Solera Holdings' CEO Discusses F2Q2012 Results - Earnings Call Transcript

Feb. 7.12 | About: Solera Holdings, (SLH)

Solera Holdings, Inc. (NYSE:SLH)

F2Q2012 Earnings Call

February 7, 2011 5:00 p.m. EST

Executives

Kamal Hamid – VP of IR

Tony Aquila – Chairman, President and CEO

Renato Giger – CFO and Treasurer

Analysts

Tony Cristello – BB&T Capital Markets

Gary Prestopino – Barrington Research

Dave Lewis – JPMorgan

Peter Appert – Piper Jaffray

Eric Boyer – Wells Fargo

Operator

Good afternoon, everyone, and welcome to Solera’s second quarter fiscal year 2012 earnings call.

Following today's remarks, we will hold a question-and-answer session. As reminder this call is being recorded and will be available for playback. Details for accessing the replay will be made available at the end of the call.

At this time I would like to turn the call over to Kamal Hamid, Solera’s Vice President of Investor Relations. Kamal?

Kamal Hamid

Good afternoon, everyone. Thank you all for joining us and welcome to Solera’s second quarter fiscal year 2012 conference call. With me here today are Tony Aquila, Solera’s Founder, Chairman and CEO, and Renato Giger, Solera’s Chief Financial Officer.

Tony will begin today's call with a summary of our financial results for the quarter ended December 31, 2011, followed by comments on the factors driving those results. Renato will then provide you with information about our financial results that is not described in today's press release and finish by providing an update to the company's fiscal year 2012 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, but involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements, including without limitations those risks detailed in Solera's filings with the SEC, including our most recent quarterly report on Form 10-Q for the quarter ended September 30, 2011. We disclaim any obligation to publicly update or revise any such statements to reflect any change in our expectation or advanced conditions or circumstances in which -- on which any such statement may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

We also plan to discuss certain non-GAAP financial measures on this call. A reconciliation of Solera's non-GAAP financial measures to GAAP financial measures is included in today's press release which is available on the Investor Relations section of our company website at 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 Thomson FirstCall.

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 rate of 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 direct competitors, we mean companies that we compete with in vehicle claims processing. When we refer to run rate, waste savings or synergies, we mean the savings to be realized over each 12-month period following the execution of these efforts. Amounts and percentages throughout our remarks reflect rounding adjustments.

All information discussed during this call and webcast is protected by United States copyright law and cannot be produced, distributed, transmitted, displayed, published or broadcast without prior written consent 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.

We are pleased with our second quarter results which demonstrate progress from our continued investment in the business. Total revenue growth came in at 17.7% versus the prior-year period. Our adjusted EBITDA margin came in at 44.2%, up over 130 basis points year over year, including the impact of continuing headwinds in two of our major European markets. We achieved this margin while continuing to absorb recently completed acquisitions and increasing our investments in product innovation centers and new geographies now up to 61 countries.

With these results driving strong cash flow, I am excited to report that during the second quarter we returned nearly $50 million in capital to stockholders, more than the cumulative amount we have returned since our IPO. Renato will provide you with those details in a few minutes.

Shifting to claims volumes, this quarter is the fourth consecutive quarter of year-over-year aggregate improvement. Total claims grew by 1% despite historically mild and dry weather conditions in many of our regions during the second quarter. This growth compares with 0.4% growth in the first quarter, a 0.1% drop in the fourth quarter fiscal 2011, and a 1.3% drop in the third quarter of fiscal 2011.

Moving to revenue claim growth, this key metric continued to outpace our 4% to 6% historical range, coming in at 6.3% for the quarter and averaging 8.1% over the last four quarters. Because the timing and magnitude of new product rollouts vary, we believe a rolling four-quarter average is the right way to look at growth in revenue per claim. We are encouraged by both the claims volumes and the revenue per claim trends.

Now let me give you a snapshot on the progress coming from our various green shoots. One, we continue to gain traction with AUTOonline in a growing number of countries. AUTOonline has leveraged our broad and deep geographic footprint to enter 10 new countries for a total of 28 countries. Examples of these green shoots include South Africa, China and now India.

Two, we continue to power our bundle with numerous new products in multiple countries, reflecting our customers’ steady demand for our high-ROI software products and solutions. As a result, second quarter revenue per claim growth came in at 6.3%, completely offsetting claims volatility in certain of our markets, and an average of 8.1% over the last four quarters. Some of the major contributors to growth in revenue per claim during the second quarter include France, Brazil, Mexico, Portugal and Russia.

