Solera Holdings' (SLH) CEO Tony Aquila on Q3 2014 Results - Earnings Call Transcript

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Solera Holdings Inc. (NYSE:SLH)

Q3 2014 Earnings Conference Call

May 7, 2014 5:00 pm ET

Executives

Kamal Hamid - Vice President of Investor Relations

Tony Aquila - Founder, Chairman and CEO

Renato Giger - CFO

Analysts

Andrew Jeffrey - SunTrust Robinson Humphrey

Andrew C. Steinerman - J.P. Morgan Securities

Andre Benjamin - Goldman Sachs

Peter P. Appert - Piper Jaffray

Jeff Silber - BMO Capital Markets

Bill Warmington - Wells Fargo

Gary Prestopino - Barrington Research

Ryan - Barclays Capital

Timothy McHugh - William Blair & Company

Operator

Good afternoon, everyone, and welcome to Solera's Third Quarter Fiscal Year 2014 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 now turn the call over to Kamal Hamid, Solera's Vice President of Investor Relations. Please proceed.

Kamal Hamid

Good afternoon, everyone. Thank you for joining us and welcome to Solera's third quarter fiscal year 2014 conference call. With me 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 commentary about our financial results and a strategic performance update. Renato will then provide you with information about our financial results that is not described in today's press release. We will then open up the call for questions.

I would like to remind everyone, the 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, 2013.

We disclaim any obligation to publicly update or revise any such statements to reflect any change in our expectations or 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 Web-site at solerainc.com.

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 run rate, waste, savings or synergies, we mean savings to be realized over each 12-month period following the execution of these efforts. When we refer to analyst consensus during this call, we mean the consensus results on an actual currency basis of certain analysts that cover the Company as reported on Thomson First Call. All TAM or total addressable market figures are based on information from study conducted by a leading consulting firm that was commissioned by Solera. 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; for each 1% change in the U.S. dollar versus all the foreign currencies in which we transact business, the negative or positive impact to fiscal year '14 revenue will be approximately 0.2% and the negative or positive impact to adjusted EBITDA will be approximately 0.3%. Amounts and percentages throughout our remarks reflect rounding adjustments.

All information discussed during this call and webcast is protected by United States copyright law, 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.

Tony Aquila

Thank you, Kamal. Good afternoon, everyone, and thanks for joining us today to review our third quarter results. We delivered a strong quarter that was highlighted by revenue and profitability that exceeded consensus. Looking at our financial results and key metrics for the quarter, revenue came in at $262.4 million on a GAAP basis, representing total growth of 21.9% year-over-year on a constant currency basis. In an effort to answer some of your questions, we have broken out three quarters of organic revenue growth; Q1 3.7%, Q2 4.7% and Q3 accelerated to 5.6% over $50 million on a run rate basis and 190 bps higher than our Q1 organic growth rate.

Adjusted EBITDA was $109.8 million on a reported basis, representing a 41.8% adjusted EBITDA margin. This includes 250 basis points of investment in the headwind from recent acquisitions with margins lower than our consolidated margin. While our margin will ebb and flow during the investment phase of Mission 2020 based on the deployment of our capital, operationalizing The Solera Way and currently completed acquisitions, our fiscal year '14 target remains 42.2% and we look forward to revising this target as appropriate.

Last year we introduced the revenue per household metric versus revenue per claim to better reflect the growth and expansion of our business. Today, 84% of our revenue is measured by this metric, which grew by 22.3% to $3.34 in the quarter. Key contributors to our third quarter performance were; a full quarter of revenue contribution from our Service, Maintenance and Repair platform; solid growth in our Driver Behavior and Monitoring platform; and improved conditions in many of our markets, highlighted by the U.K., France and others, while partially offset by declines in Germany driven by a one-time impact and unseasonably dry weather and continued difficult market conditions in the Netherlands, Spain and Portugal.

