Solera Holdings, Inc. Reports First Quarter 2013 Results

Mon Nov 5, 2012 4:09pm EST

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Solera Holdings, Inc. Reports First Quarter 2013 Results

First Quarter Revenue of $195.7 Million, down 1.5% on a GAAP Basis and up 5.8% on a Constant Currency Basis; Adjusted EBITDA Margin of 44.1% on a Reported Basis and 44.2% on a Constant Currency Basis; Company Raises Guidance; Company Announces Quarterly Dividend

PR Newswire

WESTLAKE, Texas, Nov. 5, 2012 /PRNewswire/ -- Solera Holdings, Inc. (NYSE: SLH), the leading global provider of software and services to the automobile insurance claims processing industry, today reported results for the first quarter of fiscal year 2013.

Results for the First Quarter Ended September 30, 2012:

GAAP Results

  • Revenue for the first quarter was $195.7 million, a 1.5% decrease over the prior year first quarter revenue of $198.7 million. After adjusting for changes in foreign currency exchange rates ("FX Changes"), revenue for the first quarter increased by approximately 5.8% over the prior year first quarter revenue;
  • Net income attributable to Solera Holdings, Inc. for the first quarter was $33.6 million, a 7.7% increase over the prior year first quarter net income attributable to Solera Holdings, Inc. of $31.2 million, which is primarily attributable to an $11.6 million income tax benefit recognized during the quarter as a result of the release of the valuation allowance on certain of our foreign deferred tax assets resulting from a change in local tax law;
  • Diluted net income attributable to Solera Holdings, Inc. per common share for the first quarter was $0.48, a 9.1% increase over the prior year first quarter diluted net income attributable to Solera Holdings, Inc. per common share of $0.44, which is primarily attributable to an $11.6 million income tax benefit recognized during the quarter as a result of the release of the valuation allowance on certain of our foreign deferred tax assets resulting from a change in local tax law.

"I'm pleased to announce a solid start to fiscal year 2013. On a constant currency basis, our revenue growth was 5.8% and our Adjusted EBITDA margin was 44.2% for the first quarter," said Tony Aquila, Solera's founder, Chairman and Chief Executive Officer. "We believe that our above-consensus revenue and Adjusted EBITDA are attributable to our ongoing investments in the business, countermeasures we have executed to take advantage of weak macro conditions in Europe, continued customer adoption of our solutions and our operating discipline. With this momentum, we are raising our full-year guidance."

Non-GAAP Results

  • Adjusted EBITDA for the first quarter was $86.3 million, a 1.9% decrease over the prior year first quarter Adjusted EBITDA of $88.0 million. After adjusting for FX Changes, Adjusted EBITDA for the first quarter increased by 5.5% over the prior year first quarter Adjusted EBITDA;
  • Adjusted EBITDA margin for the first quarter was 44.1%, a 19 basis point decrease over the prior year first quarter Adjusted EBITDA margin of 44.3%. After adjusting for FX Changes, Adjusted EBITDA margin for the first quarter was 44.2%, a 13 basis point decrease over the prior year first quarter Adjusted EBITDA margin;
  • Adjusted Net Income for the first quarter was $44.4 million, an 11.2% decrease over the prior year first quarter Adjusted Net Income of $50.0 million;
  • Adjusted Net Income per diluted common share for the first quarter was $0.64, an 8.6% decrease over the prior year first quarter Adjusted Net Income per diluted common share of $0.70.

Business Statistics

  • EMEA revenues were $110.1 million for the first quarter, representing a 7.1% decrease over the prior year first quarter. After adjusting for FX Changes, EMEA revenues for the first quarter increased 2.9% over the prior year first quarter;
  • Americas revenues were $85.6 million for the first quarter, representing a 6.9% increase over the prior year first quarter. After adjusting for FX Changes, Americas revenues for the first quarter increased 10.2% over the prior year first quarter;
  • Revenues from insurance company customers were $88.9 million for the first quarter, representing a 1.3% decrease over the prior year first quarter. After adjusting for FX Changes, revenues from insurance company customers for the first quarter increased 5.4% over the prior year first quarter;
  • Revenues from collision repair facility customers were $64.4 million for the first quarter, representing a 0.3% decrease over the prior year first quarter. After adjusting for FX Changes, revenues from collision repair facility customers for the first quarter increased 8.1% over the prior year first quarter;
  • Revenues from independent assessors were $17.6 million for the first quarter, representing an 8.7% decrease over the prior year first quarter. After adjusting for FX Changes, revenues from independent assessors for the first quarter increased 3.5% over the prior year first quarter;
  • Revenues from automotive recycling, salvage and other customers were $24.8 million for the first quarter, representing a 0.2% increase over the prior year first quarter. After adjusting for FX Changes, revenues from automotive recycling, salvage and other customers for the first quarter increased 3.5% over the prior year first quarter.