Three, China as an example of our expansion into high-growth markets hit a promising milestone in the quarter. We processed more than 50,000 unique transactions via the cloud in the second quarter. We also experienced gains in other emerging markets such as Turkey and UAE. These are just some of the outputs of the $1 billion of investments in strategic M&A, geographic expansion and product development we have made since 2008. We believe that our level of global investment is higher than our direct competitors combined. With our strong balance sheet, we stand ready to deploy additional capital as we continue to work our M&A pipeline.

So while many of our competitors are fighting declining pricing and volumes, on the whole we are experiencing the opposite. Our customers are adopting new technologies that drive higher productivity and ROI, offsetting volatility during uncertain macroeconomic conditions and reflecting the shift towards more technology used by insurers and their trading partners.

Let me give you some color on Solera's intellectual property. Yesterday, as some of you may have noticed, we filed a complaint with the US District Court in Delaware against Mitchell International for infringement of one of our patents that covers the generation of total loss reports via a web portal. We will aggressively protect our IP and are confident in the court's ability to stop the unauthorized use of our patent by Mitchell. We are seeking a permanent injunction and damages for infringement. We will provide you with an update at an appropriate time.

On the customer front, we want to give you two important updates. At the end of the quarter we announced the loss of a major US customer. Parting ways with this customer was a difficult but conscious decision. We are committed to working with this customer to ensure a smooth transition and will work diligently to provide them high ROI products and services in the future.

On the other hand, I am excited about recent developments with Allianz, one of the world's leading insurers. Last month we entered into a new exclusive global cooperation agreement with Allianz that provides us with significant additional growth opportunities across 28 existing and new countries, and substantially strengthens our relationship with Allianz's local market operations.

To give you some context, the US customer we lost wrote about $26 billion in P&C premiums in 2010, primarily in one country. In the same year, Allianz wrote about $57 billion in P&C premiums across 55 countries. We believe that our track record of delivering profitable innovation and global leverage aided our ability to enter into this agreement.

With that, I will turn the call over to Renato. Renato?

Renato Giger

Thank you, Tony.

Starting with currency, foreign exchange had a negative impact on revenue of 1.7% or $3.9 million in the second quarter compared to the prior-year period. Excluding the revenue contribution from Explore, constant currency revenue growth came in at 5.1%, steady with the first quarter. Our reported adjusted EBITDA margin came in at 43.5%, and as Tony mentioned, it was 44.2% on a constant currency basis, up 130 basis points versus the prior year. In the aggregate this demonstrates our operational discipline and the leverage in our business as indicated by the following metrics on a constant currency basis and excluding the expenses of Explore.

Second quarter operating expenses were about 21.2% of revenue compared to 20.0% of the prior year. Second quarter systems development and programming expenses came in about 8.9% of revenue compared to 10.3% in the prior year. And second quarter SG&A expenses were about 26.4% of revenue compared to about 26.7% in the prior-year period.

Turning to the balance sheet, as a result of our focus on collections, days sales outstanding were 51 days for Q2, down by seven days from June 30, 2011. Our consolidated leverage ratio as defined in our credit agreement was 2.4 times, flat with the first quarter. Our leverage ratio at the end of the second quarter reflects stock repurchases of 42.1 million. I am pleased to report that in the second quarter we generated $61.4 million in cash flow from operations, up 26.4% from the prior-year period, and we generated $53.8 million in free cash flow, up 18.4% from the prior-year period. Excluding the impact of devaluation allowance release in Q3 of last year, these are the highest figures ever on a trailing eight-quarter basis.

Capital expenditure during the second quarter was [$7.6 million]. We expect full-year CapEx to come in at about $30 million. We achieved approximately $1.3 million in rate reduction during the second quarter, and are raising our full-year rate reduction target from $5 million to $8 million. It is important to note that this is net of increased investment and cost of innovation.

On capital allocation and reflecting our strong cash flow, we are pleased to report that we returned $49.2 million to our stockholders in Q3, more than $2.1 million in stock repurchases and $7.1 million in dividends. We repurchased 904,000 shares at an average price of $46.60, 150,000 of these shares we purchased during the second quarter were not retired and therefore remain in issue and outstanding shares as of December 31, 2011.

