易速傳真 (EFX) 2002 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Equifax second quarter earnings release conference call.

At this time all participants are in a listen only mode.

Later, we will conduct a question and answer session.

Instructions will be given at that time.

If you should require assistance during the call, please press zero than star.

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Chairman and Chief Executive Officer Mr. Tom Chapman.

Please go ahead.

Thank you,

and good morning ladies and gentlemen.

Welcome to our conference call.

I will remind you that over the course of the call we'll make certain predictive statements in an effort to assist you in understanding Equifax.

And these statements are, of course, we're working under the Securities Act and subject to inherent risks.

So please review our 2001 10K, our first quarter '02 10Q and our other SEC filings that in more detail describe our company and the business environment.

With me as usual, Phil Mazzilli, our CFO;

Dennis Story, our Controller; and Jeff Dodge, our head of investor relations.

What we'd like to do this morning is sort of four things.

Number one, up front, I'll cover some of the growth and new initiatives for the quarter.

Phil will report on, as always, on the financial results in the businesses and also give you the outlook for the rest of the year.

And then we'll move into Q&A like we always did.

We've had a strong financial performance despite the challenging economic environment for the quarter.

Net income was $47 million, up seven percent.

Operating margins were 32 percent, up from 30 percent.

Revenue is at $270 million.

We're down four percent, but EPS grew at six percent to $0.34 for the quarter, meeting the general consensus and the Street's expectations.

Well, let me discuss some of the traction we had with our new growth initiatives before I turn it over to Phil.

First is our homeland defense and security initiatives.

We talked often about our intent to become a leader in providing services in support of our country's homeland defense and security initiatives and moving in directions to accomplish that.

Yesterday we made a significant announcement that I believe is a cornerstone transaction for our company.

As many of you already know, the recently passed Patriot Act imposes significant responsibilities and duties on a broad range of financial institutions for them to assist in the fight against things like money laundering, terrorist financing and other criminal activities.

Based on our core competencies, our experience, our technology and our reputation as a trusted steward of special information, the

International, or RDC, which is formed by a group of leading financial institutions around the globe, selected Equifax to host and manage a database which will facilitate USA Patriot Act compliance by the financial services industry.

We will accomplish this through the identification of potentially high risk individuals, companies and groups.

That includes a unique one of a kind database with global reach, a multi-year exclusive servicing agreement with RDC and it represents a multi-million dollar opportunity for our company over time.

Let me just take a second which may help you understand fully what this opportunity is.

It's an account screening tool.

It targets suspect transaction and individuals.

It utilizes public data and it leverages an operation that we've had for some time, Compliance Data Corp.

This is a 25-year-old company that we acquired about three or so years ago which has been providing special account opening and monitoring services to the brokerage industry.

This has been an entity of ours that we purchased because we thought it was leading edge and it had a relationship with many of the members of RDCOA.

So we will host and manage the data and we'll provide alerts, in fact, to those particular components of RDC.

Now, this is, while this is a unique application and for a very special use and set of clients, this is a core competency of Equifax.

We've already been doing this for 103 years to store information, to protect that data, to secure that data and then utilize that data for our customers' use in assessing and managing risk.

So this yet again is an extension of our core financial capabilities that are very special, an application, I believe, at a very special time.

And as the press release suggested, you know, this begins a real hallmark of our franchise on homeland security, which will have many appendages, many specific initiatives in solving our customers' needs as we go forward.

So this is the first unified attempt, at least that we're aware of, to assess the goal of the customers' that sort of who's who in complying the with Patriot Act.

And so we're very proud and privileged to have this relationship going forward.

I would note that we're also pursuing initiatives in Europe and in other parts of the world, like Latin America, that fit their laws, that fit their requirements to try to help the world be a safer place by helping out customers do their due diligence and assess risk in a better way.

We're very proud of having been awarded this opportunity and we'll look forward to keeping you posted not only on the developments here, but also on other initiatives throughout our franchise.

Turning to our small business exchange, or as we call it, our small business proprietary data management services, we've been talking to you about the construction and the composition of a small business information database for some time, which now is composed of 33 financial institutions utilizing data that they exchange for them to evaluate the current risk of small business customers.

This database and this capability during the quarter is now being enriched to meet the needs of non-financial institutions with the addition of 13 million

receivable records

in the district.

