Solera Holdings, Inc. Reports Second Quarter 2016 Results

Second Quarter Revenue of $308.0 Million, up 9.0% on a Reported Basis and up 16.3% on a Constant Currency Basis; Second Quarter Adjusted EBITDA of $121.1 million, up 4.6% on a Reported Basis and up 14.2% on a Constant Currency Basis; Company Announces Quarterly Dividend

Jan 28, 2016, 22:29 ET from Solera Holdings, Inc.

WESTLAKE, Texas, Jan. 28, 2016 /PRNewswire/ -- Solera Holdings, Inc. (NYSE: SLH), a leading provider of risk and asset management software and services to the automotive and property marketplace, including the global P&C insurance industry, today reported results for the second quarter of fiscal year 2016.

Results for the Second Quarter Ended December 31, 2015:

GAAP Results

  • Revenue for the second quarter was $308.0 million, a 9.0% increase over the prior year second quarter revenue of $282.7 million. On a constant currency basis, revenue for the second quarter increased by approximately 16.3% over the prior year second quarter revenue.
  • Net income attributable to Solera Holdings, Inc. for the second quarter was $53.0 million, as compared to prior year second quarter net income attributable to Solera Holdings, Inc. of $4.4 million. The increase in net income attributable to Solera Holdings, Inc. is primarily due to a $31.2 million income tax benefit recognized during the second quarter.
  • Diluted net income attributable to Solera Holdings, Inc. per common share for the second quarter was $0.78, as compared to the prior year second quarter diluted net income attributable to Solera Holdings, Inc. per common share of $0.06. The increase in diluted net income attributable to Solera Holdings, Inc. per common share is due to the increase in net income attributable to Solera Holdings, Inc. during the second quarter.

"We completed our second quarter 2016 on a strong note, with momentum in each of our core platforms and continued benefits from our ongoing growth initiatives. We are pleased with our second quarter Adjusted EBITDA margin of nearly 40% and our revenue of $308 million, which was up 16.3% on a constant currency basis over revenue from the prior year period. We have made significant progress on our scheduled operational improvement initiatives, including $21 million in annualized savings year-to-date," said Tony Aquila, Solera's founder, Chairman and Chief Executive Officer.  "While the current market is challenging for many industries, we are excited and energized by our performance to date, the execution of our growth strategy and our market opportunity with over 230 million digital transactions annually and 195,000 customers across 78 countries.  We continue to serve the evolving mobility needs of our customers' customers through the relentless development of highly cognitive digital solutions."

Non-GAAP Results

  • Adjusted EBITDA for the second quarter was $121.1 million, a 4.6% increase versus the prior year second quarter Adjusted EBITDA of $115.7 million. On a constant currency basis, Adjusted EBITDA for the second quarter increased by 14.2% over the prior year second quarter Adjusted EBITDA.
  • Adjusted EBITDA margin for the second quarter was 39.3%, a 163 basis point decrease versus the prior year second quarter Adjusted EBITDA margin of 40.9%. On a constant currency basis, Adjusted EBITDA margin for the second quarter was 40.2%, a 72 basis point decrease versus the prior year second quarter Adjusted EBITDA margin.
  • Adjusted Net Income for the second quarter was $48.9 million, a 7.6% decrease versus the prior year second quarter Adjusted Net Income of $52.9 million.
  • Cash EPS for the second quarter was $0.72, a 6.5% decrease versus the prior year second quarter Cash EPS of $0.77.

