易速傳真 (EFX) 2006 Q1 法說會逐字稿

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  • Operator

  • Welcome to Equifax's first-quarter earnings release conference call.

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

  • Later there will be an opportunity for questions and answers and instructions will be given at that time. (OPERATOR INSTRUCTIONS).

  • As a reminder, today's conference is being recorded.

  • I'd now like to turn the conference over to Jeff Dodge of Investor Relations.

  • Please go ahead.

  • Jeff Dodge - SVP IR

  • Good morning and welcome to today's conference call.

  • I'm Jeff Dodge, Investor Relations, and with me today are Rick Smith, our Chief Executive Officer;

  • Don Harriman, Chief Financial Officer; and Nuala King, Corporate Controller.

  • The financial information that will be discussed during this call and the reconciling information relating to certain 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 GAAP reconciliation information may also be found in the investor center on our website at www.Equifax.com.

  • During this call we'll 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 filings with the SEC including our '05 Form 10-K and subsequent filings.

  • Today's call is being recorded in addition to 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 Rick.

  • Rick Smith - CEO

  • Thanks, Jeff.

  • Good morning, everyone; thank you for joining us this morning.

  • Our first-quarter performance builds on the strong momentum we established in 2005 and represents a great start for us for the overall year.

  • For the quarter revenue was $374 million, up 9% year-over-year.

  • North American Information Services, Marketing Services and our Latin American businesses were all outstanding contributors to this performance in the first quarter.

  • Net income was $63 million, up 7%, and EPS was $0.48 a share, up 8%.

  • Some of the specific business highlights I'd like to go through, first in North America.

  • Dan Adams and his team lead that North American core business -- continued to deliver solid growth and really focused on selling what we call a trifecta which is the leveraging of data, analytics and enabling technology, and they have really executed solidly in all three areas.

  • I'll go through some of those details in the next few minutes.

  • Our mortgage reporting business again outperformed the market.

  • We all know that with rising interest rates that the mortgage industry in general has been slowing.

  • This team has delivered.

  • In fact, while the market was declining our year-over-year mortgage business was flat with 2005.

  • In addition, we recently announced the joint venture with ATM for bundling mortgage services and that will further broaden and diversify our revenue stream in this sector and it's going to enhance our overall growth opportunities.

  • I'm really excited about that addition to the mortgage business and you'll see some benefits coming out of that in the back half of this year and as we move into 2007.

  • The second part of the trifecta is the analytical solutions, you've heard us talk a lot about that and you've all seen the announcement on VantageScore.

  • As an industry we have taken a leadership position in delivering what we believe is a better solution to our customers.

  • Important to note that this unique solution was developed in part by our own analytical resources and employs some very sophisticated statistical techniques which is a -- we have a patent pending application that's been filed.

  • In our test the VantageScore was more predictable and scored more consumers with limited credit history which is a great advantage.

  • VantageScore is also implemented as a single model by all three credit reporting companies which is of benefit to the industry.

  • We're working aggressively to build regulator, rating agency and industry support as you'd guess.

  • The initial reaction from all three has been outstanding with a number of customer validations currently underway.

  • This effort is a further reflection of our commitment to our customers and their regard for our statistical and analytical capabilities.

  • I think this will really, really be a great benefit for the industry over the coming years.

  • We've also leveraged this analytical expertise to help our customers develop a more precise understanding of the risks and opportunities in their portfolios; some pretty fascinating tools have been launched.

  • I'll give you a few examples.

  • One, to help our customers analyze files to identify product penetration, key portfolio metrics.

  • We developed a regionalized productline comparison against the market, correlating portfolio data with macroeconomic indices and trends and perform segment and market share analysis for our customers.

  • And it can really help our customers and help us deliver profitable increased revenue growth.

  • We've talked a lot over the last year or so about our enabling technology platforms, those continue to excel, it's really the third part of our trifecta.

  • We continue to build a powerful and differentiated market franchise here across these decision platforms.

  • Our Decision Power productline, which you've heard us talk about, continues to provide valuable decisioning technology.

