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Solera Holdings, Inc. (NYSE:SLH)

F1Q13 Earnings Call

November 5, 2012 5:00 PM ET

Executives

Kamal Hamid - VP, IR

Tony Aquila - President and CEO

Renato Giger - CFO

Analysts

Andrew Jeffrey - SunTrust

Gary Prestopino - Barrington Research

Andrew Steinerman - JPMorgan

Manav Patnaik - Barclays

Peter Appert - Piper Jaffray

Tim McHugh - William Blair

Brian Karimzad - Goldman Sachs

Operator

Good afternoon everyone, and welcome to Solera's First Quarter Fiscal Year 2013 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’d like to turn the call over to Kamal Hamid, Solera's Vice President and Investor Relations. Kamal?

Kamal Hamid

Good afternoon, everyone. Thank you all for joining us and welcome to Solera's first quarter, fiscal year 2013 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 September 30, 2012, followed by comments on the factors driving those results as well as business trends. 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 2013 guidance. We'll 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 limitation, those risks detailed in Solera's filings with the SEC, including our most recent Annual Report on Form 10-K for the year ended June 30, 2012.

We disclaim any obligation to publicly update or revise any such statements to reflect any change in our expectations on in events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

We also plan to discuss certain non-GAAP financial measures on this call. A reconciliation of Solera's non-GAAP financial measures to GAAP financial measures is included in today's Press Release, which is available on the Investor Relations section of our Company’s website at solerainc.com.

We measure constant currency or the effects on our results that are attributable 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 those efforts.

When we refer to analyst consensus during this call, we mean the consensus of results on our actually currency basis of certain analysts that cover the company as reported on Thomson First Call. Our fiscal year 2013 outlook assumes constant currency exchange rates from those currently prevailing with no assumed strengthening of the U.S. dollar consistent with our historical practice. No acquisitions of businesses, no stock repurchases, minimal revenue contribution from Hurricane Sandy and on the same 28% tax rate calculate adjusted net income.

Our fiscal year 2013 outlook assumes constant currency exchange rates from those currently prevailing with no assumed strengthening of the U.S. dollar, consistent with our historical practice, no acquisitions of businesses, no stock repurchases minimal revenue contribution from Hurricane Sandy 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 of the dollar throughout the remainder of the year, we would approximate by using the following formula. For each 1% change in the U.S. dollar versus all foreign currencies in which we transact business, the negative or positive impact to fiscal year '13 revenues will be approximately 0.7% and the negative or positive impact to adjusted EBITDA will be approximately 0.8%.

Amounts in percentages throughout our remarks reflect rounding adjustments. All information discussed during this call webcast is protected by United States Copyright Law and 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. I would like to start by conveying our thoughts to all those affected by Hurricane Sandy. To show our commitment to them we are proud of our ability to help people in need by making a donation for relief efforts from our lift, Life Is Full of Transformation program.

We are increasing our resources to help the communities where our people, our customers and their customers live to return to normal as soon as possible. I am pleased to report a solid first quarter aided by the investments we made and the counter measures we executed last year to take advantage of the challenging macroeconomic environment.

We exceeded consensus estimates for revenue adjusted EBITDA and cash EPS. Our constant currency revenue growth came in at 5.8%, up 90 basis points from fiscal year 2012’s growth rate of 4.9% and above our August 2012 implied guidance of 4% to 5%, due-in-part to the effectiveness of our counter measures and our visibility into the business; we are raising our full year guidance.

To provide context around our operating performance and raise guidance, 64% of the S&P 500 companies that have reported their September quarter results as of October 26, missed consensus revenue estimates and 75% that provided guidance reduced their full year outlook. We are proud to be in a position to raise our guidance.

Looking at the performance of public companies that trade in the European monetary union markets as tracked by the EZU ETF (ph), the divergence of our operating performance is even more apparent. During our fiscal year 2012 companies representing 92% of the EZU ETF (ph) grew revenue by 3.4% while their EBITDA declined by 1.7%.

