LOAR, O'Reilly, IQVIA vs VEEVA, ELV, UNH, Markel & Kinsale, Rightmove, Medpace

Published Last Week

1. IP Company Profile: Loar Holdings

2. Loar Group: SCHROTH vs AmSafe Seat Belts

3. Loar Group: Applied Engineering

4. Markel vs Kinsale: Broking E&S Lines

5. Elevance Health, UnitedHealth, Aetna & the US VBC Market: Payor-Provider Dynamics

6. IQVIA OCE vs VEEVA: a Partner Perspective

7. O'Reilly Auto Parts: Distribution Center Operations

8. Rightmove, Zoopla, vs OnTheMarket: Valuation & Buyer Leads

9. Medpace, IQVIA, & Benefits of Scale in Biotech CRO

Loar Group: 'Proprietary Products'

In April 2024, Loar Group raised over $300m at $28 per share. Before starting Loar in 2012, the management team worked together at K&F (bought by Meggitt in 2005) and McKechnie (bought by TransDigm in 2010) .

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Since 2012, Loar has acquired 16 aerospace manufacturing companies which offer over 15,000 unique parts across commercial and military aircraft platforms with an ASP of <$1,000. In FY23, Loar’s revenue mix was 45% from commercial aerospace, 52% from the aftermarket, and 85% from ‘proprietary products’.

But what does proprietary really mean?

Qualifying the proprietary content of Loar’s assets and its respective pricing power has been the focus of our primary research on the company.

There seems to be a fair degree of flexibility and subjectivity in defining ‘proprietary’. Loar reports 85% of revenue from proprietary products yet books very little proprietary patented or unpatented technology on its balance sheet. It seems to define both FAA PMA parts and its manufacturing know-how and processes as proprietary. This may be true. But, in our view, not all ‘proprietary’ products or processes are equal.

Another way to frame Loar’s portfolio is by the operating company's position in the supply chain and, more importantly, its part certification. We split the portfolio into two: Build to Print (BTP) Manufacturers and PMA part owners. Loar’s portfolio ranges from Tier 2 PMA companies like SCHROTH, the seat belt manufacturer that competes with TDG’s AmSafe, to Tier 4 or 5 contract manufacturers and machining shops like Freeman and Applied Engineering.

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The value and nature of the proprietary assets in BTP and PMA companies is very different:

I'm really curious. That was the biggest question I had after reviewing the S-1. Not that I'm suggesting they are lying or misleading, but I believe they mean something different than what most people would assume. When the typical person reads that and thinks of TransDigm, they might think it implies being the sole source or having a very strong competitive position. I can only think of two or three of their businesses that truly have such a strong position. The rest are built to print, where their proprietary capabilities lie in the number of machines they have, their capacity, and their ability to maintain high quality control, but they aren't doing anything that can't be done by someone else. They manufacture someone else's product in whatever quantity the customer orders and then they're done with it. - Former VP, Loar Holdings

This research piece walks through certain PMA and BTP assets in Loar’s portfolio to understand the quality of the proprietary technology and its aftermarket pricing power. We explore the FAA certification process for a seat belt and discuss how SCHROTH, owned by Loar, can compete with AmSafe, TransDigm’s leading seat belt manufacturing company. We also provide details on the manufacturing processes of Loar companies such as Applied Engineering and Pacific Piston Ring Company to understand exactly how they serve Tier 1s like Honeywell.

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Understanding the nature of proprietary content and the details of certified products is critical to handicapping the pricing power of aerospace suppliers. But that’s not everything. As we explore with SCHROTH, the philosophy and strategy of managing a portfolio of PMA parts is just as important as obtaining the certification. There is no doubt the Loar's portfolio is interesting. Whether it can execute as effectively as TDG remains to be seen. We’ll be following very closely.

Markel vs Kinsale: Broking E&S Lines

This interview explores the quality of Markel and Kinsale's underwriting process from the perspective of an SVP at a leading independent wholesale broker. Kinsale has a market-leading combined ratio compared to peers. Between 2021-23, Kinsale earned a 55% loss and 22% expense ratio compared to 60.8% and 32% for the industry, respectively.

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One potential driver of such performance is not only Kinsale’s superior technology platform to provide efficient quotes, but its restrictive terms:

Kinsale has the ability to customize their policies where they can impose very restrictive terms or remove certain features and charge more for them. When they offer a very restrictive version of a quote, it is often very competitive in the market, and we see many insureds choosing price over coverage. - Senior VP at Wholesale Broker

Where Markel may provide an occurrence policy, Kinsale would issue a more restrictive claims-made policy:

Kinsale might quote a claims-made policy, and Markel might quote either an occurrence or claims-made policy. They have different divisions that handle claims-made products and occurrence products. Kinsale might only give you one option depending on the type of product. - Senior VP at Wholesale Broker

This interview further discusses the differences in the policy structure between MKL and Kinsale and how this may impact GWP growth.

Elevance Health, UnitedHealth, Aetna & the US VBC Market: Payor-Provider Dynamics

In this interview, a Former National Vice President of Care Transformation at Elevance Health sheds light on the evolving dynamics between payors and healthcare providers in the US.