  • Here's a couple of examples.

  • For a top ten bank, we're helping them cross sell credit card and home equity lines and credit at their teller stations.

  • For another top 10 bank, we now have now installed 14 applications in various business units within their banks.

  • And for a top five cobranding credit card company, a very successful implementation for one of their clients at the point-of-sale has now been extended to seven additional cobranding partners because of the success they had experienced at their first cobranded application.

  • The newest member of our productline which we purchased last year, APPRO, helps large regional banks with their decisioning needs.

  • For a top 20 regional bank now we have all consumer loan originations, except for mortgage, are being decisioned on our platform, the system interfaces seamlessly with external vendors and internal proprietary systems and delivers for them real-time answers to upsell and cross-sell and drive revenue growth.

  • Our InterConnect decisioning platform, which we launched a year or so ago, our queue is full with a number of customers lining up to have installations done throughout this year.

  • For a top ten Telco we are integrating consumer and small-business lending with an authentication process on the front-end and the solution includes online and offline interfacing, it incorporates customer data, Equifax data and third-party data and it's fully integrated with the customer's internal systems which adds stickiness for us with that customer.

  • We're also developing a broad authentication solution for a recently merged wireless carrier based upon a relationship we had prior to the merger.

  • So just some great things going on in the area of analytics, technology and data in our core North American business which helped fuel that outstanding growth in the first quarter.

  • In Marketing Services, Owen Flynn has reinvigorated this business.

  • We talked you last year that 2005 was his best year in five years in that business; well that trend continues in 2006.

  • Credit Marketing Services continues to experience strong customer demand.

  • Core product growth with our top 20 customers exceeded 20% during the first quarter.

  • In part driven by the success of a product called TargetPoint Acquisition and continued strong demand for core pre-screen products and data sales and the pipeline is strong, particularly with integrated product offerings including our credit and demographic data, analytics as well as database management.

  • See how the acquisition we made in August of 2005 is already adding many new opportunities for Marketing Services.

  • For example, we were selected to work with a leading international bank to develop and deliver an account acquisition solution, spanning integrating services from multiple business units.

  • The potential solution leverages all of our data assets, both credit and demographic; it incorporates external lists from data and data from third parties, and it integrates statistical modeling software.

  • It incorporates our unique data linking technology.

  • Ultimately we anticipate our real-time enabling technology platform, InterConnect, will be the decisioning engine for this institution's account acquisition strategy.

  • So great progress in general by Marketing Services in the first quarter, again building on the momentum we created last year.

  • Moving on to our Personal Solutions business, there's a disappointment there and I want to spend some time talking about that.

  • The year-over-year comparisons for Personal Solutions were difficult; revenue growth was only 3%.

  • However, if you dig a little deeper into Personal Solutions, we lost a large account last year, so when you pull that account loss out of the equation the actual core growth was 11%, still not where I want it to be, but better than the represented 3% that you see in the data we sent out this morning.

  • In addition, the year-over-year growth comparison for first quarter is a little difficult driven by a few things.

  • One is obviously the large breach we had in our industry in 2005 in the first quarter drove a significant increase in awareness and volume for our products.

  • Two, FACT Act was only, as you know, one region of the country in the first quarter of 2005.

  • That was the Western region so the other three regions were still buying reports.

  • The good news is that we are continuing to move this more to a subscription based revenue model from a transactional based revenue model.

  • And we have increased the subscription revenue to 45% in the first quarter of 2006 up from 23% in 2005.

  • We're in the process of just wrapping up our strategic planning for the entire company obviously with a lot of focus on Personal Solutions.

  • If I lead that process, optimistic -- optimistic that Personal Solutions is in fact a double-digit growth business going forward even though we had a disappointment in the first quarter 2006.

  • On to Europe, the revenue growth in Europe in local currency, which was a good story, was up 3% driven by consumer and commercial Information Services and they've improved their strong operating margins in what continues to be a challenging business client.

  • Overall operating margins for Europe now up to 25% in the first quarter of 2006 up from about 22% or so in 2005.