Business Statistics

  • EMEA revenues were $133.4 million for the second quarter, representing a 0.9% decrease versus the prior year second quarter. On a constant currency basis, EMEA revenues for the second quarter increased 10.5% over the prior year second quarter. After excluding the revenues of CAP Automotive ("CAP"), EMEA revenues decreased 5.9% versus the prior year second quarter and, on a constant currency basis, increased 5.7% over the prior year second quarter.
  • Americas revenues were $174.6 million for the second quarter, representing a 17.9% increase over the prior year second quarter. On a constant currency basis, Americas revenues for the second quarter increased 21.6% over the prior year second quarter. The increase in Americas revenues is partially driven by incremental revenue contributions from recently-acquired businesses.
  • Revenues from insurance company customers were $108.4 million for the second quarter, representing a 3.3% decrease over the prior year second quarter. On a constant currency basis, revenues from insurance company customers for the second quarter increased 4.3% over the prior year second quarter.
  • Revenues from collision and glass repair facility customers were $68.7 million for the second quarter, representing a 4.9% decrease versus the prior year second quarter. On a constant currency basis, revenues from collision and glass repair facility customers for the second quarter increased 5.5% over the prior year second quarter.
  • Revenues from independent assessors were $16.0 million for the second quarter, representing an 12.0% decrease versus the prior year second quarter. On a constant currency basis, revenues from independent assessors for the second quarter increased 2.0% versus the prior year second quarter.
  • Revenues from service, repair and maintenance facilities customers, were $56.1 million for the second quarter, representing an increase of 76.3% over the prior year second quarter. The increase in revenues from service, repair and maintenance facilities customers is partially driven by incremental revenue contributions from recently-acquired businesses.
  • Revenues from automotive recyclers, salvage, dealerships and other customers were $58.8 million for the second quarter, representing a 21.8% increase over the prior year second quarter. On a constant currency basis, revenues from automotive recyclers, salvage, dealerships and other customers for the second quarter increased 26.1% over the prior year second quarter. The increase in revenues from automotive recyclers, salvage, dealerships and other customers is partially driven by incremental revenue contributions from recently-acquired businesses.

Other Information

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 foreign currency 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.

Foreign Currency:

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 2015:

Period

Average Euro-to-
U.S. Dollar
Exchange Rate


Average Pound
Sterling-to-U.S.
Dollar Exchange
Rate

Quarter ended September 30, 2014

$

1.33



$

1.67


Quarter ended December 31, 2014

$

1.25



$

1.58


Quarter ended March 31, 2015

$

1.13



$

1.52


Quarter ended June 30, 2015

$

1.11



$

1.53


Quarter ended September 30, 2015

$

1.11



$

1.55


Quarter ended December 31, 2015

$

1.10



$

1.52


During the three months ended December 31, 2015 as compared to the three months ended December 31, 2014, 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 12.3% and the Pound Sterling by 4.1%, which decreased our revenues and expenses for the three months ended December 31, 2015.  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 $7.7 million and $15.5 million during the three and six months ended December 31, 2015.

Quarterly Dividend:

The Audit Committee of our Board of Directors approved the payment of a quarterly dividend of $0.225 per share of outstanding common stock and per outstanding restricted stock unit. The dividends are payable on the earlier of the closing date of the pending acquisition of Solera by entities affiliated with Vista Equity Partners pursuant to the Agreement and Plan of Merger, dated September 13, 2015, or March 1, 2016. The dividends are payable to stockholders and restricted stock unit holders of record at the close of business on February 11, 2016.

Earnings Conference Call:

A conference call to discuss Solera's financial results for the second quarter ended December 31, 2015 will be hosted by Tony Aquila, Solera's founder, Chairman and CEO, and Renato Giger, Solera's CFO, at 5:00 pm EST on February 3, 2016. 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 at www.solerainc.com. A live audio-cast will also be accessible to the public by calling (855) 542-4213 or (412) 455-6065 from outside the U.S. and providing the access code 41507478.  Callers should dial in approximately ten minutes before the call begins. For those unable to participate in the live audio-cast, a replay will be available until 11:59 p.m. EST on February 17, 2016. To access the replay, dial (855) 859-2056 or (404) 537-3406 from outside the U.S. and provide the access code 41507478.

