Specialist
Executive at CDK Global LLC
Agenda
- Auto repair shop software sector's overall operating environment, highlighting differentiation across legacy and cloud-based vendors
- Competitive dynamics across major vendors such as Shopmonkey, AutoLeap, TekMetric, AutoFluent, CCC Intelligent Solutions (NYSE: CCCS) and more
- Market consolidation trends and TAM estimation
- Recession resiliency and macroeconomic growth trends
- H2 2022 outlook and demand sustainability, noting impact of labour and parts shortages
Questions
1.
Could you provide an overview of the auto repair shop software sector, highlighting 2-3 key trends or drivers we should be monitoring?
2.
How do the trends you’ve highlighted impact demand for auto repair software coming out of shops? How are you thinking about demand trending over the next 18 months, and how has demand fared over the last couple years or so, as I think it’s been particularly volatile for the auto market in general?
3.
Do you consider the auto repair shop software to be particularly recession resilient? During a downturn, are customers typically looking to hold onto used vehicles rather than purchasing new ones? Does that lead to an increased opportunity for repair shops?
4.
Do you think the repair shops tend to have a lot of discretionary spend in general for add-ons? In a non-recessionary environment, it seems margins tend to be thin for independent auto repair shops regardless. Are there any buckets of customers with larger carve-outs for spending or any particular customers by size that tend to be more price-sensitive during a downturn?
5.
What different types of modules might you consider to be the most important to a shop within that 80% critical software bucket you highlighted? You’ve defined discretionary as the marketing, the CRM [customer relationship management]-type tools. What makes up the more critical components of the software suite for these repair shops in general?
6.
Which competitors fit in which bucket in the landscape? Could you discuss products from legacy solutions such as Mitchell and RO Writer? Could you then highlight the smaller, more cloud-based vendors looking to create that more all-in-one solution?
7.
What are the key factors driving differentiation between the legacy solutions vendors and newer cloud-based models such as Shopmonkey, AutoLeap and Tekmetric?
8.
Do you think the legacy vendors might be looking to migrate to the cloud to better compete with the disruptors? Do you think they don’t consider them a threat at the moment? What will be the dynamics at play over the next 3-5 years in terms of how these legacy vendors try to keep up with the disruptive players?
9.
How tough is it for the disruptive vendors to actually displace the legacy providers even in a multivendor environment? What might be the customer appetite be for that all-in-one solution, so whether or not point-of-sale software solutions vendors such as Tekmetric or Shopmonkey, will actually have a real opportunity to become that all-in-one solution? What do you make of the ability of these vendors to actually displace a legacy system, or do you think more often than not they’re working alongside a legacy vendor in a multivendor integration with a customer?
10.
What opportunity to expand exists for an SaaS-based vendor once they have an integration or have landed into an account? Do you think then the main runway for the disruptive vendors, and by them will be more an offering, just better-quality tools for workflow, marketing automation or CRM vs those tools overall? What percentage of the total make-up of a shop’s critical and discretionary spend is spent on both the sides of those tools?
11.
What do you think is the best-case scenario for those disruptive vendors, should they be able to mount that diagnostics, repair and solutions wallet share hurdle in a shop? How likely do you think a scenario could be in which these disruptive vendors are able to seriously vie for wallet share of some of those solutions?
12.
How do you size the TAM opportunity for the auto repair shop sector? Is this mainly just a function of that 250,000 independent auto repair shops in the US? What is the market size differential between the market that’s already on a legacy system and what the cloud-native vendors could displace? How much of the existing opportunity do you think is already on a legacy or a newer cloud-based solution today?
13.
How does the labour shortage of technicians translate into a possible negative externality for the auto repair software vendors as well?
14.
Wage inflation seems to be hitting industry margins. Do you think this creates an environment in which this could be more sustained, and what is the cost-benefit analysis to upgrading your software at the moment? How healthy do you think the sector will be in terms of where wage inflation might be heading for technicians, and how do they realise that?
15.
Another factor that could be compressing margin is parts shortages. Especially over the last 18 months, this has been an environment which has been particularly harsh. What impacts have components and auto supply chain bottlenecks had on the auto repair shop market? How does that translate into the auto repair shop software market? What abatements in supply chains could possibly present either a tailwind or a headwind for the sector?
16.
What do you think is the impact to service revenue for repair shops in an EV-dominated world vs today? There seems to have been a lot of discussion, especially after comments made by Ford CEO Jim Farley, about the shift in delivery model as well as the servicing model for EVs and their adoption. Do fewer parts theoretically imply lower breakages and thus lower revenue for the space? How far out do you think we are in terms of this trend making a meaningful impact on the auto repair software sector?
17.
Shopmonkey currently advertises an all-in-one shop management software. That seems to be the branding. What do you think the customer perception is for a single-pane-of-glass solution as opposed to working with multiple vendors? How do you expect the reception to be, and how do you think the go-to-market strategy has evolved for these disruptive players?
18.
Could you discuss pricing? How cost-effective is it for a smaller mom-and-pop auto repair shop to run multiple vendors, point solutions and vendors for diagnostics and CRM, relative to an all-in-one solution from a disruptive player?
19.
What are your expectations on whether the sector will continue to see consolidation? Who do you think are the primary beneficiaries of sector consolidation, and where do you think it might be occurring the most?
20.
You mentioned how easy it is to change vendors. What pain points actually lead customers to churn, and how much of churn you think is based on upgrading vs end-customer budget cutbacks? What does the environment look like for shifting vendors in general? How easy is it to rip and replace a solution once it’s integrated with a customer?
21.
You mentioned the differentiating factor between the breadth of the integration. What other factors drive differentiation between that more disruptive cloud-based peer set? How are customers deciding between a CCC vs an Autofluent when considering those newer peers to either upgrade with or work with for a specific module?
22.
Could you explain the differences between the general repair vs collision markets? What is the spend in one vs the other? Is it just a different customer base altogether?
23.
Could you outline key vendors in collision vs general outside of CCC?
24.
Is there anything additional you’d like to highlight about the auto repair shop software sector?
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