易速傳真 (EFX) 2006 Q3 法說會逐字稿

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  • Operator

  • Ladies and gentlemen, thank you for standing by and welcome to the Equifax third-quarter earnings release conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. Instructions will be given at that time. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Jeff Dodge. Please go ahead.

  • Jeff Dodge - SVP of IR

  • Good morning. Welcome to today's conference call. I am Jeff Dodge, Investor Relations, and with me are Rick Smith, our Chief Executive Officer; Lee Adrean, Chief Financial Officer; and Nuala King, Corporate Controller. The financial information that will be discussed during this call and reconciling information relating to certain non-GAAP financial measures is included in a press release that we issued yesterday and filed in a Form 8-K. The press release and GAAP reconciliation information may also be found on the investor center at our website at www.Equifax.com.

  • During this call, we will 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 inherit in our business are set forth in our filings with the SEC, including our 2005 Form 10-K and the subsequent filings.

  • Today's call is also being recorded in addition to being webcast live over the Internet, and the replay will be available on our website at www.Equifax.com.

  • Now I would like to turn it over to Rick.

  • Rick Smith - Chairman & CEO

  • Thanks, Jeff. Good morning, everyone. Thanks for joining us this morning. Before I get started, let me just publicly welcome Lee Adrean to our team. He has been on board now for a few weeks. And for those of you who have not met Lee or interacted with him in his past experience, you will have a chance to meet him in the coming weeks and months ahead. Let me also thank Don Heroman, who has left this Company in fine shape for Lee to inherit from a financial perspective. Don had a very positive impact on Equifax over his four-year tenure here with the Company.

  • In the third quarter, we delivered record revenue and earnings per share along with improved operating margins for the Company. This performance was very much in line with my expectations that I gave you when we updated our guidance during our Investor Conference September 8th in New York City. As you all know, this quarter had a particularly challenging year-over-year comparison when we compared it to the third quarter of 2005, which had revenue growth then of some 17%. And we are continuing to see some softening in the U.S. economy. You read about it every day. It is impacting a number of our customers. As a result, we anticipate revenue growth for the year to be within our 7% to 10% guidance that I gave you, but at the lower end of that range. 2006 will be another record year for Equifax.

  • For the third quarter, revenue was $395 million, up 5%. Personal Solutions, Europe and Latin America all made important contributions to this growth. Net income for the quarter was $79 million, up 26%, driven by solid performance in Latin America, Europe, Personal Solutions, and Marketing Services. We also had a few specific items relating to litigation and tax matters. And Lee will walk you through those in detail later on. Our diluted EPS was $0.61 a share, up 30%. Our core North American Information Service segment, revenue was up 1%, again, against a very strong performance last year.

  • For the nine months ending September, volume and revenue in the financial service sector continues the strong double-digit trend which has been partially offset by a softness in the telco sector. And year-to-date revenue growth with our top 20 customers continued to be solid, up 12% year over year.

  • North America also continues to make solid progress on the strategy that -- Dann Adams laid out for you in New York. This month, we began client training on a new multimillion dollar InterConnect credit portal solution for a large telco. Another great example of leveraging our enabling technology solutions to create long-term franchises in key markets. We talked about that in great depth -- how important embedding ET into our customers is. We are off to a great start.

  • We are now ahead of our target for share of wallet, another key initiative we talked about for growth with regional customers. In fact, our penetration of products into our regional customers now is over six different products per customer. The more products we embed, the faster we grow, the more stickiness we have, and the greater retention. We've talked about regional being a cornerstone to our growth as well.

  • We'll also launch two new products, InterConnect Direct for small and midmarket financial institutions that will support new account openings, cross-selling and up-selling, a variation of InterConnect designed specifically for utilities and communication companies, including industry-specific business rules for estimating deposit levels and decisioning new applications. So taking the core InterConnect platform we have and modifying it, both for different verticals as well as for small, midmarket financial institutions. Two very promising products.

  • Our commercial information business, which we again talked about as being a significant growth area for us, had an outstanding quarter. Growth for the quarter -- commercial revenue grew 57% for the quarter to $6 million as customers' adoption rate and system integration continues at an accelerated pace. Operating margins in this business also continue to improve as we grow and build scale. We are exiting 2006 with great momentum there.

  • In fact, as you saw last week, we announced the purchase of Austin-Tetra, a leading provider of B2B data management and enhancement services in the U.S. commercial space. Austin-Tetra is an important fit and a nice fit with our commercial strategy. It broadens our service offerings, it extends our technology, provides new data-linking capability. It is known as the A-T Number. This A-T Number will enable us to link our existing commercial files, providing customers with a more complete view of risks and exposures within their commercial customer base. All these capabilities will enhance our customers' marketing and decisioning activities. So a nice acquisition that we're pleased to have a part of Equifax at this time.

