Solera Holdings F3Q09 (Qtr End 3/31/09) Earnings Call Transcript

May. 8.09 | About: Solera Holdings, (SLH)

Solera Holdings, Inc. (NYSE:SLH)

F3Q09 (Qtr End 3/31/09) Earnings Call

May 07, 2009 08:30 AM ET

Executives

Kamal Hamid - Director of Investor Relations

Tony Aquila - Founder, Chairman and Chief Executive Officer

Jack Pearlstein - Consultant and former Chief Financial Officer

Dudley W. Mendenhall - Chief Financial Officer

Analysts

Anthony Cristello - BB&T Capital Markets

Peter Appert - Piper Jaffray

Andrew W. Jeffrey - SunTrust Robinson Humphrey

Franco Turrinelli - William Blair & Co.

Vincent Lin - Goldman Sachs

Dave Lewis - J.P. Morgan

John Maietta - Needham & Co.

Gary Prestopino - Barrington Research

Operator

Good morning everyone and welcome to Solera's Third Quarter Fiscal Year 2009 Earnings Call. Following today's remarks, we will hold a question-and-answer session. 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, Director of Investor Relations at Solera. Kamal, please proceed.

Kamal Hamid

Good morning everyone. Thank you all for joining us on the today's call and welcome to Solera's third quarter fiscal year 2009 conference call. Today, on the call with me are Tony Aquila, our Founder, Chairman and CEO and Dudley Mendenhall, our Chief Financial Officer.

Also with us is Jack Pearlstein, our former CFO who is a consultant to the company through the end of June. Tony will begin today's call with a summary of our financial results for the quarter ended March 31, 2009 followed by comments on the factors driving those results. Jack and Dudley will then comment further on our financial results for the third quarter and finish with an update of the company's FY 2009 guidance. We'll then open up the call for questions and end with concluding remarks from Tony.

Before we begin I would 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, 2008.

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 statements maybe based or that may affect the likelihood that the 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 these 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 solerainc.com. When we refer to consensus during this call, we mean the consensus results of certain analysts that cover the company as reported on Thomson First Call.

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

I'd now like to introduce Tony Aquila, our Founder, Chairman and CEO.

Tony Aquila

Thank you, Kamal. Good morning, everyone and thanks for joining us today. I'm pleased to report another strong quarter for the company. Our third quarter revenue of 139.3 million was up approximately 7.6% on an organic basis, after adjusting for the change in foreign currency exchange rates and excluding the contribution from our acquisition of Inpart and HPI.

The organic growth rate was within our six to 8% range despite the difficult economic challenges currently present in a few of our large market. We believe our performance speaks to the resiliency and the diversity of our business model and demonstrates the value proposition and the essential nature of our offerings to our insurance customers around the world.

In Q3, America's revenue growth was up approximately 4.5% on an organic basis and EMEA revenue growth was up approximately 9.5% on an organic basis over the prior year period. Adoption of our services continued to be strong with organic growth in our central and eastern European countries coming in at approximately 39% for the quarter.

Similar adoption in Latin America, lead to Brazil and Mexico posting organic growth rate of approximately 20.3% and 32.9% respectively. Jack and Dudley will provide additional country level performance details in a moment. Our Q3 adjusted EBITDA 53 million representing a 38% margin, was up approximately 320 basis points over the prior year, despite an approximate 14% currency headwind.

The margin demonstrates our cost discipline and a benefit from the postponement of some planned investments to future period. We believe currently prevailing foreign exchange rates will likely result in headwinds for us during the next few quarters. We have therefore initiated additional waste reduction efforts that we expect will mitigate some of the negative currency impact.

As in the last few quarters we saw of pockets of claimed volatility in a handful of our more mature markets; including slower growth rates in certain markets and slight declines in others. However, we were able to continue to grow organic revenue on a year-over-year basis in a majority of our markets as we were able to continue to cross-sell product and services to existing customers and increase the size and value of our products and services bundle.

For instance, in France claims declined 0.3% but revenue per claim increase 13.2% due to the purchase of additional products and services by our customers resulting in organic revenue growth of 12.2%.

We expect claims volatility to continue across various markets until global economic conditions improve. Last year we announced that a large U.S. customer would be transitioning to a competitor's platform. The transition efforts were stepped up during the last several weeks of the third quarter.

