易速傳真 (EFX) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the first quarter release earnings conference call.

At this time, all lines are in a listen-only mode.

Later, we will conduct a question and answer session.

Instructions will be given to you at that time.

If you should require any further assistance, please press zero then star.

As a reminder, this conference is being recorded.

And now with investor relations, I'll turn the call over to Jeff Dodge.

Please go ahead.

Good morning.

Welcome to today's conference call.

I'm Jeff Dodge with investor relations, and with me today are Tom Chapman, our Chairman and CEO, Mark Miller, President and COO, Don Heroman, Chief Financial Officer, and Dennis Story, Corporate Controller.

We'll be making certain forward-looking statements to help you understand Equifax and its business environment.

The statements regarding our expectations for 2003 are forward-looking under the Securities Act and subject to inherent risks.

Review our 10-K and other SEC filings that describe our company in more detail.

Today's call is also being recorded in addition to being web cast live over the Internet.

The replay will be available on our web site at www.equifax.com.

Now I'd like to introduce Tom Chapman, our Chairman and CEO.

Thanks, Jeff, and good morning, ladies and gentlemen.

Equifax had a great start to the year in Q1.

What I'd like to do this morning is initially I'll hit the highlights of the quarter, report on the gratifying performance in our core businesses, and address some of our strategic initiatives, and then Don will, as usual, drilldown on more detailed financial data and then we'll be glad to take your questions.

Equifax delivered an extremely strong performance during the first quarter.

Revenues increased 16% from a year ago to 302 million, a record quarter for the company.

And earnings per share from continuing operations at 33 cents were up 10%.

Our execution and performance was broad-based.

U.S. consumer revenues of 125 million grew 14%, a record first quarter.

Credit marketing revenues of $40 million grew 4%, a record first quarter in a horrendous economy.

Direct to consumer revenues of15 million almost doubled.

In fact, increased 91%.

A record quarter.

Mortgage reporting revenues of 17 million advanced 50%, another record for the quarter.

And Canadian revenues at 21 million grew 7%, another record for the quarter.

Turning briefly to our international operations, Latin America revenues grew 5% in local currency, and we believe that to be exceedingly strong execution in that marketplace.

And in Europe, first quarter revenues were31 million, with operating margins of 9%.

Now I'll give you some additional insight into the quarter and drill down a little bit more.

North American information services, which as you all know, represents well over 80% of our total revenue, delivered strong performance in our core consumer information services with growth in revenue of 16%.

We extended our leadership share position with large global clients by increasing product penetration with the installation of our Decision Power and application processing platforms.

Decision Power revenues were up 11%,and our application processing platform revenue were up 18%.

And we continued to win market share as evidenced by a recent two-year agreement to service 100% of the business of GE capital, one of our top customers.

As I mentioned previously, mortgage reporting experienced its best quarter ever, and this momentum continues into the second quarter.

The mortgage bankers association recently increased their forecast for the full year by 31%.

I think it's interesting to note that this increase now brings

MBA's projections for mortgage this year to $2.6 trillion, which is slightly higher than the full year of 2002.

And the previous forecast was 1.9 trillion, so while we know this market has volatility, this should help allay investors' and your concerns that mortgage financing will drop off significantly in the short term.

Our analytics and modeling business is an important part of the future value of Equifax.

This business unit, which historically has been used to support the core business, will do far more than that in the future.

We have several robust and highly predictable databases, which when coupled with our analytic tools and models, produce compelling, decisionable results for companies and additional revenue and volume for Equifax.

We have extensive experience in modeling and analytics with over 235completed projects last year by a staff of Ph.D.s and professional statisticians with over 350 years of combined experience, a huge asset for this company in the future.

In the first quarter, for instance, we completed 21 projects, introduced nine models, and 12 portfolio analysis programs, far up from last year.

And we're looking at this data so highly predictable, and working with various constituencies, government, Fed and others, to help get a better view of directional trends as we look at the variables, many of which are associated with our data database, particularly the credit database.

Turning to marketing services, which represents another significant revenue opportunity for us, we've integrated the capabilities of our more traditional credit marketing services platform and direct marketing services platform with electronic marketing to produce a powerful total marketing solution.

And so doing, our customer and prospect base has expanded from the traditional credit card users (ph) generally to industries like publishing, entertainment, media, automobile, and many other industries.

Our consumer direct business, record revenues.

This unit continues to produce strong results with revenue nearly doubling, as I mentioned a few moments ago.

The combination of the Equifax brand, one of the most powerful in the marketplace, with our trusted customer information stewardship, continues to produce a winning combination for North American consumers.

We've reached a new plateau.

We've got about 5 million customers using our direct consumer products today.

We continue to enlighten, enable and power consumers and benefit them, whether it's in the prevention of identity theft, which we all know is the fastest growing crime in this country, or reducing their cost of borrowing by helping them improve their credit standing, giving them choices, empowering consumers.

