Solera Holdings Management Discusses Q1 2014 Results - Earnings Call Transcript

| About: Solera Holdings, (SLH)

Solera Holdings (NYSE:SLH)

Q1 2014 Earnings Call

November 06, 2013 5:00 pm ET

Executives

Kamal Hamid - Vice President of Investor Relations

Anthony Aquila - Founder, Chairman, Chief Executive Officer and President

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

Analysts

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

Peter P. Appert - Piper Jaffray Companies, Research Division

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

Paul Condra

Manav Patnaik - Barclays Capital, Research Division

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Timothy McHugh - William Blair & Company L.L.C., Research Division

Tony Venturino

Operator

Good afternoon, everyone, and welcome to Solera's First Quarter Fiscal Year 2014 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 Investors Relations. Kamal?

Kamal Hamid

Good afternoon, everyone. Thank you, all, for joining us, and welcome to Solera's first quarter fiscal year 2014 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 September 30, 2013, followed by comments on the factors driving those results. Renato will then provide you with information about our financial results that's not described in today's press release and finish by providing the company's updated fiscal year 2014 guidance. We will then open up the call for questions.

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 and 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 annual report on Form 10-K for the year-ended June 30, 2013. 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 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's website at solerainc.com. 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 Thompson First Call.

We measure constant currency, or the effects 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 monthly 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. When we refer to profit margin, we mean our adjusted EBITDA margin. When we refer to run rate waste savings or synergies, we mean savings to be realized over each 12-month period following the execution of these efforts.

Our fiscal year 2014 outlook, assumes constant currency exchange rates from those currently prevailing, no acquisitions of businesses, no stock repurchases and an assumed 26% tax rate to calculate adjusted net income.

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 in the impact of a strengthening or weakening dollar throughout the remainder of the year, we would approximate by using the following formula: each 1% change in the U.S. dollar versus all the foreign currencies in which we transact businesses, negative or positive impact to fiscal year '14 revenues, will be approximately 0.7%; and the negative or positive impact to adjusted EBITDA will be approximately 0.6%.

Amounts and percentages throughout our remarks reflect rounding adjustments. Our remarks today include statements about our pending joint venture investment in SRS that we announced on October 3, 2013. This transaction is subject to customary closing conditions, including Hart-Scott-Rodino clearance, and is expected to close during our second quarter of fiscal year 2014. 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 Holdings Inc.

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

Anthony Aquila

Thank you, Kamal. Good afternoon, everyone, and thanks for joining us today. I'm pleased to report a solid start to fiscal year 2014. Our first quarter revenue adjusted EBITDA and cash EPS were all above consensus. Total revenue growth came in at 11.4% on a reported basis and 10.5% on a constant-currency basis, our highest year-over-year revenue growth rate in the last 5 quarters.

Our first quarter 2014 adjusted EBITDA of $91.5 million represented a 42% margin, above our Mission 2020 adjusted EBITDA margin target of 40% and after absorbing about 180 basis points of Phase I Mission 2020 investments in our LDD, Leverage, Diversify and Disrupt strategy.

This performance was driven by: one, growing contribution from our emerging Driver Behavior platform, which is the result of the combination of our Audatex, Explore and other businesses in the U.S.; the early-stage recovery in European markets that was not fully reflected in our cautiously conservative stance when we issued our initial guidance in August; and three, continued diversification through recently-acquired businesses, which typically generate lower adjusted EBITDA margins during the first 18 to 24 months post the acquisition.

Out of the Western European markets we do business in, we see the early signs of a macro recovery in all but 3 of them. Therefore, we are raising our full year guidance based on our first quarter momentum and our outlook for the rest of the year. Our new guidance implies a constant-currency top line growth rate of 7%, at the midpoint, up 150 basis points or $16 million from our August guidance. Despite these positives, this guidance maintains our cautiously conservative stance and we will revisit that position in the next quarter.

Our performance in the first quarter demonstrates the benefits from our investments in global platforms that we continue to penetrate the household with. These include: one, our automotive claims platform; two, our parts platform; and three, our Driver Behavior platform.

Case in point, our Driver Behavior platform delivered strong growth for the quarter and now contributes almost half of the U.S. revenue, an example of our diversification in the U.S. market.

Spain is another example of the power of our LDD platform strategy. In Spain, our transactions in the first quarter of fiscal 2014 were down 15.4%, a further deceleration from the 13.2% year-over-year decline in the fourth quarter of fiscal 2013. We believe that the total transactions in the market have declined by more than 20% since the beginning of the Spanish crisis. Furthermore, approximately 16% of the entire businesses in Spain have shutdown since the beginning of the crisis and the unemployment rate is currently standing at 26%.