While there are pockets of weakness, as you can see the overall macro trends are turning to the positive. According to independent studies, the number of people in the middle-class will grow by 78% to 3.2 billion by the year 2020. There is a positive and stable relationship between GDP per capita and car ownership. The carpark in key emerging markets such as China and Brazil are projected to grow at 8x and 3x respectively the rate of the growth in the U.S. carpark through 2023. And lastly, global new car sales are expected to reach an all-time high at 85 million in 2014 versus the 82 million in 2013. We estimated that this translates into an increase of approximately 750,000 claims year-over-year to our addressable market for our automotive claims platform.

Our LDD, Leverage-Diversify-Disrupt, strategy is focused on deploying our capital and making investments to position Solera to take advantage of these global trends. For every new car sold, there are 2.8 used car sold. We estimate that these sales result in 4.5 times more addressable transactions on an annual basis. These transactions include service, maintenance, repair, collision, salvage, titling and vehicle history services, all services we operate today.

While today we are the global leader in automotive claims processing of 7.2 billion addressable market, we are an emerging leader in SMR, service, maintenance and repair, which has significant synergies with our collision business and increases our addressable market by 4.6 billion to a total addressable market of 11.8 billion.

Six months after closing the SRS JV, we purchased the remaining 50% of the shares in the AutoPoint business from our JV partner. AutoPoint delivers SMR related services to the automotive dealership market. AutoPoint, which today is only present in North America, leverages a proprietary database of more than 150 million completed repair orders and inspections, enhancing drivers, car owners and dealer services maintenance and repair experiences at over 1,000 dealerships. The management team of AutoPoint has embraced The Solera Way and driven significant improvements, including turning negative adjusted EBITDA into positive. This has allowed Solera to reduce the multiple paid for the initial JV investment by nearly 1.5 turns in less than six months.

Since 2008, we have successfully deployed over $2 billion through 26 transactions in 19 countries to expand our platforms into adjacent areas such as SMR, parts, salvage, vehicle history, driver behavior and monitoring, and now property. It increased our TAM over 230% to 24 billion through this platform expansions, drive our ROIC for our stockholders by operationalizing acquired businesses in The Solera Way. We have a strong balance sheet and a solid pipeline of opportunities to leverage and expand our platforms across the automotive lifecycle and the decisions made in the household. Stay tuned for further developments as we deploy more capital and execute on our strategy.

Executing on our LDD strategy, we delivered solid third quarter results reflecting accelerating total and organic revenue growth and continued strong margin performance. Our strategy is working and we are excited about the position we are in to continue to execute on Mission 2020.

Renato, would you take them through the financials?

Renato Giger

Thank you, Tony. As Tony mentioned, we continue to drive leverage and diversification, as evidenced by the following metrics. Looking at claim volumes for the third quarter of fiscal year 2014, total claims grew by 2.9% compared to the trailing four quarter average of 3.8%. Evolving and emerging markets' claims grew by 8.7% and 43.4% compared to the trailing four quarter average of 10.6% and 65.6%. Evolving and emerging markets made up 42.4% and 3.4% of total claims respectively.

Total revenue per claim grew by 4.1%, 90 bps higher than the trailing four quarter average of 3.2%, as customers continue to adopt our high ROI solutions. Total revenue growth on a GAAP basis came in at 22.3%. Of this, 26.9% were organic and 73.1% came from M&A.

Turning to the balance sheet, we ended the quarter with $745.2 million in cash and cash equivalents, up from $710.9 million at the end of the second fiscal quarter of 2014. Third quarter cash flow from operations was $92.4 million and capital expenditures were $8 million, resulting in free cash flow of $84.4 million. Our year-to-date free cash flow was $191.1 million, increased by 28.4% versus the first nine months of fiscal year 2013, and our year-to-date free cash flow conversion rate increased to 62.7% compared with 53.6% in the prior year period.

During the third quarter of fiscal year 2014, we purchased 300,000 shares of our common stock for $20.1 million. Since our Board of Directors authorized our $200 million stock repurchase in October 2013, we have purchased 450,000 shares at an average price of $66.28.

Our third quarter net debt-to-EBITDA ratio was 2.4x, down from 2.6x in the second quarter. Our run rate waste reduction for the third quarter was $5.2 million. For fiscal year 2014, we are targeting about $20 million waste reduction, up from a target of $10 million in the second quarter.

With that, I'll turn the call back to Kamal.