And that's the mantra of this business, enlighten, enable and empower consumers.

On the horizon and in the past, we've talked about our small business enterprise solutions.

This was a benchmark quarter for us in so many ways.

We continue to significantly strengthen this platform.

We've been gathering data now for about 18 months as we've told you to produce this first in the marketplace.

The intent here is to provide a total suite of diagnostic risk management tools and models designed specifically to serve those who serve small businesses.

We now have over28 million records on 16 million small business enterprises. 120 customers are buying our Small Business services today, and contributing data which includes financial institutions like Wells, American Express and GE, and non-financial institutions contributing their data such as Coca-Cola, Cascade and 3M.

And in the first quarter, we produced our Small Business credit report, the first time we've had a Small Business credit report in our 104-year history.

It's now in the market, and it's being used.

In addition in the first quarter, we introduced the first Equifax small business risk score.

An early indicator suggests our small business risk scores are outperforming existing tools of its type in the marketplace.

Turning to fraud, safety and security, we've talked often about the business marketplace needs in that space.

We've created our OFAQ (ph) alert product, our global regulatory information database is the largest of its kind with 1.2 million individuals on that file, where additional due diligence may be necessary, not only for compliance, but just due diligence in opening various types of accounts.

When I have 13 customers boarding using our system and 28 customers under contract coming down the road.

Now we're all waiting for a resolution to federal law in the form of USA Patriot Act which has been in place for over a year.

We're waiting for the enforcement and the finalization of those rules.

But while we wait, we move forward aggressively to deliver our fraud and ID verification products which do meet customers' needs to know who they're doing business with and to know more now than ever before.

Whether it's compliance, or just good business.

Now looking outside of North American and Latin American operations are producing encouraging results -- Brazil.

Brazil and Argentina revenues were enhanced by good performance, particularly in the analytics and decision marketing tools and platforms.

Argentina stabilized from the fourth quarter of 2002, and increased local currency revenue by 8% during the quarter.

Our European operations also produced positive trends.

Operating profit was up 2% for the quarter and our margins were on target.

Our consumer business in Spain reported an increase in revenues of 23% for the quarter, versus the fourth quarter of 02.

Now I'll turn it over to Don to drill down even further in some of the metrics and numbers.

Don?

Thanks, Tom.

And good morning.

Tom has already reported the revenue and EPS results, so I will focus on the business units' performance, and I'm very pleased to do so.

The first quarter has generated great momentum for the year.

North American - North American revenues grew 24%.

U.S. consumer reporting volume was up 19%.

Marketing services revenues were up 33% and 4% on a comparable basis with last year.

Our Consumer Direct revenues were up 91% to $14.8 million, and Canada revenues were up 7% as Tom mentioned, a record for them.

And Latin America revenues were up 5% in local currency, and that was driven by Brazil, who actually experienced 11% growth in local currency.

The encouraging note there as well is we're starting to see some stabilizing signs in the rest of the region which we think bodes well for the future.

In Europe, revenues of 30.7 million were flat compared with 2002.

We experienced growth in our UK consumer services, our largest business in Europe.

We continue to expect margins to improve this year to the mid teens, driven by continued improvement in the UK and Spain consumer credit reporting operations and now some corporate financial news for the quarter.

Cash flow from operating activities was 28.4 million for the quarter, and capital investment was 12.8 million dollars.

Our DSO's were 58 days versus64 days from the prior year, so we continue to see improvement in this important category.

During the quarter, we repurchased just under 1 million shares, totaling just under $20 million of stock at an average price of $19.68.

We now have$203 million remaining under our authorization.

Our priorities for cash have not changed.

Acquisitions, product development, stock buy back and debt pay down.

Thank you for your time, and I'll turn this back over to Tom.

Thanks, Don.

That just sums up that the first quarter of 2003 continues to demonstrate our commitment to optimizing shareholder value.

We're very proud of the quarter.

A lot of challenging times ahead, but we're off to a very good start, and now I'll be delighted to answer any questions that you have.

Operator?

Ladies and gentlemen, if you wish to ask a question, please press the 1 on your touch tone phone.

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If you press1 prior to this announcement, we ask that you please do so again at this time.

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If you are using a speakerphone, please pick up the handset before pressing the numbers.

One moment, please, for the first question.

Our first question is from the line of Craig Peckham from Jeffries & Company.

Please go ahead.

Good morning, everybody.

Morning.

In the past, you have been providing guidance on the full year numbers, and last quarter you talked about an earnings range of $1.46 to $1.52.

I wonder if you'd be able to update us on that.

Craig, this is Don Heroman.

We issued our guidance for the year at the beginning of the year, and that's the pattern we plan on continuing to do.

Obviously we had a great first quarter, and so that's encouraging for the rest of the year.

As you well know, the economy has a great deal of uncertainty in it, but we're pleased with where we are.

