易速傳真 (EFX) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Equifax Second Quarter Earnings Release Investor Relations 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 star, then zero.

And as a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Jeff Dodge, Investor Relations.

Good morning, everyone, and welcome to today's conference call.

I'm Jeff Dodge, Investor Relations, and with me today are Tom Chapman, our Chairman and CEO, Don Heroman, the Chief Financial Officer, Dave Gunter, Corporate Finance, and Nula King, Corporate Controller.

The financial information that will be discussed during this call and the reconciling information relating to these non-GAAP financial measures is included in a press release that we issued this morning and filed in a Form 8-K.

The press release and the GAAP reconciliation information may also be found in the Investor Center on our website at www.equifax.com.

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

These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations.

Certain risk factors inherent in our business are set forth in the filings with the SEC, including our 2003 form 10-K and subsequent filings.

Today’s call is being recorded in addition to be being webcast live over the internet.

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

Now, I'd like to turn it over to Tom.

Thanks, Jeff, and good morning everybody.

Our second quarter performance was very solid and impressive, particularly when you consider the strong second quarter that we had last year.

Revenue was $319m, a record for the second quarter.

Earnings from continuing operations were $73m, another second quarter record, and EPS was $0.55, also a record.

Looking beyond the numbers just a bit we continue to experience excellent traction with our new business initiatives, and recorded some impressive customer wins in key markets during the quarter.

So let me review some of the highlights for our five business units.

First of all let’s talk about North American Information Services, which is developing a robust pipeline of opportunities for our InterConnect ASP technology that we’ve talked about before.

And the pipeline is being generated with customers specifically in banking, telco and brokerage.

For our customers, just to remind you a bit, this ASP technology InterConnect is a total solution service because it really addresses 3 critical needs that the customers have.

First the need for better data sourcing and decisioning tools which can be easily integrated with their disparate legacy systems already in place.

Secondly, they want a solution that’s [diagnostic], and thirdly, the ability to effectively cross-sell customers with products and services offered by all of their business units, and that’s why this is such a powerful tool.

Within North America transaction volume for US Consumer and Commercial Information grew 7%.

As in ’03 and Q1 of ’04 our financial services and telco customers really led the way and were the primary contributors to that growth.

Small business generated over $2m in revenues, up 16% from Q1.

During a recent test, by the way, of 250,000 small business enquiries coming into our database that now is over 23m small businesses, our database returned files on 80% of those enquiries compared to a 70% return of our other two key competitors.

We’re not only getting traction, the files are not only being built, but the response rates are outpacing the competitor.

Predictive Sciences has 8 custom small business models under development which will be delivered in the second half of this year.

Mortgage Reporting Services continues to outperform the market with its market leading services and consumer franchise.

Canada achieved another record quarter, with $25m in revenue driven by strength in consumer and commercial volume as well as Predictive Sciences.

Let’s turn for a moment to Marketing Services.

We believe that our investment in new technology and market intelligence will ultimately pay off.

However, the environment is yet to demonstrate a consistently improving trend.

Total Marketing Services operating margins improved significantly to 30%, up from 7% in ’03.

Our traditional postal direct mail marketing products once again delivered growth exceeding the market’s overall growth of 4-5%.

Although total Credit Marketing revenues were down 13%, revenue is up 8% when compared to Q1 of this year.

Personal Solutions delivered outstanding revenue growth.

We added another 400,000 consumers to our base of customers. 33% of our total customer base purchased 2 or more products, up from 27% in Q1.

Revenue per customer reached $30, up 16% from the previous quarter.

Renewal rates from Credit Watch, our leading ID theft alert product, were 54%, further driving high margin recurring revenues for this business.

New product launches, geographic expansion and the creation of new distribution channels will drive future revenue growth.

We now have Personal Solution product lines in 6 countries around the globe, the US, Canada, UK, Chile, Argentina and Peru.

Our product pipeline is robust with several credit and non-credit related new products under development and scheduled for launch during the second half of this year.

And product enhancements are ongoing.

Most recently, for instance, we added wireless alerts to our Credit Watch product.

Our new website enhances and streamlines the customer interaction making it even more user friendly.

Our sales conversion rates for unique visitors has been 2-3 times the industry average.