  • Consumer information was up and that's primarily driven by increased volume from the major banks and telcos.

  • And our commercial information services business in Europe delivered double-digit growth for the quarter.

  • Finally, Latin America -- it's been a great success story for us in 2005.

  • That momentum continues. [Bertie Floater] and his team continue to drive double-digit local currency revenue growth with their four-part strategy they began implementing in 2005.

  • We've experienced very strong customer demand for Marketing Services; it's another great strength of being able to leverage a core product of one geography into another such as account acquisitions, portfolio management, two specific projects in Marketing Services we've now launched in Latin America.

  • Number two, the depth and breadth of our analytical capabilities and enabling technologies that fueled additional penetration in the core banking and Telco market segments.

  • The business unit's price for value strategy, which is the third leg of their strategy, has been an important driver of revenue growth and improved operating margins now up to 27% in the first quarter.

  • And in Brazil, we'll continue to gain share by building a consumer information franchise, focused on key market segments such as Telco and insurance.

  • During the first quarter five of the six countries in Latin America delivered an increase in operating margin and all six had double-digit local currency revenue growth -- just an outstanding quarter for Latin America.

  • As you see in this quarter and over the last few years the diversity of our businesses, customer verticals and solution capabilities provide the ability for Equifax to consistently deliver growth, profitability and cash flow.

  • Our challenge is to leverage the strength and the success of those businesses who are performing and fix the ones that are not.

  • We'll continue to apply our creativity and performance driven management experience to develop new growth opportunities for the Company going forward.

  • The leadership of this Company will continue to invest wisely and drive the best performance we can to meet our commitments to our shareholders, customers and employees.

  • In summary, I feel very good about the momentum we've created here at Equifax.

  • Now let me turn it over to Don who will give you some specifics on the financials.

  • Don Heroman - CFO

  • Thanks, Rick, and good morning, everyone.

  • In looking at the numbers this morning all financial information will be presented on a GAAP basis except where otherwise noted.

  • I would also refer you to the Q&A, which is attached to our press release, for additional financial information.

  • In summary our first quarter in 2006 continues the very strong performance record we set in 2005.

  • For the quarter our consolidated revenue was $374 million, up 9%.

  • Net income was $63 million, up 7%.

  • And adjusted for the incremental impact of FAS 123R in 2006, a non-GAAP measure, net income would have been $65 million or up 10%, so gaining leverage over the 9% revenue growth.

  • Earnings per share were $0.48, up 8%, and again, that's pre the FAS 123R impact which was a penny.

  • In North America our U.S. consumer and commercial information services revenue was $160 million, up 10% compared to last year.

  • Online U.S. volume was up 8% driven primarily by financial services.

  • During Q1 26% of U.S. online transactions were processed through one of our enabling technology platforms, up from 22% in the first quarter of 2005, continuing that upward trend.

  • Our commercial business reporting revenue, previously referred to as small business, was $4.6 million, up 57% from Q1 in 2005.

  • Also an important milestone was reached as this business turned the corner and generated operating profit for the first time since it was begun.

  • Transaction-based revenue in the commercial business now represents over 56% of all commercial revenue.

  • Mortgage reporting services revenue of $20 million was down 6%.

  • Canada's revenue was $28 million, up 6% in U.S. dollars and flat in local currency.

  • Marketing Services delivered another strong quarter, its fifth in a row, generating total revenue of $66 million, up 12%.

  • Credit market revenue of $40 million represents a gain of 15% and direct marketing revenue was $26 million, up 7% compared to the first quarter of 2005.

  • So Marketing Services is continuing that countercyclical trend with margins and off to a very fine year in the first quarter.

  • In Personal Solutions revenue growth 3% to $31 million.

  • Total North American operating margin was 36% compared to 38% in 2005.

  • Europe delivered revenue of $35 million, down 5% in U.S. dollars but up 3% in local currency.

  • The operating margin was 25% in the quarter, up from 22% in 2005.

  • Latin America, as Rick referred to earlier, delivered record revenues of $35 million, up 37% in U.S. dollars and a very healthy 22% in local currencies, and operating margins expanded also, up to 27% from 25% in the first quarter of '05.

