timeframe you saw lots of companies basically built for six months or a year or two years. And, you know, we’ve really admired companies that have continued to last the distance. So, when you look at a Google, you look at an Apple, you look at, you know, many of the companies that have deep intrinsic value. They are all companies that deliver for their customers and the customers love them. And they also have a great culture. And they’re also bold. They’re able to take innovation to the next level and are continuing to invest in that.
So those are really some of the things you looked at. And one of the forces in terms of customer focus for us was really, I don’t know if you read Frederick Reichheld book, but we had invited Fred Reichheld who wrote a book called The Loyalty Effect to one our conferences, twenty plus years ago. And the notion that a single question of, would you recommend this company? That single question, you know, could have a pretty substantial impact on how the company grows over time. And that’s really what led to the journey of net promoter score, where we measure every facet of what we do from tech support to product release quality to account management, that’s allows us to continue to get focused and keep that customer focus. I would say the other thing is also we’ve admired massively is companies that have built successful networks. So, a huge part of what CCC does is really build out the network between insurers and repairs, repairs and parts providers, part providers and OEMs. So that network brings some value to every single customer on the network. So, the more customers you have, the more value every single person get. And that’s another thing that’s been a key part of our strategy as well.
Julian Klymochko: And CCC has had a strong history of performing for investors. You mentioned the previous time you were our public, 1996. Public for about 10 years prior to going private had returns of what? 400 plus percent. And then I’m not positive how you’ve done for the private equity investors, but I’m sure it’s been nothing but positive given the financial performance. Now, once again, going to be public. Investors will be thinking, you know, what are some key considerations? Why should they pay attention to CCC stock now that it’s becoming a public company?
Githesh Ramamurthy: Well, I think it is really the key driver. Yes. I mean, yes, the last five years we were public, we delivered 400%. And over the last 15 years for private investors, the returns have been great, but I really think what drives financial performance are really the ability for a company to continue to generate value for its customers. So as customers seek more innovation, more technology, the approach companies that not only they can trust, but companies that can perform. So, I always say these two things to people all the time, which is, if its trust and performance, you’ve got to be a company that is trusted. You also got to be a company that delivers a performance for your customers. So, if you can do these two things on a consistent basis, you know, it generates equity to console the long haul. So, the equity returns are a by-product of delivering great innovation and value for the customers and making sure you have a great culture inside your company. And I think those are the precursors and the end result of that for a long period of time, as we’ve demonstrated is a substantial equity return over a long period of time, but they’re only the result of doing these other things, right.
Julian Klymochko: Right. And so, the SPAC merger currently trading under DGNR, expected to close later in the second quarter, say to the extent that investors are interested, where can they find out more about the company?
Githesh Ramamurthy: cccis.com, that’s our website. And we expect to close the merger, you know, as in late second quarter. And we’d be creating under own symbol. And we really expect our investors to deliver great returns over the long period of time. And that we’re excited about coming out as a public company again.
Julian Klymochko: For sure. And we’re excited to see that as well. Githesh, thank you for coming on The Absolute Return Podcast today. Appreciate your insights into CCC history as a business, its future projections and future potential, and the details on this SPAC merger Dragoneer. So, I thank you for coming on the show, spending time with us and wish you all the best in the future, once again, a public company.
Githesh Ramamurthy: Well, thank you so much. I’ve enjoyed listening to some of your podcasts and I look forward to hearing more as well and congratulations on the business reveal. Thank you.
Julian Klymochko: Okay, great. Love to hear, love getting new listeners. So, thank you for that. And I hope you have a great day. Bye everybody.
Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.