That's risk assessment type of data from these customers.

And when combined with the data from the financial institutions that we've already talked about, Equifax will have over 20 million financial records on approximately 10 million small businesses.

This is very important.

I mean if you look at the new customers, the non-financial customers like Airborne, BellSouth, Boise Cascade, Coca-Cola, Sysco, the restaurant supply company, and many others, this represents yet a whole new collection of customers, base providers and thus users.

And we've really gone, when you look at the exclusive financial exchange, to grow this significantly from 22 members to 41 members.

The trade that we'll have as we move toward year end grows significantly from maybe 10 million in just the financial institutions moving to maybe 18 or 20 million as we move forward, from 30 members as part of this data exchange moving towards almost 100.

So as we've told you, with moving this forward we're already monetizing these databases as we build it, this database asset, by delivering portfolio reviews, analysis and risk assessment to several financial institutions.

Again, we have been doing portfolio reviews involved in assessment to our customers for years.

Now we're using this unique commercial data to do a similar thing in assessing risk on their small business customers.

Another strong extension of our core.

Revenue will continue to accelerate as this database expands and new customers' data contributions come in and as we add new product, for instance, scoring and analytics, to what we're doing.

Turning to our direct consumer business, it continues to expand its product line and grow.

You'll remember, some of you that have been with us since the get go on this business, that our first full year to operation, not going back too long ago, produced $7 million in total revenues in '01 and we've reached a threshold of $22 million.

And this year we've got a run rate around a $40 million revenue level.

So this Internet, online, fully secured, direct to consumer suite of products is certainly giving us traction and growth, demonstrating the demand for consumers to be more enlightened and enabled and empowered relative to their own information.

Also in the quarter we entered two new products domestically as well as becoming the first company in the market direct to consumer credit type of products in Canada, again, showing our ability to support these products aboard.

One of the products we introduced was Score Analyzer.

What Score Analyzer does is it allows the consumers to better understand their credit score by really doing online what if scenarios about information in their file and the components of their scores.

In order to say well, if I didn't have as many lines of credit or if I paid everything this way or if I didn't have as many inquiries or the various attributes associated with the compilation of the score, it allows them to do what if and then determine what impact that might have on their score going forward.

So a very important addition for our product suite.

The other one that we launched just a few weeks ago was the three in one credit report, which provides the consumers with information from not only Equifax, but the other two consumer credit information companies.

This gives you a full bodied look across all three reporting companies for the consumer to look at all three and better manage the content, the accuracy and constituency of their credit information.

And this product is marketed at $29.95.

We're already seeing good traction and strong acceleration in revenue.

We really thought that this new product might do around 10,000 units during its first month of operation and actually we're running twice that rate.

So we really will expect this product to give us traction going forward and probably contribute in the neighborhood of $3 million to $3.5 million of incremental revenue this year just out of these new additive products.

And we're glad to take our product suite north into Canada and we'll continue to look at other markets abroad as laws and use of data permit that.

Also this quarter we formed in and around our consumer, direct to consumer franchise, additional distribution alliances which will substantially expand our direct to consumer database and reach.

First, we enhanced our relationship with Microsoft to broaden consumer exposure and awareness and understanding of our products and services.

Microsoft will display and promote Equifax's full suite of consumer products through 175 million advertising impressions and promotions over the next year throughout their msn.com Web properties.

And also very important, in addition, Equifax will be featured on the packaging of Microsoft Money 2003 Deluxe software package.

And why this is important is this takes our consumer product in a whole new direction by putting the Equifax consumer suite brand on the retail shelf for the very first time, and that's another first for our company.

Talking a little bit more about the consumer, Capital One, one of the premier brands in financial services, will market the Equifax suite of consumer products under their Credit Inform brand.

This sort of private label approach has broad application to other entities and other industries as companies continue to attempt to add value to their customer relationships with these consumer suites.

And if you stand back for a moment, as we've talked in many calls, one of the key components of CRM is not only acquisition of customers, but the maintenance and servicing and the value adding of existing customers.

And so this is an important component going forward.

And we've got more consumer products in the pipeline.

One more thing before I turn it over to Phil.

We've talked often about Decision Power, our unique decisioning software support platform.

It does about $40 million a year, growing over 10 percent annually.

We've now moved that technology decision support software platform into the health care market.