Kamal Hamid

Thanks Renato. That concludes our prepared remarks. We'll now take your questions. Operator, please open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Andrew Jeffrey with SunTrust. Please proceed.

Andrew Jeffrey - SunTrust Robinson Humphrey

[Inaudible]

Tony Aquila

Andrew, you're breaking up, we can't really hear you. If you are on a speaker phone, could you pick up?

Kamal Hamid

Let's recycle him. We'll go to the next question.

Operator

Our next question comes from Andrew Steinerman with J.P. Morgan. Please proceed.

Andrew C. Steinerman - J.P. Morgan Securities

I would like to just isolate what caused the acceleration about 90 basis points in the third quarter year-over-year, the organic acceleration?

Tony Aquila

So we had acceleration in various products and services around the clean sweep in the U.K., France, and in addition to that, our Driver Behavior platform is growing very nicely, penetrating deeper into insurance carriers and we're picking up some SMR action from our CarweB product line. That was one of the kernel acquisitions entering into the SMR space. So it's just kind of a whole bunch of things, it's pretty dispersed, and of course some of that was offset by some continued difficult spots in the world. In addition to that, in the Netherlands we are discontinuing a product line and we'll be replacing it later. So we're taking a little bit of an impact there to be bringing out a next-generation solution.

Andrew C. Steinerman - J.P. Morgan Securities

And what's implied in the fourth quarter given that the full year guidance ends with June on organic revenue growth basis?

Tony Aquila

So it implies that we're steady as she goes, might come in a little bit better. I mean you got some momentum going on right now. The wild card is the markets that are still lagging, which is the typical ones in Western Europe.

Andrew C. Steinerman - J.P. Morgan Securities

Alright, and could you just mention which ones still need to pick up or will pick up?

Tony Aquila

So we were very focused around the Netherlands, Spain, Portugal and to some extent a little bit in Switzerland.

Andrew C. Steinerman - J.P. Morgan Securities

Okay, perfect. Thanks Tony.

Operator

Our next question comes from Andre Benjamin with Goldman Sachs. Please proceed.

Andre Benjamin - Goldman Sachs

My first question, I was wondering if you could maybe talk a little bit about the growth of the SMR platform and what that was like on a like-for-like basis, either quarter-over-quarter or year-over-year just to give us a sense of the trends there?

Tony Aquila

So the business is growing in let's call it the mid double digits right now, although we have recently in the last six months since we did the JV, we've been doing some studies and segmenting the marketplace much better and we're getting close to crossing over 45,000 rooftops, we have invested some capital out of these numbers that you see, we invested a couple of million bucks actually in the quarter to improve the way they target accounts, more prime account targets, and we've invested in the sales and expansion of that. In addition to that, we're preparing it for launch in its first international market.

So from an addressable rooftop perspective, if you think about the collision side of our business that has 40,000 something shops in the United States, on the mechanical side we have about 80,000 shops, it's a much bigger market, and the monthly subscription fees or let's say the potential of those fees are about 70%. So you got significantly growth, and of course it is a specialized product which yields a very high ROI immediately to the users. So, we see that business growing in the double digits for the foreseeable future. It is the market leader.

Andre Benjamin - Goldman Sachs

Thank you. I know you made some comments on looking forward to update us on your capital allocation plans. So wondering, does the pullback in the market in the last few months make you feel any better about the room to find something to pull the trigger on and deploy some of that cash, any view on when you may want to think about the other part of entering things you don't know, just on [indiscernible]?

Tony Aquila

So great question, and you're right, the pullback has definitely caused us to get a little more aggressive in our pipeline. I think that in the next quarter, you'll see the results of those efforts. And although it hasn't reflected so much in the purchase price, but it has allowed us to be more competitive, because we don't just look at purchase price, we look at terms and conditions as well. So, yes, the pipeline is more active for us and we hope to ride that trend in the next couple of quarters and deploy some capital. And as you could see based on what's happening to us, our leverage is coming down fast and we don't want to get into an inefficient position, but at the same time all these acquisitions, as you see them coming together connecting to the measure on a household basis, you can see that we've got, we know what we want and now we just need to get it for the right price, and more than disclosed in the quarter.