We anticipate that the transition will accelerate during the fourth quarter and that this customer will complete it's migration by the end of the fiscal year. Our senior management team in North America is focused on new business wins and further waste reductions to solve for the loss of this customer.

I'd now like to give you a brief update on HPI, the large acquisition we completed during the second quarter. The business is performing ahead of plan on revenue and EBITDA. We are encouraged by the level of interest in HPI's products for some of our large insurance customers and we believe that we can grow the business as we add new services and cross-sell to existing customers over the next several quarters.

Despite the difficult economic conditions in the U.K., HPI has been able to increase the average number of HPI checks per vehicle year-over-year by 30%, as consumers are visiting more dealerships before deciding to sell their vehicles.

On the expense side, we continue to identify opportunities to further reduce waste. An example of this is the planned consolidation of two of our European data centers. We may be able to capture several million dollars in synergies through this effort. On the acquisition front, I want to update you on where we are with the second large deal mentioned in our November prospectus.

Despite working this transaction for many months, we elected to discontinue our efforts during the quarter due to an inability to bridge evaluation gap with the target. We remain very focused on certain product and service extensions to our core offering, but we will remain very disciplined in evaluating each acquisition opportunity.

Before I turn the call over to Jack and Dudley I'd like to welcome Dudley to his first earnings call as Solera's CFO. After Jack and Dudley's update, we will take Q&A and then I will come back and do a brief wrap up.

I'll now turn the call over to Jack.

Jack Pearlstein

Thank you, Tony. As mentioned at the top of the call, we are pleased to report our third quarter fiscal year 2009 results. Our 3Q revenues of 139.3 million were up approximately 7.6% year-over-year on an organic basis. Excluding the revenues in the quarter from HPI and Inpart, currency had a negative impact of approximately 14% in line with our estimate announced last quarter.

Revenues on a reported GAAP basis increased approximately 0.9% versus the prior year's quarter. In EMEA, our Q3 organic growth was approximately 9.5% and our Americas organic growth was approximately 4.5% versus the prior year period. In EMEA significant contributors to organic growth this quarter included France, up 12.2%, Poland 26.1% and South Africa up 20%. The UK and Germany also showed solid organic revenue growth of 6.9% and 3.3% respectively.

In our Americas segment as Tony mentioned at top of the call, Brazil posted an organic growth rate of approximately 20.3% and Mexico came in at approximately 32.9%. Our North American revenues grew approximately 1.9% on an organic basis over the prior year period consistent with the second quarter. This growth rate will decline a bit over the next several quarters as we work through the loss of the U.S. customers that Tony discussed earlier.

Our adjusted EBITDA came in at roughly 53 million for the quarter representing a margin of 38%. This was slightly ahead of our expectations despite the currency headwinds and keeps us on track for hitting our full year fiscal margin target.

Operating expenses came in at 32.1 million, 23% of revenues and down 0.7 million over the prior year period. After adjusting for FX and acquisitions, operating expenses were up 0.2 million over the prior year or 0.5%.

Systems development and programming expenses came in at 14.8 million, 10.6% of revenues and a decline of 1.6 million over the prior year. After adjusting for FX and acquisitions, systems development and programming expenses declined 0.7 million over the prior year or 4.2%.

SG&A came in at 41.5 million which was 29.8% of revenue and up 0.6 million over the prior year. After adjusting through FX and acquisitions, SG&A were up 2.1 million over the prior year period or 5.1%. During, the quarter we took $0.7 million restructuring charge primarily related to the Americas 2008 waste reduction plan.

This quarter we have initiated another restructuring plan related to the Americas and anticipate that this will result in a restructuring charge of approximately $1 million in the fourth quarter of fiscal 2009. Our acquisition related cost of 2.4 million included approximately 1.4 million of cost associated with the potential acquisition previously mentioned by Tony, also included in acquisition related cost are one million in severance costs for a handful of management changes we made in our EMEA organization associated with our acquisition of the Claims Service Group from ADP in April 2006.

Our adjusted net income for the third quarter came at in at approximately 27.5 million or $0.40 per diluted share, up nearly 21.9% over the prior year period and roughly $0.02 ahead of consensus.

And with that I will turn the call over now to Dudley, Dudley.

Dudley W. Mendenhall

Thanks Jack. Let me start by saying how pleased I am to join Solera and the opportunity to be working with Tony in the executive team. Jack and the team have done a great job of leading the transition and I can say that it is been very smooth. After my current trip to Europe with Tony and team the immediate next step in the transition will be to meet our analysts and investors over the next 30days which I'm looking forward to.