SOLERA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2015 AND 2014

(In thousands, except per share amounts)

(Unaudited)




Three Months Ended December 31,


Six Months Ended December 31,



2015


2014


2015


2014

Revenues


$

308,045



$

282,697



$

621,367



$

562,780


Cost of revenues:









Operating expenses


86,239



72,437



175,026



140,969


Systems development and programming costs


28,261



25,480



56,635



51,382


Total cost of revenues (excluding depreciation and amortization)


114,500



97,917



231,661



192,351


Selling, general and administrative expenses


78,956



75,591



171,934



157,467


Depreciation and amortization


44,493



39,368



88,998



77,366


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


3,398



633



4,571



2,890


Acquisition and related costs


14,960



11,458



42,978



22,810


Interest expense


45,928



28,961



90,607



56,593


Other (income) expense, net


(18,931)



17,818



20,897



18,281




283,304



271,746



651,646



527,758


Income (loss) before provision for income taxes


24,741



10,951



(30,279)



35,022


Income tax provision (benefit)


(31,157)



1,753



(21,867)



9,252


Net income (loss)


55,898



9,198



(8,412)



25,770


Less: Net income attributable to noncontrolling interests


2,888



4,751



5,447



8,959


Net income (loss) attributable to Solera Holdings, Inc.


$

53,010



$

4,447



$

(13,859)



$

16,811


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









Basic


$

0.78



$

0.06



$

(0.21)



$

0.24


Diluted


$

0.78



$

0.06



$

(0.21)



$

0.24


Dividends paid per share


$

0.225



$

0.195



$

0.45



$

0.39


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









Basic


67,415



68,057



67,224



68,263


Diluted


67,700



68,397



67,224



68,691


 

SOLERA HOLDINGS, INC.

RECONCILIATION TO ADJUSTED EBITDA

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2015 AND 2014

(In thousands)

(Unaudited)




Three Months Ended December 31,


Six Months Ended December 31,



2015


2014


2015


2014

Net income (loss)


$

55,898



$

9,198



$

(8,412)



$

25,770


Add: Income tax provision (benefit)


(31,157)



1,753



(21,867)



9,252


Net income (loss) before income tax provision (benefit)


24,741



10,951



(30,279)



35,022


Add: Depreciation and amortization


44,493



39,368



88,998



77,366


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


3,398



633



4,571



2,890


Add: Acquisition and related costs


14,960



11,458



42,978



22,810


Add: Litigation related expense (recoveries)


281



2,289



(1,106)



2,289


Add: Interest expense


45,928



28,961



90,607



56,593


Add: Other (income) expense, net


(18,931)



17,818



20,897



18,281


Add: Stock-based compensation expense


6,183



4,208



14,189



14,312


Adjusted EBITDA


$

121,053



$

115,686



$

230,855



$

229,563


 

SOLERA HOLDINGS, INC.

RECONCILIATION TO ADJUSTED NET INCOME

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2015 AND 2014

(In thousands, except per share amounts)

(Unaudited)




Three Months Ended December 31,


Six Months Ended December 31,



2015


2014


2015


2014

Net income (loss) attributable to Solera Holdings, Inc.


$

53,010



$

4,447



$

(13,859)



$

16,811


Add: Income tax provision (benefit)


(31,157)



1,753



(21,867)



9,252


Net income (loss) attributable to Solera Holdings, Inc. before income tax provision (benefit)


21,853



6,200



(35,726)



26,063


Add: Amortization of acquisition-related intangibles


30,978



28,725



63,064



56,240


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


3,398



633



4,571



2,890


Add: Acquisition and related costs


14,960



11,458



42,978



22,810


Add: Litigation related expenses (recoveries)


281



2,289



(1,106)



2,289


Add: Other (income) expense, net excluding interest income and realized gains (losses) on derivative financial instruments (1)


(13,327)



17,979



30,964



18,657


Add: Stock-based compensation expense


6,183



4,208



14,189



14,312


Adjusted Net Income before income tax provision


64,326



71,492



118,934



143,261


Less: Assumed provision for income taxes at 24% for fiscal year 2016 and 26% for fiscal year 2015, respectively


