Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Kamal Hamid – SVP, IR

Tony Aquila – Founder, Chairman and CEO

Renato Giger – CFO

Analysts

Tim McHugh – William Blair & Co.

Andrew Jeffrey – SunTrust Robinson Humphrey

Manav Patnaik – Barclays Capital

Peter Appert – Piper Jaffray

Gary Prestopino – Barrington Research

Brian Karimzad – Goldman Sachs

Andrew Steinerman – JPMorgan

Solera Holdings, Inc. (SLH) F4Q12 Earnings Call August 23, 2012 5:00 PM ET

Operator

Good afternoon, everyone, and welcome to Solera's fourth quarter and fiscal year 2012 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 like to turn the call over to Kamal Hamid, Solera's Vice President of Investor Relations. Kamal?

Kamal Hamid

Thank you. Good afternoon, everyone. Thank you all for joining us and welcome to Solera's fourth quarter and 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 and fiscal year ended June 30, 2012, followed by comments on the factors driving those results. Following Renato's remarks, he will then provide you with an update about the company's long-term mission. Renato will provide you with information about our financial results that is not described in today's press release, and finish by providing the company's initial fiscal year '13 guidance. We'll then open 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 limitation, those risks detailed on Solera's filings with the SEC, including our most recent quarterly filing on Form 10-Q for the quarter ended March 31, 2012.

We disclaim any obligation to publicly update or revise any such statements to reflect any change in our expectations following 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 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 by 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 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.

Our fiscal year 2013 outlook assumes constant currency exchange rates from those currently prevailing with no assumed strengthening of the US dollar, no acquisitions of businesses, no stock repurchases, and an assumed 28% 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 US dollar versus all of the foreign currencies in which we transact business, the negative or positive impact to fiscal year '13 revenues will be approximately 0.6% and the negative or positive impact to adjusted EBITDA will be approximately 0.7%.

Amounts in 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. For today's call I'll start by providing you some context for our fiscal 2012 performance and then give you our full year and fourth quarter results. After Renato's comments, and as we promised, I'll come back and introduce Solera's next mission which will converge with our road to $1 billion in revenue and $450 million in adjusted EBITDA.

One year ago we issued guidance for fiscal 2012 which targeted organic top line growth excluding Explore of 6% to 7% and 70 to 80 basis points of margin expansion, which included 110 basis points of projected headwind from the Swiss franc. Shortly after that, European crisis accelerated, persisted through fiscal 2012, and continues to be a headwind. European GDP estimates have been steadily ratcheted down throughout the fiscal year and macro uncertainty had a ripple effect on the economy, resulting in lower car sales. The impact to us was increased in claims volatility that in certain countries rose to levels we have not seen before. To mitigate the impact of this macro uncertainty, we rapidly deployed countermeasures which included a workforce realignment, assistant programs for certain heavily impacted customers, and accelerated investments in rapid profitable innovation, geographic expansion, and disciplined M&A.

Despite the rapidly changing operating environment in fiscal 2012, we achieved solid results. Here is how we performed.

Although nearly 60% of our revenue comes from the Eurozone, our organic revenue growth came in at 4.9% for the full year and 6.3% for the fourth quarter, demonstrating increased customer demand. Fourth quarter revenue growth was up sequentially from 3% growth in the third quarter and was the highest quarterly growth for the year. Total revenue growth, our most relevant revenue metric, came in at 17.4% for the full year and 17.3% for the fourth quarter, well in excess of our 7% to 9% total growth target.

By bringing on important strategic assets, we have diversified our revenue and growth opportunities in advanced markets and lowered our exposure to foreign currency volatility. For example, in the fourth quarter our fiscal 2011 non-US dollar revenues represented about 78% of total revenues. This figure dropped to about 69% in the fourth quarter of fiscal 2012. On a full-year basis, our adjusted EBITDA margin was 44.4%, up 127 basis points year over year, but lower than our initial fiscal 2012 guidance of around 180 basis points.

