Solera Holdings Earnings Call Insights: Organic Growth Rate, Debt

On Tuesday, Solera Holdings, Inc. (NYSE:SLH) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Organic Growth Rate

Eric Boyer – Wells Fargo: Yeah. I didn’t catch. What did you say the organic growth rate implied in your 2012 revenue guidance was?

Renato Giger – CFO: Between 4% and 5%.

Eric Boyer – Wells Fargo: Okay. And then also the adjusted EBITDA margin?

Renato Giger – CFO: It’s about 100 basis points higher than last year, on a non-FX basis, or about 43.7% including FX.

Eric Boyer – Wells Fargo: Okay. And then just with the EPS guidance, what would be implied at today’s spot rates?

Renato Giger – CFO: You mean the spot rate?

Eric Boyer – Wells Fargo: Right.

Renato Giger – CFO: We are using up to 5% different to spot rate exchange rate.

Eric Boyer – Wells Fargo: Right, but any sense of the magnitude of what that difference would be at today’s rates?

Renato Giger – CFO: I mean, the euro…

Tony Aquila – Founder, Chairman and CEO: About 5%.

Renato Giger – CFO: Yeah.

Eric Boyer – Wells Fargo: Okay. Great. And then could you just talk about the pace of expansion that you’re seeing with the global insurers in the developing markets?

Tony Aquila – Founder, Chairman and CEO: Yeah. This is Tony. Hey, Eric. With respect to the global insurers expansion in the developed markets or in the emerging, but I’ll just answer kind of across the board. In the advanced markets just to give some context, it’s very much a price sensitive game and in many cases, claims volumes in the advanced markets have been flat to declining just because of macro conditions, primarily weighted in the Western European countries and some spot in the Easter countries. In the emerging and evolving markets these are accelerating markets and have showed good growth profile in both adoption as well as volume trends. So, policies are becoming more enforced if they purchase new cars. Recently, we were just down in Brazil and it was pretty impressive to see what’s going on there for example.

Eric Boyer – Wells Fargo: Then with the stepped up amount of debt that you have or the dry powder, do you have a longer term acquisitive growth target out there?

Tony Aquila – Founder, Chairman and CEO: No, we’re very focused right now on $1 billion in revenue and $450 million in EBITDA. That’s kind of in the next evolution. We’re currently analyzing what that step-up will be after $1 billion and $450 million. We haven’t kind of officially announced that yet, but we’re getting close to that point. It will be an increase in some of the inorganic activity just by the natural penetration that we’re gaining in our advanced markets. Our distribution today is shifted where we have about a third of our business coming out of our emerging and evolving markets, which is, if you go back handful a years ago, it was like 95.5. So, we’re getting a good distribution there which will give us some growth there but it still kind of points to the fact that you’re going to have to be broadening your bundle organically and inorganically. Of course, we like the diversification in purchasing assets like Explore, and HPI and AUTOonline in the advanced markets where we expand the bundle and we try to get away from our competitors on a product-to-product basis by having a platform.

Debt

Gary Prestopino – Barrington Research: You’ve got $1.2 million of debt now, right, as of this bank group – as the refinancing in the bond offering, right?

Tony Aquila – Founder, Chairman and CEO: Correct.

Gary Prestopino – Barrington Research: What is the average rate on that?

Tony Aquila – Founder, Chairman and CEO: It’s about 5.7% roughly.

Gary Prestopino – Barrington Research: So, 5.7% on $1.2 billion. Okay. And then you mentioned something Tony about stepping up investments by 20% that impacted the adjusted EBITDA margin by 100 basis points. Is that going to continue into Q4?

Tony Aquila – Founder, Chairman and CEO: Yeah. We are planning to continue that. We have been making very concentrated investments around what we believe next generation mobility applications, as well as data analytics something we’ve been talking about on the data analytic side for a while. We are starting to make some progress there and some productization there into the platform. In addition to that we are just making sure all our operating platforms are very cloud sensitive for mobility, so that consumers can actually start to use our application with the insurers henceforth you saw with the AutoWatch acquisition and that was part of that – part of the strategy where we are opening up to bring consumers into the platform. If you watch TV in the U.K., you’ll literally see us advertising our HPI brand, and starting to bring the consumers more to our app, which we recently released a consumer friendly version of that app, which could be used through your cell phone.

Gary Prestopino – Barrington Research: Then revenue per claim you said was up 5.5% overall, and in emerging and evolving markets it was up about 9.6% is that right?

Tony Aquila – Founder, Chairman and CEO: Yeah, that’s right. Part of that is, it’s just a matter of how much they can digest in these markets, because you can’t rollout too much stuff otherwise you have various issues that occur with it, which put pressure on us and the insurer. So – but yeah, in the advanced markets it came in about 9.5%, 9.6%, which heavily neutralized a lot of – if you’re a company that was just weighted, and we haven’t over the past few years shifted our profile into the emerging and evolving markets, we’d be looking at a pretty tough quarter right now.

Gary Prestopino – Barrington Research: If I just eyeball it, your revenue per claim then in your advanced market was probably up about 2%, is that about right or…

Tony Aquila – Founder, Chairman and CEO: It was slightly up from the previous quarter in the advanced market category. That’s just primarily, because we continue to accelerate the amount of services, and the platform effect that we’re putting into the market to help offset some of the volume volatility we’re experiencing in these times in those market.

Gary Prestopino – Barrington Research: Okay, and then one last question. I couldn’t find this anywhere. If – obviously there is a concern about this, your contracts that are coming or your contracts that’s coming up in the U.S., but if 30% of your U.S. revenue is – or 30% of your revenue is U.S. based, and about 66% of that is the (thematic) of whatever is associated with that, and the other part of it is explore, but how does that part that goes to the insurance, or just is with the insurance side, how does that breakdown between shops and insurance companies.

Tony Aquila – Founder, Chairman and CEO: It’s about 50%-50%.

Gary Prestopino – Barrington Research: Okay.

Tony Aquila – Founder, Chairman and CEO: Between the insurance, and although the insurance is picking up more steam because of the growth we’re getting out of the explore business. We’ve yet to connect and introduce a combined we are prototyping right now, some combined value proposition associated with that, and look I mean, we’ve always been very clear with everyone that we have no intention of being the cheapest, but we have every intention of being the most robust from a platform perspective, and when we’re faced with only a pricing option, our business model has allowed us and our total growth strategy has allowed us to not take just any bit of business.

Gary Prestopino – Barrington Research: Right.

Tony Aquila – Founder, Chairman and CEO: And so we’re going to maintain that discipline and we do not know the outcome of the one contract that you’ve enquired about in the past, and we believe that that decision process is some time out. Not to mention, we’re not even sure, where they’re at in their ability to execute that.

Gary Prestopino – Barrington Research: No, I understand I’m just trying to get a breakdown between what’s really pure insurance and what goes to the collision repair shops with that product, so think of that…?

Tony Aquila – Founder, Chairman and CEO: Yeah, on that side, it’s about – I would say, it runs between 50%-50%, and 45%-55%.