Solera Holdings' CEO Discusses Q3 2012 Results - Earnings Call Transcript

Solera Holdings (SLH)

Q3 2012 Earnings Call

May 08, 2012 5:00 pm ET


Kamal Hamid - Vice President of Investor Relations

Tony Aquila - Founder, Chairman of the Board, Chief Executive Officer and President

Renato C. Giger - Chief Financial Officer, Principal Accounting Officer, Treasurer and Assistant Secretary


Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Gary F. Prestopino - Barrington Research Associates, Inc., Research Division

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Robert Riggs - William Blair & Company L.L.C., Research Division

Peter P. Appert - Piper Jaffray Companies, Research Division



Good afternoon, everyone, and welcome to Solera's Third Quarter Fiscal Year 2012 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded and will be available for playback. Details for accessing the replay will be made available at the end of the call. At this time, I would like to turn the call over to Kamal Hamid, Solera's Vice President of Investor Relations. Kamal?

Kamal Hamid

Good afternoon, everyone. Thank you all for joining us, and welcome to Solera's Third Quarter Fiscal Year 2012 Conference Call. With me here today are Tony Aquila, Solera's founder, Chairman and CEO; and Renato Giger, Solera's Chief Financial Officer.

Tony will begin today's call with a summary of our financial results for the quarter ended March 23, 2012, followed by comments on the factors driving those results. Renato will then provide you with information about our financial results that are not described in today's press release and finish by providing an update to the company's fiscal year 2012 guidance. We'll then open up the call for questions.

I'd like to remind everyone that our remarks during this conference call will contain forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are neither promises nor guarantees but involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements including, without limitation, those risks detailed in Solera's filings with the SEC, including our most recent quarterly report on Form 10-Q for the quarter ended December 31, 2011.

We disclaim any obligation to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statement may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. We also plan to discuss certain non-GAAP financial measures on this call. A reconciliation of Solera's non-GAAP financial measures to GAAP financial measures is included in today's press release, which is available on the Investor Relations section of our company website at

When we refer to analyst consensus during this call, we mean the consensus results on an actual currency basis of certain analysts that cover the company as reported on Thomson First Call. We measure constant currency or the effect on our results that are attributed to changes in foreign currency exchange rates by measuring the incremental difference between translating the current and prior period results at the multi-average rates for the same period from the prior year. Unless otherwise stated, all period-to-period revenue, adjusted EBITDA and margin comparisons are on a constant currency basis.

Our guidance assumes no acquisitions of businesses, no stock repurchases and assumes 28% tax rate to calculate adjusted net income and the foreign currency exchange rate assumptions described by Renato -- described below. Consistent with our guidance policy, we do not plan to update guidance during the quarter, but only at our regularly scheduled quarterly or annual conference calls. To help those of you who track and factor the impact of a strengthening or weakening dollar throughout the remainder of the year, we would approximate by using the following formula: For each 5% change in the U.S. dollar versus all the foreign currencies in which we transact business, the negative or positive impact to fiscal year '12 revenues will be approximately 0.9% and the negative or positive impact to EBITDA will be approximately 1%. Amounts and percentages throughout our remarks reflect rounding adjustments.

All information discussed during this call and webcast is protected by United States copyright law, and not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of Solera Holdings, Inc.

I would now like to introduce Tony Aquila, our Founder, Chairman and CEO. Tony?

Tony Aquila

Thank you, Kamal. Good afternoon, everyone, and thanks for joining us today. Our top line results in the third quarter included claims volume volatility in some of our advanced markets and strong customer adoption in claims volume growth in several of our evolving and emerging markets. Our business was also impacted by macroeconomic and political conditions in many of our markets. Despite these impacts, we achieved solid total revenue growth of 16.2%, which was aided by the diversification of our business and our strategic growth levers.

On a constant currency basis, our adjusted EBITDA margin came in at 44.9%, up 88 basis points year-over-year and within 10 basis points of our highest adjusted EBITDA margin ever. This margin demonstrates our customers continued support for our long-term investments in data and profitable innovations. We strategically increased investments by 20% year-over-year in the third quarter. If we excluded these investments, our adjusted EBITDA margin would have been 100 basis points higher, which translates into a margin approaching 46%. About 2/3 of this investment spending was related to new products and ongoing development of our HEMI platform, which is targeted for the U.S. and Canada and other advanced markets, and 1/3 related to our new country expansion.

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