(15,438)



(18,588)



(28,544)



(37,248)


Adjusted Net Income


$

48,888



$

52,904



$

90,390



$

106,013


Cash EPS:









Basic


$

0.73



$

0.78



$

1.34



$

1.55


Diluted


$

0.72



$

0.77



$

1.34



$

1.54


Weighted-average shares used in the calculation of Cash EPS:









Basic


67,415



68,057



67,224



68,263


Diluted


67,700



68,397



67,478



68,691



(1) During the first quarter of fiscal year 2016, we partially settled our foreign exchange forward contract for a cash payment of $8.9 million. This cash payment is excluded from the determination of Adjusted Net Income and Cash EPS as it is of a nonrecurring nature. Settlement of the remaining foreign exchange forward contract with a notional amount of €235.8 million was extended to July 2016. As of the settlement extension date, the unrealized loss on the remaining outstanding notional amount was approximately $8.6 million.  This unrealized loss is also excluded from the determination of Adjusted Net Income and Cash EPS consistent with our definition of these non-GAAP financial measures.

 

SOLERA HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2015 and JUNE 30, 2015

(In thousands, except per share amounts)

(Unaudited)



December 31,
2015


June 30,
2015

ASSETS




Current assets:




Cash and cash equivalents

$

470,522



$

479,592


Accounts receivable, net of allowance for doubtful accounts of $5,525 and $6,114 at December 31, 2015 and June 30, 2015, respectively

162,454



156,955


Other receivables

22,194



21,234


Other current assets

58,412



53,597


Deferred income tax assets

5,186



12,878


Total current assets

718,768



724,256


Property and equipment, net

91,122



93,391


Goodwill

1,938,236



1,950,408


Intangible assets, net

834,782



898,500


Other noncurrent assets

88,330



70,330


Noncurrent deferred income tax assets

41,384



15,745


Total assets

$

3,712,622



$

3,752,630


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

39,451



$

44,239


Accrued expenses and other current liabilities

230,251



266,861


Income taxes payable

12,759



16,263


Deferred income tax liabilities

5,680



9,077


Total current liabilities

288,141



336,440


Long-term debt

3,125,384



2,481,828


Other noncurrent liabilities

97,871



73,799


Noncurrent deferred income tax liabilities

154,792



176,316


Total liabilities

3,666,188



3,068,383


Redeemable noncontrolling interests (1)

80,795



445,552


Stockholders' equity:




Solera Holdings, Inc. stockholders' equity:




Common shares, $0.01 par value: 150,000 shares authorized; 68,250 and 66,985 issued and outstanding as of September 30, 2015 and June 30, 2015, respectively

374,350



579,602


Accumulated deficit

(217,673)



(173,305)


Accumulated other comprehensive loss

(202,619)



(178,474)


Total Solera Holdings, Inc. stockholders' equity (deficit)

(45,942)



227,823


Noncontrolling interests

11,581



10,872


Total stockholders' equity (deficit)

(34,361)



238,695


Total liabilities and stockholders' equity

$

3,712,622



$

3,752,630



(1) The decrease in redeemable noncontrolling interests is primarily attributable to the acquisition of the remaining 50% of the equity interests in our Service Repair Solutions, Inc. ("SRS") majority-owned subsidiary in the first quarter of fiscal year 2016. After this acquisition, we now own 100% of SRS. As a result, the redeemable noncontrolling interests related to SRS was eliminated.

 

SOLERA HOLDINGS, INC.