McKesson, the leading provider of health care supply information and care management products and services, selected Equifax's Decision Power technology in this quarter to improve their patient registration process and accelerate point of service payments.

McKesson serves a customer base of 5,000 hospitals, 10,000 extended care sites and over 35,000 physician groups.

And we really

platform and we conservatively estimate that over the next couple of years, this will generate in the $7 million plus range of revenues for our company.

That's some of the highlights, the new initiatives that I think are -- some of which are hallmarks of our company.

And now I'll turn it over to Phil to, as he always does, to cover the second quarter results in a bit more detail.

Phil?

Thanks, Tom, and good morning.

Let's discuss some details on our very strong second quarter.

From an overall point of view, our solid performance continues to be driven by a laser focus on expenses while at the same time we continue to invest in new products and initiatives, which Tom has already covered.

Total operating expenses were down six percent, to $184 million.

Previously, Equifax indicated that expense initiatives would yield $20 million expense savings in 2002.

These initiatives will now deliver about $40 million in expense savings.

Now for some detail on the business unit results.

First, North America.

Operating margins improved from 39 percent to 41 percent.

Consumer reporting revenue was down four percent, to $110 million, with transaction volume off two percent, primarily in financial services.

Also, prices were down approximately two percent.

In credit marketing, our prescreening business, revenues were up three percent, to $42 million.

Direct marketing continues to be impacted by the slowdown in advertising, mailings and promotions, and was down 12 percent, to $21 million.

Direct to consumer revenues were up 36 percent, to $9 million, driven by new product introductions and enhanced distribution.

Over four million consumers have now purchased Equifax's suite of products and services.

Now turning to Europe.

Europe delivered fine performance this quarter.

Margins almost tripled, to 11 percent versus four percent in 2001.

The team in Europe produced double digit margins two quarters sooner than we anticipated.

The consumer business in the U.K. has been experiencing low single digit growth in the local currency, as our new decision platforms gain traction.

Latin America also delivered good operating performance.

We're proud of our management team, who excelled in a very difficult economic environment.

In our biggest market, Brazil, revenue was up seven percent over last year in local currency.

The region's margins remain strong at 26 percent.

Some other financial points.

Equifax's free cash flow grew to $76 million year-to-date versus $67 million, a 13 percent increase.

Equifax has continued to drive down accounts receivable.

As a result, day sales outstanding have decreased from 66 days at the end of the first quarter to 62 days at the end of the second quarter.

Capital expenditures for the quarter were $11 million versus $13.2 million last year.

The majority of expenditures were for new products and services to drive revenue growth and improve operating efficiencies.

For example, the direct marketing business recently consolidated seven systems onto a single platform, which will deliver their products faster and more efficiently.

The company repurchased 950,000 shares for $26 million in the quarter.

The remaining authorization is $246 million.

Ending debt was $804 million.

Looking forward, Equifax anticipates meeting the full year consensus for earnings per share of $1.38.

The company also expects Quarter 3 EPS to be $0.36, in line with analysts' estimates.

Based on the overall economic climate, the company is adjusting its outlook for revenue for the full year from up four to six percent to flat to down two percent.

Thank you.

And now I'd like to turn it back to Tom.

Thanks, Bill.

And now,

we'll open it up for questions.

Thank you.

Ladies and gentlemen, if you would have a question, please press the one on your touch tone phone.

You will hear a tone indicating that you have been placed in cue.

You may remove yourself from cue at any time by pressing the pound key.

If you are using a speaker phone, please pick up your handset before pressing the numbers.

Again, if you do have a question or a comment, press the one at this time.

We have a question from

with

Please go ahead.

Good morning, Tom and Phil.

Hey, good morning, Brad.

You guys are showing some excellent margin improvement, a lot of which is coming through cost cutting.

Can you talk about, you know, what are some realistic expectations for margins for your business overall?

I mean you were at, you know, 32 percent in the quarter.

How much higher can that go?

Brad, that's a great question.

This is Tom.

As you know, we've generally had a goal to increase margins annually of, you know, half a point.

We continue to do that by finding markets where we can get a bit higher price on some of the products that are outside the core.

And we also do that by continuing to manage expenses across-the-board.

So, you know, our real goal is to hold those margins where they are.

They're significantly, you know, higher than most, but we continue to do that by new initiatives and controlling costs and going into new markets, which give us new traction and new growth.