Through our new website the sales conversion rate has continued to improve.

We have strengthened our patented authentication technology improving purchase activity by 16%, further fuelling first-time sales and improving customer loyalty.

I’d like you to take a few minutes and visit our new website, and by the way, we’d love for you to buy something while you are there.

Finally, our international operations performed very, very well.

Europe continues to strengthen its market presence.

In the United Kingdom, which is about 80% of total European revenue, revenue growth and margins are strong.

Consumer reporting volume in the United Kingdom was up 18%, driven by growth in the financial services and telecommunications industries.

We launched a unique new product called E-Decision.

E-Decision, an online credit application and scoring solution provides instantaneous decisions using both consumer and business data.

The Personal Solutions business in the UK launched last year grew nicely during the quarter.

Just last week, for instance, we launched a product with the functionality of our Score Power product in the US, but in the United Kingdom we call it Equifax Credit Rating.

The product provides UK consumers with their individual risk score based on Equifax’s generic consumer score.

This Equifax Rating is the first instant online tool available to consumers in the United Kingdom.

In addition we tell them how likely they are to qualify for a lending product and how they can improve their rating.

Latin America is executing their strategy well as we position this business for the future.

Customer interest in [Experto], our unique and patented decision technology for Latin America, continues to drive new customer relationships and revenue in Argentina, Brazil and Chile.

And shortly we will launch our Personal Solution product suite in Brazil.

Now let me turn it over to Don who will drill down on some of the detail.

Thanks, Tom, and good morning.

During the second quarter we delivered solid revenue and earnings growth against a very strong second quarter in 2003.

Consolidated revenue was $319m, up 1%.

Excluding mortgage related revenues and eMarketing, consolidated revenues grew 7% for the second quarter.

For the first half of the year consolidated revenues were $633m, up 2%.

Consolidated revenues excluding mortgage related revenues and eMarketing were a very solid 9%.

The first half of 2003 included the strongest quarters for Mortgage and eMarketing, and therefore are the most challenging for comparison in 2004.

Earnings from continuing operations were $73m, up 49%, and EPS was $0.55, up 53%.

During the quarter there were some one-time events which I want to highlight.

The details are covered in the Q&A which is attached to our press release.

As many of you know we sold our entire investment in Intersections Inc. in its IPO early in the quarter.

We realized a one-time pre-tax gain from the sale of $37m or $0.17 per share.

The sale also generated $59m in cash.

In Italy an asset impairment totaling $5m or $0.02 per share resulted from an overall deterioration in the business, and we had announced an impairment in Marketing Services totaling $2m or $0.01 per share.

The net impact of these events on our reported EPS is $0.14.

Our core business activity contributed the remaining $0.41 to our reported EPS.

Within North America US Consumer and Commercial Information Services revenues was $132m, down 3%, driven primarily by a 20% decline in mortgage related volume.

Mortgage Reporting Services continues to outperform the general market with superior service levels and product offerings.

Revenue of $20m, down only 9%, compared favorably to a 49% decline in the Mortgage Application Index for the market as a whole.

And refinancing as a percent of total applications was below 35%.

However, purchasing activity continues to grow and was up 3% as the quarter ended.

Canadian revenues were a up a solid 7% with margins improving to their highest levels in 4 years.

Marketing Services with total revenue of $59m was down 12%.

Revenue from our traditional direct mail, however, was up 6%.

Our Credit Marketing Services revenue was £35m or down 13%.

Personal Solutions delivered another stellar quarter with revenues of $24m, up 40%.

Overall North American margins were 38%, up from 34% in 2003.

Europe’s focus on improving revenue growth and profitability produced revenue of $38m, up 18% in US Dollars, or 7% in local currency.

Latin America’s revenues of $22m was up 9% in US Dollars and 8% in local currency.

Now for the Corporation.

Free cash flow was $71m for the quarter, up from $63m in 2003, and obviously excluded the $59m from the Intersection sale.

We have repurchased 1.4 million shares of our stock for a total of $35m and have $62m remaining under the current authorization.

DSOs were 54 days compared to 56 days this time last year.

The financial results are impressive, and we continue to be encouraged about the opportunities in our performance for 2004.