Fiscal Year 2013 Outlook:

We are updating our previously issued outlook for our full fiscal year ending June 30, 2013 as follows:



Previous Fiscal Year

2013 Outlook


Current Fiscal Year

2013 Outlook

Revenues


$780 million — $788 million


$810 million — $818 million

Net Income attributable to Solera Holdings, Inc.


$83 million — $89 million


$85 million — $93 million

Adjusted EBITDA


$337 million — $344 million


$345 million — $353 million

Adjusted Net Income


$170 million — $177 million


$175 million — $180 million

Adjusted Net Income per diluted common share


$2.45 — $2.55


$2.52 — $2.60

The fiscal year 2013 outlook above assumes constant currency exchange rates from those currently prevailing, no acquisitions of businesses, no repurchases of our common stock, minimal revenue contributions from Hurricane Sandy and an assumed 28% tax rate to calculate Adjusted Net Income.

Exchange rates between most of the major foreign currencies we use to transact our business and the U.S. dollar have fluctuated significantly over the last few years and we expect that they will continue to fluctuate. The majority of our revenues and costs are denominated in Euros, Pound Sterling, Swiss francs, Canadian dollars and other international currencies. The following table provides the average quarterly exchange rates for the Euro and Pound Sterling since the beginning of fiscal year 2012:

Period


Average Euro-to-

U.S. Dollar

Exchange Rate


Average Pound

Sterling-to-U.S.

Dollar Exchange

Rate

Quarter ended September 30, 2011


$

1.42



$

1.61


Quarter ended December 31, 2011


1.35



1.57


Quarter ended March 31, 2012


1.31



1.57


Quarter ended June 30, 2012


1.28



1.58


Quarter ended September 30, 2012


1.25



1.58


During the three months ended September 30, 2012 as compared to the three months ended September 30, 2011, the U.S. dollar strengthened against most major foreign currencies we use to transact our business. The average U.S. dollar strengthened versus the Euro by 11.6% and the Pound Sterling by 2.0%, which decreased our revenues and expenses for the three months ended September 30, 2012. A hypothetical 5% increase or decrease in the U.S. dollar versus other currencies in which we transact our business would have resulted in an increase or decrease, as the case may be, to our revenues of $6.7 million during the three months ended September 30, 2012.

All percentage amounts and ratios were calculated using the underlying data in whole dollars. We measure constant currency, or the effects on our results that are attributable to FX Changes, by measuring the incremental difference between translating the prior period and the current results at the monthly average rates for the same period from the prior year. When we refer to consensus, we mean the consensus results, on an actual currency basis, of certain analysts that cover the Company, as reported on Thompson First Call.

Quarterly Dividend:

The Audit Committee of our Board of Directors approved the payment of a quarterly cash dividend of $0.125 per outstanding share of common stock and per outstanding restricted stock unit. The Audit Committee also approved a quarterly stock dividend equivalent of $0.125 per outstanding restricted stock unit granted to certain of our executive officers since fiscal year 2011 in lieu of the cash dividend, which dividend equivalent will be paid to the restricted stock unit holders as the restricted stock unit vests. The dividends are payable on December 4, 2012 to stockholders and restricted stock unit holders of record at the close of business on November 19, 2012.

Earnings Conference Call:

We will host our first quarter ended September 30, 2012 earnings call today at 5:00 p.m. (Eastern Time)November 5, 2012. The conference call will be webcast live in listen-only mode and can be accessed by visiting the Investor Center section of the Solera website: www.solerainc.com. A webcast replay will be available on the website until 11:59 p.m. EST on November 19, 2012. A live audiocast will also be accessible to the public by calling (866) 804-6927 or from outside the U.S., (857) 350-1673. When prompted, the following access is required: 71705298. Callers should dial in approximately 10 minutes before the call begins. For those unable to participate in the live audiocast, a 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.