We believe that our investments and the countermeasures, as well as the support we've received from our customers adopting our services have positioned us to continue to grow profitably through this prolonged, macro volatility. As we learned in the 2008-2009 crisis, investing when others are retrenching can give us a competitive advantage.

Our investments along with our operational discipline countermeasures, geographic expansion and diversification have helped our performance diverge from the macro volatility. On a constant currency basis our adjusted EBITDA margin came in at 44.2%, up a 120 basis points versus the prior year period. We achieved this margin while absorbing recently completed acquisitions, with margins lower than our consolidated margins.

During the first quarter we made steady progress in a number of key areas. One, customer adoption of high ROI solutions that drove continued growth in revenue per claim; two, continued momentum in our evolving and emerging markets and three, focused M&A activity that enhances and diversifies our offering in core markets. Fiscal year-to-date we have close three transactions.

Today the global car park is about one billion vehicles. Assuming a conservative 10% accident frequency these vehicles generate about a 100 million claims annually. Today, we process about 28 million of these claims in our markets. We believe that the majority of the remaining 72 million claims are processed manually right now, Solera is investing and has boots on the ground in 16 emerging countries that account for 34 million of these claims. Today our global footprint touches countries that generate 80% of the world’s total claims.

Year-to-date through July, global passenger vehicle sales were up 6.1%, despite being down 7% in Western Europe. These figures of course exclude used vehicle sales. The majority of this growth is occurring in evolving and emerging markets. Through September vehicle sales growth was 8% in China, 11% in Mexico and 14% in Russia. The car park in all evolving in emerging markets, grew 7% or if you will, 20 million vehicles from 2010 to 2011.

Turning to claims volumes, claims in transaction driven markets grew by 3%. Claims volumes in our advanced markets declined by 5.4%, compared with a 5.6% decline in the fourth quarter of last year. Claims volumes declines moderated in the U.K. and France for the first time in many quarters. Volumes in other markets such as Spain and Portugal remained volatile, leading us to currently maintain our cautiously conservative stands.

Claims in evolving markets, where the car park is growing rapidly, now comprise about 40% of our total claims volume. Claims volume grew in our evolving markets by 15.4% versus the prior year period. We continue to make steady progress in our emerging markets such as China, Australia and the UAE. In aggregate claims in our emerging markets increased by over a 100%, versus the prior year period.

Turning to revenue per claim, strong customer adoption of additional high ROI products and services drove a 5.1% increase in revenue-per-claim across all our transaction driven markets. To maintain this momentum we continue to focus on rapid profitable innovation.

We have expanded and continue to expand a robust pipeline of new products and services, including breakthrough applications in mobility parts as well as enhancements in staples like 3D, VIN and audit tools.

The adoption of these high ROI powers a flywheel effect for us, leveraging our global footprint to drive growth in advanced and evolving markets. That growth in turn contributes to our investment in new geographies or innovation and strategic M&A.

As part of our HEMI initiative, our recent acquisitions of LMI and Title Tech which closed in October, expand, explores addressable market into the fleet in auto dealership segments in the U.S. and bring Explore closer to our North American Audatex offering. The asset acquisition from APU, which closed in October, positions us to deliver a comprehensive part solution in North America as well.

We are also stepping up our investments in our people to the tune of several million dollars per year. These investments in our associates around the world qualify them to learn, leave and teach the Solera way as we expand our business. As an example of this investment, we recently held a summit of our top 14 associates in Chiang Rai, Thailand, the golden triangle between Thailand, Laos and Burma where we introduced an innovation program called R3PI (ph). We look forward to telling you more about this important initiative on future calls.

Our global footprint along with our investments in rapid profitable innovation, geographic expansion and strategic M&A, position us to execute on our double down-double up Mission 2020, $2 billion in revenue and $800 million in adjusted EBITDA by the year 2020. We believe we have a strong balance sheet to support this effort.

We look forward to holding an exciting by-invitation-only IR Day on January 16 and 17 in Scottsdale, Arizona during the Barrett-Jackson Collector Car Auction.