Turning to our fourth quarter results, our adjusted EBITDA margin was 43.5%, up 167 basis points year over year. The margin was down 133 basis points from the third quarter due to seasonality, which is consistent with sequential fourth quarter results from prior years.

Our solid fourth quarter performance was driven by continued acceleration of growth in revenue per claim in our advanced markets. Revenue per claim increased by 10.9% while claims were down by 5.6% in our advanced markets. We believe this growth underscores our customers' demand for additional services.

Continued execution in our evolving markets driven by penetration, our claims growth rate was a robust 16% year-over-year in the fourth quarter. On a constant currency basis these markets generated approximately $119 million in revenue in fiscal 2012 compared to $51 million in fiscal 2008 before the macro downturn; accelerated focus in developing a number of our emerging markets such as China, UAE and Turkey.

I will now hand the call over to Renato. After his remarks, I will return to present double down double up, our Mission 2020. Renato?

Renato Giger

Thanks Tony. Our yearend cash balance of about $508 million reflects $27.1 million in stock repurchases and $7 million in dividends in the fourth quarter. Since our Board of Directors authorized our stock repurchase program last November, we have purchased 2.2 million shares or about 3% of the total outstanding at an average price of approximately $0.47 per share. We have 76.5 million remaining in our 180 million repurchase program, and based on our long-term outlook, we intend to continue our repurchase program. For all of fiscal 2012, we returned a total of $131.8 million to our stockholders through stock repurchases and regular quarterly dividends.

Fourth quarter cash flow from operations was $42.8 million, down from third quarter due to the semi-annual interest payments associated with the senior notes issued in June 2011 and April 2012. Free cash flow came in at $32.9 million. Our incremental margin in the fourth quarter came in at 53%, lower than our trailing eight quarter average of 60% primarily due to changing business mix and claims volatility in Europe.

Our net debt to EBITDA ratio was at 1.9 times. During fiscal year 2012, we achieved $11 million in run rate waste reduction. For fiscal 2013, we are initially targeting about $8 million in waste reduction including synergies from completed acquisitions.

Turning to our initial full fiscal year 2013 guidance, we estimate revenues of $780 million to $788 million, adjusted EBITDA of $337 million to $344 million, GAAP net income of $83 million to $89 million, adjusted net income of $170 million to $177 million, and adjusted net income per diluted share of $2.45 to $2.55.

This guidance reflects our cautiously conservative stance and then place an organic growth rate of between 4% and 5% for fiscal year 2013 and the foreign currency headwind of about the same amount based on today's rate versus our average rate during fiscal years 2012. The midpoint of our guidance includes a negative impact of approximately 140 basis points to our adjusted EBITDA guidance due to increased investments in rapid profitable innovations to take advantage of our global opportunities, as Tony described, the impact of the lost North American customer and the impact of our last five acquisitions as those businesses currently have lower margins than our consolidated margin.

We expect interest expense of about $70 million, depreciation and amortization to be approximately $96 million, of which about $64 million is amortization of intangibles related to completed acquisitions, capital expenditures of about $30 million, stock-based compensation of approximately $22 million, and fully diluted shares outstanding for the year to be 69.3 million.

Uses of free cash flow will continue to be, one, disciplined M&A; two, maintaining our dividend policy; and three, disciplined stock repurchases to offset equity dilution. We are proud of the strong balance sheet we have built. With $508 million in cash, conservative leverage 1.9 times net debt to EBITDA and a track record of growing profitability and cash flow conversion, which has allowed us to successfully access the debt market, we have built a strong foundation for the next evolution of our mission, which Tony will talk about.

With that I'll turn the call back over to Tony.

Tony Aquila

Thank you, Renato. With the financial and operational foundation in place, and as we promised, we would do when we approached achievement of the current Solera mission, we are now introducing our next mission double down double up Mission 2020. The mission is $2 billion in revenue and $800 million in adjusted EBITDA by fiscal 2020.