Now I will turn it back over to Tom.

Thanks Don.

In summary this was a quarter with many notable accomplishments, a record quarter both for revenue and earnings.

We continue to make significant progress on important business initiatives such as InterConnect, Personal Solutions, Small Business, particularly proud of the performance in our international operations.

New and innovative products and services to make our Personal Solutions businesses more successful and profitable to our shareholders will continue to evolve, as I said, with new distribution, new products, new geographies, and not necessarily all credit related.

We will of course, as always continue our expense management discipline while making critical investments, essential for a strong future.

We’ve got a strong leadership team here at Equifax and I continue to be optimistic on our outlook for the remainder of the year.

Now we’d be glad to take any questions that you have.

(Caller Instructions).

Our first question is from Brad Eichler with Stephens Incorporated.

Please go ahead.

Morning, Tom and Don.

Hey, Brad, how’re you doing?

Good, nice results.

Three quick questions for you.

First, could you give us a little bit of an update on the FACT Act.

You guys came out with the surcharge announcement I guess about a week ago; could you talk a little bit about the reaction that you’re getting from your mortgage and credit card customers.

Yes, I think as we all know this has been a long time coming.

Our interaction with our customers has been robust.

They certainly understand the plight that we’re in very, very clearly.

They appreciate our coming out and making our position known.

A lot of discussions are going on with our customers.

I think they understand fully that it’s not appropriate for the shareholders of Equifax to pay for this regulatory penalty.

They also recognize not only in their industries but in literally every industry in this country that regulatory fees are passed on constantly, so this is not a new thing.

They also understand that the -- you know the challenge is estimating what the response is going to be and for how long is the response going to be, since this legislation is a permanent thing.

And they also appreciate I think that we are trying to estimate what that response will be.

And we’ve also assured them, Brad, that as this unfolds we will continue to look at the response, the expense associated with that, the recovery that’s needed against that impact, and that as Equifax has always done, we will be open and honest with them.

So there’s really nothing changed except we’re all moving to prepare for what is an unfortunate thing for our industry at large.

Great, thanks.

On the Direct Consumer business, it looks like you’re continuing to make some pretty good progress, although on a sequential basis the operating profit on that was down slightly.

Were you guys advertising more, or was there something going on changing the mix of products?

Okay, this is Dave.

The answer for that is two-fold.

Yes, we are advertising more, shifting more to some marketing expenses there because we’re still working on exactly the way that we want to grow that business.

But we also note that we did in one of our products closely related to mortgage, we did have decrease there for the sequential quarter.

So the good news is it’s up strong over a year ago and it’s still growing.

Thank you.

And then finally on amortization, that number seems to be jumping around quite a bit.

What is a reasonable expectation for that for the balance of the year?

This is Nula King, the Corporate Controller.

You can expect the amortization to trend where it is right now.

The reductions are a reflection of some of the restructurings that we have taken in the past.

So you can expect to see it trending about where it is right now.

Okay.

Thank you very much.

Thanks, Brad.

Our next question comes from Courtney Clements (ph) from Jeffries.

Please go ahead.

Hi, I wanted to ask a couple of questions.

First of all, has there been any change to your guidance in terms of [indiscernible] revenue and cash flow?

Courtney, this is Don.

We give guidance at the beginning of the year and we don’t change or update it, so it’s consistent with where we originally gave it.

Okay, great.

And also could you please talk about some of the trends that you see in marketing?

Yes, Courtney, this is Tom, how’re you doing?

Good.

You know, the marketplace remains soft in Marketing Services, and particularly in the Credit Marketing Services as we’ve known it.

It’s interesting to note that if you go back over the last few years and look at the consolidation in the issuers that we’ve gone from 25 to 10 and now 3 big issuers consult 50% of that market.

So therefore if one of those who are remaining do not market it has a much bigger impact on the growth potential.

And so if you add that to the fact that response rates for traditional marketing have been declining for 3 years and are down 50% in the first quarter, it makes the mail media a difficult challenge, not only for our customers but for us.

And so they’re using every device, email and phone to make that happen.

We’ve lost a couple of customers, unfortunately, as they’ve changed their marketing strategies.