It's not just about volume; we have a significant portion of your commercial population where we can deploy the same capabilities across commercial Medicare and Medicaid. Yes, it's about volume, but it's also about consistency across different lines of business. Often, you might have substantial volume, but you need to deploy different capabilities for different lines because the measure sets and goals vary. Elevance strives to align the goals for a provider across as many lines of business as possible to enhance compliance, engagement, and adherence on the ground from the physicians and other personnel who actually do the work - Former National Vice President of Care Transformation at Elevance Health

IQVIA OCE vs VEEVA: a Partner Perspective

The Veeva and Salesforce partnership ends next year. Veeva customers are encouraged to switch to its own Vault CRM stack and Salesforce has launched its own Life Sciences Cloud with IQVIAs OCE historical offering. This interview with a Former IQVIA OCE Implementation Manager who now works at a VEEV partner discusses how customers implement the two solutions.

Historically, IQVIAs disparate tech stack struggled to match Veeva's product quality and customer experience:

For example, if a Veeva representative wants to add a doctor from another specialty not available in the subscription, they can easily find any doctor with any specialty. Let's say a representative is supposed to see only rheumatologists and dermatologists, but if they want an oncologist, they can easily add this doctor to their iPad. With IQVIA, it is less flexible. If the specialty the representatives want to add is not in the initial subscription, then the representative will not find the doctor. For instance, if the client didn't buy access to oncologists, the representative will not find them. So, I think the Veeva database is more flexible, the updates are faster, and it's easier to use than the IQVIA one. - Former IQVIA OCE Manager and Current VEEVA Partner

However, given most clients have customised VEEV on Salesforce, many may consider the new Salesforce CRM product:

Many clients have built integrations with their Veeva systems. They are now familiar with the Salesforce environment that Veeva proposed. They've likely built integrations with other systems and acquired Salesforce skills. They know how to do administration or even some configuration, but they will have to relearn everything with Vault. Customers who are very Salesforce-oriented will seriously consider what Salesforce proposes in the future. - Former IQVIA OCE Manager and Current VEEVA Partner

We also discuss how customers implement VEEV with OpenData and IQVIAs data products and the approach some large pharma are taking to the VEEV / Salesforce split.

O'Reilly Auto Parts: Distribution Center Operations

According to a former sales manager at O'Reilly Auto Parts, the top 5 SKUs sold for ICE vehicles represent close to 70% of the company's revenue.

I'd say probably 70% of their business comes from the top-selling items. - Former Sales Manager at O'Reilly Auto Parts

These fast-turning products also carry a higher markup relative to other parts.

Usually, your top selling items have the highest markup because you know they will sell well. Therefore, you can make more money from them. For example, automotive lighting, such as headlights, has an internal cost of about $1.10. When I sell it to a commercial account, I get almost three to four times the value for that headlight. If I paid $1.10 for it, I'm selling it to you for $9. If a retail customer walks in to buy that headlight, the price becomes $15. I make a higher percentage profit on that bulb because I know it's going to fail. Headlights and taillights will fail, and I'm going to make a significant amount of money from them. - Former Sales Manager at O'Reilly Auto Parts

With EVs carrying fewer and different parts than ICE vehicles, O'Reilly and its competitors will have to adapt in order to protect their sales and margins.

Rightmove, Zoopla, vs OnTheMarket: Valuation & Buyer Leads

This interview with a Former Managing Director at Foxtons, who led its London estate agency business, explores how the company calculates the value of seller and buyer leads from Rightmove and the cost per instruction and sale:

We measure the return through the number of applicants, price per valuation, and conversion rates from valuation to instruction. The conversion rate from valuation to instruction and the instruction to sale conversion were never part of Rightmove and Zoopla. The marketing teams knew that if they got a property onto the market, they had done their job. Their job was to make the phone ring, the email ping, and to ensure it came onto the market. They wouldn't even ensure the quality of leads or whether a lead turned into a listing. - Former Managing Director at Foxtons

We also explore how OnTheMarket is performing and how it is becoming more competitive on seller leads:

And today at Lomond and previously at Chestertons, OnTheMarket is starting to generate more valuation leads than buyer leads, really, or tenant leads. Applicant leads are much, much higher. But of the three, we're getting better quality valuation leads from OnTheMarket than the other two. Percentage-wise, I wouldn't have the exact numbers. We found that Zoopla was very good at creating valuation leads. So their algorithms, who they're attracting to and so on. But Rightmove was very good at generating us tenants and applicants. We spent a lot on premium leads, by the way, at Foxtons and then eventually Chestertons, we can come to those sort of optimizers. - Former Managing Director at Foxtons

Medpace, IQVIA, & Benefits of Scale in Biotech CRO

This is the second recent interview on CRO Medpace with a former customer and ICON executive, the difference in serving large vs smaller biotechs is discussed. A recurring theme is the importance of Medpace's culture and human capital to deliver outstanding service.

It's an industry-wide problem, this turnover issue. But Medpace seems to be managing this balance better than others, at least from my limited experience. They may outgrow this if the culture of the founder eventually fades and they become more like other CROs. Then, we might see this turnover phenomenon happening more, but for now, they seem to have a really nice culture. - Former Clinical Operations Executive at Merck