Turning to our updated fiscal 2012 guidance, we have decided to adjust our foreign currency exchange rate assumptions given the heightened volatility. Rather than using the spot rate, as of today we’ll provide guidance as we have in the past. We are assuming strengthening of the US dollar of up to 5% versus the currently prevailing foreign currency exchange rates. Let me give you a little color on this.

Historically, the euro and the British pound were the most impactful currencies in our reported results. Today we see very high degree of volatility in numerous other currencies. As I told you earlier, foreign currency exchange rates have a negative impact of about $2.9 million in the quarter, only about one-third of that was due to the weakening of the dollar -- of the euro and the British pound versus the US dollar. Two-thirds was related to weakening of other currencies, primarily in the Brazilian reais, Polish zloty, South African rand and Mexican peso versus the US dollar. We will reevaluate our foreign currency exchange rate assumptions for guidance purposes only on a quarterly basis.

Our guidance assumes no acquisition activity, no stock repurchases, and assumes 28% tax rate to recalculate adjusted net income and the above-described foreign currency exchange rate assumptions. Using the assumptions, our updated guidance is revenue of $780 million to $786 million and adjusted EBITDA of $339 million to $343 million. On a constant currency basis, this implies over 100 basis points of year-over-year margin expansion. It also includes the impact of our last three acquisitions, which are currently in the process of being integrated. Consistent with our M&C management, margin and core acquisition criteria, we are working diligently to [increase the March level] of the Solera consolidated average.

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. For those of you who track and factor in the impact of strengthening or weakening dollar throughout the remainder of the year, we had approximated by using the following formula. For each 1% change in the US dollar with all the foreign currencies in which we conduct business, the negative or positive impact to fiscal 2012 revenue is approximately 0.4%, and the negative or positive impact EBITDA will be approximately 0.4%.

Kamal?

Kamal Hamid

Thank you all for joining us on today’s call. Before we open up the call for Q&A, I want to thank those of you who attended our January investor conference. We hope that you gained insight and enjoyed seeing first-hand results of some of the investments that Tony talked about during today’s call. To learn more about the exciting profitable innovation initiative happening across our company, please visit our new website at solerainc.com.

We will now take your questions. Operator, please open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions).

And your first question comes from the line of Tony Cristello with BB&T Capital Markets. Please proceed.

Tony Cristello – BB&T Capital Markets

Thank you. Good afternoon. First question I had basically is on the organic revenue side of things, and I'm trying to reconcile, again I haven't had time actually to go through all the details of the release, but if we look at this quarter and then we look at the changes that you made in terms of your guidance, how much of that impact was purely related to FX versus are there anything you're seeing related to organic growth that we should start to think about in various marketplace?

Tony Aquila

Hi, Tony. Yeah, it's all FX. So we're feeling good about it. As I had mentioned, we're seeing a strengthening in some of the volume, continuing adoption as the carriers are shifting to more technology, especially with the change in the way claims are being handled between Gen-Y and Gen-X and so on. So, no changes, just trying to make it a little bit easier on the currency side of things by putting -- trying this 5% kind of approach to it. So just think of it as currency.

Tony Cristello – BB&T Capital Markets

Okay. And if we think about the Allianz transaction on a go-forward basis, do we need to, or maybe you've already put the groundwork in place to sort of build that business out, but are there things from a cost standpoint we need to kind of remember to include as we're building out the revenue side of the equation, personnel, or any type of extra support that goes into such a large customer?

Tony Aquila

Yes. So what you see us doing, which you can't really -- although you were at the event we had here recently, so you could see that we are adding people. But what we're doing is, is we're making that adjustment before we increase our waste reduction target. So the investments we're making are kind of net of the waste reduction numbers as we moved it from five to eight. That's net the investment of about 70 people around the world.

Tony Cristello – BB&T Capital Markets

And in terms of the expenses, the full rollout of the lost customer, when we think about then, I think we talked about at the event sort of there might be another customer coming up by the end of the year, how should we frame what's to be expected with that type of process after having lost one who's clear was focused solely on price rather than the services that you provide? I mean, is this going to be a different situation?

Tony Aquila

I think in times like today where countries are all dealing with different things and as well as customers are dealing with different things in their book, look, we're very focused and very targeted around those customers that are transitioning and very focused around the high-technology X and Y users, and we find good resonation with them with our product mix and our pipeline. So we feel good about that. There are some carriers, customers out there that are very price focused, and we do our best to meet that without compromising our country and region and global disciplines. We're not going to depart from that at this point.

