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Solera Holdings (NYSE:SLH)

Q3 2012 Earnings Call

May 08, 2012 5:00 pm ET

Executives

Kamal Hamid - Vice President of Investor Relations

Tony Aquila - Founder, Chairman of the Board, Chief Executive Officer and President

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

Analysts

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

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

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

Robert Riggs - William Blair & Company L.L.C., Research Division

Peter P. Appert - Piper Jaffray Companies, Research Division

Operator

Good afternoon, everyone, and welcome to Solera's Third Quarter Fiscal Year 2012 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 Investor Relations. Kamal?

Kamal Hamid

Good afternoon, everyone. Thank you all for joining us, and welcome to Solera's Third 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 March 23, 2012, followed by comments on the factors driving those results. Renato will then provide you with information about our financial results that are not described in today's press release and finish by providing an update to the company's fiscal year 2012 guidance. We'll then open up the call for questions.

I'd like to remind everyone that our remarks during this conference call will contain forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are neither promises nor guarantees but involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements including, without limitation, those risks detailed in Solera's filings with the SEC, including our most recent quarterly report on Form 10-Q for the quarter ended December 31, 2011.

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 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 First Call. We measure constant currency or the effect 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 multi-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.

Our guidance assumes no acquisitions of businesses, no stock repurchases and assumes 28% tax rate to calculate adjusted net income and the foreign currency exchange rate assumptions described by Renato -- described below. 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 the impact of a strengthening or weakening dollar throughout the remainder of the year, we would approximate by using the following formula: For each 5% change in the U.S. dollar versus all the foreign currencies in which we transact business, the negative or positive impact to fiscal year '12 revenues will be approximately 0.9% and the negative or positive impact to EBITDA will be approximately 1%. 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 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?

Tony Aquila

Thank you, Kamal. Good afternoon, everyone, and thanks for joining us today. Our top line results in the third quarter included claims volume volatility in some of our advanced markets and strong customer adoption in claims volume growth in several of our evolving and emerging markets. Our business was also impacted by macroeconomic and political conditions in many of our markets. Despite these impacts, we achieved solid total revenue growth of 16.2%, which was aided by the diversification of our business and our strategic growth levers.

On a constant currency basis, our adjusted EBITDA margin came in at 44.9%, up 88 basis points year-over-year and within 10 basis points of our highest adjusted EBITDA margin ever. This margin demonstrates our customers continued support for our long-term investments in data and profitable innovations. We strategically increased investments by 20% year-over-year in the third quarter. If we excluded these investments, our adjusted EBITDA margin would have been 100 basis points higher, which translates into a margin approaching 46%. About 2/3 of this investment spending was related to new products and ongoing development of our HEMI platform, which is targeted for the U.S. and Canada and other advanced markets, and 1/3 related to our new country expansion.

To provide you with some context, our markets fell into 3 buckets during the quarter. Decelerating markets, such as the U.K., Spain and France, experienced claim volumes declines due to macroeconomic and political conditions. Our aggregate claims volumes in these 3 markets declined in the high single digits year-over-year. Until we see sustained improvements, we will remain highly cautious in forecasting a rebound in macro conditions and claims volumes for the decelerating markets.

A number of accelerating markets, such as Brazil, Mexico and Russia, have benefited from both increasing customer adoption and growth in the number of claims. Our aggregate claims volumes in these 3 markets increased in the mid-teens year-over-year, creating some shift in our overall mix of claims and associated revenues. A number of our emerging markets, such as China, Turkey and Italy, continue to grow rapidly. Third quarter volumes in the emerging markets are now approaching 100,000 claims per quarter.

Growth in revenue per claim came in at 5.5% overall and 9.6% in the advanced markets in the third quarter. This combined with our traction in new markets points to the underlying strength and resilience of our business and our long-term growth prospects. Furthermore, our operating discipline allowed us to absorb certain amounts of deceleration while delivering strong total growth in excess of our 7% and 9% growth target. Our strong total growth allowed us to selectively forego market share as we have done from time to time when the terms of a customer agreement do not align with our long-term strategy and value proposition, as we saw in the U.S. market 5 months ago. Overtime, our mix of total growth will vary between organic and inorganic. In periods of volume volatility, such as the last quarter, we are likely to be more weighted towards inorganic growth.