Operator

Our next question comes from Peter Appert with Piper Jaffray. Please proceed.

Peter P. Appert - Piper Jaffray

So Tony, a lot of puts and takes in terms of the various European markets, how about just in aggregate, is the tone of business, sort of the pace of revenue growth in Europe improving?

Tony Aquila

I just came back and I would say people are feeling much better, but it doesn't take much to make them not feel much better. So it's in that optimistic phase I would say, whether you're in Germany or the U.K. Obviously we're seeing those that were first in starting to come out, like in the U.K., although Spain while the decline is shortening, there is some behavioral changes in those market that we're concerned with and of course service, maintenance, repair gives us a huge growth opportunity.

I'd say overall, I think within the next two to three quarters, I think you'll see a few more markets come out as you saw in the quarter. Portugal pulled out of the IMF funding piece of the equation. The tempo and the climate there is positive but people are still watching what they spend, in fact they are under-spending. Spain we think, Spain will have some longer-term effects and that's why we diversified the business and went into properties and mechanical. So I think that market will start to recover within our ranks in the next year as those products start to come out online.

Peter P. Appert - Piper Jaffray

On SRS business, have you taken the product offering into any new markets since you've taken over, is question one? And then question two is, six months into the transaction, just sort of how you're feeling about the growth expectations and margin leverage and how quickly you'll see the margin leverage from this transaction?

Tony Aquila

So we've been a net investor in the quarter, right. So we invested a couple of million dollars in the quarter into SRS to help them refine their strategy, their positioning, the cost of customer acquisition. In addition to that, we're preparing for the first international launch. We plan to launch that sometime in the beginning of our fiscal year. And then we will look to launch additional markets within fiscal '15. So there's a lot of stuff going on. But net of all that, margins still improved.

So as far as addressable rooftops, it's got more than two times the size of collision industry and we're the clear leader in that category and that's why we're cranking it up. But in the outlook side, I think as we distribute this product line, it has the potential to be at or above our collision product line from a margin perspective.

Peter P. Appert - Piper Jaffray

So then the mid double-digit growth rate you referred to is all coming from existing markets, correct?

Tony Aquila

That's right, it's just the U.S. today, right. So, I mean that's really what we're focused in on as well as launching its first international market. We're very excited about it. We believe we can pick up a couple of other languages in fiscal '15 which will all those costs will be Incorporated into our guidance and our margin targets in '15, but we look at this as a line that will grow very strongly as it penetrates the world. So the genesis of the application is in United States and we're now starting to interchange products to bolster it even more, so it has a growth per transaction or growth per subscription future in the U.S. in most of its existing base. We're about to cross into about 45,000 rooftops in the United States and we want to be able to sell them more valuable products and services that create us as their platform while we launch those additional European markets, which then gives us access to even more data to make the application even stronger in all countries, and we'd like to get to the end of '15 by having three languages operating in the platform by the end of our first 18 months.

Peter P. Appert - Piper Jaffray

Got it. One just quick thing, Tony. The anniversarying of the roll-up of Allstate, is that a factor in the organic growth number coming looking better?

Tony Aquila

We lapse them.

Peter P. Appert - Piper Jaffray

That's not a year-to-year factor in terms of the comp?

Tony Aquila

No.

Peter P. Appert - Piper Jaffray

Got it. Thank you.

Operator

Our next question comes from Jeff Silber with BMO Capital Markets. Please proceed.

Jeff Silber - BMO Capital Markets

Just looking at your fiscal year outlook, you raised your guidance for adjusted net income and adjusted EPS, just what do we miss, what am I missing here?

Renato Giger

It's Renato here. The difference between when we had the last guidance is an impact from minority from the SRS business we bought in the second quarter. So we have higher amortization which decreases minorities and increases cash EPS or adjusted net income.

Jeff Silber - BMO Capital Markets

Okay, got it. And you were kind enough to give us the organic revenue growth numbers for the first two quarters this year. Can we get at least the same number for the fourth quarter 2013, so we can see what you're lapping?

Tony Aquila

Sure, we can circle back with everybody, and we – normally we're looking at total growth because we're pushing out of [indiscernible], but we had to go through a pretty exhausted exercise to separate everything, but I would say just off the top of my head it was probably at or around the Q1 number.