However, on the positive side we are offsetting that in the fact that we’ve combined all of our Marketing Services under one leadership.

And we’re rolling out, as I mentioned, next quarter, and you will be hearing a lot about this, a brand new technology that we believe will better facilitate the growth in this market.

In our view, while I wish that I could say that we see a demonstrative pickup, I do know that there’s a lot of interest in the customers’ minds as they try to sort out the economic activities to try to reach out and not only maintain their customer base but grow it.

And I think from my standpoint that this business will evolve differently in the future than it has been in the past.

And just buying bulk names and throwing them in the mail has already begun to change dramatically, which is why the new technology that we’re putting in place, as I’ve talked about 2 new ASP platforms, will give our customers ultimate flexibility to market.

And that’s just our view of where it is right now, Courtney.

Okay, great.

Thank you.

You’re very welcome.

Our next question is from Fred Searby with JP Morgan.

Please go ahead.

Thank you, gentlemen.

Congratulations on a quarter with tough comps obviously.

Thanks, Fred, good morning.

Good morning.

A couple of questions.

One, you’ve had really nice organic revenue growth it looks like in both Latin America and Europe, but operating income was down again in Latin America.

In the last quarter you mentioned the build out in Brazil, and I wondered if you could just touch upon a quick explanation of that?

Secondly, your share buyback, I think you said in your press release - correct me if I’m wrong - you’ve got another $65m on your authorization.

With where your share price is with such a high free cash flow yield we think it makes sense for you to buy back shares here, and I wondered if you could talk about whether you concur with that going forward and will step up?

You said I think originally about 100m in shares and I assume given the back half cash flow your tracking is seasonally much stronger.

That combined with Intersections, that you could buy back a substantial more.

Have you thought about really announcing and undertaking a more substantial share buyback and when will we find out if you do evaluate that?

I assume you have to have to go to the Board for another authorization.

And then the small business exchange obviously is doing very well, and I think you mentioned a month-on-month run rate last quarter.

Can you give, given the high response rates, where you are running now in revenues per month for the small business exchange?

And finally, I am a little confused on the weakness in Direct Marketing.

How much of that comp is due to the Naviant fall off and email marketing fall off versus what was historically the legacy [poke] business.

Fred, let’s see if we can work --

Did I ask too many questions?

I might have got a little piggish there, I’m sorry, just cut me off.

We noticed four of them and we’re going to try to start with number one and work right down to number -- We’ll start with David and we will see if we can --

Just reel me in at any point, and I will --

Alright then.

Thank you.

Fred, it’s Dave, let me start with Latin America.

What you are seeing is exactly what you were guessing.

In Brazil we’re working on 2 things.

Number one, we are working on the platform there and we are preparing for a future where we’re going to have robust products and services, and we are looking very closely at the Personal Solutions business there and have an optimistic future.

We also not that in that country, as you know the foreign currency exchange bounces around, so we are working on pricing very carefully and again think that we’re going to have a good next quarter to report for you.

So those are the 2 things that we’re doing in Brazil.

It centers around the software platforms and on the pricing efforts that we’ve got going right now.

We are adding products over time that go beyond just your normal reporting business.

We add intelligence by adding decisioning products, and that decisioning product Experto that we have in Latin America is growing very well for us; and in Brazil, we’re very pleased.

So we look forward to that upside.

Don is going to answer you on the share buyback and then I will come back and probably split with him the small business exchange and direct marketing.

Thanks, Dave.

On the share buyback, Fred, just a couple of notes and this is overall deployment of cash.

First of all we are very conscious of share buyback, and I think you can see it in the trends that we’ve demonstrated.

We’ve stepped up to $35m this quarter, which is a high watermark for I guess a couple of years in terms of where we’ve bought back on a quarterly basis.

That’s up from $30m last quarter and $30m in the fourth quarter of last year.

We also, as you know, increased our dividend last quarter, so that’s an additional use of cash from the Company’s standpoint.

We’ve undertaken a real effort to strengthen the balance sheet overall, and as such we also have been very conscious of reducing our debt, which is down $100m this quarter.

And to a substantial low, we’re down $190m in debt outstandings from a year ago at this time.

So it’s been a concerted effort on multiple fronts.