While organic growth came in lower than our expectations at 3%, our total growth came in at 16.2% in the third quarter. As you can see, overall, we performed well in this environment, and we will remain very focused on accretive growth opportunities. In addition, we are very focused on positioning ourselves to take advantage of the macro rebound and market evolutions as they occur. We look forward to sharing more about these initiatives in the coming quarters.

Today, we have teams in 63 countries aggressively focused on growing and diversifying our markets, increased investment in data and profitable innovation, total cash of $540 million and a very targeted robust M&A pipeline. We are proud that year-to-date, we have returned almost $100 million to stockholders with $76 million in share repurchases and $21 million in dividends. We will be further reviewing our dividend policy in the coming months as we have done each year.

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

Renato C. Giger

Thank you, Tony. Despite headwinds, our constant currency organic revenue growth was at 3% with total growth of 16.2%. We strive to expand margins while investing in our business and convert a substantial amount of margin to free cash flow. In the third quarter, we expanded our [indiscernible] business margin [indiscernible] 3 basis points and generated more than $66 million of free cash flow for a 75.3% conversion rate, our highest ever.

Our third quarter margin benefited from $1.5 million in rate reduction and we increased our investments in the business by about $2.1 million compared with the prior year third quarter. As Tony mentioned, we are positioning ourselves to take advantage of the macroeconomic growth. Towards this end, in April we took advantage of market conditions and our strong credit portfolio -- profile to refinance our bank debt and raise additional capital at the [indiscernible] conversion. The reason for the bank debt refinancing and the capital rates are: To better support our M&A execution and increase our operating profitability; to extend our bank debt maturity; and our dry powder while maintaining a conservative balance sheet. We were able to favorably adjust our capital structure at the time when some competitors are struggling to sustain their structures.

To summarize, we paid down $247 million on our bank debt and have $295 million in November, [ph] which is due in 2017. Issued $400 million in add-on 1Q in 2018 and have about $1.2 billion in total debt. About $540 million in cash and a net debt adjusted EBITDA ratio of about 2x. So while we enhanced our flexibility and extended our bank debt maturities, our overall blended interest rate increased by only 90 basis points from 2.8% to 5.7%. Going forward, our uses of capital will continue to be: number one, strategic M&A, we believe this provides the high return to our stockholders; number two, returning capital to stockholders through our dividends and stock repurchases; and number three, repayment of debt. We continue to view our stock as an attractive investment. During the first quarter, we purchased about 698,000 shares for about $34.2 million, an average purchase price of $89.01 for the period.

Since our share repurchases were authorized in November 2011, we have purchased a total of 1.6 million shares, about 2.2% of total outstanding, at an average price of $47.56. We have a little over 103 million for authorized share repurchases. Based on our long-term outlook, we intend to continue our repurchase program.

Turning to guidance, despite demand uncertainty, we have tightened the range and slight increased in guidance. Consistent with our approach to foreign currency exchange rate volatility we implemented last quarter, we are assuming a strengthening of our U.S. dollar of up to 5% versus the currently prevailing foreign currency exchange rates rather than using the spot rate as of the day we provide guidance. The figures are a revenue of $784 million to $787 million and adjusted EBITDA of $342 million to $344 million. The midpoint of our guidance assumes an organic growth rate of between 45% for the full year and a 43.7% adjusted EBITDA margin up from 42.1% fiscal year 2011.

On a constant currency basis, this implies over 100 basis points of year-over-year margin expansion. Our guidance assumes continued acceleration of our investment spending to take advantage of our global opportunities and the impact of our last 4 non-material acquisitions, which currently have margins that are lower than our consolidated average margin. Consistent with our MMC, Management-Margin-Core acquisition criteria, we expect the margin of these acquisitions -- acquired businesses to approach our consolidated average margin within 18 to 24 months from the acquisition closing date.