Ok.

And if I may follow on, you did give some attention in your press release to the increase incorporate expenses.

It was a decent size increase, and I wonder if you can give us a little more detail about what's behind the legal reserves, corporate reserves and -- fees.

You bet.

This is Don again.

We did have some unusual and one-time expenses that we think will be behind us after this quarter.

The legal reserve was the Clark settlement that we have previously mentioned.

We did do some investments, about 2.5 million in some productivity initiatives in the first quarter that we think will show some contribution in the second half of the year, and we invested in some new businesses that are consuming some investment dollars right now that we think will continue to pay off in the latter half of this year and into 2004.

Is it possible to isolate how much of that increase is non-recurring, as it were?

The non-recurring is in the neighborhood of 6 to $7 million.

Ok.

And I know I said my last question was my last question but let me just ask one more.

I just wanted to clarify, in direct marketing; did you say that it was a 4% organic growth rate?

We did.

Ok.

All right.

Nice quarter.

Thank you.

Thank you.

Our next question is from the line of Brad Eichler from Stephens Incorporated.

Please go ahead.

Good morning, Tom and Don.

Morning, Brad.

Couple of questions for you.

Can you talk first of all about the trends you're seeing from your credit card customers particularly as it relates to using your information for customer acquisition and portfolio management, please?

Yes.

I'll take that.

We're beginning to see credit card -- particularly in the large corporate market -- begin marketing activity again.

We are seeing several large customers particularly targeting the sub-prime segment and getting much more aggressive there, so we're not projecting any dramatic increase there, but we're seeing some improvement in that activity.

I think I see some falloff during the first quarter on that front?

In fact, our CMS business, which is our traditional credit marketing business, which is all credit card-related essentially, and some telco, grew 4% for the quarter.

So it's not as robust as I think any of us on the line would like to see it, but there's still some trends out there that there may be some better activity going down the line.

Our large customers are still seeking the right answer for beginning ROI on those programs.

Ok.

Don, you had mentioned some improvement in the UK credit market.

Can you elaborate a little bit more as to what's causing that?

Actually, Mark, that's probably more appropriate for you.

Miller Brad, would you repeat the question?

I'm sorry.

Brad Eichler That's fine.

In the UK credit market, it sounds like you're gaining some ground.

Can you elaborate on what's happening there?

Is it market share gains against experience or what's going on?

Yeah.

We are -- in our consumer business, we're seeing good trends.

As a matter of fact, our volume was 14% higher for the quarter.

We've had some key takeaways in the marketplace.

We also are making or getting real traction with financial institutions in know your customer activities.

We talked previously about the UK passport company going from a pilot to a full rollout.

Just this week, we had a $1 million signing for a Key Banking client, so we're getting traction.

There we expect that to continue.

Then just two model questions for Don.

Just to make sure on the other income question from the last caller, when you said a portion of that is non-recurring, does that mean that will not recur again in the second quarter or is there still going to be some lingering expense you expect higher than normal?

You bet, Brad, and I think we're talking the other expense?

Yeah, other expense, yeah, I'm sorry.

Not other income.

Expense, yeah.

You bet.

One part of our investment and productivity initiatives will continue into the second quarter and then get the benefits in the third and fourth quarter and beyond, but some of the other investment in the first quarter will go away and start showing benefits in this quarter.

Ok.

And then on other income, that was slightly higher than the trend it's been running.

Was there anything unusual in there?

Dennis is going to answer that one.

Hey, Brad, Dennis Story.

There's nothing unusual.

That is actually cash proceeds, a large portion of that is cash proceeds that we're receiving on the purchase paper that we sold in the risk management business back in October of2000, and the other component of that P & L line item is interest income on cash balances.

Got it.

Ok.

Thank you very much.

Thanks, Brad.

Our next question is from David Togut from Morgan Stanley.

Good morning.

This is Elizabeth for David.

A couple of questions.

First of all, with respect to the cash flow, Don, can you talk a little bit about trends you're seeing in your working capital and investments?

It looks like both were up relative to year ago, and just wondering whether those are sustainable factors that we should expect through this year.

You bet, Elizabeth.

The working capital number is up, but the anomaly was last year, not this year.

UDZ (ph) it's up $7 million this year, but it's at about $12.5 million.

We had given guidance for 45to 55 million, and so we're still comfortable with that guidance.

Ok.

Can you explain what other assets are under your investment activities?

Are those a form of capital expenditures or is that truly "other"?

Elizabeth, yes, that's where we classify our development, technology development.

Ok.

Great.

And then shifting to North American Information Services, one, can you talk about unit pricing trends in the quarter?

Elizabeth, the pricing trends actually, our unit pricing was down just 1% in the quarter.

We're real excited about that.

Ok.

And that was partially benefited from mortgage, I would imagine?

That is correct.

Ok.

And then finally, the marketing business saw some strengthening.