 

SOLERA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 and 2011

(In thousands, except per share amounts)

(Unaudited)






Three Months Ended September 30,



2012


2011

Revenues


$

195,719



$

198,693


Cost of revenues:





Operating expenses


42,340



43,618


Systems development and programming costs


17,857



19,045


Total cost of revenues (excluding depreciation and amortization)


60,197



62,663


Selling, general and administrative expenses


50,909



48,421


Depreciation and amortization


24,195



26,008


Restructuring charges, asset impairments, and other costs associated with exit and disposal activities


1,454



198


Acquisition and related costs


3,158



1,356


Interest expense


17,300



12,294


Other expense, net


398



55




157,611



150,995


Income before provision for income taxes


38,108



47,698


Income tax provision


1,697



13,252


Net income


36,411



34,446


Less: Net income attributable to noncontrolling interests


2,770



3,207


Net income attributable to Solera Holdings, Inc.


$

33,641



$

31,239


Net income attributable to Solera Holdings, Inc. per common share:





Basic


$

0.49



$

0.44


Diluted


$

0.48



$

0.44


Dividends paid per share


$

0.125



$

0.10


Weighted-average shares used in the calculation of net income attributable to Solera Holdings, Inc. per common share:





Basic


68,890



70,837


Diluted


69,094



71,250


Non-GAAP Financial Measures

We use a number of non-GAAP financial measures that are not intended to be used in lieu of GAAP presentations, but are provided because management believes that they provide additional information with respect to the performance of our fundamental business activities and are also frequently used by securities analysts, investors and other interested parties to facilitate the evaluation of our business on a comparable basis to other companies. The three primary non-GAAP financial measures that we use are Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per diluted common share. We believe that Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per diluted common share are useful to investors in providing information regarding our operating results. We rely on Adjusted EBITDA as a primary measure to review and assess the operating performance of our company and our management team in connection with our executive compensation and bonus plans. Adjusted EBITDA also allows us to compare our current operating results with corresponding prior periods as well as to the operating results of other companies in our industry. We present Adjusted Net Income and Adjusted Net Income per diluted common share because we believe both of these measures provide useful information regarding our operating results in addition to our GAAP measures. We believe that Adjusted Net Income and Adjusted Net Income per diluted common share provide investors with valuable insight into our profitability exclusive of unusual adjustments, and provide further insight into the cash impact resulting from the different treatments of goodwill for financial reporting and tax purposes.

Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per diluted common share have limitations as analytical tools, and should not be considered in isolation or as a substitute for net income, net income per share and other consolidated income statement data prepared in accordance with accounting principles generally accepted in the United States. Because of these limitations, Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per diluted common share should not be considered as a replacement for net income. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per diluted common share as supplemental information.

  • Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net income attributable to Solera Holdings, Inc., excluding (i) interest expense, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) stock-based compensation expense, (v) restructuring charges, asset impairments, and other costs associated with exit and disposal activities, (vi) other (income) expense, net, (vii) litigation related expenses, and (viii) acquisition and related costs. Acquisition and related costs include legal and professional fees and other transaction costs associated with completed and contemplated business combinations and asset acquisitions, costs associated with integrating acquired businesses, including costs incurred to eliminate workforce redundancies and for product rebranding, and other charges incurred as a direct result of our acquisition efforts. These other charges include changes to the fair value of contingent purchase consideration, acquired assets and assumed liabilities subsequent to the completion of the purchase price allocation, purchase price that is deemed to be compensatory in nature, incentive compensation arrangements with continuing employees of acquired companies and gains and losses resulting from the settlement of a pre-existing contractual relationship with an acquiree. A reconciliation of our Adjusted EBITDA to GAAP net income attributable to Solera Holdings, Inc., the most directly comparable GAAP measure, is provided in the attached table.

 

SOLERA HOLDINGS, INC.

RECONCILIATION TO ADJUSTED EBITDA

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 and 2011

(In thousands)

(Unaudited)






Three Months Ended September 30,



2012


2011

Net income attributable to Solera Holdings, Inc.