Jeff Silber - BMO Capital Markets

Okay, that's great, I appreciate it.

Tony Aquila

It might have been 3.6 against 3.7. I'm getting a thumbs up from Kamal, so that is the number.

Jeff Silber - BMO Capital Markets

Alright, that's great. I just wanted to kind of get a base. And then in terms of expenses in the current quarter, are there any seasonal issues we need to be aware of relative to the fiscal third quarter?

Tony Aquila

You mean in this quarter you are saying or are you talking…?

Jeff Silber - BMO Capital Markets

In the fourth quarter versus third quarter.

Tony Aquila

Yes, so we had some – as you heard us talk about, we had some additional expenses that we pushed through into the SRS line of our SMR platform to kind of help get them crank started, but within down acquisitions and things of that activity, it's probably going to run the same.

Jeff Silber - BMO Capital Markets

Okay, great. Alright, thanks so much.

Operator

Our next question comes from Bill Warmington with Wells Fargo. Please proceed.

Bill Warmington - Wells Fargo

I was going to ask if you could comment on how the adoption is going for some of your self-service claims products, I think specifically of the GoTime Driver one.

Tony Aquila

Great question. So adoption is good. The early adoption is really good. We're not charging for it right now. We're letting people us it for pretty much free. We're launching a version in China even. We see that has a great potential. But when we really start to roll this into the revenue line, we'll really know what the stickiness of the adoption is, but it really does cut a tremendous amount of cost for the insurance carrier because the policyholder is able to participate which reduces their loss adjustment expense and it speeds up the claims processing. So we're very optimistic that we will get some revenue growth per transaction. We'll probably measure it across the entire transaction rather than separately. But the outlook is very positive feedback, and of course we've been investing quite a bit of money in that for the last 18 months.

Bill Warmington - Wells Fargo

Also wanted to ask about the rationale for the purchase of that 50% remaining interest of AutoPoint.

Tony Aquila

We took a business in a matter of months from negative EBITDA to double-digit and trending upward EBITDA. So we wanted to be sure not to have to pay too much of premium for some of what we brought to the table. Our partner was very gracious and knew we would be able to benefit, it would help us deleverage the overall purchase, and we have a very tight relationship with them and they are looking at it from the long-term and it really was a great opportunity for us, and we plan to internationalise that product line as well. And that's the first step in us continuing to help them monetize the return as well as for us to get a good return as well.

Bill Warmington - Wells Fargo

Excellent. Thanks for the insight.

Operator

Our next question comes from Gary Prestopino with Barrington Research. Please proceed.

Gary Prestopino - Barrington Research

Tony, any issues with what you're doing in Russia now in terms of what's going on between Russia and Ukraine, and are you in the Ukraine at all?

Tony Aquila

Yes, we are. Look, we do believe there is a pent-up set of claims that will be processed when all this education calms down. It is tenuous, it has – with the sanctions on Russia, it has tampered some of its growth, it did impact us a bit, we don't want to make – I mean when you run a business in 69 countries, you're always going to have a hot spot or two, especially based on the global climate. Yes, I mean hopefully this thing will get over but it took some of the growth off in Russia.

Gary Prestopino - Barrington Research

But right now, you're only in the city of Moscow, right, you're not throughout Russia, correct?

Tony Aquila

We're starting to process transactions in the outer areas. We're not rolled out across Russia but Moscow is one of the great collision and we have yet to launch our service, maintenance, repair product line or our mobile app, but it definitely has hit clams volumes. I think people are just waiting and seeing. We think accident frequency is the same because miles driven is only up about 10%. So we're assuming that there is a pent-up demand. It's a little harder for us to measure in Russia but the insurers believe that to be the case.

Gary Prestopino - Barrington Research

Okay, and then in terms of this AutoPoint, how were you able to change it from a negative to positive EBITDA so quickly?

Tony Aquila

Good old-fashioned hard work there. We got a great team, we shared with them our 10 years of operating experience in the automotive industry, the things we've done right, the things we've done wrong, we encouraged them to surface up some innovative ideas that we would help them by putting funding into the business. Under the prior ownership, because that line of business was losing money, they just kind of didn't pay much attention to it.