We lowered our guidance for net income attributable to Solera, adjusted net income and adjusted net income per diluted common share as a result of our increased interest expense following the refinancing and capital raise discussed earlier.

Question-and-Answer Session

Operator

[Operator Instructions] And the first question comes from the line of Eric Boyer from Wells Fargo.

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Yes, I didn't catch -- what did you say the organic growth rate implied in your 2012 revenue guidance was?

Renato C. Giger

Between 4% and 5%.

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Okay. And then also the adjusted EBITDA margin?

Renato C. Giger

It's about 100 basis points higher than last year, non-FX basis, or about 43.7% including FX.

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Okay. And then just with the EPS guidance, what would be implied at today's spot rates?

Renato C. Giger

We will not -- the spot rate?

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Right.

Renato C. Giger

We are using up to 5% different to spot rate exchange rates.

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Right. But any sense of the magnitude of what that difference would be at today's rates?

Renato C. Giger

I mean, the EURO...

Tony Aquila

About 5%.

Renato C. Giger

Yes.

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Okay, great. And then could you just talk about the pace of expansion that you're seeing with the global insurers in the developing markets?

Tony Aquila

Yes, this is Tony. With respect to the global insurers' expansion in the developed markets or in the emerging, I'll just answer kind of across the board. In the advanced markets, just to give some context, it's a very much a price-sensitive game and in many cases, claims volumes in the advanced markets have been flat to declining just because of macro conditions primarily weighted in the Western European countries in some spot in the Eastern countries. In the emerging and evolving markets, these are accelerating markets and have showed good growth profile in both adoption, as well as volume trends. And so policies are becoming more enforced as they purchase new cars. Recently, we're just down in Brazil and it was pretty impressive to see what's going on there, for example.

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Okay. Then with the stepped up amount of debt that you have or the dry powder, do you have a longer-term acquisitive growth target out there?

Tony Aquila

We're very focused right now on a $1 billion in revenue and $450 million in EBITDA. That's kind of in the next evolution. We're currently analyzing what that step-up would be after $1 billion and $450 million. We haven't kind of officially announced that yet, but we're getting close to that point. It will be an increase in some of the inorganic activity just by the natural penetration that we're gaining in our advanced markets. Distribution today is shifted where we have about 1/3 of our business coming out of our emerging and evolving markets, which is, if you go back a handful of years ago, it was like 95-5. So we're getting a good distribution there, which will give us some growth there. But it still kind of points to the fact that you're going to have to be broadening your bundle organically and inorganically. And of course, we like the diversification in purchasing assets like Explore and HPI and AUTOonline in the advanced markets where we expand the bundle, and we try to get away from our competitors on a product-to-product basis by having a platform.

Operator

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

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

You've got $1.2 million of debt now, right? As of this bank as the refinancing in the bond offering, right?

Tony Aquila

Correct.

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

What is the average rate on that?

Tony Aquila

It's about 5.7%, roughly.

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

Okay, so 5.7% on $1.2 billion. Okay, and then you mentioned something, Tony, about stepping up investments by 20%, that impacted the adjusted EBITDA margin by 100 basis points. Is that going to continue into Q4?

Tony Aquila

Yes, we are planning to continue that. We have been making very concentrated investments around what we believe next generation mobility applications, as well as data analytics. Something we've been talking about on the data analytics side for a while, we're starting to make some progress there and some productization there into the platform. In addition to that, we're just making sure all our operating platforms are very cloud-sensitive for mobility, so that consumers can actually start to use our application with the insurers. Henceforth, you saw us with the AutoWatch acquisition. That was part of that -- part of the strategy, where we're opening up to bring consumers into the platform. And if you watch TV in the U.K., you'll literally see us advertising our HPI brand and starting to bring the consumers more to our app, which we recently released a consumer-friendly version of that app, which could be used through your cell phone.

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

Okay. And then revenue per claim, you said, was up 5.5% overall. And in emerging and evolving markets it was up about 9.6%. Is that right?