SELECTED STATEMENT OF CASH FLOWS INFORMATION

FOR THE SIX MONTHS ENDED DECEMBER 31, 2015 AND 2014

(In thousands)

(Unaudited)



Six Months Ended December 31,


2015


2014

Net cash provided by (used in) operating activities

$

(1,970)



$

79,869


Net cash used in investing activities

(46,737)



(803,255)


Net cash provided by financing activities

25,984



292,968


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

13,653



(14,296)


Net change in cash and cash equivalents

(9,070)



(444,714)


Cash and cash equivalents, beginning of period

479,592



837,751


Cash and cash equivalents, end of period

$

470,522



$

393,037






Supplemental cash flow information:




Cash paid for interest

$

93,554



$

60,963


Cash paid for income taxes

$

25,854



$

34,906






Supplemental disclosure of non-cash investing and financing activities:




Capital assets financed

$

214



$

1,342


Accrued contingent purchase consideration

$

72



$

11,973


 

SOLERA HOLDINGS, INC.

SUPPLEMENTAL REVENUE GROWTH INFORMATION

(Unaudited)

The tables below set forth the following supplemental information about revenue growth for our (i) consolidated group, (ii) Americas reporting segment and (iii) EMEA reporting segment:



Q2 FY16


Q1 FY16


Q2 FY15


Sequential
Change


Year/Year
Change

As Reported Total Revenue Growth











Revenue


Revenue


Revenue


Revenue


Revenue

Total

9.0%


11.9%


18.3%


(2.9)%


(9.3)%

Americas

17.9%


24.6%


33.2%


(6.7)%


(15.3)%

EMEA

(0.9)%


(1.6)%


5.4%


0.7%


(6.3)%












Q2 FY16


Q1 FY16


Q4 FY15


Q3 FY15


Q2 FY15

As Reported Total Revenue Growth











Revenue


Revenue


Revenue


Revenue


Revenue

Total

9.0%


11.9%


10.9%


7.1%


18.3%

Americas

17.9%


24.6%


21.3%


15.4%


33.2%

EMEA

(0.9)%


(1.6)%


0.7%


(1.0)%


5.4%












Q2 FY16


Q1 FY16


Q2 FY15


Sequential
Change


Year/Year
Change

Constant Currency Total Revenue Growth (1)











Revenue


Revenue


Revenue


Revenue


Revenue

Total

16.3%


21.9%


23.8%


(5.6)%


(7.5)%

Americas

21.6%


29.0%


35.1%


(7.4)%


(13.5)%

EMEA

10.5%


14.3%


14.0%


(3.8)%


(3.5)%












Q2 FY16


Q1 FY16


Q2 FY15


Sequential
Change


Year/Year
Change

Constant Currency Organic Revenue Growth (2)











Revenue


Revenue


Revenue


Revenue


Revenue

Total

6.7%


9.1%


7.9%


(2.4)%


(1.2)%

Americas

7.0%


13.7%


10.6%


(6.7)%


(3.6)%

EMEA

6.4%


4.1%


5.6%


2.3%


0.8%












Q2 FY16


Q1 FY16


Q4 FY15


Q3 FY15


Q2 FY15

Constant Currency Total Revenue Growth (1)











Revenue


Revenue


Revenue


Revenue


Revenue

Total

16.3%


21.9%


22.5%


17.2%


23.8%

Americas

21.6%


29.0%


24.9%


17.9%


35.1%

EMEA

10.5%


14.3%


20.1%


16.5%


14.0%












Q2 FY16


Q1 FY16


Q4 FY15


Q3 FY15


Q2 FY15

Constant Currency Organic Revenue Growth (2)











Revenue


Revenue


Revenue


Revenue


Revenue

Total

6.7%


9.1%


7.5%


5.4%


7.9%

Americas

7.0%


13.7%


7.5%


6.1%


10.6%

EMEA

6.4%


4.1%


7.5%


4.6%


5.6%


(1) Constant Currency Total Revenue Growth represents As Reported Total Revenue Growth for each period converted into U.S. dollars at the average exchange rates in effect for the same period from the prior year.

(2) Constant Currency Organic Revenue Growth represents Constant Currency Total Revenue Growth excluding the incremental revenue growth from businesses acquired since the same period from the prior year.