I’ll now turn the call over to Renato.

Renato Giger

Thanks Tony. On a GAAP basis, our first quarter revenue of $195.7 million declined by 1.5% versus the prior year period. This includes a minus 7.3% FX headwind due to the strengthening of the U.S. dollar. On a constant currency basis, our first quarter revenue grew by 5.8%.

Turning to auto metrics, we ended the quarter with $542.9 million in cash, which was like $8.5 million stock repurchases and $8.7 million in dividends paid during the first quarter. Since our Board of Director’s authorized our stock repurchase program last November, we have purchased 2.4 million shares or about 3.5% of the total outstanding at an average price of $46.60 per share and now about $68 million remaining in the $180 million program. Based on our long-term outlook, we intend to strategically continue our repurchase program.

First quarter cash flow from operations was $68.2 million and capital expenditures were $8.8 million, resulting in free cash flow of $59.4 million. Our incremental margin in the first quarter came in at 41.9%, lower than our eight quarter trailing average of 57.5%, primarily due to claims volatility in Europe and our increased investments in the business.

Our net debt to EBITDA ratio was 1.8 times, down sequentially from 1.9 times in first quarter of fiscal 2012, highlighting a leverage in our business and our ability to fund Mission 2020. As highlighted in our press release today, we recorded a long-term tax benefit of $11.6 million in the first quarter, attributable to a valuation allowance release on certain of our foreign differed tax assets as a result of a recent tax law change. This change allows us to utilize historical net operating loss carry forwards.

As part of our constant effort to sharpen our operating discipline, we achieved approximately $2 million in run rate waste reduction during the first quarter. This was aided by synergies we generated from acquisitions completed in fiscal year 2012. For fiscal year 2013, we are targeting about $8 million in waste reduction.

Turning to our updated full fiscal year 2013 guidance, we estimate revenues of $810 m to $818 million, adjusted EBITDA of $345 m to 343 million, GAAP net income of $85 million to $93 million, adjusted net income of $175 million to $180 million and adjusted net income per diluted share of $2.52 to $2.60.

This guidance implies a revenue growth rate of between 5.5% and 6.5% for fiscal 2013, up from 4% to 5% of the last provided guidance and includes minimal revenue contributions relating to Hurricane Sandy. The first quarter represented our toughest FX comp for the year. The euro averaged about $1.25 (ph) for the quarter compared to about $1.42 (ph) in the prior year first quarter. At current rates, the negative ForEx impact lower for the remaining quarters of fiscal 2013 and in the first quarter.

The midpoint of our guidance implies at 42.9 adjusted EDITDA margin and includes margin impact of approximately 200 basis points to increase investments in rapid profitable innovation and geographic expansion to take advantage of our global opportunities, the old stake contract roll off and our last seven acquisitions as those business currently have lower margin than our consolidated margin.

Consistent with our MMC management margin core acquisition criteria, we expect the margins of these acquired businesses to approach our consolidated margin in approximately 24 months from the acquisition closing date. As Tony mentioned earlier, we believe these additional investments in profitable innovation, geographic expansion and strategic M&A support our Mission 2020.

That concludes our preparatory remarks. We will now take your questions. Operator, please open the call for questions.

Question-and-Answer Session

Operator

(Operator instructions) First question comes from the line of Andrew Jeffrey of SunTrust. Your line is open, please proceed.

Andrew Jeffrey - SunTrust

Tony first off, can you give us a bit of an update with regard to State Farm to the extend you have one; any thoughts on where that contract lies today and then second, you've been spending a lot of time and effort and money on making investments in new technology. Could you characterize how far down the path you are in those investments? I know you talk about double up-double down for 2020. Should we expect a very high level of investment to persist, sort of through the bulk of that period?