Turning to the balance sheet we ended the quarter with approximately 190 million in cash and marketable securities and we had total debt outstanding of approximately 575.2 million. During the quarter, we paid down approximately 2.4 million of debt and our consolidated leverage ratio pursuant to the terms of our credit agreement improved from approximately 2.6 times at the end of the second quarter to approximately 2.3 times at the end of the third quarter.

Cash flow from operations was approximately 32 million for the quarter and accounts receivable at quarter end was approximately 89.9 million which translates to DSOs of roughly 58 days essentially unchanged from the prior period. Capital expenditures for the quarter were approximately $5.8 million. Today's earnings release, we issued updated guidance for the remainder of fiscal year 2009.

For the full year, we estimated revenues of 550 million to 552 million, adjusted EBITDA of 206 to 208 million, GAAP net income of 53 to 55 million, adjusted net income of 106 108 million and adjusted net income per diluted share of $1.57 to $1.59. As stated in the press release earlier this morning, these figures assume constant currency exchange rates from those prevalent today at no additional acquisitions.

Our fourth quarter guidance also takes into account approximately three fewer working days in nearly all over EMEA countries this year versus last, making the year-over-year comparisons a difficult one for the fourth quarter.

We estimate that our fiscal 2009 organic revenue growth rate will approximately the top end of our 6 to 8% range. 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 of those of you track and factor the impact of strengthening or weakening dollar throughout the remainder of the year, we would approximate by using the following formula. For each 1% change in the U.S. dollar versus all the foreign currencies in which we transact business negative or positive impact of fiscal year 2009 revenues will be approximately 0.3%; and a negative or positive impact to EBITDA will be approximately 0.2%. That concludes our prepared remarks. We will now take your questions and then Tony will provide a brief wrap up.

Operator, please open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Tony Cristello from BB&T Capital Markets. Please proceed.

Anthony Cristello - BB&T Capital Markets

Thank you, good morning gentlemen.

Tony Aquila

Hi Tony.

Dudley Mendenhall

How are you?

Anthony Cristello - BB&T Capital Markets

I guess guys just couple of questions, one, Tony when you look at everything that's going on right now and I continue to hear about you taking costs out of what already operating infrastructure. When the market comes back, whether it's domestically and or globally, how much of that spend reduction has to come back or asking the question different way, when you come back from the market standpoint, does that imply that there is more leverage to your model than what was may be a year ago?

Tony Aquila

Yeah. I think what you're seeing here is the improvement of us, building some internal tools, in addition to that, you're just seeing good leverage flowing through the business. The waste reductions are kind of continuing because we have things like HPI which enter the mix and give us some other opportunities and we're pretty vigilant on the whole waste reduction thing.

So we still have a pretty steady pipeline of activity for waste reduction initiatives, but generally what you don't see here and some people have heard us talked about it but if we're taking out $2 of waste, we're generally reinvesting one of those dollars, so you're really only seeing $1. And so that kind of talks to the point about when the markets become more robust and maybe we accelerate the expansion of a couple more geographies, you'd see that -- we're already pre-planning for that, but we're taking a disciplined approach to this.

Anthony Cristello - BB&T Capital Markets

Okay-okay. And when you then look at the markets in general, can you talk a little bit about the differences now. We've been sort of in recessionary environment for quite a period and I'm wondering if you're seeing anything globally versus domestically that says hey, one is actually (ph) and better than the other and maybe on a global basis is not as bad as what we might be seeing here even though you would have expected some of that to flow through overseas.

Tony Aquila

Yeah, well obviously in evolving and emerging markets because we are so early in the penetration game, while there may be buying less cars and they maybe having some difficulties, we its difficult for us to feel it because its so early and our value proposition drops immediate ROI to the insurance carrier, so that's kind of why you heard us doing so well in central Europe and Latin America et cetera.

But what I would tell you is that we're starting to see -- and I don't want to predict the market but it looks like things have started to stabilize in some of the markets or certain markets where we've seen some pressure. But we want to maintain a conservative view on these things because we don't know how these markets will play out.

Anthony Cristello - BB&T Capital Markets

Okay, that's great. And one last question has there been any change in how your customers are coming to you about services and saying, hey now that things are pretty tough out there instead of back pedaling we're actually wanting to figure out if claims are going to be down, how can we now work on saving more money, have you had those types of discussions?