That's the two combinations that we utilized.

OK.

Thanks, Brad.

Actually, I've got a follow-up.

Yesterday, Capital One announced some additional regulatory requirements in looking at the credit quality of its portfolio.

What type of -- I mean I guess you could draw that there could be some positive implications for the demand of credit data for people reviewing their existing portfolios on a go forward basis.

Do you all have any thoughts on that?

Yes, I think you've hit the key point.

I think as the regulators have established and sort of defining, you know, sub prime at a 660 beacon score, I think what portfolio managers are trying to do is to go look in their portfolios and then define sort of the scores of their portfolios against a macro look like a cross section of our customers.

So what they're trying to say, I believe, is that not only how we compare, but how much sort of leg room there is in making sure that as they, as the regulators define markets, that they're not cutting off credit qualified individuals that have, you know, a clear opportunity to obtain additional lines of credit.

And I think it's one of the strong uses -- Capital One is a great customer of ours, but we've done portfolio analysis and comparisons and predictions for customers for years.

So it's a, you know, it's an increasing need for financial institutions to try to, you know, come to grips with how they stack up and move forward.

And I think you'll see the same thing start to occur in the Patriot Act type of things, in small business.

And I just believe it's a real refinement on the part of the financial services industries to not only respond, but to grow their businesses appropriately.

And so it's an extension of a core competency and one that I think may have some long-term ramifications to this country and for other marketers.

I have just a final question.

On the small business exchange, you mentioned that you would be adding scoring and analytics to those.

Would that be more along the lines of what Dunn & Bradstreet is doing in bringing in a partner or would you expect to do that through kind of proprietary analytics and scoring?

We'll do that proprietarily.

We have somewhere in the neighborhood of 50 modelers, Ph.D.s, etc., that we've had really in the business since 1991 or 2.

We will utilize our analytics and our experience in our data delivery to continue to provide information to these exchange components.

I mean, remember, these exchange members came to us, asked us to form this and manage it and add value.

And so that's what we'll continue to do.

And I think we'll go forward to help them with decision power, analytics and sort of help them just like we've done on the consumer side.

Thanks.

Thanks, Brad.

Have a good one.

You, too.

We have a question from

with

Please go ahead.

Good morning, Tom.

Good morning, Phil.

Good morning.

Good morning.

I wondered if you could give us a bit more specificity with respect to some of the reasons why you're reducing modestly your revenue growth targets for the year?

Yes, I'll be glad to.

Phil raised his hand at me, so I'll be glad to.

But Phil wants to take a crack at that first.

Craig, there's two things.

Clearly in the U.S., the economy, as we see it, is not as robust as we thought it would be in this, you know, going forward.

Secondly, currency versus our original guidance has been hit, particularly in Argentina.

And I think the other thing that we're looking at, and while we haven't seen a big return, is the financial industry, the card issuers, retailing, traditional retailing has, you know, has been under attack and continues to be.

And I think emerging markets like telecom, we're showing traction.

In the regional smaller customer business, the mortgage business is still good.

And we'll continue to try to offset those conditions that we see, like the whole market is seeing, to reflect what we think our performance can be and should be while we're still trying to add on different opportunities to create growth.

So those are really the dynamics that we've studied in the marketplace.

And to follow onto that remark, the transaction decline year on year, I think you said it's about two percent, you said it was the financial services industry.

Within that market, should we interpret the card issuers as well it is in the banks?

It's a big piece of it.

As you know, in our credit marketing business, not only do we give the analytics to provide the list, but on the back end there's a lot of pulls of credit reports to take a look and see before the solicitation is done.

You know, if you look at one of our sort of the major players, if you look at, you know, what's happened to Providian.

It's been a major, a major player previously and a major customer.

If you look at sort of what's going on with maybe Next Card and some of those things, I mean the big guys are clearly down in their traditional momentum to market and we think it's appropriate reflect what's really happening in the marketplace, to try to manage against it and through it.

But, you know, there's more interest right now in better managing risk.

And that's why we've got a full suite of products to do it.

And there has been sort of over the last few years

.

And I think there will continue to be a balance of that.

Has some of the increased demand, I suppose maybe it's exempted in the last quarter, on the solicitation side for the issuers who decided since then?

Well, not really.