Tony Aquila

Yes, that's right. And part of that is it's just a matter of how much they can digest in these markets. Because you can't rollout too much stuff, otherwise you have various issues that occur with it, which put pressure on us and the insurer. So but yes, I mean, the advanced markets, it came in about 9.5%, 9.6%, which heavily neutralized a lot of -- if we were a company that was just weighted and we haven't over the past few years shifted our profile into the emerging and evolving markets, we'd be looking at a pretty tough quarter right now.

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

Right. And so the -- if I just eyeball it, your revenue per claim, then in your advanced market was probably up about 2%. Is that about right or...

Tony Aquila

It was slightly up from the previous quarter in the advanced market category. And that's just primarily because we continue to accelerate the amount of services and these -- the platform effect that we're putting into the market to help offset some of the volume volatility we were experiencing in these times in those markets.

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

Okay. And then one last question. I couldn't find this anywhere. If you -- obviously, there's concern about this -- your contracts that are coming -- or your contract that's coming up in the U.S.. But if 30% of your U.S. revenue is -- or 30% of your revenue is U.S.-based and about 66% of that is the estimatics or whatever is associated with that, and the other part of it is Explore. But how does that part that goes to the insurance or just --is with the insurance side, how does that break down between shops and insurance companies?

Tony Aquila

It's about 50-50 between the insurance. And although the insurance is picking up more steam because of the growth we're getting out of the Explore business. We've yet to connect and introduce a combined -- we are prototyping right now some combined value propositions associated with that. And look, I mean, we've always been very clear with everyone that we're -- we have no intention of being the cheapest, but we have every intention of being the most robust from a platform perspective. And when we're faced with only a pricing option, our business model has allowed us and our total growth strategy has allowed us to not take just any bit of business. And so we're going to maintain that discipline, and we do not know the outcome of the one contract that you've inquired about in the past. And we believe that, that decision process is some time out, not to mention we're not even sure where they're at in their ability to execute that.

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

No, I understand. I'm just trying to get a breakdown between what's really pure insurance and what goes to the collision repair shops with that product. So...

Tony Aquila

Yes. And on that side, it's about -- I would say it runs between 50-50 and 45-55.

Operator

And your next question comes from the line of Andrew Jeffrey of SunTrust.

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

Tony, by how much do you think macro factors impacted organic revenue growth this quarter? It seems like revenue per claim is growing maybe a little bit slower than what we've seen, but claims volume maybe took a stepdown this last quarter. Is that a pretty good assumption?

Tony Aquila

Yes. Volume, I mean, as you can see, the volume -- we did not think the volume would be off as much as it was in Western Europe this last quarter. But we had planned for it. We were hoping it didn't happen. But with the political things that were going on, we felt things would be volatile. And so it hit us for a couple of percentage points just in -- throughout that area of the world. Now we made that up with introducing some new solutions. We had some containment strategies that worked but did not bring us to the point of organic growth that we had hoped for, which was a couple of points.

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

Okay. Is there -- have trends, as we look at the last sort of 5 or 6 weeks since the quarter ended, have they gotten worse? Some of the headlines around the European economic challenges kind of maybe quieted down a little bit and now obviously, we've seen more market volatility just in the last few days and maybe folks are more concerned now post-elections. I mean, are the trends pretty much intact or stable or are they worsening?

Tony Aquila

I would say that the trends are slightly schizophrenic. If we look at them next week -- a couple of weeks ago we looked at them, they were bouncing. And then we looked at them the other day and they had stalled a little bit. We have learned to be very, very cautious right now because the mark-like currencies, the markets are all bifurcating into their own stuff. There's kind of the regional issues that are going on in the eurozone, for example, but each country is now developing and dealing and digesting with its own recovery efforts; henceforth, impacting us at different various levels. That's why we've heightened the amount of focus around the new solutions, as well as inorganic opportunities to kind of power up the bundle just to build a better shield.