  • Mortgage reporting continues to perform better than the trends in the industry. We have all read the trends for the quarter. The Mortgage Bankers Association's market composite index said volume was down some 26% in the third quarter. Our mortgage business was down 24% as I mentioned before. We have one large customer, AmeriQuest; AmeriQuest represents 9 points of this revenue decline. So the team continues to outperform the overall mortgage market performance.

  • Our settlement services venture that we talked about in the mortgage area is now up and running full speed. They have signed three new clients and will dramatically shorten the typical closing cycle. We continue to be bullish on its growth prospects as we exit 2006 and head into 2007.

  • Marketing Services continued their momentum, albeit at a slower pace and on top of a record performance in 2005. Revenue grew 5%, and operating margin improved from 35% in 2005 to 36% this year.

  • In Credit Marketing services, we are beginning to experience a shift away from account acquisitions to account management due to the slowing of the U.S. economy and consumer spending. We have talked about that in the past. As the economy does slow, our customers are more interested in managing the health of their portfolios. Hence, we would see a shift from that acquisition to account management. That is in fact happening.

  • Our account management product revenue for the quarter is up 12% year over year. Our account acquisition product revenue was up 1% from second quarter 2006.

  • Now our projects are smaller, as you might guess, as clients qualify fewer consumers for their promotional campaigns. Our customers have also accelerated their purchase of analytical projects as they determine how to adapt to a changing economy.

  • DMS, our Direct Marketing Services, was up 5% in a market that is experiencing a slowdown. Standard mail volume growth, which is an indicator of the overall market activity for direct mail, has been growing in a range of 1% to 2% this year compared to 5% to 6% range in the fiscal year 2005. So comparing ourselves to how the market is performing, our DMS business is again outperforming the market itself.

  • Personal Solutions, we have had been talking about this all year. I was committed this was a double-digit growth business and the margins would improve. We're starting to see the benefits of a lot of hard work there. Personal Solutions delivered double-digit revenue growth in the third quarter, of 13%, while improving their operating margins significantly. We have substantially redesigned the website for Personal Solutions to improve the customer's experience. We have refocused our marketing and advertising on subscription-based revenue products and away from transaction-based products. The benefit of all this work is starting to show up in our financials. During the quarter, our overall conversion rates on our website have improved from 9% in July to 11% in September. We have talked about growing subscription. Subscription revenue has improved from 49% in the second quarter to 58% in the third quarter. This is also up from 39% in the third quarter of 2005. So they are executing on that strategy.

  • And the revenue driven by third party data breach events continues to exceed our expectations. So good momentum building within Personal Solutions.

  • Europe. They delivered another record quarter with revenue up 13%. Double-digit growth from both UK consumer and commercial services were the principal drivers of this performance. You to date, UK's top 20 customers grew 15%, led by financial services, banking, and government.

  • One of our key strategic initiatives an Europe is increasing penetration with existing customers. And Michael Shannon talked about that on September 8th.

  • During the quarter, we expanded our share with an existing global credit card issuer from 40% to 80% based upon proven superior data quality. We also won a major deal with a government agency to host a secure data site for their application and verification environment.

  • During fourth quarter in Europe, we will launch two new products. First is a new commercial product which blends the personal profiles of corporate directors with commercial information. The second product, called [Surin], is a application fraud service, which we believe will be the most advanced online application fraud tool available in the UK. In fact we will be showcasing that at a fraud conference coming up in November in London.

  • Finally, Latin America delivered another outstanding quarter with record revenue up 18% during the quarter. Four of six country markets increased their operating margin and five of the six had double-digit revenue growth in local currency.

  • New product revenue throughout the region has exceeded our expectation, delivering over 60% growth and the price per value strategy that Rudy talked to you about in September is helping us to sustain operating margins as these products achieve scale and market penetration. Our intense focus on new products, again, a major theme in New York -- this intense focus on innovation, new product development continues to evolve and underscore our belief in sustainable organic revenue growth for all of our businesses.

  • We now have nearly 100 projects under development or launched, representing over $120 million in potential revenue over the four-year planning horizon. The mix of products also mirrors our global revenue base; approximately 25% of the projects are focused on our international geography. So all in all, a solid financial quarter. Good performance by the team.

  • I would now like to turn it over to Lee to walk you through the financial details.