Tony Aquila

With regards to State Farm, our present view is we continue to communicate with them and show them the product road map that we are deploying in the coming quarters in the North American market. They really haven't been precise as to what the outcome will be. I think there are still in probably a fact finding phase with respect to, I know that part of their consolidation has been to reduce the number. That part has gone, although it hasn’t been clear whether it will go to a single vendor. Some people say it never will on the inside of the company, some people say it’s possible. We have a team very focused on it. We believe that they really like some of the new products and services we demonstrated at the NA (show) (ph) here few weeks ago and we look forward to putting those into the market here in the coming quarters. But really nothing more than report than that on the state farm RFP.

With regards to new technology, we have been investing heavily for a couple of years and it has been increasing for sure. We believe that we’re in the best position to be very innovative, particularly around mobility and additional services as insurance carriers look to use technology and outsourcing for certain functions. We think we’re well positioned for that globally and the adoption of the acquisition and/or the innovation we’ve produced has been very positive.

The 2020 Mission accounts for a couple of things. Continued innovation, to be very aggressive on making investments in new technologies that either leverage our bundle or even disruptive investments in the mobility side, as well as those that are focused on our geographic expansion. In addition to that, it absorbs acquisitions. For example, if you look at the last few acquisitions we bought, their margins were in the 20 percentile. It will take us a couple of years through distribution, operation discipline and powering up their bundles, to get them into the 45 plus range.

So, it accounts for all of those things as we walk through Mission 2020. So it’s been pretty well mapped out across the globe and regionally. So that’s the movement between where we are today and how we see Mission 2020. In addition, if you think to us in the past, we have always raised margins overtime and we believe that possibility exists in this mission as well.

Andrew Jeffrey - SunTrust

Okay. So we shouldn’t necessarily think about the current level of profitability as being materially say altered by future investments?

Tony Aquila

We have really tried to step through this so that we end up, if you think of companies that are $2 billion and 40% EBITDA, there is not that many of them. There is some infrastructural build outs that occur in the thing, but we try to do it so that you’re not seeing a dip in anything and the growth rate stays consistent with the growth rate we’ve produced in the prior years.

Operator

Thanks you for your question. The next question comes from the line of Gary Prestopino of Barrington Research. Please proceed.

Gary Prestopino - Barrington Research

First of all, just some housekeeping, Renato what you would be using for stock based comp and amortization of acquisition intangibles for this year?

Renato Giger

Okay. The acquisition of intangibles was about $65 million and stock based compensation is about $22 million.

Gary Prestopino - Barrington Research

$22 million and $65 million, okay stock comp, okay. And then is your guidance for today pegged off of the currencies, as of today’s close?

Renato Giger

Yes.

Gary Prestopino - Barrington Research

Okay. And then Tony could you may be talk a little about, as much as you possibly can, about some of these new products that you’re rolling out into, I guess the U.S. is where they’re going first?

Tony Aquila

No, actually, the majority of them are actually rolling out across the globe. I think that’s one of the reasons why you see us bucking the trend in Europe, is we’re outpacing the problematic pressures and volume issues that are affecting a lot of companies in the Euro zone, where our customers are adopting a lot of our additional services. And those additional services are everything from parts, VIN Decode, where we are able to decode the vehicle down to the specific vehicle rather than the platform so that it creates better parts finding, so we have better parts solutions.

In addition to that, we are rolling out some services where customers can keep track of their repairs and the insurance companies can use it to communicate to their policy holders. So there is a whole bunch of stuff in addition to that. On the HPI side we have some additional products and services around new car sales for policy coverage. And there is just a gamut of stuff.

We have worked over the years to get our innovation, not centered in one market, but to really be distributed in the advanced markets, which is, let’s say 8 to 10 countries because we had feared that there would be some pressure as the recovery could take a long time.

So, that’s just to give you a few examples of the services. In the United States we’re introducing an entirely new platform, which has basically taken the best of our global components. In addition to that, to taking a very flexible architecture, to allow us to integrate quickly with insurance carriers where before the integration efforts were a lot harder. So we do believe that this light footprint will help us win some market share at the appropriate time and price.