As many of you will recall, we have continuously raised the bar as our business has grown. If you remember, Drive for 35 after our IPO with respect to our adjusted EBITDA, Strive for 37.5 in fiscal 2009 and Pursue 42 in fiscal 2011. All milestones we achieved towards our five-year mission of $1 billion in revenue and $450 million in adjusted EBITDA by fiscal 2014, a mission we introduced in fiscal 2009.

Since 2006, we have grown revenue at a 10.7% compound annual growth rate. Our Mission 2020 will require us to grow revenue at about 12% compound annual growth rate through fiscal 2020, consistent with the revenue growth rate needed to achieve our road to $1 billion in revenue, $450 million in adjusted EBITDA.

Since 2006, we have grown our adjusted EBITDA margin from the high 20s in declining to the mid 40s. Our Mission 2020 accounts for M&A opportunities that may have a lower margin than our consolidated margin and gives us the flexibility to double down our investment in rapid profitable innovation and geographic expansion. We will strive to improve margins as we have done in our previous 17 M&A deals and exceed the Mission 2020 margin target.

In 2006, more than 80% of our revenue came from core estimatics. Today estimatics represents only about 60% of our revenue. About 20% comes from the introduction of our platform, including workflow extensions such as total loss salvage solution and parts and the remaining 20% comes from diversified leverageable extensions to the platforms such as HPI and Explore.

By fiscal 2020, while remaining focused on the property and casualty space, we are targeting the mix to be about half in estimatics and the other half in workflow extensions and diversification areas such as parts, analytics and underwriting. We will remain disciplined in the management of our balance sheet while recognizing that our strong cash flows provide us with a platform to execute Mission 2020, which we have been preparing for some time.

We are investing in our people, Solera Institute, for example, and three points of innovation around customers, services and technologies. With our strong foundation in the Solera principles, multiple growth levers and a solid global market, we believe that we are well-positioned to execute on and achieve Mission 2020. We will be updating you in the coming quarters with our progress.

With that, I'll turn it over to Kamal.

Kamal Hamid

Thank you Tony. That concludes our prepared remarks and we'll now take your questions. Operator, please open the call for questions.

Question-and-Answer Session

Operator

Yes, sir. [Operator Instructions].

And our first question comes from the line of Tim McHugh with William Blair. Go ahead.

Tim McHugh – William Blair & Co.

Yes, thank you. First, I just want to ask on the fourth quarter, it seemed like your organic growth rate in Europe and the revenue per claim, as you noted, picked back up relative to what you saw earlier this year. Can you just contrast that with kind of the broad comments you made about the macro environment getting worse? Did you see it get better or was it just better execution in some of the new products taking hold? Just talking about that trade-off.

Tony Aquila

Yeah, sure. This is Tony. What we saw was a lot of the insurance carriers had, particularly in certain parts of Western Europe, had reduced staff, and that coupled with them executing that, they picked up more technologies from us, which helped them manage a smaller number of claims, but they needed to do that in a more automated fashion. So it was primarily in the advanced markets.

In addition to that, we just had great penetration lift in the evolving markets with existing customers. Plus, we picked up, in addition to that, some new customers in the evolving market, which we're in the early phases of rolling them out. So it was a good quarter aided by those two primary areas.

Tim McHugh – William Blair & Co.

Okay. And I mean it sounds like those are factors that should continue to positively impact, I mean, there wasn’t anything that was unusual about the quarter I guess?

Tony Aquila

We live in a little bit unusual times, but what I would say is with a quarter like that, it sets you up pretty good, because in your evolving markets you pick up some new customers, so you're in the early phase of the rollout, it takes quite a bit of time. In addition to that, there's still quite a bit of penetration of those additional services that we launched in the advanced markets. It's a little bit offset by some of the roll-off of one customer from the North American market, but net we added quite a few more customers than the one that we lost.

Tim McHugh – William Blair & Co.

Okay. And then just the organic growth or the constant currency growth you set for fiscal '13 of kind of 4% to 5%, did that -- is that net of the loss from that large customer? And does that include the small acquisitions? I'm just kind of trying to get a baseline excluding those two items.