About Solera:

Solera is a leading provider of risk and asset management software and services to the automotive and property marketplace, including the global P&C insurance industry. Solera is active in over 75 countries across six continents. The Solera companies include: Audatex in the United States, Canada, and in more than 60 additional countries; HPI, CarweB and CAP Automotive in the United Kingdom; Informex in Belgium and Greece; Sidexa in France; ABZ and Market Scan in the Netherlands; 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; Explore providing data and analytics to United States property and casualty insurers; Identifix, providing solutions for the service, maintenance and repair ("SMR") market; AutoPoint and DMEautomotive, providing data-driven tools to enhance SMR experiences and facilitate customer retention and marketing solutions for the retail automotive industry; and I&S, a provider of software and business management tools, third-party claims administration, first notice of loss and network management services to the U.S. auto and property repair industries, specializing in glass claims. For more information, please refer to the Solera's website at www.solera.com.

Cautions about Forward-Looking Statements:

This press release contains forward-looking statements, including statements about: our expected dividend payment and the expected payment date; our expectations and beliefs regarding changes in foreign currency exchange rates; and historical results or performance, including revenue, Adjusted EBITDA, Adjusted EBITDA margin, growth and operational improvement initiatives, 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: 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 regulatory matters and our ability to successfully integrate our acquired businesses; risks associated with a diversified business; successful integration of acquired businesses that operate in industries outside of our core market; rapid technology changes in our industries, which could affect customer decisions regarding the purchase of our software and services; development of claims processing and other products and services in areas other than automobile insurance, including our "digital garage" and risk and asset management platform; our relationship with insurance company customers as they continue global expansion; revenue growth resulting from the launch of new software and services, including our "digital garage" and risk and asset management platform; 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; risks associated with operating in multiple countries; effects of changes in or violations by us or our customers of government regulations; our ability to obtain additional financing as necessary to support our operations, including Mission 2020 ($2 billion in revenue and $840 million in Adjusted EBITDA by June 30, 2020); use of cash to service our debt and effects on our business of restrictive covenants in our bond indentures; our reliance on third-party information for our software and services; our dependence on a limited number of key personnel; 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 in future periods; our reliance on a limited number of customers for a substantial portion of our revenues; effects of system failures or security breaches on our business and reputation; 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 Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2015. 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.

Explanation of Non-GAAP Financial Measures:

To supplement our financial results on a GAAP basis, we use a number of non-GAAP financial measures that management believes 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. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

The three primary non-GAAP financial measures that we use are Adjusted EBITDA, Adjusted Net Income, and Cash EPS. We believe that Adjusted EBITDA, Adjusted Net Income and Cash EPS 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 Cash EPS 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 Cash EPS 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 Cash EPS 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 Cash EPS should not be considered as a replacement for GAAP net income. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA, Adjusted Net Income, and Cash EPS as supplemental information.

Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net income (loss) 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 (recoveries), and (viii) acquisition and related costs. Acquisition and related costs include costs incurred in relation to the proposed acquisition of Solera by Vista, including professional fees and personnel retention incentives; 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 and incentive compensation arrangements with continuing employees of acquired companies.

Adjusted Net Income is a non-GAAP financial measure that represents GAAP net income (loss) 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, net excluding interest income and realized gains (losses) on derivative financial instruments, (vi) litigation related expenses (recoveries), and (vii) acquisition and related costs. From this amount, we subtract an assumed provision for income taxes to arrive at Adjusted Net Income. During fiscal years 2016 and 2015, we assumed a 24% and 26% income tax rate, respectively, as an approximation of our long-term effective corporate income tax rate, which is a non-GAAP financial measure that includes certain benefits from net operating loss carryforwards, tax credits, tax deductible goodwill and amortization, and certain holding companies in low tax-rate jurisdictions.

Cash EPS 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 (loss) attributable to Solera Holdings, Inc. per diluted common share. If we report a net loss attributable to Solera Holdings, Inc. for GAAP purposes, the diluted shares outstanding used in the calculation of Cash EPS includes the dilutive effective of common stock equivalents.

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SOURCE Solera Holdings, Inc.



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