I think if you go back and look, if I understand your question correctly, I think we said that for the quarter our credit marketing business was up maybe three percent?

Yes.

But we don't, I'd like to think that's attractive.

We're glad to see that that's up but I don't think it's reflective in our minds yet of an overall industry response going forward.

I think it's not there yet, but we're anticipating that it will gradually come back.

If that's your question.

Yes, that's right on.

And my last question, you know, you guys continue to generate very strong free cash flow.

Can you refresh us on what your thoughts are about sort of the mix between the stock repurchase and maybe debt pay down?

Well, Craig, as we've talked -- and this is Phil.

As we've talked in the past, our first priority is to grow the business and we'll continue to look for acquisitions or development of new products, which would be our first priority.

After that, we'll continue to see how we would use our free cash flow either for paying down debt or stock repurchases.

We've got plenty of room authorized by the board to do so and we'll continue to balance that as we see opportunities, particularly to create through technology and through entities that give us growth in new markets, we'll make sure that that is the finite focus first but also balancing that with share repurchasing.

Thank you.

Thank you.

Have a good day.

Thank you.

We have a question on the line from

with

please go ahead.

Good morning, everyone.

Good morning, Bill.

Hi, Bill.

I had a question to see if we could get some additional detail on the NAIS segment, if possible.

I know, Phil, you gave some information on CMS and direct marketing and I wanted to see if we could also get the U.S. credit information services and the mortgage services and Canadian.

OK.

You know, in U.S. it's about $110 million.

Of that, about, as we've spoken in the past, about 45 percent of that is, you know, the financial institutions.

Mortgage was about $10 million for the quarter.

And Canada was approximately...

Twenty.

.... $20 million for the quarter, Bill.

Thanks.

The other question I had, a financial question, was on the tax rate guidance going forward.

The guidance will be 39 percent going forward.

And then congratulations on your homeland security win.

It sounds like it could be a pretty sizeable contract.

I wanted to see if you might be able to quantify that a little bit more than you have in the press release and then also see if you could comment on what your pipeline in that type of business is like.

Well, let me try to size it this way as best I can, and this will be an evolving thing over time.

If you just sort of look at the assets with those fine companies that compose RDC, I mean it's massive.

If you look at the number of customers they have, you know, it's hundreds and hundreds of millions.

And I'm not saying we're going to get all those transactions out at the get go or anywhere over time.

But I mean I'm just saying that over the while there's literally hundreds of millions of transactions that are potential for us.

This is sort of starting from ground zero and ramping up.

We've got certain requirements and expectations and we'll work just hand in glove with RDC to ensure that we provide leg room, growth room, capacity for this to continue to grow and ramp up.

Remember, these companies are going to have to compile, these 19 companies, compile, format their data, get their data in, have us store that data, begin to replenish it and begin alerting these types of transaction risks to those customers.

So, you know, it's a brand new platform that we're building for RDC.

It's a special business unit.

I think you'll see us going forward have a special business unit dedicated to security, safety and fraud outside of the core.

And so I really think it leverages some of the investments that we've been talking about for a long time, the CDC and our technology and our platform.

So guys, I wish I could give you a specific number, but I think as this ramps, it will make a significant contribution in millions upon millions of dollars of incremental revenue to us and contribution to profit.

But that's why we're going to -- just like we've done with the small business, exchange bills and keep up updated as the volumes continue to move.

And I believe there's a lot of solutions here, too, for smaller companies that, you know, will have a different level of sophistication but will still have the requirements to, you know, to deal with the Patriot Act -- the Patriot Act, excuse me,

screening, I.D. verification.

And some of those have been sort of core competencies, particularly

, of CDC.

So that's the way I sort of see it unfolding.

I know you'd like me to give you an absolute specific number, but I can't do that.

But I just want to give you why we think it's scalable.

Well, I had to ask.

So -- all right, well, thank you very much.

Bill, I'd have been shocked if you didn't.

Have a good day.

Thank you, Bill.

We have a question from

with J.P. Morgan.

Please go ahead.

Good morning.

This is

calling in for Matt.

Congratulations on the quarter.

I just have a quick question going back to a press release which you sent out on July 9 about resigning your contract with

I was wondering if you couldn't just talk a little bit about how the pricing of this worked and whether there was any pricing pressures with this contract and basically how you went about redoing the contract, whether this went through an R&P process where you were competing against others and how, you know, if you have any detail about how you were, how much better you were than the competitors, I'd love some color on that.