Based on the factors that you're seeing now, do you see visibility for that over the next couple of quarters also remaining kind of at these levels, or how should we bethinking about that business?

I think the prospect for our marketing business are quite good.

I think we are seeing some pressure in E marketing in terms of CPM's, in terms of price compression.

What we're particularly excited about is the rollout of new product by combining a database that no one else is going to be able to touch.

Just in the next couple of weeks, we'll be announcing that as it's truly a coming together of unique attributes that include e-mail, postal and about 80 different lifestyle and demographic data points that our customers are going to have real time access to through what we're calling Equifax List Select.

We think it's going to be a game (ph) changer in the marketplace, so there is price compression and some (inaudible) on (inaudible) we're combining these businesses to become a multi-channel marketing powerhouse, and that's what we really expect in the second half.

This is Tom.

I would add that as we've seen with the war, it dramatically impacts consumer attitudes, and we also, while we're doing some good things, we're cautious as to what may happen in and around that space, but the important thing to us as I mentioned to Craig, I think, is that our CMS core marketing business, which has been, you know, our core solicitation direct marketing business was up 4% for the quarter.

And so I think we've put together a good package while there's some volatility in the marketplace, I think it's good organic growth, and that's the thing we want to count on as we look down the road.

I just want to make an additional point, if I could.

In the CMS area, we are in the process of rolling out phase one of a new technology platform that's going to fundamentally re-engineer the way we do business there and the way our customers do business there.

It's going to dramatically improve accuracy.

It's going to dramatically eliminate rework and drive productivity.

It's going to be, we think, a real significant competitive advantage for us in the marketplace.

I just talked about what we're doing in our direct marketing and E-marketing space with ELS.

Another competitive advantage breakthrough, we believe.

We're also doing that in our Spire (ph) or our decision platform that we think is also going to be a real breakthrough for us in the marketplace.

You'll be hearing more about that.

So we think we're on the cusp of some real technologically driven competitive advantage in some of these areas.

We're banging this question to death but it's such a good.

Question.

As Don and everybody's mentioned, some of the expenditures that we're talking about when we say productivity and efficiency are to enhance and retool our technological capabilities as a technology-centered company to provide real time solutions and answers to ever-increasingly complex questions.

And to do it with speed and accuracy and with complete technological execution.

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

That's very helpful.

Thank you.

Our next question is from the line of Bill Warmington from SunTrust.

Please go ahead.

Good morning, everyone.

Just wanted to check on the -- you showed very strong unit volume growth on the credit reporting business.

What as -- that was up 19%.

What was the pricing associated with that?

Sorry, what was what the?

Pricing.

Typically you'll give us the unit volumes are up this much, pricing is -

That's what we just mentioned a minute ago, Bill, and that is that pricing was down 1% for the quarter overall.

Sorry I missed that.

No problem.

The other thing I wanted to check was, I know you gave the organic growth for the CMS division at 4%.

Just wanted to check on the organic growth on the overall business.

It's 4% overall.

Oh, you mean overall of the whole company in

Yes.

10%, Bill.

10%.

And then I wanted to check on -- you've mentioned that you had started selling the credit reports in the Small Business Exchange this quarter, and if you could talk a little bit about how the revenue there is going and what the progression is likely to be throughout 03 and where you think you're going to be on a run rate at the end of the year.

I think -- this is Tom.

That's the first step the rest of our lives.

I mean, we've been telling you we're going to build this database.

There's great interest in Small Business lending and marketing.

It takes a while to build a database.

We've got an enormous customer base and data contributors.

The report is very unique, it's very simple.

The modeling and analytics are powerful.

I can't really predict what it will mean longer term.

We're just now rolling it out, but we do have 120 contracts in house.

Right.

For use of that product line.

And I think that's the most important part of it, and we've gotten great feedback from the customers that have helped us build it.

It's simple, it's easy to use.

It's cost-effective.

So I think I really do believe, Bill, that this is going to be one of the new significantly contributing businesses to Equifax, and it's the -- this is a first in the marketplace, and I think, you know, to build the data is so very important, but, you know, I just think it's going to be a very significant product suite from credit reports for small business, from portfolio, a lot are using this product line already to analyze their commercial portfolios just like they have used for years on their consumer portfolios, and this list score, is going to be far more prevalent, far more visible in what it's doing, so I'm very pleased with where it's going and we'll continue to keep you updated.

When do you think it reaches, let's say, a $10 million revenue threshold?

Oh, come on, Bill.

Ok.

You know I would tell you if I knew.

This thing is just starting.

We've got a lot of traction underway.

We haven't even done the powerful launch.

You know, we said earlier, I think that we looked that it might be 5 million or so, 5 to 7, and I think we still are comfortable with that view.

Ok?

So that's -- that kind of outlook, I think will still hold, and as we look through 2003, and that's what we told you previously.