Tony Aquila

Well as you know Tony, as you've been you know our business pretty well but, we've been very focused on additional services. And what happens is when you've got a difficult market like this, insurance carriers will start to be very focused on loss adjustment expense. Which is the cost to service they claim. So they again start to lighten their staff, which then creates an opportunity for us to sell additional services which is what you're seeing in some of these countries, how well they've had a little bit of tightening or volatility in claims volume but they've been able to overpower it on revenue per claim because they are selling more services.

So if those insurance carriers kind of so to speak right size their work forces, they need more tool. And that gives us an opportunity to sell for that. Now once we get those embedded as we've seen in previous downturns those tools don't come out. They tend to stay in and if they do add people they add people to try to adjudicate weaknesses in other areas of the claim process. That makes sense, Tony?

Anthony Cristello - BB&T Capital Markets

Perfect, thanks guys I appreciate it.

Operator

Your next question comes from the line of Peter Appert from Piper Jaffray. Please proceed.

Peter Appert - Piper Jaffray

Thanks, Tony can you give us just little more color on the drivers behind revenue per claim and specifically in terms of products that are driving it or geographies. Where you're seeing interesting things in that regard. And maybe along those lines, is it possible to talk about the break between revenue growth that's provided by units versus revenue per claim?

Tony Aquila

Well, first of all without giving too much market specific information I'll give you some general things. So what we're seeing generally in the European -- in the western European theater, we're seeing decision support tools or tools associated with compliance. Meaning an insurance carrier has set a of business rules with its trading partners and we developed very sophisticated and local tools that allow them to reach better compliance that were done manually in the past and making sure that the trading partners are in compliance.

So, that -- that particular area has been going very well. In addition to that we're automating some other steps in the process that were done either by other third parties and we're now able to consolidate those into our platform and that's kind of the western European thing.

In addition to there is continuing claims growth in the more mature areas because we are doing some customer takeaways as the markets feel more comfortable dealing with a partner like us in a volatile period.

In addition to that as you've seen in the kind of more central European theater, you've seen them be very focused on adopting our core application, but now they're moving into what I'll call communication and first generation services which are starting to move to a more claims centric approach of automating a claim.

So those are now in some of the central countries that have seen, like Poland some of these additional services as then you have other countries; then they start to follow in the east. And that's kind of the same story we are seeing in Central and Latin America with the exception that they have been a little bit more progressive in the area of parts and we are now kind of -- that's part of that whole Inpart acquisition and we're rolling that out in Mexico here very soon and that has to do with a lot of geography issues with getting cards or the concentration of many dealers in an area with this current economic climate allows for more comparative pricing. That answer your question, from kind of rest of world perspective?

Peter Appert - Piper Jaffray

: Yeah. So would it be fair then to assume that in terms like the vast majority of revenue growth I know its associated with the new services, the revenue per claim portion rather than unit growth in terms of number of claims. So is it like...?

Tony Aquila

No, I wouldn't say that Peter. I mean we if you look across our markets I would say the large majority of them had also some fairly decent claims volume increases on a unit basis. Like last quarter and the quarter before that I think the dismal economic situation has driven a couple of markets, right? France which was mentioned, right? Down 0.3% year-over-year in terms of claims volume. So we still have a couple of markets where we had year-over-year declining claims or slightly declining claims growth. But the vast majority of our markets continue to have unit volume claims growth.

Peter Appert - Piper Jaffray

Okay. And how big is pricing as a portion of the revenue growth the 7.6% organic this quarter?

Tony Aquila

Very small percentage. What's been going on we've really been bundling up the services, Peter and to dog pile little bit more on the whole Jack thing, I would say that in the material markets we're taking away some market share as I've said earlier with Tony and in the evolving and emerging category, it's a volume growth and at a certain point in time they then start to buy additional services once you got the platform in place.

Peter Appert - Piper Jaffray

Okay, great. And then just one last thing; how big is the revenue impact from the contract that's rolling off in the fourth quarter?

Tony Aquila

Probably going to be about 1.3 million in the fourth quarter.

Peter Appert - Piper Jaffray

Okay, great. Thank you.

Tony Aquila

Thanks Peter.

Operator

Your next question comes from the line of Andrew Jeffrey from SunTrust. Please proceed.