  • Now for the Corporation, the operating margin was 29% as compared to 30% in 2005.

  • Cash from operations was $65 million for the quarter.

  • And free cash flow, a non-GAAP measure, was $55 million for the quarter.

  • During the quarter we repurchased 1.2 million shares of our stock in the open market for a total of $45 million and in total we have $300 million remaining under the current authorizations.

  • And days sales outstanding were 55 days, down from 56 days in the first quarter of 2005.

  • Total debt outstanding is up $5 million from the fourth quarter of 2005 to $561 million, so virtually flat.

  • So in summary we had a great first quarter which bodes well for the rest of the year and provides us a solid foundation as we go forward.

  • Thanks and I'll turn it back over to Rick.

  • Rick Smith - CEO

  • Thanks, Don.

  • I hope that gives you a pretty good summary of the first quarter.

  • It's a great start for us for the year.

  • There's a lot of momentum going in this Company which continues the momentum created last year -- a lot of opportunities for continued growth that's seeing us energized and excited about not only 2006 but beyond.

  • So I'd like to now open it up to any questions you might have for the team.

  • Operator

  • (OPERATOR INSTRUCTIONS).

  • Brandon Dobell, Credit Suisse.

  • Brandon Dobell - Analyst

  • Rick, kind of more of a macro question for you and this might be part of your strategic review -- maybe you'll address it later, I'm not sure.

  • But do you think you've got the right incentive structure, compensation structure in place to drive acceleration of revenue growth to recognize the people that are making the right changes in the business?

  • And then from an organizational perspective, do you think you have the right dotted lines, solid lines to make sure all these products line up?

  • Rick Smith - CEO

  • I think that's a great question.

  • I think it's a pretty good structure today.

  • As you grow up in the organization I think it's pretty solid.

  • If you're down at the individual transactional level, there's always room for improvement.

  • We're going to look at some modifications as we go forward, probably '07/'08 which is not only a focus of linking top line but profitability of the transactions to how the people are rewarded as well.

  • So yes, we're going to work with some consultants who excel in this area.

  • Obviously coming from GE I've got some thoughts on what works and doesn't work and the combination of those two will allow us to fine-tune it as we move forward.

  • Brandon Dobell - Analyst

  • A quick one -- housekeeping for Don.

  • In the direct marketing space, the organic revenue growth there and then kind of how we should think about that business from a predictability perspective or what the right organic growth rate might be going forward?

  • Don Heroman - CFO

  • I think we picked up a little bit of revenue growth from the BeNow acquisition.

  • And so I think what we're looking at in terms of the go forward basis is first of all I don't think we had a -- I think the future is better for DMS.

  • Our manager there, Owen Flynn, is optimistic about the rest of the year.

  • The organic growth this quarter was probably in the 4 to 5% range.

  • But on a go forward basis I would look at that as being higher single digit for right now.

  • Rick Smith - CEO

  • This is Rick and I'll maybe just add one thing to it.

  • We brought a new leader in to run that business who's got deep experience in that arena.

  • We've been working very closely with him to revamp his strategy.

  • I'm going to hold off on that, but at some point in time we'll expose you to what that new strategy is.

  • I'm optimistic that if the overall market is going forward at 5%, as Don said, with new leadership, with a new model we should be able to grow in the upper single digits.

  • Brandon Dobell - Analyst

  • Great.

  • And then one final question on the small-business exchange.

  • I know when we were down there in February you talked a little bit about the opportunity to expand that to different verticals or bring different types of companies into the exchange with the recognition that the model would remain the same or pretty close to exchange.

  • An update maybe on kind of where you guys are on that process?

  • Are you moving towards convincing the banks to let their data be shared with other verticals?

  • Rick Smith - CEO

  • I think I heard every third word.

  • It was a basic question -- on the overall strategy for the small-business?

  • Brandon Dobell - Analyst

  • Yes.

  • And you had talked a little bit about opening it up from beyond financial services to other verticals, Telco and things like that, maybe an update on where we are with that process?