And I think the point about a product like this is as it gains maturity, as it gains momentum, we've always known and always said that the first5 to 7 is probably the most challenging, and then after that, we really believe the growth can be --I don't want to use the term "exponential," but really quite dramatic beyond that.

Does that help, Bill?

It does.

Final question for you is just to ask about -- you've mentioned the Patriot Act a couple of times, and just to ask if you could review the different ways you're going to be helping on the Homeland Security front.

Well, yeah, as I mentioned in my comments, the Patriot Act has been in place.

It's a very unusual thing in America.

We have federal legislation that is not being enforced which helps the country be a safer place.

I mean, that's just the simple fact.

Our grid model with RDC was built to provide some complex and probing solutions to these questions.

We're still working on that project as well.

We've done a great deal of research into that marketplace as to what forms of compliance that the institutions will be using.

Right now Treasury is not forcing compliance.

But they're continuing to adjudicate what that means.

In the meantime, we've got an array of ID products which are, in effect, compliant to the Patriot Act.

We've got customers tracking record products, and we've got fraud products.

So all of those will go far more than just RDC and grid.

We will market to broad-based industries, and we will offer cost-effective, simple-to-install, easy-to-use, appropriately-priced products and services for not only compliance, but just doing business appropriately.

So we've got, I think, multiple solutions.

No one has the solution to Homeland Security.

I wish we did.

But we're going to be a part of those solutions.

Thank you very much, and congratulations on a nice job in a very tough environment.

Thank you very much, Bill.

Our next question is from the line of Fred Searby from J.P. Morgan.

Please go ahead.

Good morning, gentlemen.

Frederick Searby with some questions.

First, I just wondered, can you refresh my memory in the cash flow it shows you're making an $11 million acquisition?

Did you acquire an affiliate during the quarter in?

We did.

And then my question is on margins.

They fell somewhat, the operating margin.

You talked about the legal reserves and consulting fees and some of these other issues, but that explains part of it, about 1% of it, but, I mean, is the real pricing compression coming in, you applied, in Naviant (ph), and is that flowing through the -- your revenue growth was quite strong and the margins came in a little bit light, and I'm trying to figure out beyond the points you isolated related to reserves, what's driving that.

Frederick, hi, it's Dennis Story.

It's not pricing compression.

You know, the margins really principally met our expectations coming in for the quarter.

If you look historically at our margins in Q1 of 2000, our margins were 27%.

In 2001,they were 28% and in 2002, they were 31%.

Which that was principally driven by expense reductions.

We reduced expense 12% in the first quarter.

Don talked about the investment in the productivity initiatives.

But really what we have here as well is, we have a shift, we're shifting the investment profile of our company, ok?

Driving revenue growth and shareholder value.

So that's what you're seeing in the numbers.

Okay.

And then can you specifically breakout Naviant?

Did I understand you that you were saying 4% organic growth in direct marketing?

I'd be very surprised if Polk (ph) were turning in organic growth.

This has been a horrendous quarter for most direct marketing companies

Polk is rocking.

It turned in 4% growth, and we've seen good trends over the last six months in that business.

That was 4% organic growth, yes.

Ok.

And then can you just talk about, you know, you've maintained guidance, it sounds like, for the year.

Can you talk about free cash flow or your expectations still there?

I mean, on the working capital side we had a little bit of a disappointment.

I was wondering what you're seeing.

Well, we still expect our free cash flow to be in the $200 million range.

We did have a$20 million contribution to the pension plan which won't recur the rest of the year, so we think we will be back on track to delivering the second, third and fourth quarter numbers to deliver200 million.

Ok.

Frederick, on that point as well, just so you know, we build momentum through the year; we've had a consistent pattern of that.

About 65 to 70%of our cash flow is generated in the second half of the year.

Ok.

Great.

That sounds like a strong and encouraging number.

Just finally, mortgage, you know, was very strong and you break out one component, and last quarter you gave us a sense for how much mortgage refinancing is of your overall business.

Can you give us where it stood in the first quarter?

Yes.

We have historically said it's 10 to15%.

It's gone a little over that in the first quarter because of the high re-fi (ph) buy.

But like 16, 17%?

Yes.

Ok.

Thanks a lot, gentlemen.

Good quarter in a tough environment.

Thank you very much.

Your next question is from the line of Allen Swichler from First Manhattan.

I'd just like to drill a little bit more into a North America 24%.

I don't know anybody that's growing in North America 24%, so could you maybe just, you know, give us a little flavor for - I mean, there's got to be some acquisition in there from the files, you know, some of the files you bought last year.

Could you just sort of help us out a little bit about, you know, what's going on in that number?

Yeah, the organic growth in that number is 16%.

And the driver there was our E-marketing acquisition.

What you have is you have strong momentum in our Information Services, you have strong momentum in the marketing businesses on an organic basis, and Consumer Direct delivered a record quarter in terms of revenues as well.