Andrew Jeffrey - SunTrust Robinson Humphrey

Hey, good morning guys.

Tony Aquila

Hey, Andrew.

Andrew Jeffrey - SunTrust Robinson Humphrey

Could you, Tony, talk a little bit about the progression of the data base build outs and especially in your emerging markets. And what the implications might be for gross margin over the next few quarters, the gross margin's been a little bit a little volatile. I mean it was down, it was flat sequentially up year-on-year. Can we expect the gross margin to continue to widen out and are there other factors that might impact it over the next several quarters?

Tony Aquila

Well, I think you're probably looking at the impact of currency because we got a lot of this work being done in areas where we're generating revenue to kind of drive part of the natural hedge in the business as well. So there's a bit of yin-and-yang on that. But with respect to our efficiency, our throughput is up 33% in our coverage of units over the last few years.

So we're actually reducing expenses and we're increasing throughput not because we've been investing in this particular category, while you may see the overall dollars coming down, you're not seeing all the dollars come down because some dollars have been reinvested as I was covering with Tony earlier. So, we think at a steady state, we're in good shape we think we are also investing nicely in the development of units for China, India and some of the other markets we'll be targeting in the future. And so we're pretty happy with our capacity and the utilization of our capacity. And some of this stuff that's driving that is we're picking up natural labor arbitrages as we've kind of redistributed our data development centers, to now six across the world versus at the time of the acquisition there were two.

Andrew Jeffrey - SunTrust Robinson Humphrey

Okay. And if you think about the emerging markets like China and India, would you anticipate an inflection point or a hockey stick or are these going to be sort of slow, steady growth markets for you that just gain speed overtime?

Tony Aquila

No Andrew I've always kind of told everybody, it takes about 10 years to properly penetrate a market towards a mature category. I really can't say about China and India, because you have so many kinds of environmental factors in these countries, because of the size of them and also the cultural and political evolutions.

But I would say to you that yes, there is definitely the potential of a hockey stick. But the way we issue guidance is based on our mature and evolving countries. Its not very -- there is not a lot of put on the emerging markets, because we can't predict when a market adopts (ph). And so we build our six to 8% based in the two segments, where we have enough momentum and stability in those markets that we can now give guidance. And so yeah, there will be some points in time when those adoptions will give us accelerated tail winds.

Andrew Jeffrey - SunTrust Robinson Humphrey

Okay. And then finally you'd mentioned that there were some investment deferrals this quarter, could you quantify those and are those investment initiatives that you can continue to differ until revenue growth and or currency pressures improve, or how should we think about some of the timing issues?

Tony Aquila

Yeah. So some of those have to do with our emerging markets to that -- which back treads to my earlier commentary to you. In addition to that, there's some in some mature markets we delayed some hiring of some positions that are non-essential positions, they're non-revenue generating positions. And they tended to be more positions that were associated to the kind of the nice-to-have categories. And we believe we've maintained a prudence in -- and what you guys can't see is the waste reduction initiatives that we have taken -- you see the net numbers, you don't see the gross numbers and then how we distribute a part of that.

Andrew Jeffrey - SunTrust Robinson Humphrey

Okay, thank you.

Tony Aquila

Thank you.

Operator

Your next question comes from the line of Franco I apologize -- Turrinelli William Blair & Company.

Franco Turrinelli - William Blair & Co.

I'm going to assume that's me, but...actually a few questions and then I'll get back into queue if I may. Tony, can you just help me understand or remind me actually or understand better. When you say you're seeing a really tough environment out there and seeing some significant macroeconomic impact. What specifically ends up happening in your business. Is it claims volume, is it insurance company's expansion plans, is it insurance company's hiring plans, how does it really kind of play out in your business?

Tony Aquila

Well, you know what happens; some of its consumer behavior, right? So, what you see is that the number of claims filed will go down but the number of paid claims will be relatively consistent. And that's why there's not a real correlation that's very accurate between where we are and where some of these insurance carriers report. Because they'll report to you often all claims, whether they are paid claims or not.

But what happens in difficult markets is people do not file -- they don't file the kind of warning claims. They're really focused on the claims that are really being processed. In addition to that, you get some what I'll call long gating or volatility in the process where people start to extend the amount of time in which they solve there claim.