Despite the Spanish crisis, we have continued to generate profitable growth in Spain. Our constant-currency revenue growth in the market has averaged 7.8% over the trailing 4 quarters. This has been driven by the deployment of platforms in areas such as: parts procurement; vehicle service maintenance and repair, which are SRS-like solutions; and lastly, property claims processing. We are now serving the same customer as we do in the automobile insurance claim -- the insurance carrier. In fact, today, in addition to processing the large majority of auto claims in Spain, we are now processing almost 10% of all the property claims in the market.

We look forward to closing the pending SRS joint venture transaction. SRS will be the foundation for our global service maintenance and repair platform, a business with high recurring revenues and strong cash flow characteristics similar to that of our other businesses. We will share more information about our progress in the coming quarters.

Our recent refinancing provides us with a strong foundation to execute Phase I of Mission 2020. We strengthened our balance sheet in November by the early redemption of our $850 million in bonds due in 2018 and their replacement with 2 tranches of bonds, one due in 2021 and the other in 2023. This transaction provides significant strategic advantages by: one, providing enhanced operational flexibility through a near-investment grade covenant package; two, extending maturities from 6.2 years to 8.1 years; and three, reducing the weighted average interest expense on our debt from 6.4% to 6.0%, translating into cash interest cost savings of $6 million annually.

Following our investment in SRS, we will have, approximately, $800 million in cash on the balance sheet.

Lastly, I would like to thank our 2,800 associates globally for their hard work in 90/10 teamwork in rising to the road to $1,400,000,000 to $1,450,000,000 challenge in EBITDA, which we plan to complete by the end of fiscal 2014.

I would like to give special mention to our team in Spain. We are proud of how you exemplify the Solera Way and delivered performance above our expectations. It is an example that many of our leaders are following to raise the bar to execute our Mission 2020.

With that, I'll turn the call over to Renato.

Renato C. Giger

Thanks, Tony. As Tony mentioned, our LDD platform strategy continues to be an emerging growth driver and is captured in our enhanced reporting metric: revenue per household.

Annualized first quarter revenue per household was $2.74, up 9.5% on trailing-4-quarter basis, compared with gross of 7.9% in the fourth quarter of the fiscal year 2013. We saw strong growth in revenue per household in the U.S., 15.2%; in the U.K., 14.6%; and in Germany, 13.1%. While revenue per household is now the primary driver of advanced market performance, claim continues to be the main driver of our businesses in evolving and emerging markets, continued to drive strong penetration with year-over-year claims growth to 10.6% in evolving markets and 81.2% in emerging markets, as well as sequential acceleration from growth rates in the fourth quarter of fiscal year 2013.

Our trailing 4 quarter growth in revenue per claim came in at 3.6%, demonstrating increased customer adoption of our high ROI software and services. Revenue per claim figure reflects the high growth of emerging market claims.

Turning to cash flow. We ended the quarter with $1.1 billion, up from $464.2 million at the end of fiscal year 2013. This reflects July issuance of $850 million in 6% bonds due in 2021; the concurrent retirement of $289.5 million in senior secured debt; $9.9 million in purchase price considerations, net of cash acquired and proceeds from the sale of businesses; and $5.1 million in stock repurchases and $11.8 million in dividends paid during the first quarter.

First quarter cash flow from operations was $84 million and capital expenditures were $7.6 million, resulting in free cash flow of $76.4 million. Our trailing 8-quarter free cash flow conversion rate is 59.6%. Our first quarter net debt-to-EBITDA ratio was 1.8x.

In November, we issued an additional $850 million in bonds due in 2021 and 2023 and retired $850 million higher interest rate bonds due in 2018. The net result will be a reduction of about 50 bps in our interest rate on this $850 million in debt. This is expected to provide about a $0.09 per share accretion to cash EPS on an annualized basis.

Since our Board of Directors authorized our initial stock repurchase program in November 2011, we have repurchased 2.9 million shares or about 4.1% of the total outstanding as of September 30, 2013. Our average price of $47.86 per share gives us an accumulative return of 17.8% based on the current stock price. As Tony mentioned, our board recently authorized a new 2-year $200 million stock repurchase program.