But the U.S. consumer and commercial service, I'm just looking at the supplement, was up what looks like about 14 or 15%, right?

Yes.

Give or take?

Yes.

Now, is that -- when you talk about organic, was that -- that was -- that, you had some benefit of acquisition, right?

That was the -- that's where the files would have run through that you bought at the end of last year?

That's right.

That's the CBC acquisition, and we have fully integrated that acquisition.

Right.

Total revenues that that acquisition generated for us were 6 million in the quarter.

That is not incremental.

Ok?

I don't have that number with me.

I'd have to get back with you on that.

I believe it's about 2 million -- 2 to 3 million incremental.

Meaning you had some of that by virtue of your relationship, right?

Exactly.

That's correct.

That's correct.

Ok.

And so the driver there in that - just sticking with that segment, which as we know is very profitable, the driver there is the market share or, I mean, you know, what would you - you know, how would you quantify that?

It's a couple of things.

It is account penetration.

We have some mortgage volume in there that helps us, ok?

Our decisioning platforms delivered double-digit growth in the quarter as well.

Our mid market business grew 5%quarter over quarter, which was significant.

So it's really a diversification of the portfolio in the business.

I think -- the 5,000 people of Equifax really frankly exceeded expectations in the quarter.

They did a fantastic job.

Our pipeline is full.

We've had some sales wins that were -- we're very proud up.

We can't mention them all by name but we've seen some large corporate activity that's very excited.

We're seeing full pipeline and things that really fuel us.

This comes down to execution.

This comes down to the people in the field working with our customers, really doing their jobs beyond the marketplace.

And I think it's important to note not only that we produced the results for this quarter but we didn't mortgage our future to do it.

We invested in our future at the same time.

Thank you, guys.

Great job.

Thank you.

Any more calls, operator?

Yes, we have several more questions.

And the next question is from the line of Kevin Gruneich from Bear Stearns.

I was wondering, could you talk about the accretion that came from those acquisitions that were done back in 2002 for the quarter?

There wasn't a lot in the way of accretion for this year.

It increased revenues but it didn't --it was fairly neutral to EPS, Kevin.

Ok.

And just so I have it clear, when you provide organic revenues, you're not fleshing out the 10 small credit affiliates that you bought early last year?

No, we are not.

They're not really material to the number, Kevin.

Ok.

And could you provide an FTE number for the end of the quarter and maybe -

Did you say FTE, Kevin?

Approximately 4700 employees.

We're down about 180 from year-end or about 3%.

Where did that -- do you know where that would look observe on a pro forma number for 3/31/02?

Unidentified I'm sorry, Kevin, I'm not sure I understand your question.

In terms of the savings?

Are you there?

Kevin, did we lose you?

Year decline in FTE's?

Kevin, your line is breaking up.

We can't hear your question.

Can you hear me?

Yeah.

There we go.

I was wondering, do you have a year over year number in terms of FTE's, just kind of on a pro forma basis?

Year over year, we're down 156 people.

156?

Right.

Ok.

Terrific.

Thank you very much.

Thank you.

And our next question is from the line of Craig Peckham from Jeffries & Company.

Please go ahead.

Hi.

I'm just curious, in the absence of any action in Washington on the Fair Credit Reporting Act, how might that impact your business?

Well, I think there's two or three things you can probably say to that.

First of all, there is going to be some action in Washington.

They cannot leave the credit system of America in limbo.

There's a lot of debate going on there that we're vitally a part of.

Greenspan has come out in support of it.

Snow from the Treasury has come out in support of it.

The financial institutions have come out in support of it.

The FT TC has come out in support of it.

It is a complicating factor for anybody in the information business.

Let me underscore that.

Anybody in the information business, if, in fact, we go to state by state operatives.

We don't think that's going to happen, but it would make the way the business operates clearly different, but we already know which states, which consumers are in.

I mean so if we were to have to go in that direction, it would be highly jeopardous for this economy.

But if we had to do that, I mean, conceivably you just run 50 different components.

But, you know, the business will still run, they'll still buy, they'll still loan.

There just may be a different model if our Congress wants to threaten the little survival of our economic foundation and everybody knows the consumer has driven this economy for decades.

So it's one of those things that politicians do.

But we've got alternatives to that.

We're very active in it, and what it's going to do, it's going to drive up the cost of lending.

It's so anti-consumer across the board that it flies in the face of everything we see going on in our economy today, which is pro consumer.

Protect the consumer.

So, you know, that's what the legislation is, but that's our view on it.

I'm glad you asked the question.

It's a good question.

Thanks for your answer.

Yes.

We have a question from the line of Michelle from Meridian.

Please go ahead.

Michelle Drasher, your line is open.

Do you have a question?

Do you have your phone on mute?

We will move on to the next question from the line of Jay Ashton from New Berger Berman (ph)

Good morning, gentlemen.