So instead of it been a 14 day kind of before it gets ran (ph) it go out six or eight weeks. And so some of that pressure gets floated into the system in the mature markets. In addition the staff of the insurance companies as they start to reduce some LAE expenses then what happens is sometimes their processing time elongate, because they have less staff. And that will give us a little bit of affect in some of these mature markets. So, overall, like I said these last few weeks it -- where those few markets had some pressure we're starting to see some stability but again we don't want to predict anything.

Franco Turrinelli - William Blair & Co.

So the pressure is primarily in claims volume, is that sort of a way to about it ?

Tony Aquila

That is correct.

Franco Turrinelli - William Blair & Co.

So, in terms of your insurance company's expansion plans into new market, or your insurance company's willingness to spend more on your products and services by buying additional. That based on your prepared remarks, that seems to be still pretty strong.

Tony Aquila

And you know you know this because you've been tracking us for a while. We got on this initiative kind of day one of the acquisition. And that has proved well. And our managing directors I'm in the UK right now and just recently met with 15 of our country managers, and all systems seem to be as expected.

Franco Turrinelli - William Blair & Co.

Okay. Good. That's very helpful. Quickly on the acquisition, I mean obviously its sounds that's where we're irreconcilable differences on the valuation your first know (ph) on the acquisition front, I guess that one could always resurrect, maybe down the line, but does this mean that you cannot start looking at other stuff, or what are you thinking from an acquisition point of view?

Tony Aquila

Yeah, we we're we have a very nice pipeline that's very focused on particular areas that we want to expand in based on where we believe the demand is from our customers, and its ability to deliver them high value. So we couldn't get to it was a price issue. That may or may not change in the future. And we have additional targets that we're hard at work at.

Franco Turrinelli - William Blair & Co.

One last big picture question; any thoughts on the impact of what's going on with GM, Chrysler and maybe the Cash for Clunkers legislation?

Tony Aquila

Absolutely, we have a special project team that are some former executives in that particular category that are doing, some work or advising us. We think there are some significant opportunities as we believe there's being -- kind of pinning up some demand in that area for the future. And we also see some synergy opportunities with the way we redistributed our data development centers for us to help those car manufacturers with some things that we currently pay third parties for. And I'll just leave it at that at this time.

Franco Turrinelli - William Blair & Co.

Okay, thanks Tony.

Tony Aquila

Thanks Franco.

Operator

Your next question comes from the line of Vincent Lin from Goldman Sachs. Please proceed.

Vincent Lin - Goldman Sachs

Hi, thanks. Tony, just wondering if you can provide a little bit color on what you are seeing in terms of your the trends in your total loss solution business given what we're seeing as the increased severity especially here in North America?

Tony Aquila

It's playing out as we had expected. You're seeing firming of prices right now. So, that may cause some various impacts in it. But prices were really low, and so the caused -- that helped the body shop industry a little bit, kept some cars in the repairable category. But for us in the U.S. market we got kind of a natural hedge, because we got both sides of that market, we have a very competitive offering. And price point is holding as we had expected, not really a lot to say there at this time.

Now, I will tell you we are expanding in that category, that's one of the services we've been going after in other countries where we presently don't have that offering. And, but the number, the percentage of total loss is two partial losses is holding about steady within a reasonable margin in just about all markets across the global where we transact.

Vincent Lin - Goldman Sachs

Got it, that's helpful. And then secondly just wondering if you can provide some comments in terms of anything that you are seeing changing on the margin on the competitive landscape side, given that the -- the previous proposed merger between CCC and Mitch were falling through?

Tony Aquila

We've kind taken a policy of not commenting. We're obviously taking advantage of the outcome. We have been fortunate enough to be invited to have some discussions with some carriers we believe that we would have otherwise and probably not gotten an opportunity to have discussions with. And but nothing is reflected in our guidance from anything at this point.

Vincent Lin - Goldman Sachs

And then just really quickly, given that you sort of have taken a at least a temporary pause on the M&A side, any plans to accelerate in terms of debt reduction, de-leveraging the balance sheet at least at a faster pace versus previously just given that you've got the a pretty nice cash balance and also pretty robust cash flow model?

Tony Aquila

Yeah, and I would just say to you that we haven't taken a break from the M&A. Its just -- we are focused on our pipeline and deals happen when they happen, especially when you hold your discipline the way we do. So that's that. With -- in addition to that with a couple of hundred million dollars in cash on the balance sheet approximately and growing obviously that we are studying other opportunities as well to return additional capital above and beyond our -- our kind of M&A strategy.