Tony Aquila

Yes, we haven’t rolled in that new acquisition obviously. But yes, so it's net of our view on the customers roll-off. We're probably in a very conservative position. If you study us from prior announcements, we always start out the year very cautiously conservative, just like we do when we roll out a new mission. We're particularly conservative on the margin side.

Tim McHugh – William Blair & Co.

Okay. Thank you.

Operator

Our next question comes from the line of Andrew Jeffrey with SunTrust. Go ahead.

Andrew Jeffrey – SunTrust Robinson Humphrey

Hey, guys. Thanks for taking the question. Tony, appreciate the long-term view of the business and the 2020 outlook. Can you talk a little bit about what you think Solera's standalone profitability is? It seems like if you're looking for a 40% EBITDA margin eight years from now, you're building in, or seven, building in quite a bit of potential wiggle room around acquisitions. But what's the core profitability of the business in your mind? Is it going up from here or are we kind of peaked out at 45% EBITDA?

Tony Aquila

Look, it's hard to look that far down the crystal ball, but I would say that if you think about how when we introduced the first time the road to $1 billion, and we started out with margin steps and we came in with 35 and then 37.5 and then 42, and then to 45. We're taking the same exact stance. We're taking the same approach to the way we do things. Now, for sure, you have to realize that this is like us buying ADP. Along this road to $2 billion, we're going to pick up one or two medium-sized to potentially almost large acquisition plus a handful of acquisition, and it generally takes us a couple years to get those acquisitions into the margin realm of where we want it to be. Look, we're not -- we would not be satisfied with the 2020 Mission if we got to the end of it and we hadn't moved particularly the EBITDA number up.

Andrew Jeffrey – SunTrust Robinson Humphrey

Okay. All right. So I guess more news to come there. And then I think, Renato, you said 4% to 5% organic revenue growth in '13 constant currency is the target? Does that contemplate the loss of another domestic contract? Or how do you frame up, there's some uncertainty there, how do you frame up the growth in the US versus the rest of the world given some of the moving parts here versus the rest of your business?

Renato Giger

So that 4% to 5% as you said, that’s organic growth, that includes, as Tony mentioned, the roll-off of this customer. And that includes no other acquisition changes in the business environment that we see right now. So it is the situation as it is of now, and of course, as you can see, there is headwind coming from currency. Just to give you an example, if we would use the currency as we had a year ago, our growth rate would look like 7% to 8% to 9% instead of flat as it is right now.

Andrew Jeffrey – SunTrust Robinson Humphrey

So, to be clear, Renato the 4% to 5% doesn’t include any additional potential customer attrition in the US?

Tony Aquila

Yeah. Look, this is Tony again, so there is some contingency, I mean, you just -- you know us well enough to know we have, you know, we take a conservative stance in the beginning. So without getting into too much of what our dry powder is, we're definitely not at a zero reserve.

Andrew Jeffrey – SunTrust Robinson Humphrey

Okay, that's helpful. Thanks. And then one last one if I might. The revenue per claim growth in your advanced markets continues to be really impressive, and I know generally in the past when you've talked about selling the bundle and the potential revenue per claim that you can generate versus where you are today, it seems like there's a lot of runway ahead of you. Is there anything cyclically, you know, if the European situation continues to be very challenging, that might diminish the double-digit gains you've had here over the last couple of quarters?

Tony Aquila

Actually I think the bigger issue for us that we're concerned with is volume, because we can't control that. But what we can control is as the insurance, see, there's a positive that happens in this mix, which is the insurer has less claims. So he then goes to profitability. But then he needs less staff. However, that creates a problem for him and therefore he needs more technology in order to execute those claims.