Headed by synergies we've generated from acquisitions completed in fiscal year 2013, we achieved approximately $2 million in run rate waste reduction during the first quarter. For fiscal year 2014, we are targeting about $6 million in waste reduction. As mentioned in our press release, we are raising our guidance for revenue, adjusted EBITDA and cash EPS. On absolute basis, about 1/3 of the revenue increase is due to slightly higher FX rates today, compared to when we issued our initial guidance last August. And 2/3 is due to strength in the business, effectiveness of our LDD strategy and our confidence in the outlook for the rest of the year.

This midpoint of our guidance includes a negative impact of approximately 300 basis points of our adjusted EBITDA margin due to: execution of our Mission 2020 Phase I investment strategy; profit margin of the last 7 businesses we have acquired as these businesses currently have lower margins than our consolidated margin, expect the margins of these businesses to approach our consolidated margin within 18 to 24 months from the acquisition closing date; and the 30-basis-point impact from a then top customer that did not renew.

That concludes our prepared remarks. We will now take your questions. Operator, please open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Andrew Jeffrey from SunTrust.

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

Tony, could -- appreciate the color on the Driver Behavior platform. It sounds like this is an America-centric offering, as opposed to some of the household offerings you described in Spain. In particular, I'm assuming Europe. But Europe, generally, you said it's almost 50% of U.S. revenue, could you just be a little more specific as to what that comprise? I assume that's Explore. Is there anything else in there that we should be thinking about that's a big chunk of your U.S. revenue at this point?

Anthony Aquila

No. I think what you should think about it as, we started the diversification project a number of years ago as we saw kind of a relatively flat U.S. market. So we, with the Explore acquisition, we then, over -- after the course of 1.5 years, we then started to merge the businesses and start to create the Driver Behavior platform. We bought Title Tech and these other things that are processing activities around the household, whether it be registration, monitoring of drivers' behavior and other things like in parts, APU, other things that we've done in addition to rolling out some additional services to the mobile apps. So it's just the culmination of a platform coming together and it has a couple legs on it. One of it is on the collision side; and the other is on the Driver Behavior side; and the third component of that will be with the inbound SRS transaction. And think of these things in the first phase being, like in Spain, taking a little bit of a different angle as we create a multi-platform environment in that one, but they're based off of moving from the collision side into either the property side or the parts side for the auto and/or the service and maintenance side as well. And the only activity that's different than what was in Spain, is they started front-running while we were concluding to enter the vehicle repair and maintenance side. We've been sampling that as we started that project a few years back. But they accelerated on the property side because we had an opportunity there a couple of years ago, that we've been executing on. So you'll see that happening around the world, as we create these multi-platform environments, but think of them as claims, parts, property and service, repair and maintenance. That's the primary focuses around the world.

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

I see. So the notion that your U.S. business, in particular in America, is broadly described as mature and slow-growing, is kind of an anachronism at this point, right? We shouldn't necessarily be thinking about North American business as being mature, I'm assuming at this point, because of the way you transformed your go-to-market strategy?

Anthony Aquila

Yes, that's right. So as you and I have discussed here recently and we walked you through, what we've done is, very quietly and we spent some money to do it internally and through inorganic activities, is to diversify the business. Now, as you fast-forward the story some years later, now that slower-growing collision business and claims processing business is now only 50% of the business. In addition to that, we're opening up all those other services and taking them broader across the Americas. So it put's a great growth trajectory for us. And we think, over time, the market will see what we've done and value the Americas a bit differently than just focusing in on one of our platforms.

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

Okay. And then just to make sure I'm thinking about this correctly. Pro forma for SRS, some of these newer solutions versus the legacy Solera auto claims processing business will bring that ratio to what? Just maybe 60% legacy, 40% next gen, is that the right ratio?

Anthony Aquila

Yes. So right now it's about, let's say it's 32%-ish. As the markets emerge -- for example, if you take our play into -- and as we said in Investor Day and other events, that we are going to put about $1 billion to work in the vehicle repair and maintenance side and technical information side and we're well underway and SRS will be the beginning of that platform, as well as some of these other quietly sampled emerging platforms around the world, that segment has 4.5x more transactions on an annual basis than you do in the collision side of the business. Now the good part is, is the interplay on those platforms is the parts platform has the ability to service both sides. And eventually, we believe that it could even serve our movement into the property.

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

Okay. And last one, if I may sneak it in. Any update on the acquisition environment valuation opportunity as of now?

