Solera IPO: S1 Breakdown
An automotive data giant goes public
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“Revolutionizing the vehicle lifecycle ecosystem through AI-powered data and software.”
Key Figures
Total Revenue: $2.4B, +3.5% y/y
Recurring Revenue: $2.2B, +3.9% y/y
Customers: +280,000
Net Dollar Retention Rate: 119%
Gross Margin: 60%, +1% y/y
Net Loss: ($486M) in FY24, an increase from ($381M) in FY23
Free Cash Flows of $93M (up from $25M in prior year, but flat compared to two years ago)
Current Cash on Balance Sheet: $163M
Excludes revolvers they can tap into
Long Term Debt: **$8.1 BILLION**
They paid $940M in interest expenses last year 🤯
5 Key Themes:
Guess Who’s Back? Back Again: Solera’s back, tell a friend. They originally went public in 2007, and were taken private by Vista and Koch in 2016. The plan was to flip this bad Larry again into the public markets in 2021, but then the economy happened.
A Data Company, Dressed as an Auto Company: Solera is a data and workflow company at its core, processing the exhaust (no pun intended) produced by the automotive industry, from claims to repairs.
A Patchwork of Principalities: They’ve done more than 50 acquisitions since 2006 and spent nearly $8 billion on companies since 2011.
In Debt Up to Their Eyes Balls: Solera intends to use the bulk of proceeds from the offering to repay debt. Peep the subtle add back in their EBITDA bridge
Anemic Growth, and a history of losses: Revenue is growing in the low single digits, which is on par with the overall auto industry. Solera generated $93.5M in free cash flow, but lost nearly half a billion on paper. Most of the loss was due to their debt burden.
Valuation, Investors, and Ownership
Last Valuation: $6.5B
Raised to Date: $350M in equity, and billions in debt
Estimated Valuation at IPO: $10B to $13B
Est. Raise: $1B
Notable Investors:
Vista holds over 40%, and plans to hold majority voting control post IPO
A ~$13B valuation would be around 2x the price Vista and co bought in at
But they’ll do much better on paper, as they levered it to the gills, optimizing their actual cash in
Class Structure and Voting Rights
Solera has implemented a dual-class share structure, with Class A shares providing one vote per share and Class B shares providing ten votes per share. Vista holds the good shares.
Ticker
Solera has applied to be listed under the ticker "SLRA" on the NYSE.
Lockup
180 days…very classic. So expect employees to, in the words of rapper Benny the Butcher, “Flood the Block” in six months.
Bankers
Goldman Sachs secured the coveted lead left position, entitling them to the highest economics, followed by Morgan Stanley. BofA and Jefferies also appear on the first line.
Mission and Vision
Somers’s vision is to lead the evolution of vehicle lifecycle management by connecting disparate technology systems and stakeholders through integrated, intelligent solutions.
Origin Story
OK, a ~20 year history in less than 5 bullets…ready, go!
Chapter 1: Founding
Solera was founded in 2005 by Tony Aquila, an entrepreneur with a background in automotive technology and data analytics.
Aquila identified a significant gap in the market for integrated, technology-driven solutions that could streamline the vehicle lifecycle, from insurance claims to repairs and fleet management.
Some dark moments along the way…
There have been some contentious moments in Solera's history, particularly involving its founder, Tony Aquila. Here are the notable issues:
Lawsuit Against Solera:
In 2019, Tony Aquila sued Solera for more than $100 million, claiming the company breached the terms of his separation agreement, particularly regarding his vested stock options.
The case was eventually dismissed by a Delaware judge, with the dispute set to be resolved in arbitration.
Controversies and Allegations:
Court documents and reports from his lawsuit revealed allegations that Tony Aquila was accused of abusive behavior towards employees and attempting to halt an internal investigation into his actions.
Chapter 2: Acquisitions and TAM Expansion
The company acquired several businesses that complemented its mission, including:
Audatex: A leading provider of insurance claims solutions, which helped Solera enhance its Vehicle Claims platform.
AUTOonline: A European market leader in automotive salvage auction services, bolstering Solera’s data and analytics capabilities.
Identifix: A renowned provider of repair information and solutions, which strengthened Solera's Vehicle Repair platform.
Chapter 3: Doubling down on AI
The company invested heavily in AI, machine learning, and data analytics to provide more intelligent, predictive solutions, and mine their treasure trove of datasets.
The company's comprehensive suite of AI-driven solutions now serves over 280,000 customers in more than 120 countries, making it a global leader in vehicle lifecycle management.
Business Segments
“Our artificial intelligence (“AI”) powered software solutions and data assets are transforming vehicle lifecycle management for insurers, vehicle repairers, manufacturers, auto dealers, and fleet operators.
From the assembly line to the salvage yard, Solera’s solutions play a key role for our customers across the vehicle ecosystem, and we are continuing to broaden our impact across the vehicle lifecycle.”
