Solera Holdings (SLH) Tony Aquila on Q2 2016 Results - Earnings Call Transcript

| About: Solera Holdings, (SLH)

Solera Holdings, Inc. (NYSE:SLH)

Q2 2016 Earnings Call

February 03, 2016 5:00 pm ET

Executives

Dan Kim - Chief of Staff & Global Head of Marketing

Tony Aquila - Founder, Chairman and Chief Executive Officer

Renato Giger - Chief Financial Officer

Operator

Good afternoon, everyone, and welcome to Solera's Second Quarter Fiscal Year 2016 Earnings Call. 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'd like to turn the call over to Dan Kim with the office of the CEO.

Dan Kim - Chief of Staff & Global Head of Marketing

Hello, everyone. Thank you for joining us, and welcome to Solera's second quarter fiscal year 2016 conference call. My name is Dan Kim, with the office of the CEO. And with me today are Tony Aquila, Solera's Founder, Chairman, and CEO; and Renato Giger, Solera's Chief Financial Officer. Today, we will provide an overview of our second quarter results.

I'd like to remind everyone that our remarks during this conference call will contain forward-looking statements about the expected closing date for the pending merger 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, risks that the closing of the merger may be delayed or that the merger may not close. We disclaim any obligation to publicly update or revise any such statements to reflect any change in our expectations or an event, conditions, or circumstances on which any such statements may be based.

We will 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 our January 28, 2016 earnings press release, which is available on the Investor Relations section of our company website at www.solera.com and in the Form 8-K we filed on January 29, 2016.

We measure constant currency or the effects on our results that are attributed to changes in foreign currency exchange rates by measuring the incremental differences 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, cash EPS, growth and margin comparisons are year-over-year and on a constant-currency basis.

When we refer to organic revenue, we mean revenue generated from businesses we have owned for 12 months or more. And when we refer to organic revenue growth, we mean the period-over-period change in our organic revenue. Amounts in percentages throughout our remarks reflect rounding adjustments.

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 consent of Solera Holdings, Inc.

And with that, I'll turn over the call to Solera's Founder, Chairman, and CEO, Tony Aquila.

Tony Aquila - Founder, Chairman and Chief Executive Officer

Thank you, Dan, and hello, everyone. Thank you for joining us today. I'd like to start by reminding everyone that in light of our pending merger with entities affiliated with Vista Equity Partners that we announced on September 13, today's call will once again be abbreviated. Similar to our last earnings call, we will not provide an outlook for fiscal year 2016 or conduct a Q&A session.

With respect to the pending merger, which was approved by our stockholders during a special meeting on December 8, 2015, we have obtained all regulatory clearances required by the merger agreement and expect the pending merger to close no later than March 2016.

Turning to our second quarter results, I am pleased to report our revenue and adjusted EBITDA. Our revenue for the quarter was $308 million, which reflects total revenue growth of 16.3% on a constant currency basis. Organic revenue growth was 6.7%, or 6.3% when normalized for the one-time impact of our vehicle valuation acquisition, which closed in mid-November of 2014. Foreign currency had a negative impact on revenue of 7.3%.

Adjusted EBITDA for the quarter was $121 million, reflecting total adjusted EBITDA growth of 14.2% on a constant currency basis. Foreign currency had a negative impact of 9.6% on adjusted EBITDA.

Now I'll turn the call over to Renato, who will provide additional financial details regarding the second quarter. Renato?

Renato Giger - Chief Financial Officer

Thanks, Tony. Our second quarter revenue growth metrics from our Americas and EMEA reporting segments were as follows: Americas total revenue growth of 21.6%, Americas organic revenue growth of 7.0%, EMEA total revenue growth of 10.5%, and EMEA organic revenue growth of 6.4%.

Our second quarter adjusted EBITDA margin was 39.3% on a as-reported basis. This includes a negative impact of 91 basis points from currency and 48 basis points from payments of $1.5 million to the company's Chief Executive Officer and General Counsel in connection with December 2015 option exercises, which payments are described in greater detail in the Form 8-K we filed with the SEC on December 31, 2015.

On a constant currency basis and excluding the payments described above, adjusted EBITDA margin was 40.7%. Regarding earnings per share metrics for the second quarter, cash EPS was $0.72 and GAAP net income per share was $0.78.

The increase in GAAP net income was primarily due to the increase in the fair value of our derivative financial instruments versus the first quarter and a $31.2 million income tax benefit recognized during the second quarter. Please see our Form 10-Q filed on January 29, 2016 for additional details regarding our income tax provision for the quarter ended December 31, 2015.

Turning to cash flow metrics for the second quarter. Free cash flow was negative $33.2 million, including net cash flow from operations of a negative $19.3 million and capital expenditures of $13.9 million. Our negative net cash flow from operations was primarily due to cash interest payments of $93.6 million associated with semiannual interest payments due on our outstanding senior unsecured notes in the second and fourth fiscal quarters.

Cash flow for the second quarter included certain long-term items totaling $19.0 million. This included acquisition earn-out payments deemed mandatory (06:55), FX impacts and professional services and related costs incurred in connection with the pending merger. Excluding these amounts, free cash flow was negative $14.2 million in the second quarter.

For the six months ended December 31, 2015, free cash flow was negative $22.1 million. This amount included certain one-time items totaling $67.6 million, including $25.3 million for acquisition earn-out payments deemed mandatory (07:28), $20.1 million for the impact from FX rate changes on cash and payments for the settlement of a forward FX contract, $11.5 million for the one-time special cash award approved by Solera's Compensation Committee paid to our Chief Executive Officer during the first quarter, and a $1.5 million payment relating to open exercises referenced above and $10.6 million for professional services and related costs incurred in connection with the pending merger.

Excluding the $67.6 million impact, free cash flow for the six months ended December 31, 2015 was positive $45.5 million. Our ending cash balance as of December 31, 2015 was $470.5 million.

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

Dan Kim - Chief of Staff & Global Head of Marketing

That concludes our second quarter fiscal year 2016 conference call. Thank you for joining us today.

Operator

Ladies and gentlemen, a replay will be available until 11:59 PM Eastern Standard Time on February 17, 2016. To access the replay, dial 855-859-2056 or 404-537-3406 from outside the U.S. and provide the access code 41507478.

This concludes today's conference. You may now disconnect. Have a great 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!