Anthony Aquila

Yes, valuations are pretty, pretty high. Solera executes with a very disciplined approach to M&A activities, but they're definitely elevated. I think you guys have heard me talk about this for the last year. They continue to be elevated with low-cost of capital. One of the competitive advantages we've tried to develop, as you could see with our bond offering, is by continuing to manage the balance sheet. We got $800 million in firepower sitting there post the SRS transaction. Although we will be very focused, as in prior transactions, to get that going and working in the Solera Way to get the margins and the expansion of the business moving accordingly. But we will be back in the market at the appropriate time. In the meantime, we'll do what we've always done, which is to acquire the smaller- to medium-sized activities, powering up the bundle and doing things like we did in Spain.

Operator

The next question comes from the line of Peter Appert from Piper Jaffray.

Peter P. Appert - Piper Jaffray Companies, Research Division

So, Tony, your outline of sort of how you're focusing on the business between claims, parts, repair, et cetera, is very helpful. Is it possible to think about or share with us the relative growth rates in the different channels as you think of them that way?

Anthony Aquila

Yes. So if you take just the repair and maintenance, this is an emerging market. The market is emerging, one is they tend to lag 15 to 20 years in chemical repair shops behind the sophistication of our collision software because it's being paid by a sophisticated third-party versus an individual like yourself. Although that market is changing with the inbound Generation Y and then as well as the cost of repairs and the complexity of repairs in electronics. We've now made, approximately, a handful of acquisitions in that area. And those acquisitions are all growing right now. As we sampled it with smaller acquisitions before we made our platform move. We're seeing that those growth rates are anywhere from 10% to 25% on an annualized basis in those markets. And we think that, that is sustainable for a long period of time. And to give you an example, the SRS transaction for -- take the collision side of Solera's business, there is 50,000 body shops in the entire market in the United States. There's 250,000 mechanical repair shops in the United States. That's just the United States. And in many other countries, it's even greater because of the fact that the average-aged vehicle is higher and with inbound technology, the complexity of repair requires the need to use software. And with the aging technician environment, it creates knowledge-based opportunities like SRS. And so these markets are growing at a very high pace. So it's almost like if you rewind Solera 10 years ago, the growth rate you were seeing in -- when we entered the collision market, basically, we were going after what we see is the next segment of automation and intelligent and diagnoses.

Peter P. Appert - Piper Jaffray Companies, Research Division

Okay. This is all helpful. But the challenge in evaluating Solera is the complexity of the business as it's evolved. So actually, what I was trying to get to was is it possible to think, maybe on a go-forward basis, within these product categories, I don't know, the repair business grows at x rate, the claims business grows at y rate in aggregate. Is it possible to think about that?

Anthony Aquila

Well, the challenge for us with that is the fact that we're creating these platforms and these platforms have interplay with each other. And in fact, if you take, case in point, the platform the way we'll deploy the SRS and the Audatex platforms here in the United States, they will interconnect to each other. So there'll be a gateway and there'll be, obviously, transaction fees flowing between those. So while they're technological, we're not making that limiting revenue growth perspective. We're trying to get leverage, remember it's LDD, Leverage Diversify Disrupt, those things are interconnectable. But we can give you some growth rates in the sectors. And that's why we picked. And some people may have thought in the beginning, why revenue per household? Because all these activities are decided in the household. And we are starting to get our hands around how many dollars are spent in the average household in the categories of our platforms. And we'll improve the reporting as we get more information on that because that information doesn't exist today.

Peter P. Appert - Piper Jaffray Companies, Research Division

Okay. And maybe just one for Renato. Renato, could you give us the contribution from acquisitions in the current quarter?

Renato C. Giger

Can you repeat that? Sorry.

Peter P. Appert - Piper Jaffray Companies, Research Division

The dollar contribution from acquisitions to revenues in the current quarter?

Renato C. Giger

Yes. It's about $5 million.

Peter P. Appert - Piper Jaffray Companies, Research Division

$5 million, for both Americas and EMEA or for everything, all in?

Renato C. Giger

Yes. Worldwide, that's correct.

Operator

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

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

Yes. Tony, I just to -- this is a lot to take in, as far as what you've done here, but this Driver Behavior platform that you've got, is this strictly just a U.S.-market phenomenon -- or platform? Or are you going to start porting this into Europe, or you already have done that?