And so that’s where we saw some good traction, because as they had reduced forces in the operations, as the year went on, they realized that they couldn’t properly handle and so they get very concerned about the severity and so they pick up additional technologies to help them fill in the gap. In addition to that, we really started to cross the pond and cross-pollinate from Central and Latin America acquisitions and new services we built. Some of those services are now being launched in Western Europe, as well as some technology being ported over from Europe into the Americas. So there are some good technology swaps going on, and in addition to that, that’s all being fueled by our own innovation as well as the acquisitions we're buying.

Andrew Jeffrey – SunTrust Robinson Humphrey

Okay. Thank you.

Operator

Our next question comes from the line of Manav Patnaik with Barclays. Go ahead.

Manav Patnaik – Barclays Capital

Hey, good evening, gentlemen. So the last clarification on the 4% to 5% organic growth, that does include the small I guess immaterial acquisitions as you guys put it, that you've made about five or six of them now. And I guess consistent with what you said before, would you say that’s about a 1% contribution to that 4% to 5%?

Tony Aquila

Yeah. It does not include the acquisitions. So again we start out the year conservative, right? I mean, we're coming off of a very good quarter compared to the environment that we operate in based on the mix that we have. We had great penetration into the Asian theater and the Middle Eastern markets, good lift in the Latin American and Brazilian markets, and Russia performed extremely well.

So, the answer is, it's our conservative stance at this point. We've got some good things there. There are some headwind out there, we don't know what it is entirely yet. And we're just taking this position at this time. But it does not include the acquisitions.

Manav Patnaik – Barclays Capital

So I guess, could you help us frame maybe, you know, I guess, you know, a lot of these is your build versus buy strategy type acquisitions, but how should we think about, at least as it stands today, what sort of contribution on top of the 4% to 5% it should add for the full year?

Tony Aquila

Well, you know, it's all, you know, we're very disciplined buyers, but looking at our pipeline which is one of the strongest acquisition pipelines we've had but multiples are trading a little bit higher than what we'd like to see them at, but for sure there's going to be some lift that's going to occur throughout the year. And I don't really want to put a percentage point on it because it would be against my principles this early in the year. I'll probably do that as the year winds out and as we're in more of a closing position with some of that stuff.

In addition to that, you asked about the innovation that we have in the pipeline. Again, our profitable innovation of products and cross-pollinating them from our innovation centers is very positive. So we think we'll exceed our revenue growth per claim of the, you know, we target the 4% to 6% range, we're obviously running hotter than that on a multiple quarter basis, and I think if we look forward, we're likely to do the same and it might be closer to the higher end of that, maybe a little bit over it.

Manav Patnaik – Barclays Capital

Got it. And then I guess in the context of your Mission 2020, I guess what's the update on 2014, right? I mean I guess assuming the top end of your 2013 guidance to get to your 2014 targets, I mean you got to grow revenue I guess 27% plus. So I just want to get a sense of, do you still stand by the 2014 targets and if there's any change in the margin front for 2014 if, looking to 2020, you are showing a decline?

Tony Aquila

Yeah, I think this is going to be the biggest thing for people to kind of struggle with understanding that’s not inside the company. But the reality of it is nothing changes in the road to $1 billion and $450 million in EBITDA. The only factor, the reason why we're introducing a convergence, because we may actually get ahead of that mission and some acquisitions will be inbound that will -- that could take us over the $1 billion before we hit the $1 billion and bring the margin down because the target entities will have lower margin than the consolidated margin.

So if you think about it from an execution perspective and you want to be transparent about it, you have to introduce it like this, because the issue isn't whether you'll execute this $1 billion and $450 million, that’s not what this is saying. This is saying is, is that there will be a transition point. It may come slightly before and throttle us over the $1 billion in one move or two succession moves and/or it may run through, and then the next acquisition comes for it.

We can't really figure that out right now based on the targets that we're running after. We're hoping that the transition will occur a little bit earlier and get us a real good grip into our Mission 2020. Does that makes sense?

Manav Patnaik – Barclays Capital

Yeah, I guess I get that. So I guess in other words -- I get it, all right. And the last thing I guess, just a quick housekeeping, is, what -- I know you gave us the interest expense number, but what's the average interest rate on your net debt that we should sort of consider?