Vehicle Claims: Provides AI-enabled claims management solutions for Property & Casualty insurers, automating workflows like vehicle identification, damage capture, repair estimation, and valuation.
Second largest and second fastest growing segment
Vehicle Solutions: Delivers management systems for dealerships, including marketing, customer relationship management, and inventory management, as well as vehicle valuation tools.
Largest and fastest growing segment
Vehicle Repair: Offers digital applications for diagnostics, parts information, and experience-based repair solutions, integrating OEM technical data and master technician intelligence.
Smallest segment
Fleet Solutions: Provides real-time data analytics, telematics, route optimization, and compliance solutions for fleet operators.
Grew backwards last year
How they make money:
Solera’s core offering is a vehicle damage claim estimating and workflow software, which is used by insurance companies, collision repair facilities and independent assessor customers.
We generate revenues from our software subscriptions, primarily SaaS, and related services to our customers pursuant to negotiated contracts or pricing agreements. Pricing for our software and services in such agreements is negotiated with each customer. We generally bill our customers monthly under one or more of the following bases:
• price per transaction;
• fixed monthly amount for a prescribed number of transactions;
• fixed monthly subscription rate; or
• price per set of services rendered.
Our software and services are often sold as packages, without individual pricing for each component. Our revenues are reflected net of customer sales allowances, which we estimate based on both our examination of a subset of customer accounts and our historical experience.”
- Solera S1 Filing
Their sales strategy combines direct sales, channel partners, and a land and expand go-to-market (GTM) motion.
“We utilize a land and expand approach, acquiring new customers and expanding with existing customers. We sell our products through subscription editions and can land in multiple distinct ways by securing initial contracts in areas such as claims management, repair diagnostics, dealership management, and fleet solutions. After the initial purchase, our customers often expand the adoption of our platform within their organization.”
- Solera S1 Filing
Solera has successfully expanded its customer base, which now includes over 280,000 clients globally, with significant representation among top insurers, repair shops, dealerships, and fleet operators.
Revenue Breakdown
Solera’s revenue can be disaggregated into three main categories:
Subscription Revenue: $2.16 billion (90%)
“Subscription ARR does not include any maintenance revenue associated with perpetual licenses, which we generally no longer offer. The significant growth in subscription revenue reflects our successful transition from perpetual licenses to a subscription-based model.” - Solera S1 Filing
Maintenance Revenue: $144 million (6%)
“Maintenance revenue associated with sales of perpetual licenses decreased by $36 million, or 20%, in fiscal 2024 as compared to fiscal 2023. This decrease is consistent with our strategic shift towards a subscription-based model.” - Solera S1 Filing
This decrease is a positive indicator, demonstrating the ongoing shift to a more predictable, subscription-based revenue stream.
Other Revenue: $96 million (4%)
“Other revenue, which consists primarily of sales of perpetual licenses, hardware, and professional services, decreased by $24 million, or 20%, in fiscal 2024 as compared to fiscal 2023.” - Solera S1 Filing
Hardware sales and professional services are typically lower margin and less predictable, which is why Solera’s strategic focus is on growing its high-margin subscription revenue.
Customer Base and Usage
Solera serves a diverse and global customer base, including:
Top 20 global primary P&C insurance carriers
Over 130,000 repair shops
9 of the top 10 U.S. dealership groups
5 of the 10 largest consumer goods companies
These deep, long-standing relationships, with an average tenure of over 15 years for the top 50 customers, underscore the trust and reliance customers place in Solera's solutions.
Geographic Revenue Mix
For the fiscal year ended January 31, 2024, Solera’s revenue mix by geography, based on the billing address of the customer, was as follows:
United States: $1.56 billion)
Europe: $576 million
Asia: $144 million
Rest of World: $120 million
65% of Solera’s revenue is generated from the United States, with the rest of the world contributing 35%. The breakdown illustrates Solera's strong presence in the US market while also highlighting its significant international operations.
Sales Efficiency and Payback Periods
Solera’s customer acquisition cost (CAC) payback period is approximately 14 months, highlighting the efficiency of its sales model. This efficiency is driven by a high-velocity inbound sales motion complemented by strategic outbound efforts.
Key Financials
SG&A costs have decreased in each of the last two years
Acquisition related costs have decreased in each of the last two years
Interest expense is the bogey in getting to GAAP profitability
Market Opportunity and TAM
“The vehicle ecosystem is large, complex, and critical to the global economy. According to the Alliance for Automotive Innovation, this industry drives more than $1 trillion into the U.S. economy each year, representing 4.9% of GDP.”