Anthony Aquila

Well, parts of it we have. Each platform will operate -- so our strategy is really -- and we gave you guys the signal of what we were up to. But effectively, what we're doing is we're getting platforms in the multiple areas of transactions of the decisions that are made in the household. Whether they be maintaining a car, collision-repair of a car, parts purchasing. And, eventually, property claims. So think of them as platforms interconnecting to other platforms and we're connecting those dots. So when you think of, in the United States, it's not -- there are some elements of it that are a phenomena today because of regulation. But I will tell you that we are working on improving the regulatory environment. And we think transparency, because if you take it apart that is the phenomena, which is the ability for insurance carriers to access the driving record behavior on a realtime basis. We believe that, that will be an emerging trend in advanced markets as insurance rates become continuously more competitive and underwriting needs to improve.

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

All right. So right now, this is a U.S. platform. You'll eventually duplicated in Europe. Can you give us some idea of what the actual revenues are from all these bundled services that you are offering right now?

Anthony Aquila

Well, like for example, Driver Behavior is well over $100 million as we've assembled it. And you've got to think of there's our Title Tech -- if you kind of go back and look at all the acquisitions, you'll start to see -- if you look at it, you'll see, "Okay, now I see what they've done. They've put a platform together for this area. And they're putting a platform together for that area." If you look at all our parts acquisitions and so on. So you'll see that. But that is going to go around the world. But there will always be some level. And I would say, think of it like 20%, that will be environmental to the country. And that's why we've gotten so much scale so quickly, is because we did not try to operate them at a pure-global basis.

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

I'll talk offline. I'll talk with you guys about this further. Just a couple of things. Renato, you mentioned that adjusted EBITDA margins were going to get dinged by how much in your guidance?

Renato C. Giger

About 300 basis points on a yearly basis.

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

300 basis points. And then just -- I would assume that this new guidance does not include any contribution from SRS, does it?

Renato C. Giger

None.

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

None?

Renato C. Giger

None.

Operator

Your next question comes from the line of Paul Condra from BMO.

Paul Condra

Just so that we're clear, these -- so then the expected revenue that you expect SRS to generate for the remainder of your fiscal year, are you going to update guidance after the close, then, and include that in there?

Anthony Aquila

That's correct. Yes. I would think about, right now it's planned, depending on the government getting their backlog relieved, but it's scheduled to close. Based on the 30-day filing, it would close on November 12.

Paul Condra

Okay. That would be the $80 million to 82 million?

Anthony Aquila

We would then -- yes, we will then come out and issue updated guidance.

Paul Condra

Okay. Okay. Cool. And then I wanted to just return again to the kind of property claims business in the U.S. You mentioned the -- that your parts platform, your OEM parts platform, can help you kind of transition into property claims. And I'm just curious, how does that work? I don't know -- I'm just not really seeing the connection there.

Anthony Aquila

Well, so we think the longer-term play is, effectively, it's materials that you're -- we've had good success with our parts platforms and we're expanding it. And today it's focused on collision parts. It's now being more focused, as we saw in the Spanish example, where we're even delivering the ability to use mechanical activity. And we'll expand that around the world. And then we think in the markets like in Spain where we have property, we could easily take that method and allow suppliers to do the same thing for construction repairs associated to losses on the home. So it's a very leverageable platform. We'll do it in various markets. Now, I don't want to say that we have made the decision to enter the property business in the U.S. But we have made the decision to enter the property business in other countries.

Paul Condra

Got you. Okay. Okay. And then also returning to SRS, can you give us some idea about the cost pricing structure there? So what is the cost for this -- for the kind of local mechanics, so there's 250,000 mechanics and how does that compare to what body shops are paying for existing SLH products?

Anthony Aquila

Yes. That's a great question. It's relatively competitive from the value creation it creates. But we don't comment on the specifics until after the closing. But just from a general perspective, it's very similar to the activities we are used to around the world.

Paul Condra

Okay. So and is it all transactional, or is it a subscription services role?

Anthony Aquila

Today, it's primarily subscription with a modest level of transaction activity.

Operator

The next question comes from the line of Manav Patnaik from Barclays.

Manav Patnaik - Barclays Capital, Research Division

Just one follow-up on the acquisition contribution. How does that $5 million split between EMEA and Americas?

Renato C. Giger

It's probably about half and half.

Manav Patnaik - Barclays Capital, Research Division

Half and half. Okay. That's helpful. And then sort of in the context of your commentary around M&A where you talked about, in the multiples, getting pretty high, et cetera. I was just curious how you guys were thinking about the future synergies and opportunity for SRS. Because, I guess, just based on what you did, obviously, on a trailing basis, is seems like that was closer to 15x, which seems like that's high as well. So I was just curious, how you guys are evaluating what the future synergies look like?