Vincent Lin - Goldman Sachs

Great. Thanks.

Operator

Your next question comes from the line of Dave Lewis from J.P. Morgan. Please proceed.

Dave Lewis - J.P. Morgan

Hey, thanks. Good afternoon there, you guys are in London. Dudley, I was wondering if you could give us a just I know its early day, its been earlier assessment of the business from your vantage point?

Dudley Mendenhall

I think the business is actually much better than it appeared as a third-party observer. As I've been integrated into the team we have a lot of very promising waste reduction initiatives going forward as Tony alluded to. And so feel, feel much more positive today than I did two months ago when I was interviewing.

Dave Lewis - J.P. Morgan

Okay, great. And then can you just give us an update on some of the contract renewals, I know you have a big one in 2010, I still think that the primary discussions haven't come about yet but anything we should be looking, anything -- any new update there?

Tony Aquila

No, I think that our load leveling efforts that have been underway since the acquisition have kind of positioned us for what we'll call an acceptable level of renewals on any annual period and those are primarily in the U.S. and a lot environments are just -- the relationships are still embedded over the years. But everything's kind of as discussed last time; not a lot of change.

Dave Lewis - J.P. Morgan

Okay, and just the last one. Have you guys had a chance to think through the impacts to potential changes to tax policy that Obama has proposed?

Jack Pearlstein

We've begun to look at that. And I think it's probably little to early to comment on it. But I wouldn't put us in the category of -- I think the folks Obama is targeting. We're good corporate citizens and good U.S. tax payers.

Dave Lewis - J.P. Morgan

Okay. Thanks guys.

Operator

Your next question comes from the line of John Maietta from Needham & Company. Please proceed.

John Maietta - Needham & Co.

Tony I was wondering if you could comment on the, the customer base the insurance companies -- particularly on the P&C side, seemed pretty strong. Collision repair guys under some pressure. I was just wondering if you could talk sequentially on the collision repair side in particular. Have you seen any change there, has it stabilized? Has it may be picked up a little bit? Just what are you seeing there?

Tony Aquila

What we've seen is we've seen some shops go out of business. The good thing for us and most of our -- the majority of our markets transaction wise, the transaction just goes somewhere else. And where you've seen this little big of shrinkage or volatility if you will in the claims volume in those countries, its not enough to really sting (ph) anybody, right. So instead of our body shop getting 14 wrecks a month, he gets 13 or 12. That's not going to put him out of business. So its -- these guys are very resilient entrepreneurs.

Now what it does do is it creates an opportunity for us to kind of get more services into the market because obviously, it's a buyer-seller relationship and often if people have less volume, they could try to lean a little harder on price. So that gives us an opportunity to sell some tools and services that help mitigate that.

John Maietta - Needham & Co.

Got it. Okay. And then last call, Tony you had talked about -- you had a queue of services, particularly on the decision support side that you're going to be rolling out over the next number of quarters. Is the pace of those roll outs still the same?

Tony Aquila

Yeah, we take a very conservative -- I believe you and I had a discussion about this. It's kind of to like the discussion that I had earlier with Andrew about these emerging markets. The other thing we don't try to predict is when new products and services go to revenue. So by taking that approach, if there is a little bit of a slowdown in adoption it's really not -- its something we're anticipating, if you know what I mean.

John Maietta - Needham & Co.

Yep, got it. Okay.

Tony Aquila

And so that's our approach to that.

John Maietta - Needham & Co.

And then just the last question I had with regard to M&A. Just fill valuation gaps out there, have they narrowed some over the past number of months?

Tony Aquila

They've narrowed, but there's still kind of an ask-and-take delta out there across the markets in the world, as we have been accelerating our pipeline.

John Maietta - Needham & Co.

Okay, thanks a lot.

Tony Aquila

Thank you.

Operator

Your next question comes from the line of Gary Prestopino from Barrington Research. Please proceed.

Gary Prestopino - Barrington Research

Good morning everyone.

Dudley Mendenhall

Hi Gary.

Gary Prestopino - Barrington Research

Couple of things; number one this data center consolidation that you're going to do, is that a fourth quarter event, or is that something that's start impacting FY '10?

Tony Aquila

The project is underway. It has to do -- a lot of it's been driven by the fact that in the acquisition we picked up a couple of facilities that we were able to own in purchase from of HPI. So, we're retuning one of those to be a site, which will then move out of the third party sites. Those investments are under way. There were some in the quarter, but it's out over the next kind of fourth quarters.