  • Rick Smith - CEO

  • Well, small business is -- internally we labeled it but it's symbolic more than anything else.

  • It's no longer really small business.

  • That was the foray we talked when you were here.

  • It's really commercial and we're viewing the entire commercial sector as a section we can leverage this capability.

  • We're continuing -- we've got great data, as you know, from the banks.

  • We'll continue to add trade data, we're well over 100 to 150 trade sources giving you trade data, making the data even more robust.

  • I'm confident long-term that this becomes a viable, big commercial platform, not just small-business.

  • So it's doing everything I had expected at this point in its launch and more.

  • Brandon Dobell - Analyst

  • Great, thanks a lot.

  • Operator

  • Fred Searby, JPMorgan.

  • Jason Litt - Analyst

  • This is Jason [Litt] for Fred.

  • A couple questions.

  • On your Personal Solutions, did you increase the advertising in the first quarter?

  • Is that why margins were -- declined so much?

  • Don Heroman - CFO

  • Yes, it's increased year-over-year.

  • Jason Litt - Analyst

  • And how much did price increases contribute to Latin America growth?

  • Don Heroman - CFO

  • The actual price increase itself.

  • I believe the answer to that is a little less than half of the growth came from pricing increases.

  • So in local currency 22%, upper single digit would be pricing increase in the balances from new products or expansion of customer base.

  • Jason Litt - Analyst

  • Thank you.

  • Operator

  • Michael Meltz, Bear Stearns.

  • Michael Meltz - Analyst

  • Don, two housekeeping questions.

  • Can you give us the volume at U.S. consumer and the pricing in the quarter as well as the mortgage metrics for the quarter?

  • Don Heroman - CFO

  • The pricing metrics -- it's continued our trend of about a mid single digit decline, so nothing new there.

  • And then on the mortgage side, mortgage as a percent of total revenue was about 14.5%, that's up a little bit from the fourth quarter of last year, but down from first quarter of '05.

  • And in absolute dollars it was virtually flat to first quarter of '05.

  • So we've outperformed the market there, Michael.

  • Michael Meltz - Analyst

  • Okay.

  • And just so I'm clear on Personal Solutions, Rick, you were saying you lost a contract at some point.

  • Can you give us a little bit more information there as well as you're saying this business should grow double digits for the year?

  • Rick Smith - CEO

  • There were two parts of your question, Michael.

  • First, Yes, we announced I think last year Cap1 and Intersections announced -- I think on the final they has last year they picked that up.

  • That was a big customer for that group.

  • Now on a year-over-year comparison that hurt that group to the tune of about 8 points of revenue.

  • So if you add that back to the report 3% growth you're at about 11% growth year-over-year.

  • And the second part of your question again, Michael, was what?

  • Michael Meltz - Analyst

  • But you're still saying even though you grew 3% in the quarter you're saying over 10% for the year?

  • Rick Smith - CEO

  • Absolutely.

  • I'm convinced that business will be a double-digit growth business, yes.

  • For the reasons I've mentioned, not just the tough comparison -- the Cap1 volume last year, but I'm convinced by looking out at the data that the year-over-year comparison for the first quarter is not an accurate comparison that we'll see going forward.

  • That combined with some new products that we're launching, I'm convinced it's a double-digit growth business, yes.

  • Michael Meltz - Analyst

  • Well, just to clarify though -- and I'm sorry to harp on this.

  • Cap1 I thought you lost in '04, so was that hurting you in the back half of '05 and does that get flushed out soon?

  • Rick Smith - CEO

  • Correct.

  • It was actually announced I think late fourth quarter of 2005, but the one-offs didn't start really until -- the last announcement in the fourth quarter of 2004 and the impact started running off in 2005.

  • So we still had a lot of volume coming in the first quarter plus 2005 which didn't materialize in 2006.

  • You'll see that running off probably through the course of this year.

  • Don Heroman - CFO

  • What it is, Michael, was the subscription services that we had sold to them we maintained.

  • So the revenue associated with that was still ours.