Particularly in the 18 months leading up to the sale, it was PE owned, and so they got a little bit over-start, so we relieved that pressure valve, we got excited about the business, we put a brand-new site up, beautiful Class A facility, really got behind the associates there, they are doing a lot of great stuff. If you talk to the customers, they'll tell you there's a distinct change. We changed the name of the product line. And this is only the beginning of what we plan to do with that offering as we attach the service, maintenance, repair tools for car dealers in the service department.

So, just good old-fashioned hard work, executing The Solera Way, taking advantage of the synergies we bring to the table, and frankly enabling them to do some things that they haven't been able to do, and we consolidated three sites down to one.

Gary Prestopino - Barrington Research

Franchise dealer market, Tony?

Tony Aquila

That is the primary focus of the product line but we will be introducing a version for independents.

Gary Prestopino - Barrington Research

How many rooftops do you have now?

Tony Aquila

About 1,000, little more than 1,000.

Operator

Our next question comes from Manav Patnaik with Barclays. Please proceed.

Ryan - Barclays Capital

This is actually Ryan filling in for Manav here. First question just on the free cash flow conversion, do you have any idea where that will likely stay for the year or is this just a different quarter or any thoughts you have on that?

Renato Giger

There is always in an uneven quarter like the third or the first one, there are impacts from our annual, semi-annual payment of interest. So it's always a little higher there. However, compared to last year, it is an increase due to the improvement in the business.

Tony Aquila

But it's about embedded what, that half?

Renato Giger

Yes, on a four quarter average, it's probably about [556%] (ph).

Ryan - Barclays Capital

Okay, thank you. And just following up on the prior question, so on the AutoPoint, are there any similarities I guess with the Identifix business that enable you to scale as quickly or is that different part of the business with different issues that go into the consolidation?

Tony Aquila

So we concentrated 20% of our effort post the deal on getting growth in the AutoPoint line, 80% we got them organized to execute and again supporting a lot of their ideas, and we supported the leadership team, they wanted to bring in some high-quality people for certain roles that had not been put together. In addition to that, we consolidated some sites. So we did a lot of operational things and we showed them how we've learned to make money on the revenue generated.

They adopted those things and executed them very well. We're entering the very customer centric phase with them now and preparing for more growth as we got the site up and the infrastructure. We've covered a lot of ground in this six months but we really think there's a lot of potential in that product line even beyond the borders of the United States and there's a lot of growth that can happen in the United States alone.

Now, we're not really sure yet because we haven't finished their 1+3 Plan with them as to when we'll internationalize that line, but we'll continue auto work and we'd like to continue to grow their margins to our consolidated margin line and expand that business globally.

Ryan - Barclays Capital

Great. And if I could just sneak one more in about the M&A market, in the past you guys have talked about price had been definitely something that kept you out of some deals, I guess kind of high-level, what is it about terms and conditions that would – at least that are allowing you to be more aggressive, is there anything you can share with us that will help us understand why you get more confidence today?

Tony Aquila

Well, because there was no terms and conditions for the last 12 months in a lot of deals. Reps and warranties have been watered down, you got people buying or PE guys buying and putting leverage on a forward basis. So it's kind of hard because price gets high and there's not a lot of protection. So we're pretty cautious. We execute on that transactions where we're the dominant and best choice for the sellers. But I think what you'll see in the coming quarter or so, you'll see us start to enter and win most likely in the more competitive landscape, because things have gotten a little better or a little more suitable for our risk profile.

Ryan - Barclays Capital

Great. Thank you so much, guys.

Operator

(Operator Instructions) Our next question comes from Stephen Sheldon with William Blair. Please proceed.

Timothy McHugh - William Blair & Company

This is actually Tim McHugh with Blair. Just want to ask, I guess how can we think about the SRS growth rate? I know you said the deal is going well, but is the growth rate pretty similar to what you saw before or has it improved or slowed down at all I guess as you rationalize the cost of AutoPoint, just want to know how should we think about it?