The share buyback will continue to be one of the center pieces of our use of cash on a go-forward basis.

We do have $67m left on the buyback, which we think lasts certainly for the short run, and at the appropriate time we’d probably seek to renew our authorization from our Board.

Fred, it’s Dave again coming back to you.

Your third question on --

Just on the share buyback, I mean if you’ve bought back $65m year-to-date and you were guiding for $100m you’re above that already for the year.

I mean I guess that was a low point, could you see yourself buying back a $200m worth of stock or even more this year?

I don’t know that we’re going to forecast that kind of number.

Clearly with the cash flow from the Intersection sale we received additional cash this quarter, and we used some of that obviously to step up the buyback here.

Okay, well we’re forecasting that kind of number here if you aren’t.

Right, thanks, Fred.

Alright, Fred, well we are [definitely] moving to small business exchange, and the answer there is, we’ve had a couple of months where we’ve hit $1m there, and we expect that kind of trend to continue.

That business is growing very strong for us because we have a dedicated force on it, and I might also note it’s very important in that business.

The relationship that we have with our large clients has built very nicely for us over the last year, and now you can see the dollars and the cash coming through.

The last item, I think your question on direct marketing was something on the lines of, what were out expectations and whether our eMarketing business has something to do with that?

Well I’m just trying to figure out if it was off or was it 12%.

I mean is that the Naviant implosion year-on-year, how much of that?

Because I assume the marketing business fell off right around the third quarter if I remember - correct me if I’m wrong.

So I’m trying to assume -- what’s happening with your core [poke] and why are -- you know we’re seeing a bunch of marketing services companies see a pick up here, and you’re not hitting the list, so I’m just curious as to what the explanation is.

Fred, this is Don.

A couple of points about it.

One is, the biggest impact from the eMarketing was last quarter.

It had a much smaller impact this quarter, so that’s not a major contributor.

As Tom mentioned in his opening comments actually our direct marketing was up 6% for the quarter.

So where it is, is in the CMS, the Credit Marketing side, and those were the comments that Tom was addressing back in Courtney’s question, that we’ve seen consolidation in the industry.

We’ve seen that industry morph over time to a newer approach.

The encouraging sign that we’ve seen there is we’ve seen sequential link quarter growth from first quarter to second quarter of 7% in the total marketing business.

Okay.

Thank you.

Have you got more, Fred?

Our next question is from David Togut from Morgan Stanley.

Please go ahead.

Hi, this is [indiscernible] for David.

I was just wondering if you could comment a little bit on the mortgage related credit demand, and what the expectations would be for the rest of the year?

Sure, David, the mortgage business has declined in terms of the refinancing substantially.

But as you’ve seen the new money purchase activity is still up from prior year.

In addition to that we have done an extraordinarily good job of addressing the market and actually taking market share in some of the arenas, so that our activity was down much less than what we’ve seen in the industry as a whole.

So we are very encouraged by it.

What I would also mention is that for the third and fourth quarters the comparables get much easier for us.

So that’s as we move forward we are more optimistic in terms of the stabilization and possibly return to some modest growth of the mortgage business.

Dave, this is Tom.

I think you should note that our Mortgage Reporting Services is the number one market share leader in this country.

And therefore when you look at mortgage reporting services, while we may have a decline of, I don’t know, 9%, that versus the overall market as a whole of right under 50%.

So I think that those are national dynamics of a declining market, but the number one share has us outperforming the market by a significant degree.

Yes, that’s helpful.

Just on the cost of implementing [SCRA], how is that likely to be implemented?

Is it going to be more sort of call center based, email based?

If you can give some color there.

Well I think we’ve had to make a lot of assumption, if I understand your question correctly, in the forms of access that the consumers will have available to them.

Now they can get their reports via email, they can get it by phone, activated through a VRU.

They can get it via mail.

There are various costs and activities associated with facilitating those requests through those mediums.

And as I said earlier, as we estimate what the response might be that’s why we’ve come up with a regulatory recovery fee as we have, and that’s all assuming - which is hard to do - how consumers will respond at that time, through what medium and how frequently over the long term.

I think it’s interesting for all of us to note, this has never happened before in this country that an industry was required by law to give away its product.