$

33,641



$

31,239


Add: Income tax provision


1,697



13,252


Net income attributable to Solera Holdings, Inc. before income tax provision


35,338



44,491


Add: Depreciation and amortization


24,195



26,008


Add: Restructuring charges, asset impairments, and other costs associated with exit and disposal activities


1,454



198


Add: Acquisition and related costs


3,158



1,356


Add: Litigation related expenses


451




Add: Interest expense


17,300



12,294


Add: Other expense, net


398



55


Add: Stock-based compensation expense


4,024



3,606


Adjusted EBITDA


$

86,318



$

88,008


  • Adjusted Net Income is a non-GAAP financial measure that represents GAAP net income attributable to Solera Holdings, Inc., excluding (i) provision for income taxes, (ii) amortization of acquired intangible assets, (iii) stock-based compensation expense, (iv) restructuring charges, asset impairments, and other costs associated with exit and disposal activities, (v) other (income) expense, not including interest income, (vi) litigation related expenses, and (vii) acquisition and related costs. From this amount, we subtract an assumed provision for income taxes to arrive at Adjusted Net Income. We assume a 28% income tax rate as an approximation of our long-term effective corporate income tax rate, which includes certain benefits from net operating loss carryforwards, tax credits, tax deductible goodwill and amortization, and certain holding companies in low tax-rate jurisdictions. A reconciliation of our Adjusted Net Income to GAAP net income attributable to Solera Holdings, Inc., the most directly comparable GAAP measure, is provided in the attached table.
  • Adjusted Net Income per diluted common share is a non-GAAP financial measure that represents Adjusted Net Income (as defined above) divided by the number of diluted shares outstanding for the period used in the calculation of GAAP net income attributable to Solera Holdings, Inc. per diluted common share. A reconciliation of our Adjusted Net Income per diluted common share to GAAP net income attributable to Solera Holdings, Inc. per diluted common share, the most directly comparable GAAP measure, is provided in the attached table.

 

SOLERA HOLDINGS, INC.

RECONCILIATION TO ADJUSTED NET INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 and 2011

(In thousands, except per share amounts)

(Unaudited)






Three Months Ended September 30,



2012


2011

Net income attributable to Solera Holdings, Inc.


$

33,641



$

31,239


Add: Income tax provision


1,697



13,252


Net income attributable to Solera Holdings, Inc. before income tax provision


35,338



44,491


Add: Amortization of acquisition-related intangibles


16,679



19,456


Add: Restructuring charges, asset impairments, and other costs associated with exit and disposal activities


1,454



198


Add: Acquisition and related costs


3,158



1,356


Add: Litigation related expenses


451




Add: Other expense, net excluding interest income


517



284


Add: Stock-based compensation expense


4,024



3,606


Adjusted Net Income before income tax provision


61,621



69,391


Less: Assumed provision for income taxes at 28%


(17,254)



(19,429)


Adjusted Net Income


$

44,367



$

49,962


Adjusted Net Income per share:





Basic


$

0.64



$

0.71


Diluted


$

0.64



$

0.70


Weighted-average shares used in the calculation of GAAP Net Income attributable to Solera Holdings, Inc. and Adjusted Net Income per share:





Basic


68,890



70,837


Diluted


69,094



71,250


 

SOLERA HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2012 and JUNE 30, 2012

(In thousands, except per share amounts)

(Unaudited)








September 30, 2012


June 30, 2012

ASSETS





Current assets:





Cash and cash equivalents


$

542,910



$

508,246


Accounts receivable, net of allowance for doubtful accounts of $2,463 and $2,356 at September 30, 2012 and June 30, 2012, respectively


134,981



129,264


Other receivables


15,466



20,953


Other current assets


23,773



23,015


Deferred income tax assets


5,825



7,709


Total current assets


722,955



689,187


Property and equipment, net


61,146



58,533


Goodwill


1,015,969



999,892


Intangible assets, net


320,761



329,741


Other noncurrent assets


25,795



27,209


Noncurrent deferred income tax assets


60,768



47,254


Total assets


$

2,207,394



$

2,151,816


LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities:





Accounts payable


$

25,811



$

26,940


Accrued expenses and other current liabilities


141,714



139,276


Income taxes payable


11,421



7,279


Deferred income tax liabilities


1,530



2,216


Current portion of long-term debt


2,902



2,861


Total current liabilities


183,378



178,572


Long-term debt


1,145,828



1,143,012


Other noncurrent liabilities


35,858



32,181


Noncurrent deferred income tax liabilities


26,277



22,067


Total liabilities


1,391,341



1,375,832


Redeemable noncontrolling interests


90,297



88,603


Stockholders' equity:





Solera Holdings, Inc. stockholders' equity:





Common shares, $0.01 par value: 150,000 shares authorized; 68,753 and 68,895 issued and outstanding as of September 30, 2012 and June 30, 2012, respectively


587,079



582,693


Retained earnings


160,152



141,814


Accumulated other comprehensive income


(30,998)



(47,273)


Total Solera Holdings, Inc. stockholders' equity


716,233



677,234


Noncontrolling interests


9,523



10,147


Total stockholders' equity


725,756



687,381


Total liabilities and stockholders' equity


$

2,207,394



$

2,151,816


 

SOLERA HOLDINGS, INC.