Jeff Dodge is going to take that one.

Hi.

There were no price changes or pricing pressure here.

This was actually a renewal of an existing contract and we extended our services with them with

which is an application processing system.

So we have actually extended our relationship with them without any pricing pressure.

OK.

And generally speaking when you're out renewing contracts or bringing on new customers, are you seeing any downward pressure on prices compared to the current customers that you have?

Well, I think in any industry, in any endeavor when you sit across the table from a customer, there's always pricing pressure.

I think the

the solution to that is providing value added solutions to the customers.

And we've tried to lead the patient in that, as you're seeing us doing with

in working with RDC, as we've done in the utilities business and our decision platforms and the small business exchange.

I mean those are the things that we're doing to provide absolute quality in our data, to provide better ways to deliver our data and turn it into solutions, to continue to enrich and analyze our data for projections and portfolio management.

And we've just built a suite of products that are very important and very connected to our customer needs.

And that's our value play and that's what our franchise is about.

And, you know, it's an active market and it's a tough market, but the value is the answer to most customers, as we've proven.

OK.

Great.

Thank you.

Thank you.

Have a good day.

We have a question from

with A.G. Edwards.

Please go ahead.

Hi.

Good morning.

Good morning.

I was wondering if you could comment a bit about any trends you saw as the quarter went on in terms of the activity from the financial institutions.

You know, rates, sort of systematically have been coming down since the end of March.

Did you notice any change throughout the second quarter in terms of activity for people pulling credit reports, whether it be mortgage or home equity, auto, things like that?

No, not really.

It's been steady.

It continues to be steady.

It's not, you know, it's not dropping off but it's not moving against traditional trend lines.

You know, we track this daily.

We've tracked it for years and years and years.

So it's steady, but we don't see the resurgence that we all in this country are looking forward to getting our economy fueled.

So, you know, last year if you remember the 20 percent growth in units, I mean that was fueled, that was a record for our company.

But that was fueled by a lot of the telco things and a lot of the activity in and around mortgage.

While mortgage is doing fine, that's still holding.

So we're really coming off sort of a record transaction year.

And when you put that against the realities of the marketplace, I think while we're doing everything we can to get those clicks going forward, we really don't see a real up tick yet.

OK.

Great.

Thank you.

Yes, sir.

We have a question from the line of

with Highland Capital.

Please go ahead.

Yes, good morning and congratulations.

Good morning.

Thank you.

How are you guys doing?

We're doing good, thanks.

Great.

How are you?

Doing fine.

A couple of tings I wanted to follow up on, if I could.

Number one was from an earlier question in regards to the credit scoring, what we've seen now from the office of thrift or the OCC in regard to the

of the credit cards and some of the home equity lenders, etc.

Could you even go a little further into at your product now that there's a clear delineation in scoring and how the regulators are going to view scoring vis-a-vis the CRA initiatives at every bank and financial institution has to have, too.

Are there ways to take those two pieces, put them together such that you can even further ensconce yourself in a value added matrix on the lending practices versus the risk versus the having to be out there in certain markets that have historically had higher levels of risk?

Well, I think that's a great point and that's why when we look at what's going on with the definition of "sub-prime," I think one of the things that we have been saying in working with our customers for a long time is, you know, there continues to be credibility robustness in a broader sector of the borrowing community, if you will.

And therefore we've been utilizing our scoring, which is very objective.

I mean it really is highly predictive.

Our data is highly predictive.

So, you know, we're working with the regulators, one.

We're having conversations with the Fed about how our data can be combined solely with the data they're getting from financial institutions to perhaps make it more predictive and to provide better understanding of the strength of the economy.

So we're doing those kind of reviews.

The thing that we mentioned earlier with Cap One, I mean we've, with other customers we have gone in with them, quadranted off geographically in every SMSA their customer mix, compared it to a broader generation, helped them look at their delinquencies versus basic delinquencies in markets to sort of compare how they're doing.

And so let -- where we're really, I think, going here, which some of us have been talking together since I've been here about really looking at more of an economic, macroeconomic relationship.

We've got a strong relationship with a company you may know, economy.com, which uses highly predictive macro and microeconomic data.