In addition to that on the Mobility side, we make a lot of strides there. We're introducing our first application in Europe and it's an application that is based, so that it could be used by consumers even. As insurance carriers want to sample the Generation Y, a lot of our new services are able to be used by consumers. You will see this stuff at the IR Day in Scottsdale.

Operator

Thank you. Your next question comes from the line of Andrew Steinerman of JPMorgan. Please proceed.

Andrew Steinerman - JPMorgan

Could you just go through, I know you mentioned them quickly, your established markets within the transactional markets, what the revenue per claim was and what the claims volumes were and the differences, how that trended from fourth quarter year-over-year to first quarter?

Renato Giger

We don't go over market-by-market volumes, but the revenue growth per transaction was about, was over 5%.

Andrew Steinerman - JPMorgan

And that was double digit last quarter right?

Renato Giger

No, it was…

Andrew Steinerman - JPMorgan

What was transactional, in the transactional markets what was revenue per claim growth last quarter?

Renato Giger

The comp last quarter was 4.2% versus 5.1% this quarter.

Tony Aquila

It’s roughly running about the same. Some of it is just roll out related. We’re getting more rollout penetration than we did last quarter.

Andrew Steinerman - JPMorgan

Sounds good. Could you make a comment on global insurance customers? I know Allianz has a global contract with you. How is that proliferating within the Allianz system and have you found interest from other global insurance carriers to have a global contract?

Tony Aquila

Yes. We're actually very pleased with the efforts that are moving forward with Allianz. We've got a lot of very valuable initiatives for them, as well as for us. We were just recently with them at a meeting in Munich where we went over the rollout of some of these services and we are in the phase now of building and testing those and then we'll be deploying them in the latter half of this year. And then other carriers, yes we have two other carriers which are very interested, that have been monitoring the progress we've made with the Allianz program and so we anticipate that a couple other carriers will be joining this type of program.

Operator

Thank you. Your next question comes from the line of Manav Patnaik of Barclays. Please proceed.

Manav Patnaik - Barclays

Just back on the margin questions, it seems like there is always be a lot of investments going on which is why margins are not growing here. I guess, relative to the 2014 goals that you had, which were looking for mid40s margins, I think last quarter you said you guys are still sort of sticking by that. So maybe, can you just explain what we should realistically assume for 2014?

Tony Aquila

Yes. I think if you look at what we have been doing, effectively since our discussions with everybody about the margin targets, we respectively hit them, although the changes that we accelerated our investments in the innovation. We believe now it’s a great time. There is a lot of price pressure out there and the best way to offset that is, well, with the volume pressure in some of the markets; is to bring them additional services; and we’ve been outpacing those downward pressure items, quite materially, if you look at what most companies can doing and we’re guiding to about 43% margins for this fiscal year, subject to some change. If volatility goals awry and if the weather patterns continue to be, with all due respect, as positive to the business as we saw with things like Sandy, well then, that could have a very high flow through effect, because when volumes go up in the advanced markets, the incremental market is very high.

Manav Patnaik - Barclays

Okay. Fair enough. And then I guess related somewhat to Hurricane Sandy and your Mission 2020 as well, I mean clearly you guys had said last quarter that sort of assumes one or two big acquisitions. I was wondering obviously Copart out there today I guess, moved into Brazil, which is a market you guys really like. A couple of months ago they moved into Dubai in the salvage side. Just if you can talk related to sort of the big acquisitions that you are looking for and if any of these assets, as Copart purchased were sort of in the thinking or not?

Tony Aquila

They really (inaudible) work if one of the executives in the last 72 hours of the largest insurance company in Brazil. The stuff we’re offering and what Copart does is very different. So we actually didn’t look for those acquisition targets, because they didn’t fit our need and our offering. We do see them coming into various markets as these markets are getting more sophisticated on the salvage side. Our view of that market is through the automated side, with our AUTOonline offering which is also growing very rapidly in Brazil.