Renato Giger

It's around 6%.

Manav Patnaik – Barclays Capital

Six? Okay. All right. Thanks, guys.

Operator

Our next question comes from the line of Peter Appert with Piper Jaffray. Go ahead.

Peter Appert – Piper Jaffray

Thanks. So, Tony, I think one of the challenges for investors is a lot of moving parts at Solera from an M&A standpoint, the various geographies, public lines, et cetera. So, is it possible for you to highlight sort of the puts and takes of what changed from third quarter to fourth quarter that drove the sequential improvement? Because I know you've said some of it, but sort of a lot of it I think has just gone past me.

Tony Aquila

Okay. Yeah, no problem, Peter. So what we had was, I think we had some European customers finally get through their workforce reductions and the decisions they needed to make in order to adopt some new services in which to support their reduction in forces. In addition to that, we had just general good overall penetration of new services in the quarter. But the quarter was down on claims volumes. So that we just grew right past that in the advanced markets. So the countermeasures we had put into place really was a good quarter. In addition to that, the third quarter was impacted by some poor weather as well. So we took a double hit in the third quarter, which kind of exacerbated it.

However, nonetheless the fourth quarter was good. In addition to that, in the evolving markets we won some new customers, if you will, more than a handful, and that really started to take up some penetration. In addition to that, we saw these markets get really good penetration with the existing customers, so we're on a good movement. Asia is starting to really show some potential for us. And so those kind of things created a pretty good quarter in a pretty difficult backdrop.

Peter Appert – Piper Jaffray

Got it. The new customers in the evolving markets, these are new people just adopting technology for the first time or are they take-ups from other players?

Tony Aquila

We took market share in the fourth quarter. We took some share. But the majority of it was customers adopting for the first time.

Peter Appert – Piper Jaffray

And it looked like the, if I got these numbers right, it looked like the underlying growth rate in the Americas improved pretty dramatically sequentially. Any color on that?

Tony Aquila

So we had good movement in the US and Brazil. Brazil was doing very well and we just -- we got some diversification that's really starting to fire.

Peter Appert – Piper Jaffray

So the US growth is, I would assume, a good chunk of that is related to the cumulative impact of these various acquisitions you've been making?

Tony Aquila

A small amount of it is that. That's the 20 I would say, today.

Peter Appert – Piper Jaffray

I got it. Okay. And then as I think about fiscal '13, this might be for Renato, could you give us any color in terms of how the impact from the roll-off of that one contract is going to impact you?

Renato Giger

As I told you, the three factors increased investments over the last year, that customer and the impacts of the acquisition altogether is about 140 basis points. So the roll-off is a minor part of that improvement.

Peter Appert – Piper Jaffray

Okay. But I was -- specifically, sorry, I meant in terms of from a quarterly perspective, is there any particular flow that we should be aware of?

Renato Giger

For the first two quarters there should be no big change, it's coming off the deck.

Tony Aquila

We took, you know, the reality of it is I think the customer will roll off later than we have projected in the numbers we put forth.

Peter Appert – Piper Jaffray

Okay. Second half of year is where we see it. And any, on that other contract that’s up for renewal, do you have any timeframe in terms of when you think you might hear something on that?

Tony Aquila

We don’t have anything on our side. We continue to present to them. At the same time, we are taking a conservative stance in the way we're kind of starting out this fiscal year.

Peter Appert – Piper Jaffray

Okay. And then last thing, Tony, I know you've addressed this already five times, but in terms of from the 45% margin to the 40%, should we assume basically that’s just to give you more flexibility in terms of being able to do from an M&A standpoint, not be constrained by the need to only buy stuff with margins at or above your level, is that the main thing?

Tony Aquila

That’s very hard for us to buy. If you push aside our emerging market expansion, which we expense everything, if you kind of bring those things to bear and you normalize stuff and properly look at the evolving, I mean we operate a very good business. And so you have to think about it in the context of everything we've done in the past, will be a very similar operating model we'll do in the future, and that’s why double down double up is the phrase, because we're going to do what we’ve done in the past, what we know how to do.