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

Okay. And to the extent that you're seeing this apparent ramp in emerging-market volume, is that diluting revenue per claim at all?

Tony Aquila

It is. It's hitting us, because the price point to those is lower. And as you saw, we're starting to get some traction in there. We had 100,000 claims in the quarter go through that category and, of course, the price point's lower so that takes -- that gives us another hit that we're absorbing right now. But for us, from a long-term perspective, that's a great hit to take.

Operator

And the next question comes from the line of Robert Riggs from William Blair.

Robert Riggs - William Blair & Company L.L.C., Research Division

Just wanted to see if I could get an update on the performance of the Explore acquisition versus your expectations, both from the standpoint of that asset as a standalone, but then also your -- what you thought you'd be able to leverage in terms of their technology platform and to other parts of the business. And then the follow-up would be, in the past, your acquisition strategy had been more of kind of a singles, doubles and then do a little bit of a bigger deal. But given your experience now with the Explore, are you starting to feel a little more comfortable with the ability or the comfort level in terms of doing bigger deals?

Tony Aquila

Let me answer that from the back going forward. So with respect to how we're feeling about deals. Obviously, we've got $540 million in cash and growing at a nice pace on a quarterly basis in cash that we're very focused on deploying. And it -- we're almost eclipsing a year on the Explore acquisition. And I would say that the integration of Explore, which is still in the early phases because our first year, we concentrate on getting into a synchronous mode with the management team of that business and understanding its core focus. We are now starting, and you'll see some more -- there'll be announcements coming about the various things we're doing about bringing 2 of our business units closer together in the new fiscal year. And so I would say that over all, we view this acquisition as a real home run. We really like the management team, we really like the product offering, we like the extensions to the product offering, and the connectivity and data and other things, they're starting to progress very nicely for us. The performance of it, it's been a bit better on the EBITDA side because the management team has really aligned with the Solera Way. And I think that in addition, the operating discipline they've adopted very well, which the way we have -- the way we rate a sales pipeline and the way they used to rate a sales pipeline are different and the intensity being greater on our side. And since they've been executing that, they've been hitting it very well. Today, we've got the thing in like 42 states, and we're very aggressively to expand the Explore business, as well as we'd like to take it to a multinational level over the coming couple of years. We have a few target countries for that. So that kind of gives you kind of a spectrum of the thing. And again, that acquisition as we announced it, is in part, part of our long-term diversification strategy to not let things get too concentrated, as henceforth, you saw 5 months ago when we elected for various reasons not to go forward with the contract. Overall, our mission objectives on an overall basis continue to move at/or above our plan.

Operator

[Operator Instructions] And the next question in line comes from Peter Appert of Piper Jaffray.

Peter P. Appert - Piper Jaffray Companies, Research Division

So Tony, just following up on your comments for the prior question. So should the assumption be that given that you're sitting on a pretty good amount of cash at this point, that we should be looking for a larger transaction here on a, I won't say a near-term basis, but over the course of the next year?

Tony Aquila

Yes, we've been looking at them. We've been very price sensitive. We remain price-sensitive. We feel like we're ready for another big one. If you kind of look at our track record, Peter, and you've been around, you'll see that -- not do a big one for a year approximately. And we'll hit -- we'll stay in the singles and doubles zone. And as our bench gets stronger, we've been investing in people and stuff. Yes, obviously, with our cash position that we've put ourselves in, we're looking at larger than medium-sized deals right now.

Peter P. Appert - Piper Jaffray Companies, Research Division

Okay. And Tony, on the competitive dynamic, anything interesting or different in Europe that might explain some of the relative revenue weakness?

Tony Aquila

Sorry, could you repeat that, Peter? Because it...

Peter P. Appert - Piper Jaffray Companies, Research Division

Yes, I'm wondering if anything has changed competitively in Europe that might be a factor in terms of some of the slower revenue growth?