  • Michael Meltz - Analyst

  • Okay.

  • And last question for me.

  • The options number, I thought you had said options would be front loaded this year.

  • Are you still sticking to $0.05 for the year?

  • Don Heroman - CFO

  • They are and they will be.

  • It will be in the second quarter.

  • Michael Meltz - Analyst

  • So there will be two pennies in the second quarter or you're saying the other $0.04?

  • Don Heroman - CFO

  • Yes, it should be two pennies in the second quarter and then one penny for the rest of the year.

  • Michael Meltz - Analyst

  • Got it.

  • And last question.

  • I didn't see anything in here on guidance.

  • I may have missed the line.

  • Is there --?

  • Rick Smith - CEO

  • Keep looking, Michael.

  • We don't (multiple speakers), you know that.

  • Michael Meltz - Analyst

  • You're sticking with your current guidance?

  • Don Heroman - CFO

  • We don't update up, down or sideways.

  • We just give it once during the year and then we'll update it in January of next year.

  • Rick Smith - CEO

  • And Michael, as we've said, we feel good about the momentum.

  • Michael Meltz - Analyst

  • Thanks for your time.

  • Operator

  • Brad Eichler, Stephens, Inc.

  • Brad Eichler - Analyst

  • A couple of questions for you.

  • First on the VantageScore, Experian had some comments the other day on their call, but could you talk a little bit about what you're hearing from your clients and what your expectations are for that product over let's say the next 12 months?

  • Rick Smith - CEO

  • The feedback from all constituents including clients has been very positive.

  • We're restaffed very strategic accounts, regional accounts and our queue is full there too as far as the desire and appetite to beta test.

  • So we're running full speed beta test.

  • I'm confident this will give them a great alternative in the marketplace.

  • The sequence of events I think goes something like this -- that the beta test takes us a number of months.

  • Once these big credit granters and regional granters beta test it and find it's a good product they then embrace it and then it goes down to the next tier, the next tier and eventually to the consumers who will see it once the granters are using it as their standard becomes the standard for the consumers.

  • As far as revenue stream, I think you should think about this as being a revenue stream, modest benefit this year, really a benefit next year in 2007 and beyond.

  • And part of the revenue stream is obviously a decrease in royalties paid to FICO as customers buy VantageScore.

  • I think it's a great alternative for the marketplace.

  • Brad Eichler - Analyst

  • Do you think that's the way most customers are looking at it as something that's a potential replacement or something that's a potential add-on to what they're currently buying?

  • Rick Smith - CEO

  • I think time will tell.

  • Brad Eichler - Analyst

  • Okay.

  • On FACTA, you typically break out the contribution from the FACTA recovery revenue impact and operating profit impact.

  • Could you give us those numbers, please?

  • Don Heroman - CFO

  • Brad, we did that last year because the comparable from the prior year wasn't there, but with the comparable being there we've embedded it in our core revenue number now.

  • So we don't plan on breaking it out on a go-forward basis.

  • Brad Eichler - Analyst

  • Was it a similar number?

  • Don Heroman - CFO

  • I think that would be fair to say.

  • Brad Eichler - Analyst

  • (multiple speakers) quarter of last year, I guess $9 million?

  • Don Heroman - CFO

  • I think it would be fair to say that is comparable.

  • Brad Eichler - Analyst

  • Okay.

  • And then my final question -- thanks, Don -- my final question is on InterConnect.

  • Rick, you mentioned that the queue is full.

  • What's the revenue opportunity there?

  • What's the timing and what's the process of bringing a new customer on board?

  • Rick Smith - CEO

  • We don't give revenue guidance for InterConnect, but I can tell you this.

  • The queue is full.

  • One of the great things about buying APPRO was not just not the platform that APPRO gave us, but there's some great leadership there who understand how to launch and manage a product such as InterConnect and the team is doing a great job there.

  • So I can tell you this, with clients across North America right now who have a strong interest in this, we're managing the product, the product launch tightly and it's going to benefit us significantly in revenue this year and in 2007.

  • Brad Eichler - Analyst

  • Okay, and then just final question.