Gary Prestopino - Barrington Research

Okay. And then, is your CapEx still going to run about 23 million this year?

Tony Aquila

Yeah, I think we've historically said 20 to 25, and I would say that that's likely to be where it is going forward as well.

Gary Prestopino - Barrington Research

Okay, good. And then could you talk about just the recycler market, you had a pretty good bump there in revenue growth, even with currency. I mean is there something there that you -- that caused that to spike?

Tony Aquila

Yeah, Gary that's a little bit of a apples-and-oranges and the categories recycling and other; and the other is where a big chunk of the HPI revenue goes. So, we can certainly follow-up and sort of get you apples-to-apples.

Gary Prestopino - Barrington Research

No that's fine, as long as I know that its HPI. And then, if you could do this I mean you had 7.6% organic revenue growth. Is it possible that you could kind of maybe give us on a percentage basis, how much of that organic revenue growth was through estimatics adoption or adoption of your platform versus bundling of -- increasing the bundle of the services that you sell?

Tony Aquila

Well we probably could slice and dice that, but at the end of the day, we're really concentrating on a country-by-country strategy.

Gary Prestopino - Barrington Research

Right.

Tony Aquila

And the bundles are now so intertwined, we just don't believe de-bundling is in the best interest of the company, in any discussion.

Gary Prestopino - Barrington Research

All right. That's fair. Any update on what's going on in some newer markets either its Turkey, Australia?

Tony Aquila

Turkey has probably been the market that went into the greatest form of shock I think in the downturn, we don't real reflect it in our guidance, so that's okay. I've met with our team here in the last few days that's working on there. We've got a couple of very active targets. We think we're big long-term believers in that market. And we're just aligning our partners accordingly, it's going a little slower than we had expected. But from a guidance perspective it's irrelevant.

Gary Prestopino - Barrington Research

What about Australia?

Tony Aquila

In Australia, I will be meeting with the team on that next week. And we've got everything is kind at plan for the most part in the discussions of how we're rolling out the market and I think we'll be okay there.

Gary Prestopino - Barrington Research

Okay. Any new countries you're considering entering in fiscal 10 that you can talk about at this point or not?

Tony Aquila

There are some countries, there are the few that we slowed down on just because as I reflected in my earlier comments because we expensed this. So in addition to that I would tell you that there is a couple of other countries in the Asian theatre that are becoming more attractive to us but it's kind of subject to some things that need to happen at the market level first.

Gary Prestopino - Barrington Research

And at last, just last quick question. You said there will three days less in this quarter versus last year's quarter in EMEA. What is it just they've declared some new holidays in certain countries or what?

Jack Pearlstein

The majority of those three days is due to where Easter fell this year versus last year. So...

Gary Prestopino - Barrington Research

But Easter ...

Jack Pearlstein

So last year it happened to be a Q2 event, excuse me -- a Q3 event and this year it's a Q4 event.

Gary Prestopino - Barrington Research

Okay. Thanks a lot guys.

Tony Aquila

Is that all -- all right we'll take one more question and then we'll wrap it up.

Operator

At this time we have no further questions sir.

Tony Aquila

Great. I'd like to wrap up the call then. Our 3Q results continue to be driven by one, the consistent adoption of our core products and services in our mature and evolving markets; and two, solid operational execution. And three, despite the local the global economy slow down, we believe our business model will continue to generate annual top line organic growth rates between 6 to 8%; with approximately a 190 million in cash on our balance sheet and growing acquisitions will continue to be our top priority for the use of this cash which we think we can generate three to 5% of top line revenue growth per year on top of our organic growth.

In addition, we are also evaluating other uses of cash to return value to our stock holders. Lastly I want to give a very special thanks to everyone one of our employees, approximately 2200 associates for an outstanding job done during these times. Your hard work and dedication have resulted in our continued success. Thanks again for joining us on the call and we look forward to speaking with you again next quarter. Thanks everybody and have a great day.

Operator

Ladies and gentlemen, a replay will be available until midnight on May 21 2009. To access the replay, dial 888-286-8010 or from outside the U.S. dial 617-801-6888 and enter the following access code when prompted 65006382. Once again thank you for your participation in today's conference call. You may now disconnect. Have a wonderful day.

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