Solera operates in a massive market, with a total addressable market (TAM) of $164 billion in 2024, expected to grow to $287 billion by 2028 at a CAGR of 15%. The TAM for each platform is significant:
Vehicle Claims: $21 billion (FY24)
Vehicle Repair: $3 billion (FY24)
Vehicle Solutions: $44 billion (FY24)
Fleet Solutions: $96 billion (FY24)
Data and AI Use Cases
Solera's solutions are underpinned by extensive datasets and advanced AI capabilities. They collect data from over 280,000 customers, generating insights that drive innovation and product development. Key data points include:
Over 1.5 billion images processed for vehicle claims
358 million parts repaired or replaced annually
212 million vehicle owner communications facilitated annually
25 billion driver miles monitored annually
They’re well positioned to ingest and analyze all this data.
Expansion Opportunities
Solera identifies multiple expansion opportunities for market share and revenue growth across different facets of its business model:
AI and Data Analytics: Expanding AI capabilities and data analytics to provide more intelligent and predictive insights across all platforms.
Global Market Penetration: Increasing presence in emerging markets with lower technology penetration, offering significant growth potential.
New Product Development: Leveraging data and customer insights to develop new products that address unmet needs in the vehicle lifecycle ecosystem.
Strategic Acquisitions: Proactively pursuing accretive mergers and acquisitions to enhance product offerings and market reach.
Use of Proceeds
Solera plans to use the net proceeds from the IPO to:
Repay $5.2 billion outstanding under the First Lien Term Loan Facility (9.5% interest)
Repay $2.7 billion under the Second Lien Term Loan Facility (15.4% interest)
Repay $356.0 million under the Revolving Credit Facility (9.1% interest)
Repay $94.8 million of the Related Party Note (7.4% interest)
Fund general corporate purposes and IPO-related expenses
Author’s note: I feel a lot better about my high mortgage rate after reading this.
Competitors
“We believe we are the premier platform in automotive vertical software.”
Principal competitors in the Insurance segment include CCC (publicly traded) and Mitchell International.
Competitors in the fleet business include Trimble, Samsara (publicly traded), and Motive Technologies.
In the maintenance space they compete with All Data and Mitchell 1 International (different company than Mitchell International).
Finally, in the data space they compete against LexisNexis and Verisk Analytics (publicly traded).
So basically, they compete with anyone in the auto industry who doesn’t sell physical stuff and touches auto data.
Key Metrics and Definitions:
Solera demonstrates impressive retention metrics, with a Net Dollar Retention (NDR) of 119% and a Gross Dollar Retention (GDR) of 88%, reflecting strong customer loyalty and growth within the existing base.
Their GDR for customers above $100K was 96.4% and 97.7% as of March 31, 2024 and 2023, respectively.
All are measured on a trailing twelve month basis.
Miscellaneous Stuff of Note
Their fiscal year is March 31, so they just wrapped up their FY2024 (which always throws me for a loop)
Deloitte is their auditor, but hasn’t had a chance to audit the results contained herein for 2024
The TAM report they paid someone to generate was not verified by any third party independent resources, lol
Vista picks all the board members: “We have a valuable relationship with our principal shareholder, Vista, a leading technology investor. In connection with this offering, we will enter into a director nomination agreement (the “Director Nomination Agreement”) with Vista that provides Vista the right to designate nominees to our board of directors (our “Board”), subject to certain conditions.”
The collision insurance claims process is like seven dimensional chess, with many toll keepers along the way. They streamline this game.
What’s Next?
Anticipate they ring the bell before the end of July
Risks and Challenges
Potential investors should be aware of various risks associated with investing in Solera, including:
“We require a significant amount of cash to service our indebtedness, which reduces the cash available to finance our organic growth, make strategic acquisitions and enter into alliances and joint ventures; the agreements governing our indebtedness contain restrictive covenants that limit our ability to engage in certain activities.”
“Vista controls us, and Vista’s interests may conflict with ours or yours in the future.”
My Take
There are a lot of things to get excited from a thematic perspective:
The age of vehicles on the road is only getting higher - vehicles older than six years will account for 74% of the vehicles in operation by 2028.
Vertical software is having a moment, and many investors (and entrepreneurs) have their eyes on the “sleepy” auto industry, as it represents almost 5% of US GDP
AI has the ability to supercharge large data sets - the value from their data will get better and better. If they can ride the AI wave to drive down costs, this could be a cash flow machine at scale
But there are also some blemishes to be wary of
They aren’t growing
The level of debt it took to get to this point is a turn off
Having done 50 acquisitions, integration challenges from acquisitions will always be a risk factor
And let’s call a spade a spade - the debt lurking in the background, paired with the holding period of its investors, pushes Solera into the public markets. It’s time.
And sometimes timing outweighs business fundamentals.
In terms of where it might trade, the median NTM / Revenue multiple for vertical software companies right now is 8.2x. But Solera is behind the median revenue growth rate, gross margin, and net income margin for the sector index.
I’d expect this to trade below that threshold, as well as the current overall median software multiple of 6x, until it can reaccelerate both revenue and free cash flows at scale.
Not investment advice. I write this while eating ice cream with my dog Walter in the Cullivers parking lot. Do your own homework.
Full S1 can be found here.