Anthony Aquila

Manav, in today's market, 15 is not high if you've got a high-growth business. It's growing very high. We will internalize that business like we do all other businesses. And we'll do it very strategically and drive leverage. We've got 7 data development centers. We're opening 2 more. The synergies that we can operate, just in the North American market, are high by themselves. But the synergies we can do as we roll this solution out worldwide. Which there really doesn't exist a holistic solution at the level they've achieved. So the opportunity is high. And then in a lot of these countries, just focusing in on the advanced countries, if you will, there is a need for this. Particularly with the greater sophistication in the cars and the greater diversity of the carpark. Technicians cannot know enough. 10 technicians in a shop can't know enough where we've got over 1 million causalities and growing. So it's a pretty powerful tool. And we see this as a very good, long-term, just like we did when we entered -- when we bought the Audatex asset. So time will show what our intentions are, but we'll internationalize it.

Manav Patnaik - Barclays Capital, Research Division

Okay. Fair enough. And then just given that you have about -- I guess you said pro forma should be about $800 million of cash on the balance sheet. I mean, how should we think about the near-term use of that? Should we expect another significant acquisition? Will you guys get more aggressive on the buybacks? Or will just let that sit on the balance sheet?

Anthony Aquila

Yes. I think, right now, we're going to be -- we're going to do what we've always done, just like what we did when we bought Explore. By the way, when we bought Explore, it was almost at 15x. And today, it's sub-8x. I think we focus on what were -- what our -- what fits into our long-term strategy. Sometimes those things are not always obvious. I think these platforms that you see are very obvious. We're going to be very focused similarly to what we've done in the past. And we'll be back in the market for something that -- for all things that connect to the platforms that we have discussed. But we're not planning on anything big in the immediate future.

Manav Patnaik - Barclays Capital, Research Division

Okay. Fair enough. And just lastly, Renato, any updates to sort of the other smaller components of guidance that you gave last time around interest expense, D&A and those sort of things?

Renato C. Giger

Yes. I can -- so interest expense have been going down a little bit because of our refinancing of around $180 million. And anything specifically more you want to know?

Manav Patnaik - Barclays Capital, Research Division

Well, I mean, so what is the expected interest expense range, then, for the year?

Renato C. Giger

About $107 million.

Manav Patnaik - Barclays Capital, Research Division

$107 million. Okay. And D&A?

Renato C. Giger

So it's about $102 million.

Operator

Your next question comes from the line of Andrew Steinerman from JPMorgan.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

I know you've mentioned some of the legacy metrics. You went through them quickly, I couldn't write them all down. The ones that I'm interested in, if you'd be kind enough to give it on a continued basis during the transition period here, is for the transactional markets, claims volumes in advanced markets, claims volumes in evolving markets and total claims volumes of transactional markets.

Anthony Aquila

So in the advanced markets, let's start with the bad news. One of the reasons we're driving our strategy is, obviously, we're seeing those markets fully penetrated in a lot of places. We've got 70% to 80% market share. And so we're introducing other services like parts. And so there's a lot of leverage just to the collision side, it has interconnectivity to the mechanical side. But those markets on the collision side in the advanced markets, they decreased about 3%. And that's about, let's say, 40% of the total volume. But the total claims growth subject to that, including that, would be 3.9% or 4%. So they -- we absorbed it and grew because of the emerging and evolving markets. Which, as Renato said, emerging markets grew 80%-plus and evolving markets are in the steady-double digits, plus 10%.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Okay. So it sounds like evolving, accelerated dropped; advanced stayed about the same. Right?

Anthony Aquila

Yes.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Okay. And just a comment on revenues per claims in world transactional markets?

Anthony Aquila

It was up about 5.5% -- 5%-ish. And that's because we're deploying some additional services. So we're absorbing -- as we gave you the Spanish example, that's where the diversification really kicks in, in these macro-hit market. But globally, you're seeing the impact of smart cars to better safety, better infrastructure and just a general cautiousness of mobility in the advanced markets.

Operator

Your next question comes from the line of Tim McHugh from William Blair & Company.

Timothy McHugh - William Blair & Company L.L.C., Research Division

First, just wanted to ask about the emerging markets. Obviously, high-growth there. And I think the last quarter, you had talked about seeing some signs of competition and you're trying to get out ahead of that with some of your strategies. Are you still seeing that or did that -- it doesn't sound like you're overly worried about it.