Gag back to the first question, I missed the answer.

Did you all reaffirm the range you had given in the beginning of the year?

Yes, we did.

You did?

Ok.

And then the second question, it was a follow-on to that.

When you look at the components of that, looking at the rest of the year, you know, with the quarter behind you, in looking at your model, is there any change in your mind as to how you get there as far as the moving parts and the different businesses than three months ago?

Well, I think there are a lot of moving parts in this economy, but I think one of the things that speaks to that is our diversity of investment in deployment opportunities.

And I believe that, you know, we've already talked about the fact that if the economy comes back, you're going to see a lot more traditional activity.

What we'll really do is execute against those initiatives we have in place, Small Business, Consumer Direct, our whole move direct marketing approach.

Telco (ph) is heating up dramatically, and you can see it even in long distance.

We own a huge share of respect and dollars in that industry, and that's heating up, even long distance again.

And we'll continue to control the heck out of our costs, execute against our initiatives, and also just focus on optimizing shareholder value.

So we've got to be flexible there, and we shall be.

But as far as the kind of traditional businesses versus the newer services, the newer businesses that are rolling out, you anticipate similar types of -- the same types of growth that you were anticipating three months ago from the mix between the two, between now and the end of the year, you think it will be about the same as to where you thought it would be three months ago?

It's hard to tell.

I think as we move forward with some of the different priced products like in our -- particularly our direct marketing business, there may be some dynamics change there.

We may get there in a different way.

I think we're subject, like we all are, to the fact that information is going to be a critical asset and need for whatever the economic situation is, and we'll continue to run the business pretty much with the setup we've got now.

There may be variables in those various business lines.

I think we're proud and I hope our investors are that we've got multiple business lines that are meeting the needs of not only yesterdays, but tomorrow's needs.

And I think that's as definitive as we can go get.

The last question has to do with the mortgage market.

Can you give your view of the mortgage market today as to what it was three months ago?

Particularly with regard to how this year is going to play out?

Every signal that we see, every expert, Tom talked earlier about the Mortgage Bankers Association number upping their number by 31%.

Every indicator that we are following suggests amore robust mortgage environment than frankly we would have seen three or four or five months ago.

We have really frankly felt you would have amid-year falloff based on the economy recovering more rapidly and interest rates going up.

There seems to be no signs of interest rates going up and no slowdown in mortgage origination, so right now I think it's fair to say we're cautiously more optimistic than we were three months ago.

Ok.

Thank you very much.

Thank you.

And we have a follow-up question from Brad Eichler.

Please go ahead.

Hey, guys, this is Kyle for Brad.

How are you?

I thought I'd get my voice heard on the call as well.

Come on.

We saw some weakness from some of your comps in the e-mail list business, and you mentioned some weakness in the Naviant business.

Could you elaborate there on the pricing?

Is that a demand-driven issue, is that competition, is scam (ph)?

What's going on there?

Well, the pricing pressure is frankly driven by a number of things.

It's not severe but it's something that we're addressing.

We're driving productivity.

As we've said many times, Brad, we bought Naviant and have folded it into our overall Equifax marketing business because of the raw material that Naviant brings to us, and that's really the exciting part of our future.

There is price pressure.

We are seeing some response breaks being under a little pressure, but we're executing, and we think our prospects are good, but the real story here is the evolution of the business model from a direct mail, traditional direct mailer, from an e-mail marketing company, to a multi channel marketing company, and that's what our clients are buying into, and that's where our pipeline lies, so we've seen about a 20 to 30%price pressure on CPM's, but that's -- we think that's manageable in the short term, and longer term in the second half, we see growth opportunities through what I talked about earlier with new products in a unique set of demographics, lifestyle and marketing opportunities for our customers, which they're really responding to.

Kyle, this is Tom.

Let me -- demand is still there.

Some of the dynamics of that demand are changing.

The reason that this total solution approach, regardless of the medium that we put together is so important is there is some market shifting to retention versus acquisition, because of response rates, et cetera, and, therefore, I will tell you there's going to be more attention paid to embracing those customers, making them stay in the fold, adding value to them through products and services and pricing differentials, and, therefore, that shift plays right into our strong suit.

And all of our suite of products really embody the capability for powerful one-on-one marketing, and that's what's happening.

And I think the other thing that's so important about what our marketing business has delivered is this 110 million opt-in consumer names, and their e-mail addresses, which allow us to append e-mail addresses to other customers' databases in every industry so that they can use the Internet to direct-sell their products and services.

And so that all adds to the capabilities of what we're doing, and that's what our premium customer base is dealing with day to day, and I think that it will be a terrific add-on to our traditional mail marketing

Ok.

And finally, can you maybe talk about the competitive dynamics in your stall business and operations?

Your credit report and risk score sound directly competitive to the DMB Fair, Isaac Venture.

Maybe you can talk about there how you plan to differentiate yourself.