We don't see anything -- like there's a giant price war out there. We do think there are some price sensitive hotspots in the world, and we're trying to compete on value not price, at this point pretty successfully, although we did lose a customer. It was a conscious decision. It was not easy. But we remain committed to the client, and we hope over time that they'll see the ROI we can bring with these additional services through our profitable innovation initiatives and hopefully we'll get some business back.

Tony Cristello – BB&T Capital Markets

Okay. That's great. Thank you for the time.

Tony Aquila

Thanks, Tony.

Operator

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

Gary Prestopino – Barrington Research

Hi, good afternoon. Hey, Renato, just to be clear with the currency here, you're assuming that the dollar is going to strengthen an additional 5% from where you are right now, right?

Tony Aquila

That's what this implies. I mean, we don't know for sure what's going to happen. We just wanted to ease the constant volatility going on in these other currencies. So, Renato can add a little more color on that.

Renato Giger

Yeah. So instead of using as we did in the past to say the spot rate of today, which is around 131 for the euro, we said going forward the likelihood that we will have lower currencies instead of always going from the day and trying to calculate going forward. Instead, we will imply up to 5% increase on all the currencies.

Gary Prestopino – Barrington Research

Okay. So you're basing that off the spot rate today for the euro and the pound?

Renato Giger

Yes, for all the currencies we use the spot rate of today.

Gary Prestopino – Barrington Research

Okay, that’s fine. And then can we just talk a little bit, you said you did about 50,000 transactions in China this quarter. Were those claims processing transactions or a mix of various services? Could you maybe help us out as to what you're doing initially there?

Tony Aquila

Yeah, I don’t really want to necessarily disclose our specific strategy there, but I will tell you that they are significantly claims activity.

Gary Prestopino – Barrington Research

Okay.

Tony Aquila

We’ve had to zigzag to find successful execution there and we’re feeling really good about things. We’re hiring people there. We continue to, you know, we have our delegation deployed from China right now and to some other environments, with customers. So I think we continue to feel good about the progress we’re making. And as you know, we kind of like to keep these things conservative in our guidance on the emerging markets until we’ve got a lot more momentum.

Gary Prestopino – Barrington Research

Well, I mean, look, it’s encouraging because it’s the first time you’ve ever really talked about anything in China beyond saying that you are there. So, over the last six has just like kind of a switch flipped here and they’re starting to use some of your products? Because I know you were just doing a lot of initially establishing a beachhead with people and gathering data there.

Tony Aquila

Yeah. And it’s kind of what happens. The volume there is so massive. We’ve managed to catch some good -- we’ve got a couple of good clients that are, everyday, are really seeing the benefit that we’re bringing. And like I say, we have them deployed to other countries right now for some training. And accident frequency is good, I mean the car purchases. Accident frequency is just, as we’ve talked about in the past, it’s hard to even fathom from a US perspective.

Gary Prestopino – Barrington Research

Okay. And then just getting to this Allianz agreement, you said that they’re in 28 existing and new countries that, well, you’ve signed this agreement. Is that correct?

Tony Aquila

Correct.

Gary Prestopino – Barrington Research

So, could you maybe just, if it’s possible, just give us a percentage of how many of them are existing, how many are new countries? And when would you start seeing some revenue from new endeavors with Allianz in this regard?

Tony Aquila

Yeah. There’s three very key initiatives that have a lot of benefit to Allianz on a run rate basis upwards of about $600 million in potential waste reductions on their side on an annual basis that we're targeting. Today we're pretty heavily penetrated in around 17 countries, and with the exception of these three key initiatives, which we'll be targeting in a handful of those countries by Allianz and then they'll want to roll them out to other countries. And then of course, then the remaining 11 countries are pretty new to us, and we're working with the local teams to -- we've been beefing up the Allianz team, and they're -- I think right now we have people in a few new countries, as we speak, I think three of them right now.

Gary Prestopino – Barrington Research

So and then is there any chance that you could get in -- you said they're in 55 countries, is there any chance you could get in those other countries, those other 29?

Tony Aquila

Yeah. We do over time. I mean, we have so much opportunity to kind of execute on right now. We want to put more points on the board. I mean I think that's what got us to this place, is we concentrated on moving the needle for them, and they've consistently helped us get into other countries. And we also think just based on Allianz's execution model, we think they're a growth company and likely to enter some of the markets we want to enter as they continue to expand. There's a very similar culture I think between the two companies.