  • Lee Adrean - Corporate VP & CFO

  • Thanks, Rick, and good morning, everyone. I am very happy to be here today as part of the Equifax team and look forward to meeting many of you in the coming months.

  • Turning to our third-quarter results, I will be presenting all financial information on a GAAP basis except where otherwise noted. I also refer you to the Q&A which is attached to our press release for additional financial information.

  • For the quarter, consolidated revenue was $395 million, up 5%. Net income was $79 million, up 26% over the prior-year quarter. On a non-GAAP basis, net income was $67 million, up 7% as adjusted for certain litigation matters and tax benefits and the incremental impact of FAS 123R in the third quarter.

  • Diluted earnings per share were $0.61, up 30% over prior year. And on a non-GAAP basis, earnings per share was $0.52, up 10% as adjusted for certain litigation matters, tax benefits, and FAS 123R.

  • In North America, U.S. Consumer and Commercial Information Services revenue was $165 million, up 3% compared to the last same quarter last year. Online U.S. volume was up 3%, driven primarily by financial services, which offset some decline in telco accounts and resellers.

  • During the third quarter, approximately 27% of U.S. online transactions were processed through one of our enabling technology platforms, an important strategy for us, up from 23% in the third quarter of 2005.

  • Our commercial business growth continues with revenue of $6 million in the quarter, up 57% from the third quarter last year. Transaction-based revenue in the commercial business now represents over 59% of total commercial revenue as we build a strong recurring revenue stream.

  • Mortgage reporting services revenue of $17 million was down 24% versus the prior-year quarter, reflecting weakness in the U.S. mortgage market. Canada's revenue was $30 million, up 7% in U.S. dollars and flat in local currency.

  • Our Marketing Services unit delivered total revenue of $69 million, up 5%. Operating margins were 36%, up from 35% in 2005.

  • Credit Marketing services revenue of $42 million represents a gain of 4% and Direct Marketing Services revenue was at $27 million, up 5% compared to the third quarter of 2005.

  • In Personal Solutions, as Rick mentioned, revenue grew 13% to $33 million. The operating margin was 48% for the quarter. On a non-GAAP basis, excluding the impact of certain litigation matters, Personal Solutions operating margin was 20%, up from 9% in the third quarter a year ago, showing very good progress as we build that business.

  • Europe delivered record revenue of $40 million, up 13% in U.S. dollars and 8% in local currency. The operating margin was 22% for the quarter, down from 25% in the third quarter of 2005.

  • And Latin America again delivered record revenue of $41 million, up 18% in U.S. dollars and 14% in local currency. Operating margin was 31%, up from 29% a year ago.

  • For the Corporation as a whole, operating margin was 31%. On a non-GAAP basis, the operating margin adjusted for the incremental effect of FAS 123R and certain litigation matters was 29.5% as compared to 28.6% in 2005.

  • Cash from operations was $99 million for the quarter. And during the quarter, we repurchased 2 million shares of our stock in the open market for a total of $65 million. And at quarter end, had $183 million remaining under current share repurchase authorizations.

  • Total debt outstanding declined $47 million from the end of 2005 to $509 million.

  • In summary, our third-quarter performance is very encouraging, considering the strong performance in the third quarter of 2005, against which we were comparing, and the challenging economic situation during the quarter.

  • Now I will turn it back to Rick.

  • Rick Smith - Chairman & CEO

  • Thanks, Lee. And before we go to Q&A, let me just thank all of you who joined us in New York a little over a month ago for our Investor Day at the Exchange. We take great pride in the growth strategy that we shared with you. And many of you commented to me, to Jeff, and others that you really appreciated the clarity and the depth of our vision and the transparency of our presentation. I can promise you that the management team of Equifax thought long and hard about that strategy and about the financial representation of that strategy. And that this management team is absolutely dedicated to fulfilling that vision and delivering the growth initiatives that we presented to you there.

  • So let me stop there, and, operator, we'll open it up for Q&A if we could.

  • Operator

  • (OPERATOR INSTRUCTIONS). Nat Otis, KBW.

  • Nat Otis - Analyst

  • Two quick questions. One, any color this quarter on the large customer decisions regarding VantageScore?

  • Rick Smith - Chairman & CEO

  • In general, as I have alluded before, large, medium and small -- the interest from the customers in VantageScore has been overwhelmingly positive. We have a number of customers again, large and medium and small, validating VantageScore right now. And as I have said, I would expect decisions, hence revenue, to start kicking in for VantageScore in 2007. So it is meeting if not exceeding our expectations as far as interest.