So you know we have done everything that we can do to analyze very, very carefully what that impact might be, and it’s just going to be something that we analyze every day until we can get a better feel for what this might be.

And that’s really all the information I’ve got on it, that’s all we know.

Okay.

Thank you.

Thank you.

Tell David, hello.

Will do.

Our next question comes from Mike Vinciquerra from Raymond James.

Please go ahead.

Thank you.

Good morning, I always like the hesitation before my last name.

Anyway, good quarter guys, I have a couple of things.

One clarification, Tom, on what you were talking about with the Marketing Services.

It sounded to me like you were indicating that you thought you might see less volume going forward as the card issuers kind of refine their techniques, but probably higher revenue per report provided because you guys will be adding more value.

Is that the way you look at it?

I hope that’s the case.

I don’t think I said that, but I think I believe the form of marketing will take a different flavor as opposed to extracts, compiling and doing massive mailings.

I think we’re going to see it become, through our InterConnect platform providing the ability for more one-on-one marketing.

I think the one-on-one marketing will be done in huge volumes, but I don’t those huge volumes in the future will be just dumping millions of items in the mail.

It’s just whether we’re talking to banks or not, if you look at customer consolidation unfortunately that does call for less volume.

And so the volume is diminished, there’s no doubt about it, but I think our platforms allow us to provide that one-on-one marketing in real time, which I think will make a difference.

So I think it will take new data, new segments that we’re looking at [indiscernible].

I think you will see more marketing to small businesses, and I think we’ve got the world’s finest small business databases as I’ve mentioned, because small business will be a new source of earning assets.

And I think the new scores that we’re developing will further help that.

So I think we’re doing everything we can in a marketplace that’s evolving quite rapidly, and I think we’ve invested ahead of the curve to try to facilitate the various options that our customers will pursue.

Okay.

Thank you.

And then just a couple more things on FACT.

I know you’ve explained this at length here.

The $0.11 surcharge, [indiscernible] came out a week after you guys did and came up with the exact same surcharge.

How did you guys come up with that number, and is there a chance that in the future, based on what your experience actually is, that that could either go up or go down from that level?

And then I’ve got a couple -- I also wanted to know, do you think FACT is going to have a negative impact on the growth in Personal Solutions?

And in conjunction with that, if you could share with us approximately what percentage maybe Credit Watch provides, because obviously that’s a good recurring revenue source and probably won’t be affected by a one-off credit report you might have to supply?

Thank you.

Well I’ll tell you, you’ve almost got us like Fred did.

Let me see if I can go through those.

As I’ve said before we calculated our own costs, our own anticipated responses through the various mediums, and that’s the foundation of our $0.11.

I’ve also said that as we see what the volumes are and what opportunities exist then certainly if there is -- if it’s appropriate to vary that and adjust it then we will do that just like we’ve always done with our customers, and we’ve assured them of that.

But the base assumptions really drive us to the $0.11.

I think that I’m not particularly concerned about the erosion in our Personal Solutions business.

I think we’ve got a strong franchise, we will continue to bring out new products that aren’t just a credit report, and that’s the important thing to note here.

FACT provides the consumer with a credit report that is far different from Credit Watch, it’s far different than family coverage and insurance, it’s far different than evaluating certain assets like home and other products that we will be offering.

So I’m not as concerned about there being particular erosion one way or the other.

And I think too that it’s going to be interesting to see how knowledgeable the free consumer requesters are versus, I don’t know, 6.5 or 7 million consumers that we’ve got now who have become very active with our products and services.

I think we’re just going to have to see how receptive they are ultimately to other offers to other products as we move down the line.

So I think I’ve covered all of them, at least I tried to.

You covered -- just the last one, roughly the percentage of revs in Personal Solutions from Credit Watch?

We don’t break it out like that, Mike.

Okay.

Well thanks very much, Tom, I appreciate it.

Thank you, Mike, have a good one.

Our next question is from Bill Warmington with Sun Trust Robinson Humphrey.

Please go ahead.

Thank you, good morning everyone and congratulations on a strong performance given the environment.

Thanks, Bill.

Good morning.

I have a question for you in terms of what was going on with Personal Solutions.