Kamal Hamid

Operator, can we get the next question, please?

Operator

And your next question comes from the line of Dave Lewis with JPMorgan. Please proceed.

Dave Lewis – JPMorgan

Hi, guys. Good evening. A quick question on AUTOonline, two part question. The first is, what drove the big ramp up in countries penetrated? I believe it was at 23 and now it's at 28. And, Tony, can you help us understand that business? That acquisition has been a great one for you but largely the revenues are mostly from Germany. I'm still a little unsure of how you can -- what are the levers that increase your penetration in other markets? Are they more competitive? Did you have a first-mover advantage in the AUTOonline business when it started in Germany? If you could just help us understand the growth opportunities there going forward. Thanks.

Tony Aquila

Yeah. That business is growing like most of them. They're concentrated on a revenue growth per transaction by bringing value to their existing clients. We've integrated it very nicely so it adds a very good ROI to the customers that use both. And in addition to that we're adding buyers. With the economy being what it is, it actually gives us a little bit of a lift there because a lot of these emerging countries that can take salvage in, they take salvage in from the western countries and these vehicles become rebuildable, and with their labor arbitrages they're able to purchase cars that they couldn't purchase in a difficult economic environment and then sell those cars. So there's just a lot of good tailwinds in that business.

And then from a geography perspective, it's a nice way for us to enter other countries. Sometimes the partial ops business may not be ready in a country for various reasons. It could be data implementation, it could be social issues, but the salvage market is relatively active in these countries, and we continue to expand the offering in the salvage area with some additional products, including valuation products where we give the value of vehicles at the same time you're bidding on them. So I think some of you on the call saw some of these innovations at our recent event.

Dave Lewis – JPMorgan

Thanks, Tony. I'll just ask one quick one and hop off. The comments you made on the cloud transactions with respect to China, is it fair to say that that's still devoted to the body shops that you're working with there?

Tony Aquila

It's actually insurance carriers and body shops, it's both sides. So it was a good quarter. What's great about these things is once you get somebody, they really start seeing the benefit, they just -- more and more volume starts to come.

Dave Lewis – JPMorgan

Thanks, Tony.

Operator

And your next question comes from the line of Peter Appert with Piper Jaffray. Please proceed.

Peter Appert – Piper Jaffray

Thanks. So Tony, in prior quarters you've been able to give us a little bit on color on what you're seeing in some of the different geographies, so can you sort of highlight for us where things may be getting stronger, where they're getting weaker? Are there any inflection points?

Tony Aquila

Good question. Yeah, I'd say we still continue to be in a very shotgunned environment. We would say that the UK and Spain continue to be under pretty severe pressure, although we did see some -- we do think there's some bottoming, although we're going to stay cautiously conservative there. In addition to that, I would say that we saw a little bit more stress in France, not so in Germany in the quarter, primarily weather-related. Although weather has picked up positively for us with a lot of snowfall in Europe over the last few weeks, but unfortunately in the quarter we had extremely mild conditions that kind of impacted things.

I think we saw great adoption starting to pick up and great dialogue with clients in our Middle Eastern activities. As you can see by watching the TV, there’s a lot of riding and things going on and vehicles can be in the spread of that, so our UAE business started to pick up. We just started entering into that arena. In addition to that, we just continue to have dialogue in some of the Southeast Asian countries and we see a lot of great opportunity there. And then I’d say Japan is struggling.

And our Portugal business, the profitable innovation has really benefited us. We saw great traction there as they are preparing to do work with less people using more technology, so we had great adoption and growth there. We have a great team there, they do a phenomenal job. And in Greece we saw some good traction on the salvage side. Italy, we think that there’s some positive movements there. They were minor in some growth in the course. It’s very early for us there.

The Eastern bloc, just give you a little piece on the Eastern bloc, the Eastern bloc is scattered. I mean, Hungary was under a lot of pressure in the quarter. The Czech Republic was as well, as well as Poland. And we had Turkey and others that were doing very well.

Peter Appert – Piper Jaffray

That’s very helpful. Thanks. And Tony, can you remind us the -- you may have said this in the call, I missed it -- the percent of the revenue that’s currently coming from the emerging markets and how fast the growth is there?