  • Nat Otis - Analyst

  • And also just interest maybe also on the demand deposit product. I know you obviously -- we've heard about the SunTrust side of things, but is there anyone else out there that you are working with on this now that you can maybe comment on?

  • Rick Smith - Chairman & CEO

  • SunTrust is the biggest, but we're taking that SunTrust story, which if you talk to the SunTrust team, will tell you it has exceeded their expectations. Not only attracting new clients but retaining existing clients. So we're out there in the market right now with many banks and financial institutions for the same concept.

  • Nat Otis - Analyst

  • And just one last quick question on the Personal Solutions side of things. I know in the past you'd talked about getting up to that 20% margin level. And it looks like you got there, excluding the litigation. Any thoughts on going forward? Is this something that we now see it in that margin range going forward? Or is it going to maybe bounce up and down depending on spending for say marketing or something like that?

  • Rick Smith - Chairman & CEO

  • Nat, my comment from day one was that the Personal Solutions business I was convinced is a double-digit growth business -- and a 20% margin business plus. I stand committed to that.

  • Operator

  • Brad Eichler, Stephens, Inc.

  • Brad Eichler - Analyst

  • A couple of questions. First just a little bit of a follow-up on Vantage. Do you have any idea on how these customers that are beta testing the product right now are looking to use it? Are they looking to use it as just an incremental score to what they have? Or are they looking at it more as replacement for some of the things that they are currently using?

  • Rick Smith - Chairman & CEO

  • I think that's a great question. I think as they validate, they will start off maybe as an incremental, or an add-on. But as they -- this is my view -- as they see the value of VantageScore, it will become the score they use.

  • Brad Eichler - Analyst

  • And do you think just as Vantage, the way that you guys are introducing it to the market as a stand-alone product, it will be a profitable product on a stand-alone basis?

  • Rick Smith - Chairman & CEO

  • Yes.

  • Brad Eichler - Analyst

  • Moving on to commercial, this Austin-Tetra acquisition looks like a great fit for you guys.

  • Rick Smith - Chairman & CEO

  • Thank you.

  • Brad Eichler - Analyst

  • It clearly seems like it gives you the capability -- understand that you started with smaller businesses and they are trying to move upstream. It seems like it gives you the capability to do that. Is finding additional data going to be a challenge for you? Or where are you going to -- how are you going to accomplish that?

  • Rick Smith - Chairman & CEO

  • No, you talking about trade data, Brad?

  • Brad Eichler - Analyst

  • Yes.

  • Rick Smith - Chairman & CEO

  • Yes, no, that is a great question. If you think about our strategy, we talked to you about building a $300 million global commercial business by the year 2010. We've got great data right now in the financial sector, as you know; it is very unique; we've got the consumer data, which is very unique. And now we have this ability to link the data through the A-T Number.

  • In addition to that, we have a very aggressive plan in place now -- we are resourcing it, we are investing in it -- to increase our trade tapes from multiple sources. And you will see a significant increase. We talked about a couple hundred trade tapes in addition to our financial data. We saw you in September. You'll see a significant increase in that number in 2007. And probably reach our inflection point as far as the amount of trade data we need to be truly competitive in the marketplace in 2008. So we are going after that hard and heavy.

  • Brad Eichler - Analyst

  • Now is that going to be any incremental cost or capital expense for just that in particular?

  • Rick Smith - Chairman & CEO

  • Yes, but we will manage it from taking cost out elsewhere.

  • Brad Eichler - Analyst

  • Final question is with core North America, I realize you guys are facing some very tough comps in this quarter, but business overall seems to be tough. Two things there. One, could you talk a little bit more about the particular areas where you are finding the challenges? And then two, can you talk about what areas you think as we look out into 2007, you'll see some relief on?

  • Rick Smith - Chairman & CEO

  • Sure. Well North America, obviously mortgage, that story speaks for itself. We have seen the financial institutions -- you see the struggles they are having as they report their earnings. And telco is soft as well. Our strategy remains consistent -- continue to drive new product introductions so we can get new incremental share on these clients.

  • Two is embed technology. Where we are doing that, you are getting significant growth. I gave you the numbers from our top 20 customers in North America, which is where we are really focused on embedding technology and new products. There are up 12%, I believe it was, year-over-year. We've got to do more of that. So from the top 20, to the top 50, top 50 to the top 100.

  • So as I think out into 2007, to answer the second part of your question, my instinct is we are reaching the bottom on mortgage. I also think we are going to have a significant acceleration in ET. Our pipeline is as full as it has ever been.

  • And last is regional -- I talked a little bit about regional in my notes here earlier. Our regional focus is starting to pay dividends. I expect that to accelerate. And obviously, commercial will be a big, big, big growth area for us next year.