Tony Aquila

It's trending up. I mean I think as we internationalize, it's going to absolutely trend up. We got to get in up-markets up, so that when we penetrate the U.S. that we have many years of that. The good news is, as you know, as we're quickly finding out that there's a ton of synergies because the mechanical shops are within rock-throwing distance of the body shops, so our distribution leverage is even better than we thought and their synergies between the product lines which we plan to rollout which will give the mechanical shops more access to services and allow them to expand services, they can tap into our collision system when they want to change parts in their mechanical shops, so we're creating more of a platform within platforms approach so they can access even more and open up revenue opportunities. Both of them like to do glass repairs as additional revenue. We like to and we have been sampling around the world for the last few years in some glass claim activities that has been going very well. We see a lot of opportunity there because that's really suited for our mobile application uses. So we see a lot of upside. And if we do everything the way we have outlined it, it's going to have double-digit growth for the coming years.

Timothy McHugh - William Blair & Company

Okay, great. How do we think about in terms of the parts opportunity, something you've thought about for a while on the opportunity for even bigger ones, and now you've got SRS included in there, is there a major kind of step forward that we should see at some point in this next year or two, is there something that you need to do to step it forward or is this something I guess just as kind of gradually building?

Tony Aquila

So when we took margins down from 45 to – or attempted to take them down a bit and invest more as we kind of expanded, continuously we're expanding and getting good leverage, we got a little bit of a hit with the downturn in the global market. And so margins have really outperformed our expectations but we've been a net investor in parts. And of course you know, couple of quarters ago we bought DST, we bought APU, we have the Hollander asset, we're in the assembly phase, because we believe that parts is the platform between platforms, because both the collision side and mechanical side need parts, and you may or may not know this but if you go to buy parts, like-kind and quality parts on eBay, it's our software that's powering it. We're penetrating in a whole bunch of places in the world that got a lot of growth opportunities and we really didn't cover much in parts right now because the aiming of what was going on in the quarter was the SRS integration to our SMR platform, but yes, you'll hear us in the coming quarters talk more about parts because as we get these things, these platforms penetrated, we can be the transaction and access point for vendors and for the customers of ours to transact parts.

Timothy McHugh - William Blair & Company

Okay, great. And then just one last one. You said something earlier about the impact of – at least I thought you did – about weather on the quarter, to at least the severe weather in the U.S., do you have any sense for how much that might have helped you as we think about the underlying organic trend?

Tony Aquila

So something we've been getting very intrigued with is how we can better support the industry, the insurance industry with catastrophe claims, glass tile claims, these kinds of things that have impact on the home as well as the car, and with the urbanization around the coastal areas or worldwide especially in emerging markets and things like that, you have these bursts of frequency that an insurer cannot staff for. So, we see a lot of opportunity in that and we've been sampling in that area for the last probably 2.5 years. We did a few acquisitions, we're focused on activity in that area and we see a lot of growth in that part of the claims process. So, I think it would be safe to say that in the coming quarters we'll profile these activities more.

Timothy McHugh - William Blair & Company

Was it a meaningful impact in terms of there's more severe weather at least in the U.S. here this quarter in terms of this quarter's growth, right, I guess abnormal?

Tony Aquila

Germany normally have hailstorms at this time of year. They had an incredibly dry – we saw this four years ago, for those of you who've been around the story a long time, but the weather patterns are, we're not sure what is the impact of global warming and other things on a net basis but we do see it cycling from good to bad, if you will. And in Europe, we saw an incredibly dry quarter. You got droughts in the U.S. We're hoping that, and I don't mean that to sound inappropriately, but we're hoping that the hailstorms when they do kick in, will give us a lot of revenue opportunities.

Timothy McHugh - William Blair & Company

Okay, great. Thank you.

Operator

We have no further questions. I would now turn the call back over to management for closing remarks. Please proceed.

Kamal Hamid

Thank you all for joining us. We'll be active a bunch of conferences during this upcoming quarter and look forward to speaking with you in our next quarterly conference call. Thanks so much.

Operator

Ladies and gentlemen, a replay will be available until 11.59 p.m. Eastern Standard Time on May 21, 2014. 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, 27572216. This concludes today's conference. You may now disconnect. Have a great day.

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