Anthony Aquila

Yes. I think -- well, first of all, we are very worried about it. But what I would say to you is, is we've always been very worried about it, henceforth, why we're in 65 countries already. We're moving to 100 countries and that correlates to where 80% of the carpark will be produced. Now we think that competitors in advanced markets that are viable and have the financial capability, have no choice but to find another market either in diversification. I think -- we think a lot of the competitors will follow our strategy and try to find a niche for them to ride. Although we've claimed the ones and we intend to be #1 in the categories worldwide that we're disclosing in our strategy. But yes, we continue to see signs of an increased competitive environment where competitors have the ability, while there's only a few of them today, that have the ability to do some geographic expansion. But that is included and in a very conservative way, in the way we look at how we'll penetrate those markets.

Timothy McHugh - William Blair & Company L.L.C., Research Division

So some of your competitors, the large ones that had gotten bought out, they've talked about expanding or wanting to expand internationally, a little bit at least. Are you seeing that more so in these emerging markets and that's the comments you're making? Or have you seen any signs of that in some of the more developed markets where they're trying to...

Anthony Aquila

We've seen -- yes, great question. We've seen both. We've seen one trying to go to a mega market. Those cost a lot of capital to do. Most of these companies are operating on 7-plus times leverage, depending on how you calculate what -- how you value add backs and other things, it could be even higher. But we know how much it costs to enter these markets, but we think they'll find a way to be present. Hopefully, we'll be able to take advantage of core market activities while they're trying to diversify. We try to have as much optionality to that competitive environment, as possible. And we've seen one of them go to a greatly depressed market like Spain. And I think sometimes they do it strategically; sometimes they do it opportunistically; and sometimes they do it and you scratch your head and you don't know why they did it. But, nonetheless, we'll deal with them accordingly.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay. And then one other -- just one question on SRS. I know you're somewhat limited in what you want to say, but the margins there being, obviously, lower than yours, my understanding is part of it has very good margins; part of it has lower margins. The part with lower margins, can you help -- is that fixable? I guess, why are the margins lower? And I guess just trying to understand the ability to add value through improving margins there.

Anthony Aquila

Yes. Yes. And look, we're not going to comment much until after the 12th. But what I will tell you is that we've spent a lot of time understanding the space and the activities of their product line. Because this was a strategic decision, not something that was on the market for us to buy. And what we would say is, is that some of the product portfolio lacks the standard that Solera has from a return for the customer. And I think those are price-pressured areas. The other side, I would say -- I wouldn't say very good margins, I would say good margins. And if you look at Solera from an OE perspective, an operating entity perspective, the margins of the good side are well below what we believe that they can do and below the Solera standards. So it's a good team. Very good people in the organization. And we think, within the Solera Group, they will get a lot of opportunities and the ability to internationally expand and do some other things. And, naturally, we'll get a lot of leverage out of the activities, primarily in cross-border activities just in the vicinity of the U.S.

Operator

Your next question comes from the line of Tony Venturino from Federated Investors.

Tony Venturino

Wanted to ask this question on the roadshow, the bond roadshow last week or a few weeks back. Didn't get a chance to ask you but I'm curious, Tony, what do you -- how do you view the onset of advanced safety features? You talked a little bit about this before. How do you see that curve progressing over the next 5 to 10 years and how that's going to impact your collision business?

Anthony Aquila

Yes. So one of the reasons why some years ago we started the diversification project is we believe in the advanced markets, that over a 10-year period and, certainly -- in Solera we look at all our investments at a minimum of a 10-year runway and optimally of a 25-year runway. And that generally is giving you 4 generations of the automobile on the road and those decisions made within the household. If you think about the next 2 generations, the advancements that will be made in the luxury line will be high. And the ability for the car to deter small accidents will increase at a fairly good clip, which means in the next 2 years, you're going to feel it in the luxury category. Henceforth, the design we have and we've modeled the penetration of those in the market and the growth rates we're doing in these other business, henceforth, we believe very strongly, we can continue to grow and execute our Mission 2020 of $2,800,000,000 in EBITDA. Now one of the things that is a positive consequence of that is these cars will be on the road longer, henceforth, maintenance activities. In addition to that, they have a tremendous amount of electronics in the car. And that -- by the way, a mechanical part, when it acts up, it sneezes, rattles, clunks, spits oil, does something that you can visually see. Electronic parts do nothing, they just stop working. And of course, we have amassed a tremendous amount of capability in the diagnoses to help repairers be able to fix those cars, whether they're in an accident or in a mechanical shop. So those businesses will grow significantly. And we think, with the amount of transactions being 4.5x, it would lead you to believe that, for us, the way we've executed our strategy will absorb that and continue to go. Now, in addition to that, we think we can naturally neutralize the impact of the advanced markets as we move from 65 countries to 100 countries on the emerging side. In addition to that, the evolving markets grow up to be future advanced markets. And so when you look at that, we've got multiple ways to deal with the impact of that. However, if you take it out beyond 2 life cycles, we think it starts to enter into the mainstream. And by that time, the market will be what the market is and there will be further developments. But I think for the purpose of this discussion, 2 generations is adequate.