Tony Aquila

Yes. We're not losing business, anything abnormally, but we do think that competition just in light of the difficulty, and as you know, a couple of the competitors in Europe are in default on their credit agreements without getting into any particulars. So obviously, we believe that competition will be more aggressive and we're preparing for that. And you can see us, kind of some of the moves we made in the quarter were driving to protect ourselves from those aspects. Although, we're investing where others aren't, and we believe that's the greatest immunity to get -- to stay out of the price war. At this point, we've been selective and we've maintained a strong arsenal from various activities organically and inorganically that compete. So we're trying to stay in that zone.

Peter P. Appert - Piper Jaffray Companies, Research Division

Got it. And do you think those financial difficulties create opportunity for you from an M&A perspective potentially?

Tony Aquila

They do. We're very selective about consolidation. It's not -- we have been a big consolidator, just because we think it brings a lot of dis-synergies. We do like competition in the market. The better the competition, the better we perform actually. So -- but look, man, these are very interesting times and we're trying to be prepared to be unprepared because we don't know exactly what's around the corner these days.

Peter P. Appert - Piper Jaffray Companies, Research Division

Got it, understand. And then, Renato, can I ask you 2 financial questions? One is can you just tell us what the interest expense run rate would look like over the next quarter? And then secondly, the restructuring charge in the quarter, the $5.8 million roughly, was relatively large. What's behind that?

Renato C. Giger

So let me start with the latest one. So we are constantly doing -- looking into improve our operational discipline. So this $5 million plus is for Germany, probably have to prepare ourselves better for the future.

Tony Aquila

Yes, let me expand on that. So it is a big restructuring, but we develop a lot of things in Germany. And our business has grown considerably. It is one of the growing markets for us right now. And we're doing a work for a shift, moving a bit more towards mobility, capabilities and things of that nature for our next-generation technologies that we're preparing to deploy in the future in that area.

Peter P. Appert - Piper Jaffray Companies, Research Division

So you're -- I'm sorry. And I guess, I didn't follow you. You're moving people out of Germany? Is that the...

Tony Aquila

No, we're not. We're moving them in different locations in Germany, and the cost of making changes with the workers' unions and others are costly but we're investing and getting the work flows -- force more centrally-located and diversified around more modern technologies.

Peter P. Appert - Piper Jaffray Companies, Research Division

Okay, got it. And then Renato, the run rate interest expense?

Renato C. Giger

Yes. So from -- we say at around $1.2 billion on a 5.7% blended rate, so that would probably be in the neighborhood of $17 million per quarter, if I'm not mistaken, and make the calculation correctly.

Peter P. Appert - Piper Jaffray Companies, Research Division

Okay, okay. So there's no capitalized interest or other tricks that would change that from the equation?

Tony Aquila

No tricks, Peter.

Operator

And your next question is a follow-up question from the line of Eric Boyer of Wells Fargo.

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Sorry, just housecleaning here. What was the overall year-over-year claim growth? I missed that, sorry.

Renato C. Giger

It is for Q3, quarter-over-quarter, is 0.4%. And it was 0.7% in Q2 and 0.1% in Q1.

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

So 0.4% this quarter over last year's quarter?

Renato C. Giger

Yes.

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Okay. And then the trailing-12-month revenue per claim?

Renato C. Giger

So that we only have that per quarter, so the quarter revenue per claim is 5.5% for that quarter, which belongs to the 0.4% claims over -- claims gross quarter-over-quarter.

Tony Aquila

I didn't say for the -- you want to know what the average is for the last 4 quarters?

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

I think you gave an 8.1% last quarter and said that's how we should look at it. Or maybe I'm mixing up metrics there or...

Tony Aquila

Yes, it was 8.6% last quarter. For the whole -- for the 12 months, if you take kind of where we're at right now, it's going to come down a little bit. It will still be above our 4% to 6% range. So it's in the 7% handle zone.

Operator

Ladies and gentlemen, a replay will be available until 11:59 p.m. Eastern standard time on May 22, 2012. To access the replay, dial (888) 286 8010 or from outside the U.S. (617) 801 6888 and enter the following access code when prompted, 75765811. Thank you very much, and that would conclude today's conference call.

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