It sounds like the renewal rate was strong, but we noticed that the revenue and the operating margin both ticked down sequentially.

Is there something -- are you guys spending more on marketing there?

Is there something going on related to FACT Act?

I’m trying to figure out what’s happening there.

Yes, Bill, fair question.

You know what, a couple of things.

One is, the first quarter actually we had the 3-in-1 report and it was driven to a large degree by a healthy quarter from the mortgage related business.

So that’s where you’re seeing just a slight tick off there from a revenue standpoint.

The margins in the first quarter, which if my memory serves me right were 27%, I think we mentioned then that those were on the healthier side of where we anticipated them.

But the 22% for this quarter, we’re still very proud of those numbers.

We are ticking up marketing efforts a little bit there as well, but we said that they would be in kind of the low to mid 20 numbers.

I think the 27 was on the higher side.

So if you were to look at the Credit Watch portion of the business, how quickly is that growing?

Credit Watch -- it’s Tom.

Credit Watch and Score Power are growing very, very nicely, continue to grow.

I think we’re continuing to talk about financial health, which is a hot topic.

All the attention to Credit Watch continues to spank that volume a bit.

And I really -- I want to reiterate, I think it’s about the third time I’ve said it, we will continue to offer yet new products in the second half which will continue to drive that that growth, in addition to the core products which have been Credit Watch and Score Power.

But that does not have anything to do with what has happened thus far year-to-date and we don’t anticipate that it will, Bill.

I think it’s important that we’re looking at 2-time purchasers, and we’re establishing a very significant recurring revenue with high margins in this business as people come to the site and find it easier to buy.

How big is the subscriber base getting these days, and how quickly is that growing?

It’s about 6 million customers that we have there, and that’s what said, we had 400,000 new customers in the quarter.

Okay.

Another question also on what the online consumer credit report volume and pricing were for the quarter?

This is Dave.

I will take that one.

The volume is growing pretty quickly.

You heard us say that it was in financial services and in telco where the volume in each of those segments is growing better than 20%.

The pricing; we have pricing compression if you will, that’s in low single digits.

We do have mixed activity as the specialty in mortgage changes, and as we continue to grow very nicely at the telco and financial institution level, but again -- just to summarize the answer for you, we have a very low price compression.

Got you.

But it sounded like the -- if you look at the volume overall, it sounds like that was running in the upper 20% range, or is it just the telco and financial services that were running at that high?

Telco and financial services are growing more than 20%.

If you take the volume as whole, which measures the decrease coming in mortgage, that number which you heard earlier on the call was 7% volume growth.

7%, okay, I’m sorry for missing that.

Alright, that was it.

Thank you very much.

Thanks, Bill.

Our next question is from Brandt Sakakeeny with Deutsche Bank.

Please go ahead.

Hi guys, it’s Chris [indiscernible] for Brandt.

Just looking at the tick up in Marketing Services from the first to the second quarter, can we now consider that first quarter to be sort of the bottom point?

And then looking to the third and fourth quarter could we expect further tick ups from the 8.9 in the second quarter?

This is Dave Gunter, I will answer that question for you.

I think you’ve got it just about right.

If we can tell you about our Credit Marketing business, we’ve talked about the comparables that we had and we talked about unfortunately we had a couple of clients doing something different with their marketing.

And we can tell you that while we have a 13% decrease in the revenue for Credit Marketing, we did notice, and you say exactly the right answer, we grew that better than 7% revenue for the second quarter compared to the first, so good sequential growth.

Our expectation for the rest of the year is that we’re going to have a better comparable in the third quarter than in the second and the first, coming up close to even, and we’re taking off from there.

So we like the momentum that we’ve got and that’s fine.

Okay, thanks.

And then with the asset impairment, I think did you mention that it was related to your deterioration in Italy?

Can you just detail what was going on there and should we expect more asset impairment either in Europe or in marketing going forward?

This is Nula King.

The asset impairment in Italy was driven by data and some software as well, and we are not expecting any other impairments in Europe.

How about in marketing?

We have no expectations of that either.

Okay, thanks guys.

Thank you.

Well we appreciate everybody for joining us this morning and we will of course be around as we always are during the day to answer any other questions.

Thanks for being with us and have a great day.

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