So with respect to the M&A activity, multiples are high for us right now. Our batting average is a little lower. We’re looking at more deals; we’re not closing in many, just because of the price points that are out there, but our pipeline is bigger. So as I said, we are just going to continue to look at them, stay disciplined and the good news is we got 63 countries that our pipeline has full of opportunities there.

Manav Patnaik - Barclays

Maybe, just a follow up on that. Can you just help maybe better understand then how you see AUTOonline as or not as a competitor what Copart and these other guys are doing?

Tony Aquila

Well, Copart’s model is a physical holding model and ours is a rapid internet auction model and if you look at the acquisitions, without conceding (ph) to our strategy too much, if you kind of look at the things that we’re buying, we’re going after a different part of the market. We believe it’s a faster part of the market. It’s also, if you think to future technologies, it’s probably a more suiting part of the market, it’s probably more predictable. We like the Copart guys, we work with them, we try to work with car guys as well and anybody who’s out there. Our offering on the AUTOonline side is kind of an innovated disruptive approach versus the more traditional approach that you see with the others.

Manav Patnaik - Barclays

Again just last housekeeping; with all those year-to-date the acquisitions you made, what was the contribution there this quarter?

Tony Aquila

Nominal. They’re pretty small.

Operator

Thank you. Your next question from the line of Peter Appert of Piper Jaffray. Please proceed.

Peter Appert - Piper Jaffray

So Tony apologies, I got on the call little bit late. You may have addressed this, but I was wondering, if you had any specific thoughts in terms of the impact of Sandy. Is that something that we can quantify in terms of the numbers next quarter?

Tony Aquila

No, we are monitoring this very aggressively from a couple of different angles. One, because our customers are affected and our people are affected and two, we are in the process of staffing up for our total loss valuation service because, that’s our service software offering. And the tremendous amount of vehicles. I spoke to one top insurer in the region over the weekend and they are anticipating their total loss volume just from Sandy to be greater than their annual volume. So it’s going to have an impact on the business for us, that will be positive. We do have some cost associated to that model although, we’re shifting the resources as much from the inside as possible. It could be as much as a percentage point in the business, but it’s hard to say right now Peter, but for sure there is a tailwind for us.

Peter Appert - Piper Jaffray

And to be clear, you’re paid exclusively on a transaction basis for the total loss product, correct?

Tony Aquila

Correct, and the partial loss is subscription based. So unless they have catastrophe teams, which they will have to deploy which will need monthly license, it’s going to be incremental there but the big one is going to be most vehicles that come into contact with saltwater will likely be totaled.

Peter Appert - Piper Jaffray

And then Tony, it sounded like from your commentary or earlier that it’s sort of still a mixed bag in terms of the transmit business from a geographic endpoint. So is it possible to give a little further color in terms of what you’re seeing, the tone of business, anything out there that makes you feel more optimistic, less optimistic in terms of how things are going to progress as the year goes on?

Tony Aquila

I think volumes are under fire as people are very cautious and fuel prices are very high in Western Europe and public transportation is pretty decent there. In addition to that, the positive side of that is insurers our trying to combat the pressure on premiums because of people not driving as much by reducing staff. That causes a greater reliance on software and that’s where you saw us pick up quite a bit of revenue per transaction, because they’re adopting more services.

They’re also very worried about retention and with the competitive environment being so price driven, they’re looking some differentiation and that’s where we think, these investments we made in the past by brining all these Gen-Y type services, which you’ll see at the Investor Day, that we’ve been rolling out, are taking a very positive review for the clients and so while we have volume pressure, we’re outpacing that by demand in new services.

In some of the markets, they’re just still paved up. Hungary and Portugal, our Portuguese team has done a phenomenal job at rolling out additional services. Spain is probably one of the deepest concerning markets for us right at the moment. The UK bottomed out this last quarter. We don’t know if the things freed up from the Olympics and things started getting back to normal, we saw better volume. There was more rainfall in the quarter. We're hoping for a good winter this year, which would be really great because against the comp of last year, we didn’t have a very good winter with respect to bad weather.