  • You mentioned pre Score sales had been solid.

  • Is that continuing the trend that you saw in the fourth-quarter or an acceleration or a decline in that trend?

  • Rick Smith - CEO

  • A continuation.

  • Brad Eichler - Analyst

  • Okay, thank you very much.

  • Operator

  • Bruce Simpson, William Blair.

  • Bruce Simpson - Analyst

  • Good morning.

  • I'd like to talk a little bit about various sectors of the core North American business.

  • If you had to put your finger on where growth over the last year had come from, that 8% growth, is it largely from credit card issuers?

  • Rick Smith - CEO

  • The credit card would be reported in Marketing Services primarily, but the areas that we've seen the biggest growth from are financial and resellers -- If you wanted to talk about it from a vertical standpoint.

  • Don Heroman - CFO

  • Overall it's pretty well-balanced growth, which is good news.

  • Rick Smith - CEO

  • Yes.

  • Bruce Simpson - Analyst

  • And Don, when you say financial, can you be a little more specific as to where those --?

  • Don Heroman - CFO

  • That would be banking industry basically.

  • Bruce Simpson - Analyst

  • Just across all kinds of general credit granting decisions?

  • Don Heroman - CFO

  • Yes, some small loans.

  • Bruce Simpson - Analyst

  • And then, on mortgage, can you give us a little bit more color on where you're seeing softness there?

  • I know you said you kept that business essentially flat, what should we view it at?

  • Don Heroman - CFO

  • We would view that actually as positive.

  • Because if you look at the mortgage bankers index, it's down quite a bit from a year ago.

  • So I think the connotation there is we've outperformed the market.

  • Bruce Simpson - Analyst

  • And what end of the mortgage spectrum is putting pressure on that business?

  • Is it mortgage servicing?

  • Is it the refinancing business at the expense of the initial mortgage?

  • Don Heroman - CFO

  • I think it's -- the refi business is down.

  • I think the last time I looked at the statistics on it, refi is down in the upper 30% and it had gotten in 2003 where it was pushing 70% refi business.

  • So we've seen a great deal of that business go away.

  • Bruce Simpson - Analyst

  • Okay, and then just the last thing following up there on mortgage is what do you see moving forward?

  • Now you've got nearly a third of the year under your belt; is your general sense that mortgage is likely to continue to soften from here?

  • Don Heroman - CFO

  • I think you read as we read what's going on with interest rates and what may happen to interest rates.

  • I'm convinced the team will continue to execute and outperform the market and I'm optimistic that towards the back end of the year the JV we announced with ATM will start to show benefits.

  • Bruce Simpson - Analyst

  • Okay.

  • Thanks, guys.

  • Rick Smith - CEO

  • Thank you.

  • Operator

  • Andrew Jeffrey, Robinson Humphrey.

  • Andrew Jeffrey - Analyst

  • Don, maybe I missed it -- did you mention what the volume was in NAIS?

  • Don Heroman - CFO

  • No, I didn't.

  • Andrew Jeffrey - Analyst

  • Could you?

  • Don Heroman - CFO

  • We'll get it to you.

  • Andrew Jeffrey - Analyst

  • Okay.

  • And just broadly, I'm curious about your view -- you're seeing a step up in enabling technology as a percent of your total volume.

  • At what point should we expect that to translate into better pricing overall or is this more sort of defending the bullworks against pricing declines over time?

  • I'm trying to think about that dynamic.

  • Rick Smith - CEO

  • That's a good question; this is Rick.

  • I think -- as we talked when you were here, I think you should think about enabling technology as a differentiator -- differentiation and lot of this has more stickiness which means more retention which will drive some revenue growth, but it also is an offset to pricing pressure.

  • So I think you should think about not necessarily -- right now something that enhances the margin from the 29 to 30 or 31, something that protects that margin and allows us to grow.

  • Andrew Jeffrey - Analyst

  • Okay.

  • And then just a follow-up on the commercial -- just looking back at my notes, see if I get this right.

  • It looks like there was a sequential revenue decline in commercial and I'm just wondering what's going on there.