Tony Venturino

And how long is 2 generations?

Anthony Aquila

It's generally about 8 to 10 years, depending on the life of the vehicle.

Tony Venturino

That's 2? Or that's 1 generation, right?

Anthony Aquila

That's 2 generations, each generation is 4 to 5 years in advanced markets. It has a much shorter cycle. That car is then being traded in for another car, generally. And so that's the evolution of generations in advanced markets. It's much shorter. The average-aged vehicle in the total markets, in the advanced side, is between 7 and 9 years. So it kind of tells you where the new market is in the used-car market, which, henceforth, we want to be much more focused on the service maintenance repair activities because there's just much more transactions and there's much more transactions brewing in the future.

Tony Venturino

So it sounds like, if everything goes accordingly, the decay will be offset by the growth, more than offset?

Anthony Aquila

We think more than offset. We think that natural growth -- and by the way, we want to be very helpful to the customers that maintain that collision business by giving them a whole bunch more services because we think those shops are going to be doing some of these other activities. And that's where -- earlier, somebody asked about can you break all the stuff up? Our intention is, is to let the platforms interplay with each other. So whether you're a user at a mechanical or a user at a collision shop, you can use our system. You can operate it through the gateway. And so we feel good about how we've worked through this. And of course, this is the result of a lot of years of -- and today, we have about 50% of the collision market in the world using our system. And in addition to that, you've got the biggest part of your growth, from 1 billion cars to 1.4 billion cars, is in the Asian and LATAM and other markets outside of the U.S. So all things pointed, it's not an immediate issue, but it's something strategically, obviously, we've been investing in.

Kamal Hamid

Operator, we've got time for one more question, please.

Operator

And your next question comes from the line of Gary Prestopino from Barrington Research.

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

Tony, just going through my notes, you said you started to see early signs of a recovery in Europe. Can you give us some idea of what the either year-over-year or sequential revenue growth was, if there was any? Or was it just a slowdown in the decline?

Anthony Aquila

Yes. So most of the markets, all but 3 of them, have swung dramatically. For example, in the U.K. Now there was some weather in there, which will have a good cut on what that impact is in the next quarter. But a lot of markets roared back very strongly, like the U.K., France, Germany. There's a couple things in that. One is when you see the U.K. roaring back, okay, that was a first responder to the crisis. But yet, at the same time, you have Germany, which was the last responder. And when you say the last responder in the first group of responders coming out in a recovery, that generally gives you the feeling that a recovery is mounting. Because last in is usually first out because they have the strength. Germany, as you with their latest numbers today. The U.K. is giving a positive tone. Even Spain, for the first time, showed some positive signs from a macro-condition perspective, if you've read the announcements in Spain. So we think that the recovery is go there, but we've still got laggards in the group. We've got 3 countries that have not responded, consistent with the other 17.

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

And those 3 countries would be?

Anthony Aquila

They would be environments like The Netherlands, Portugal and, of course, I commented on Spain. They -- Spain is, I would say, on the cusp of showing some -- they may actually come out in the next quarter. We'll see.

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

One last question. You had shared this with us at prior times, but percentage of revenue that's now generated from non-claims-related activity and the absolute growth in the quarter, can you still share that with us?

Anthony Aquila

Yes. So the non-claims-related activities. And again, we're trying to get you guys -- now we're trying to get you framed around the platform concepts as we announced in our Investor Day with our strategy. But it's about 32% of revenue today. It's up 5 percentage points from last fiscal year. And it'll -- post the SRS transaction, you're going to see a significant spike in that in -- by the end of fiscal '14.

Kamal Hamid

Thank you, all, for joining us today. I look forward to seeing you at some of the upcoming conferences here. And, operator, would you read the playback information, please? Thank you.

Operator

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