Peter Appert - Piper Jaffray

And one last unrelated thing, the competitive environment in Europe, anything new or different there?

Tony Aquila

I’d say just naturally with us gaining market share, it’s intensifying. We are on a competitive watch. We do think it will increase in the year, but a couple of them are under deep financial stress. Our M&A teams are looking at consolidation where it makes sense, and obviously where we see dis-synergies or difficulties from a regulatory perspective, we’re taking a different route. So, yes bottom-line is we think it will intensify. And that's why we believe innovation is so important.

Operator

Thank you. Our next question comes from the line of Tim McHugh of William Blair. Please proceed.

Tim McHugh - William Blair

Thank you. Just want to ask little bit, if you could talk about the updated guidance, the revenue went up a decent amount but it looks like the EBITDA margin mid-point came down a little bit. What changed versus, kind of your original assumptions? Is that just the acquisitions or are you getting even more aggressive than you would have thought three months ago with some of the investments in innovation, I just kind of want to…..?

Tony Aquila

Part of it is digesting the acquisition. Some of it is planning for some additional acquisitions that will come likely in the year. In addition to that, you just have some volume pressure from the advanced markets which puts pressure on the margin because the incremental margin is not as high as it is in the high growth markets, in the evolving markets because the transaction price is lower and we're still putting infrastructure. And then you add on top of that, the fact that we are aggressively investing in innovation, which we have the biggest pipeline of new products and services than we ever had; that's where you get to and we still think, based on our competitors, it's still a world leading margin against our competitive landscape.

Tim McHugh - William Blair

Sure. And just to make sure I understood that; did you say that you've got some acquisitions in there of things that you are planning, you haven’t done yet, included in the guidance?

Tony Aquila

Yes, it’s not in the guidance but the margin accounts for us have some, just like it has a little bit of catastrophe claim inside, we also planned for a modest amount of impact on margin from small acquisitions.

Operator

Thank you. Your next question comes from the line of Brian Karimzad at Goldman Sachs. Please proceed.

Brian Karimzad - Goldman Sachs

On the acceleration of the Americas, again a growth from about 7% last quarter to the time that you’re talking about now, can you walk through some of the puts and takes there and how much of it might be a fact that Explore is now coming in an organic and maybe accretive growth to total and then I have a follow up?

Tony Aquila

Yes. So, we are getting good traction there, on the Explore side and that’s why we look at that expanding into that space. We knew there was a gap between where we were on the Audatex North America side and where they were and we believed we could creative a super bundle to be more competitive than competing on a pure price in the North American market. So, that business has been adding states and that, of course, every time we turn on a new state in the Explore business, the clients that are already lined up doing business in that state, they automatically buy it.

In addition to that, by going into the dealership and fleet side, it really starts to close the gap between the Audatex North American offering and the Explore offering and we believe over the coming couple of years and the introduction of the new platform, the bundle that we’ll have in North America will be a leading one. And so, those things, plus some pick up in some volume on the total offside and a low bid on the salvage side, so it’s been kind of a good mixed bag.

Brian Karimzad - Goldman Sachs

Okay. But you’d say Explore was the largest piece of it?

Tony Aquila

I would.

Brian Karimzad - Goldman Sachs

Okay. And then just on the Sandy housekeeping, you say it could be up to 1% (ph) to growth. Is that kind of on a one quarter basis or on a full year basis?

Tony Aquila

It’s kind of hard to say but we dig a little further into it but for sure on a quarter basis, hopefully on an annual basis?

Operator

Thank you for your question. We have no further questions. (Operator Instructions). There is nothing further coming through. So now I’d turn the call back over to Kamal Hamid for closing remarks.

Kamal Hamid

Thank you all for joining us. And as Tony mentioned, we look forward to seeing some of you at the IR day in January. And we’ll be active (ph) on the Conference Circuit through the end of the year, so we’ll see many of you and look forward to that. Thanks again for joining us.

Operator

Thank you. A webcast replay will be available until 11:59 p.m. EST on November 19, 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 40974458.

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