  • And I would think a small start up business like that would be generating sequential revenue improvements?

  • Don Heroman - CFO

  • Yes, I think what it was in the fourth quarter we had a true up on some volumes.

  • So it was an extra pickup, if you will, with some of our customers and that's been normalized now.

  • It's not a trend, if you will.

  • Andrew Jeffrey - Analyst

  • Is this a more sustainable base level run rate?

  • Don Heroman - CFO

  • Yes, I think this is a good base level run rate from here up.

  • Andrew Jeffrey - Analyst

  • Okay.

  • And then one last question on Europe.

  • We're starting to see some macro indications that maybe those economies are improving and turning the corner.

  • Is that a second half opportunity for Equifax?

  • Rick Smith - CEO

  • Yes, I think so.

  • I think, Andrew, as we talked -- and we talk about Europe really -- as you know, we're in UK, Spain and Portugal.

  • UK drives that and all the macro data I've seen calls for a stronger second half of the year and we would hope that that is a help for our business, absolutely.

  • Andrew Jeffrey - Analyst

  • Okay.

  • Thanks a lot, guys.

  • Operator

  • Mark Bacurin, Robert W. Baird.

  • Mark Bacurin - Analyst

  • A couple things.

  • Back to the Personal Solutions, and not to beat this up too much -- but presumably that client loss that you experienced, you saw some of that in the back half of last year as well.

  • I'm curious, even if we pro forma that out you're talking 11'ish percent growth and that's still down from what you saw in the back half of last year.

  • So were there some specific other churn issues going on?

  • Clearly you're still spending a lot of marketing dollars, but presumably those are not being as effective as they once were.

  • Are you thinking about changing your marketing strategies at all?

  • Rick Smith - CEO

  • Your question to the churn, the advertising on the churn, no, there is no concern I have on customer churn at all.

  • It really came down to that one loss on those specific issues I mentioned before, which is the breach and the awareness kind of spiked artificially volume last year, and then the fact that rollout was really only one part of the country, you know, (indiscernible) first quarter.

  • So you normalize all that, that is what gives me confidence it is truly a strong double-digit growth business.

  • As far as advertising, Mark, we continue to look at that, making sure we have got great metrics and transparency on the cause and effect of advertising.

  • I still believe this is a build in the growth business.

  • I could harvest greater returns tomorrow if I wanted to cut off the advertising.

  • I'm not in a position to want to have to do that right now.

  • So we will monitor it, all the equations, top-line probability, but you should think about the advertising spend being in the same general range for the balance of this year.

  • Mark Bacurin - Analyst

  • Then you guys aren't breaking out the FACT Act surcharge any more, but just curious given that it sounds like the revenue was roughly equivalent to where it was in past quarters, you must be pretty close to at least having covered the fixed investment related to the FACT Act.

  • Any update on the surcharge and when we might see some changes there?

  • Don Heroman - CFO

  • We will continue to evaluate that.

  • Obviously, things like (indiscernible) and other regulatory concerns are forcing us to invest and react.

  • So I think when we think about the investment required for FACT Act, we now have to take a step back and look at it broader than just FACT Act.

  • Mark Bacurin - Analyst

  • And then just one quick housekeeping.

  • Don, the FAS 123R expense, did that show up in multiple lines in the P&L, or was it embedded within one cost line?

  • Don Heroman - CFO

  • It is in the corporate number.

  • Mark Bacurin - Analyst

  • It is on corporate on the segment breakdown.

  • Is it SG&A on the primary P&L?

  • Nuala King - Corporate Controller

  • There is some of it in SG&A in some of it in cost of sales.

  • I don't have that breakout in front of me.

  • Mark Bacurin - Analyst

  • Okay.

  • Thank you.

  • Operator

  • With that, I'll turn it back over to you for any closing comments.

  • Jeff Dodge - SVP IR

  • Thanks, everyone.

  • Appreciate your participation in the call, and we will be available this afternoon if there is any follow-up questions.

  • So with that, we will conclude the call.

  • Thank you all.

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