And so the reality of it is, depending on the timing of those, we're not -- the likelihood of us buying businesses above that margin are going to be low, and so you have to account for this couple-of-year period as improvement over the 17 acquisitions that it takes us to get the mindset, the operating discipline and the distribution in those businesses like we've done with the others. Does that makes sense, Peter?

Peter Appert – Piper Jaffray

Yup, yup, got it. Thank you.

Operator

Our next question comes from the line of Gary Prestopino with Barrington Research. Go ahead.

Gary Prestopino – Barrington Research

Hi, good afternoon. Hey, Renato, you gave a number for D&A for this year, I couldn’t quite write that down. What was it?

Renato Giger

So the depreciation and amortization is approximately $96 million, of which R64 million is amortization of intangibles, related to acquisitions we saw in the past.

Gary Prestopino – Barrington Research

All right. And then, Tony, in planning for what your planned fiscal '13, claims volumes were down about 5.6% in the quarter in Europe, right? Are you looking at that from a situation that it could get worse from here, or are you kind of planning on that it's going to stay steady from here where it was in the fourth quarter?

Tony Aquila

We are -- Mission 2020 has a view in it that with the emergence of crash avoidance in advanced markets, we're taking into effect every scenario that could put weight on the model. And so we believe that the decline in advanced markets will be a bit more aggressive than they have been in the tail.

Now we're probably a little too aggressive if you just look at the implementation of technologies and how the quarters have jumped every three quarters. They can only go down for so long and then you start to see some lift that occurs, and weather has been unseasonably warm. So I think we're on the conservative side. But everything we're modeling is an aggressive stance on that.

Gary Prestopino – Barrington Research

Okay. And then the spending that you're going to have for this year that's going to impact your EBITDA margin, some of which is for new products which we're aware of, but in terms of going into newer market, is this a function of disagreement with Allianz or is this just newer markets that you have such as Italy, Greece, Turkey, has anything changed there?

Tony Aquila

No, some of it is to accommodate our strategic view with Allianz. We obviously are expanding in some things that give us -- that relationship gives us good visibility into some upside. But they're operating in some very difficult markets, and consistent with our commitment to our long-term customers that are committed to us, we've allowed in this plan to help them in the difficult markets. It's a global relationship. So, yeah, there is some expense in there. There's even some aid in there.

Gary Prestopino – Barrington Research

Okay. All right. Thanks. That's all I have.

Operator

Our next question comes from the line of Brian Karimzad with Goldman Sachs. Go ahead.

Brian Karimzad – Goldman Sachs

Gentlemen, first one, let's say the acquisitions that you're baking in for the 2020 plan happened sooner and maybe in quick succession than you're initially planning, could we be in a situation where we actually see some margin dilution that's greater than 500 bps from those? And then I have a follow-up.

Tony Aquila

I highly doubt it.

Brian Karimzad – Goldman Sachs

Okay.

Tony Aquila

We're just -- you got to think of us based on our -- I know you're a little bit new to us, but if you go look at our track record, you're not going to see much of a departure. There is a philosophy we have called MMC, Management Margin Core, we never do an acquisition that we can't digest, and we tend to cool off after we do run and they are all based regionally or linguistically.

Brian Karimzad – Goldman Sachs

Okay. And then on the regional profile, so as you look at the 2020 setup, can you give us a sense of where you see the North America mix and the Western Europe mix?

Tony Aquila

I think that we reserve the right to throttle. If you look, we took 10 points shift in the fiscal year which we go ahead of a year earlier, because we were worried about the Eurozone. So we shifted the mix by 10 points. We operate Solera a bit like an industrialized private equity firm in many ways and we take a very deep view on the currencies. And so, depending on how things shake out, the shift could be according to the environment we're operating in with our view of kind of two to two-and-a-half year window. And we have contingency plans where, as you saw, based on the size of our business, we were able to shift 10 points in one fiscal year.