SELECTED STATEMENT OF CASH FLOWS INFORMATION

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 and 2011

(In thousands)

(Unaudited)






Three Months Ended September 30,



2012


2011

Net cash provided by operating activities


$

68,219



$

50,203


Net cash used in investing activities


(16,728)



(16,642)


Net cash used in financing activities


(20,763)



(8,996)


Effect of foreign currency exchange rate changes on cash and cash equivalents


3,936



(17,581)


Net change in cash and cash equivalents


34,664



6,984


Cash and cash equivalents, beginning of period


508,246



371,101


Cash and cash equivalents, end of period


$

542,910



$

378,085







Supplemental cash flow information:





Cash paid for interest


$

2,799



$

3,990


Cash paid for income taxes


$

5,301



$

7,714







Supplemental disclosure of non-cash investing and financing activities:





Capital assets financed


$

258



$

415


Accrued contingent purchase consideration


$



$

1,712


Receivable for proceeds from sale of shares of majority-owned subsidiary


$



$

2,139


 

About Solera:

Solera is the leading global provider of software and services to the automobile insurance claims processing industry. Solera is active in over 60 countries across six continents. The Solera companies include Audatex in the United States, Canada, and in more than 45 additional countries, Informex in Belgium and Greece, Sidexa in France, ABZ and Market Scan in the Netherlands, HPI in the United Kingdom, Hollander serving the North American recycling market, AUTOonline providing salvage disposition in a number of European and Latin American countries, IMS providing medical review services, and Explore providing data and analytics to United States property and casualty insurers. For more information, please refer to the company's website at http://www.solerainc.com.

Cautions about Forward-Looking Statements:

This press release contains forward-looking statements, including statements about: the future benefits to our business and financial results relating to our investments, counter measures, customer adoption and operating discipline; our expectations regarding our prospects and business outlook for fiscal year 2013; our expectations and beliefs regarding changes in foreign currency exchange rates; and statements about dividends, acquisitions, common stock repurchases, future revenue, our effective tax rate and historical results or performance that may suggest trends for our business. These statements are based on our current expectations, estimates and assumptions and are subject to many risks, uncertainties and unknown future events that could cause actual results to differ materially. Actual results may differ materially from those set forth in this press release due to the risks and uncertainties inherent in our business, including, without limitation: our reliance on a limited number of customers for a substantial portion of our revenues; unpredictability and volatility of our operating results, which include the volatility associated with foreign currency exchange risks, our sales cycle, seasonality, global economic conditions, acquisitions and other factors; risks associated with and possible negative consequences of acquisitions, joint ventures, divestitures and similar transactions, including our ability to successfully integrate our acquired businesses; effects of competition on our software and service pricing and our business; time and expenses associated with customers switching from competitive software and services to our software and services; rapid technology changes in our industry; risks associated with operating in multiple countries; effects of changes in or violations by us or our customers of government regulations; use of cash to service our debt and effects on our business of restrictive covenants in our debt facility and indenture; our ability to obtain additional financing as necessary to support our operations, including Mission 2020; costs and possible future losses or impairments relating to our acquisitions; the financial impact of future significant restructuring and severance charges; the impact of changes in our tax provision (benefit) or effective tax rate; our ability to pay dividends or repurchase shares in future periods; our dependence on a limited number of key personnel; effects of system failures or security breaches on our business and reputation; our reliance on third-party information for our software and services; and any material adverse impact of current or future litigation on our results or business. For a discussion of these and other factors that could impact our operations or financial results and cause our results to differ materially from those in the forward-looking statements, please refer to our filings with the Securities and Exchange Commission, particularly our Annual Report on Form 10-K for the Year Ended June 30, 2012. Solera is under no obligation to (and specifically disclaims any such obligation to) update or alter our forward-looking statements whether as a result of new information, future events or otherwise.

SOURCE Solera Holdings, Inc.

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