We're working with them for a product suite that's specifically pointed in this direction.

And I believe overall the portfolio reviews will not only be for risk assessment, but it will be for gaps, areas within their portfolios, areas that are predicted within our database where they can fulfill some growth but also without taking more risk.

And they're already trying to understand the risk as they move to different sectors of the marketplace to grow.

So whether it's the Fed, whether it's our customers, I just believe that there's a way for us to, you know, translate information into knowledge.

And that's been, I think as you know, a strong objective of ours for some time.

So that's my view of it and I appreciate your pointing that out because I believe that the market is moving so quickly to understand how to recover, how to grow, how to create meaningful relationships and how to do it cost effectively, as opposed to the traditional ways of marketing.

So --

Well, that actually, Tom, leads me into the second question and the risk factor of things.

It seems like given your existing, your broad existing customer base, where some of them have risk and credit as a core competency in a lot of areas where it's not necessarily a core competency, it's what they have to deal with as far as selling their products and services.

It seems like you're kind of positioned now within those businesses, having had kind of trial runs together or long relationships, that you actually have now some actual suites of solutions and services to more ensconce yourself in that area, too, and to build out on those relationships, whether incrementally with the small revenue, but actually at much higher profit margin.

Spot out.

I mean I think what we're saying together is that cumulatively a lot of this analytics and predictive power adds up to a lot of bucks.

It further, which is so important to us, further adds value to our customers, embeds us in their thinking, lets us think with them and add value to those risk analysis in terms of into programs of solicitation and maintenance.

And I think there's particularly use of -- I just, sorry to belabor it, but it's such a central point -- unregulated data like we created through the acquisition of

and our direct marketing business and new sources of data add new value to this equation.

While we know credit data is highly predictable, consumers providing their propensity to consume, their time frames in which they will consume and the areas of SKUs where they'll probably consume does add to the risk factors or predictable factors of our regulated data.

And that's always been our intent, to, not to combine the datas, but utilize those two sets of data for better solutions.

And I really believe that this is probably going to be the best year ever that we've had for our modeling business because more and more and more of the analytics outside of traditional scores are data and because we have such strong relationships with those customers, we can do proprietary solutions for them and that's going to be a continuing important part of our franchise.

Well, thank you.

Sorry to answer so long, but I think it's a central theme looking forward.

And the next question is from the line of

with Morgan Stanley.

Please go ahead.

Thanks.

I joined the call just a little bit late, so I apologize if this has already been asked.

But at the beginning of the year you had a pretty significant cost reduction initiative, primarily on the head count side.

And my question really relates to your ability to continue to manage the cost structure well and increase the margin in the core business for NAIS business to the extent the macroeconomic environment remains weak.

Well, Phil had already mentioned it.

I think as he started that we had talked about, you know, the growth in margins, there was not only a constant focus on efficiency.

We have managed, as we had committed, our head count population very well based on long-term potentials in those particular markets.

We have continued to manage our head count down significantly over this time in order to create efficiency and give us a lift.

You know, margins are quite high.

We want to balance the increase in margins to ensure that we're investing for future growth.

Phil said that we originally expected maybe a $20 million benefit from this type of expense management.

We're now thinking it's probably going to be $40 million, which is a huge increase in that lift.

And, you know, we've, our people, good people are really what makes the franchise and makes the analytics and the technology grow.

And our people are a key differentiator for adding value.

But we'll continue, I mean we've reduced, you know, our head count over the last year, you know, about almost 1,200 people off

5,900.

And while that's hard to do, we've always made the tough decisions, even before tough times hit, to try to be able to weather a bit and continue to invest in growth.

So I mean there, we've obviously known for a long time that that's the core competency, as well, of this company, to manage expense and investing for the future and that's a tough equation today for every business, but we're going to balance it and continue to make sure we do right about it.

OK, thanks very much.

Nice talking to you, David.

You, too.

We have a question from

with Deutsche Bank.

Please go ahead.

Hi.

This is actually

for Branton.

A quick one, Phil.

Do you have SG&A for the quarter?

Excuse me?

Do you have SG&A for the quarter?

I'll have to get back to you.

OK.

Thank you.

We have a question from the line of

with (Stevens Incorporated).

Please go ahead.

Hey, Tom.

Hi.

Can you talk a little bit about

Have you made any additional progress this quarter in selling that product?