Brian Karimzad – Goldman Sachs

Okay. And then housekeeping on that large customer that gets out of your hands, will it be completely rolled off by the end of this fiscal or is there more to roll off next year?

Tony Aquila

We're planning for that, but we don’t know. These things kind of take some strange turns along the way usually.

Brian Karimzad – Goldman Sachs

All right. Thanks.

Operator

Our next question comes from the line of Andrew Steinerman with JPMorgan. Go ahead.

Andrew Steinerman – JPMorgan

Hi, gentlemen. Tony, I wasn’t sure what you were saying about claims volume in Europe. Do you feel like it has bottomed already or might it get worse before it gets better? What's baked in to get to the 4% to 5% organic for the year?

Tony Aquila

Yeah. So what's baked in is a continued decrease in claims volume, not at the pace it did this year. We think things have been pretty dramatically beaten up over there. We put our boots on the ground all the time, you know the Olympics kind of shutdown the UK, we started to see here in the recent weeks an uptick, as you know, some of the pressure released, you couldn’t drive in downtown London. So our view is that will continue, but we don't see it at the severity level or the extreme nature that it was last year.

Andrew Steinerman – JPMorgan

Right. So you're saying the worst is behind us even though it will continue to be negative, right?

Tony Aquila

Yeah, we -- I don’t know that we're quite there yet on that statement, but we're conservative based on the coming off of a good quarter. Right?

Andrew Steinerman – JPMorgan

Right. And how did your European claims experience recently compared to like 2008 to 2009? Is there any analogies to draw there?

Tony Aquila

So, similar, and in a few spots it's worse. Like Spain in 2008 there was still quite a robust real estate market in Spain, it was still kind of, you know, the way it hadn’t hit it. So there were still quite a few people visiting their second and third homes there. That's severely shut down. So it's worse there. France is a little bit, you know, some of our clients have felt a little more pain than in 2008. And I would say the UK is the worst-hit of all of them by many factors, some are environmental because of the changing laws about drinking and driving and the closure of pubs. I mean we have many factors hitting us in that environment.

Andrew Steinerman – JPMorgan

Okay, perfect. Thanks for taking the time.

Operator

Our next question comes from the line of Gary Prestopino with Barrington Research. Go ahead.

Gary Prestopino – Barrington Research

Yeah. Renato, did you give a CapEx number for fiscal '12, what you spent in CapEx?

Renato Giger

Yeah. It will be $30 million.

Gary Prestopino – Barrington Research

For fiscal '12 it was $30 million and this year it's going to be $30 million again?

Renato Giger

Yeah. Both figures are the same.

Gary Prestopino – Barrington Research

Okay. Okay. And then Tony, just intuitively, you're saying that multiples are still high for acquisitions, and Europe's kind of in a mess in a recession and problematic. Does that lead us to think that the majority of your pipeline is more US-based, because those multiples still remain so high or is it just stubborn sellers?

Tony Aquila

We generally, and you know this about us because you've covered us so long, if you look at our acquisitions that we've done, we've ported those or had some kind of soft partnership with most of the targets for quite some time. I would tell you that there is some continuing mix distribution going on from our view for the next couple of years on currency.

In addition to that, multiples still are elevated in Europe. Recently, there was an asset we wanted, but it traded for a couple of times higher than we were willing to pay. So, currency is -- the mix is sensitive for us for the next couple of years, but in addition to that, it's very much about our long-term view of the bundle in those markets.

Gary Prestopino – Barrington Research

Okay. Thanks.

Tony Aquila

You bet.

Operator

Ladies and gentlemen, that does conclude today's Q&A session and the conference. Thank you for your participation.

A webcast replay will be available until 11:59 p.m. Eastern Daylight Time on September 5, 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 22017407.

Again, thank you for your participation. You may now disconnect, and 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!

Source: Solera Holdings CEO Discusses F4Q12 Results - Earnings Call Transcript
This Transcript
All Transcripts