First of all we've got data that neither one of them have.

We've got data that's -- let's just start there.

That this group is contributing to us.

We have the capability to develop any kind of score that's needed to go with that database.

We also have the ability to add consumer data.

To Jones printing and then you've got Joe Jones.

We have the ability to combine those and give multiple scores and algorithms.

Our product is simple, it's easy, and it's powerful.

It can be accessed via e-mail.

The guys gathering of data is state of the art gathering of data, and so I just think that it's going to make a significant difference.

We've worked hard to make it different, and its part of what we talk about as the Equifax difference.

There has been huge demand for an alternative to the existing providers.

Customers want choices, and they want choices delivered by 104-year-old trusted steward of information, and I think that fits right into our sweet spot.

So, you know, it's already in the game, but I think the fact that we've got trade data, leasing data makes it very important, and when customers come to us that started this enterprise, as we said to you before, and said we want an alternative and we want to work - have you work in our behalf and not just core off the shelf, we've responded to that, and I think the fact that we did so, that loyalty as long as we continue to fulfill what they're doing, will be to our benefit.

We've done what our customers asked us to do, and I think the proven success in how we protect consumer data, attack new markets is just another example of what we'll do.

And I think whether it's assessing risk, assessing total portfolios, I think it's just going to be a meaningful differential and choice in the marketplace, delivered by a world class company.

So that's why we're excited about it.

Great.

Thanks.

Our next question is from the line of Brandt Sakakeeny from Deutsche Bank.

Please go ahead.

Thank you.

Good morning.

Just a couple questions.

First on the acquisition, can you just talk about again the timing of the acquisition this quarter and essentially what affiliate it was that you purchased, and the revenues that will attribute to that?

Thanks.

It was Memphis, and it was done at the very end of the first quarter.

Ok.

And it's a very small acquisition.

It's a tuck-in acquisition that's part of our organic core credit bureau business.

Ok, great.

I also noticed the European margin slipped below 10%.

Was some of the investment there that you talked about, did some of that occur in Europe, number one, and number two, would you expect over the year, you get back over that double-digit target in Europe?

The first quarter 9% number is consistent with last year.

We do see it improving over the course of the year, and it's from some additional cost takeouts over the past year.

We've also had some fairly significant - is now coming through.

Ok.

Great.

Thank you very much.

And we have one more question in queue at this point, and that's from the line of Thatcher Thompson from CIBC World Markets.

Good morning, guys.

I'm pretty slow.

I'm pushing the star 1.

You don't want to go to jeopardy.

Couple questions.

I was amazed at the revenue results this quarter.

I think what surprised me is the gross margin compression, and I'm wondering, with all the extra data sales, why would the margin come down?

Is it a mix issue, and do you expect it to reverse trend here?

You know what, Thatcher, what I would tell you is, if you go back to 2001, we are right on track with our margins for the first quarter. 2002 was an anomaly because of some big cost take-outs that we did, so we feel pretty good about it, especially when you add to the fact that we have some of these one-time expenses in some of these investments into the activity into the future.

So we're pretty comfortable with where we are with our margins going forward.

And some of those one-time investments affect the gross margin line rather than the SG&A line?

I'm not sure that I understand the question.

Well, I thought most of those, as I look at your income statement here, let me just take a quick look, it was on the cost of services side rather than the SG&A side, that 6 to 7 million of non-recurring

They were in both places.

Ok.

All right.

One more thing, this is Tom.

The thing we want to continue to reiterate is, while we think we've got extraordinary margins, period, the diversity of our offerings and our portfolios may well, overtime, we intended to produce, you know, strong revenue growth at high margins, but perhaps the mix of the business will cause those margins to not be as high as historical because we're into new businesses and new markets.

And we'll continue to manage the margins.

I think for many of you that know me, I've committed to sort of half a point a year in margin increase, and we have done that consistently in existing business.

As we go into different businesses and different markets.

I think you reach a point where in order to grow, you may give up a bit on while you're building scale, you may have to give up a bit on short-term margins.

That's our view of it.

Fair enough.

If you contributed?

Yes, it is.

So it's the majority of that 26.9 million?

That's correct.

And so you've funded that for the year?

That's correct.

Ok.

And then last question, on the consumer product, you've begun measuring a couple quarters ago the renewal rate of people with the annual subscription?

Yes.

And I think it went 30% Q3, 50% Q4.

What does it look like in Q1?

It's about 44 to 45%, but as you know, the industry average is about 30, and we have most of our key initiatives in the Consumer Direct business around customer -- relationship and building a lifestyle relationship with that customer.

We expect that to be a metric you'll see heading in the right direction.

Ok.

Good.

Thanks, guys.

Great job.

Thank you very much.

Operator?

There's no further questions.

Well, thank you very much, everybody, for being with us, and we look forward to seeing you face to face.

Have a great day.

Bye-bye.

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