Yes, we have.

I mean we've added three additional customers.

We've got now more than a billion transactions, processes that we're moving forward that we're looking at.

We continue to see a great deal of interest.

You know,

is, as we've talked about the marketing business, what it's solving for by delivering new platform that we're continuing to develop is to make sure that as the marketing focus continues to get more and more laser like, then there's not redundancy of expense in that we're pinpointing the consumer, that household, so that it enhances the reach but enhances the cost per acquisition of the account.

So, you know, we're continuing to see that opportunity not only in the stand alone platform, but also to merge customer information within their company and to merge data for consolidation as we go forward so we'll sort of have a total solution.

And we're beginning to look at some international opportunities there.

It's not just financial institutions.

It's for every entity that has sets of customers that we want, they want to know more about and we'll link more third party data to it.

And so it's making progress.

It's not meant to be an overnight solution because there is, as we just talked about, Brad, throughout the call, there's a lot of caution, but there's also a lot of interest in moving forward and growing on the part of our customers.

And we're trying to provide a multi-faceted suite of solutions for their doing so.

So we're making good progress there.

OK.

The, within marketing services, how much of that revenue, that $63 million, was

When I said the direct marketing, Brad, that was

OK.

$21 million.

What are you hearing from your clients there, Phil?

I mean is there any indication of a turnaround in that business?

This is Tom, Brad.

I believe so.

And let me tell you a couple reasons why.

We're seeing smaller jobs.

It goes a little bit back to the conversation we had a moment ago.

We've got to find more smaller jobs that add up to growth.

But the interest right now is in not spending large amounts of money until there's some clarity about the economy on these types of promotions.

But what we're doing, and we announced earlier the utilization of technology to combine seven platforms into one, that's in our direct marketing business.

It makes it far more efficient.

It allows our customers who are utilizing this non-regulated data to plug and play online, to look at the type of data attributes they're looking for, look at the size of the various segments there, look at the geography that they want to pinpoint and solicit.

And it really does give them, as they will come out of this eventually, it gives us a new cost structure and a new efficiency to be a bit ahead of that market as it comes back.

And that's what we'll continue to do.

And that plays into the use of our non-regulated data, as well.

The industry may be struggling, as a lot of industries are.

But when it comes back, we're going to be well positioned.

We'll be aligned with more solutions for the customers in a set with more non-regulated data.

Thank you.

Thank you.

Thanks, Brad.

Operator, I think we've about run out of time.

If you have a lot of questions in the cue, we're certainly available for one-on-one.

Are there any other questions out there?

And we'll take a few more, but we know you've got a busy day and we'll want to get back to you individually as need be.

We do have one question from

with Bear Stearns.

Yes, let's talk to Kevin.

Hi, this is Michael.

Hey, Michael.

I will.

I definitely will.

Can you tell us what percentage of revenue came from mortgage related sources in the quarter?

All mortgage sources?

Well, let me think while they're looking.

The whole specialty market, which is our reselling and our mortgage business, I think, as a percentage is around, I'm afraid to guess while I've got my financial guru who's back looking at the number, but it's about, it's a pretty small percentage of the overall activity crop.

It's probably 25 percent in cumulative specialty mortgage resellers.

Thank you.

OK.

And Mr. Chapman, there are no further questions in cue at this time.

.

Well, thank you very much.

We appreciate all of you being on the call and for your continued support and interest in our company and we hope you have a great day.

Can I just add one thing while I've got you?

And I know you're hanging up.

Quickly, one of the key additions to the strength of Equifax going forward is Mark Miller, our new President and Chief Operating Officer.

He's been in and out, as we can speak to him about what we're doing, where we're going forward.

Mark will join us officially on August 6 and all the businesses and technology will report to Mark.

He's got a unique set of qualifications, talent, skills and a very unique leader.

And I wouldn't want to end this call without saying that we worked hard and long to find an individual that could add great value, great principle and great leadership to the business day to day and I believe we've got a world class individual in Mark Miller.

That's part of our succession, that's part of our growth, that's part of our added talent from diverse backgrounds that enrich our franchise.

And I wanted to end our call by making sure I addressed Mark.

And we all look forward to meeting him and he'll be joining us August 6 and be an integral part of our company going forward and I believe for a long, long time.

Thank you, everybody, and have a great day.

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