Tony Aquila

In the emerging markets today, well, in the emerging markets we have about 5%, 6% coming from let’s say the small emerging markets, and then we have those that are transitioning to the evolving side. We’re getting ready to move some here recently. So if you kind of couple those together, we get closer to 15%. But we’re going to re-rack some of the evolving countries because we’re starting to get some adoption, as you could tell, from some of our prior quarters. So we’re in a little bit of a transition there. But think of that as 15% for now.

Peter Appert – Piper Jaffray

Okay. And what kind of year-to-year growth do you see in those markets?

Tony Aquila

We’re seeing in the high double digits on those markets. In some cases like China, it’s like 700%, but traditionally we’re trying to keep them -- you know, I think the thing we’re most concerned about in China is just if we, you know, if the thing takes off, we just have to be well-positioned for it.

Peter Appert – Piper Jaffray

Got it. And then last thing, Tony, so you’ve been at 5% or 5.1% underlying growth last couple of quarters. So to get to the 7% to 9%, is it just a function of macro environment or are there some specific benchmarks we could be looking for over the next couple of quarters that might move the needle?

Tony Aquila

It's really adoption in the emerging markets. So it's penetrating, getting some more and more customers in places like China. I didn't tell you this but I should. India has been a little bit of an under performer as well in the quarter from our expectations. And then staying in the UK, they were a little heavy on it, so that kind of slows us down on the growth side because we've got to absorb what's going on with them. And then, of course, some that leaked into Poland and Hungary in the quarter.

So I think what has to happen is, is we've got to see some volume pick up, we've got to continue with our penetration into the emerging markets which we feel positive about. And we've got to sell in the advanced markets additional services as they transition to more technology. We do believe that there is some shrinkage that will occur just naturally on the user base in the insurance side as you saw the insurance segment was relatively kind of flat. But what's happening is, is they're having their trading partners, that's the power of the technology, while we're growing revenue per transaction, a lot of that transaction is being borne by the trading partners where you saw our growth.

Kamal Hamid

Peter, this is Kamal. If you recall Explore, which is now about 10% of the business, is growing at about double our core growth rate. And so when we lapped that at the end of June that will just by itself add 1%, all things being equal, add 1% to the organic growth rate.

Peter Appert – Piper Jaffray

Thank you.

Tony Aquila

Yeah, and my comments are just primarily around your question, which is the existing core.

Peter Appert – Piper Jaffray

Exactly. Thanks.

Operator

(Operator Instructions).

And your next question comes from the line of Eric Boyer with Wells Fargo. Please proceed.

Eric Boyer – Wells Fargo

Hi. Thanks. I was just wondering, could you talk about the revenue runoff we should expect from that customer you lost? Is it pretty much going to be all finished in 2012? And then any margin pressure from rolling off that customer and then the ramp-up of the new Allianz relationship.

Tony Aquila

Yeah, we're still analyzing a bit of that. Frankly we haven't even, with the client, figured out their roll-off schedule. That's still a work in progress right now. For sure not in ‘12 there will be a full roll off. We hope that the additional opportunities that we've captured and have in our queue will help us make, on a global basis, a relatively nice transition. In addition to that, we think it's more like ‘14 before that customer comes off, so we've got a bit of time to kind of offset that.

Eric Boyer – Wells Fargo

And then revenue per claims then coming down the last couple of quarters. Anything there as far as when you'd expect that start to rebound some?

Tony Aquila

Yes. Well, look, I mean we always tell you guys it's 4% to 6%. It's still above the 6%. We just had a couple of big launches that really lifted us up, and we'll probably analyze as we see more of the profitable innovation services rollout, but we want to kind of get through this macro condition in Europe. And once we see that stuff starting, yeah, I think we'll revisit what that target rate is.

Right now in the quarter some of the relief we gave was by giving a little more technology and still keeping our revenue growth per transaction above our high end, but yeah, it came off a little bit. Some of it was rollout related and some of it was strategically related.

Eric Boyer – Wells Fargo

Okay. Thanks a lot.

Tony Aquila

You bet.

Operator

And at this time there are no further questions in queue.

Kamal Hamid

Thank you all for joining us. Operator, do you want to read the replay instructions please?

Operator

A replay will be available until midnight on February 21, 2012. To access the replay, dial 888-286-8010, or from outside the US 617-801-6888, and enter the following access code when prompted, 63653904.

Kamal Hamid

Thank you all.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!