  • Maybe one last thing, Brad, is we don't talk a lot about it, but the ESS, the Settlement Services business, this is a year of getting ramped up, integrated, products positioned. Talked about three customers being signed. Our pipeline is extremely strong for the Settlement Services business. You will start to see the benefit of that in 2007 as well.

  • Operator

  • Mark Bacurin, Robert W. Baird.

  • Mark Bacurin - Analyst

  • A couple questions. The margins on the European segment were down year over year and you commented on it but didn't really give any indication as to what drove that. Could you give us a little color there?

  • Rick Smith - Chairman & CEO

  • Sure. I will give you two thoughts. One is, in the first half of the year, we had some non material benefits that increased our margin slightly there. But more importantly, what we have been doing since the markets are starting to turn, is invest more heavily in growth in Europe. And at the same time, he had a little bit of a mix -- product mix that drove some of the margin shift. The last thought is -- and I think it is important as we think about margin in any one geography, one quarter does not make a trend. And two, we tend to think about margins on a holistic basis across the entire Company, and the margins for Equifax in the quarter are up versus 2005 on a very strong basis -- 2005 as well. So nothing systemic there, Mark.

  • Mark Bacurin - Analyst

  • And then could you give us just a general update on the status of the whole file freeze issue and sort of where that stands on a state by state basis and whether or not you're seeing any noticeable impact on your volumes?

  • Rick Smith - Chairman & CEO

  • Sure. There are a number of states, I think it is up to 25 states now that have enacted their own variation of the file freeze legislation. And we are working obviously in all 25 states to service the consumers' needs.

  • The take-up rate, Mark, continues to be extremely small. At the same time, we've got our general counsel, Kent Mast and our lobbyists and the association working as an association -- as an industry -- continuing to lobby in Washington for a federal standard around file freeze. I am not hopeful we're going to get one. That may change in the future.

  • But in the interim, we are preparing ourselves for potentially up to 50 different state standards for a file freeze. But I don't expect it to be a big deal for us. We are successfully navigating the first 25.

  • Mark Bacurin - Analyst

  • I was hoping you could maybe shed some light on Basel II as a revenue opportunity. It sounds like there's a lot more undercurrents pushing toward more aggressive risk management, and it seems like a great opportunity for you, but just wanted to get your thoughts on that.

  • Rick Smith - Chairman & CEO

  • Obviously, we are very well aware of Basel II. As far as the revenue -- the product side of it, is your question, we have not spent any time yet thinking about how you take a Basel II legislation and turn that into a product offering. That is a good thought, though.

  • Mark Bacurin - Analyst

  • And then just finally, analytics are becoming more critical to your strategy going forward. Do you feel like you have everything you need internally? Or are there pockets or acquisitions that you see that would fulfill a need?

  • Rick Smith - Chairman & CEO

  • I think we've got an unbelievably strong analytical team internally. But as I think about areas like commercial, as an example, that is a pocket where data is a play, technology is a play, and analytics is a play. We are building great strength and depth in the data. Austin-Tetra obviously helps us in services and technology. There may be a play there -- we want to go out and look more around analytics in the commercial -- in either building or buying.

  • Operator

  • Megan Talbott, Lehman Brothers.

  • Megan Talbott - Analyst

  • A couple of quick questions. First, on the fourth quarter, to reach your 7% to 10% range at the bottom, you need a couple of points improved revenue growth versus this quarter in the fourth quarter. Obviously, you've got a little bit of an easier compare next quarter. Anything else -- any other areas that you see improving next quarter easing up a little bit?

  • Rick Smith - Chairman & CEO

  • Well, just in general -- let me make sure that I'm clear on one single point that I made in September so everyone is on the same page. In September, we gave you the guidance on a revenue of 7% to 10% for the total year. I stand committed to that. That hasn't changed. I also gave you guidance of $2.00 plus on EPS. Obviously, at that time, September 8, we were confident in our ability to deliver the $2.00 from operations. There are a lot of moving parts, as Lee kind of walked through on the EPS -- litigation and tax matters in the third quarter. When I talked about the plus piece of it, that was the plus piece of it. We couldn't quantify at that time how much the plus piece would be. So I want to make sure everyone understood -- when I talked about guidance, it is solid operating earnings, $2.00, which is well above our initial guidance of $1.90 to $1.99. And the plus was however the puts and takes -- on a onetime or a non-recurring items unfold in the third quarter.

  • As far as what do I expect for the fourth-quarter outlook, I don't expect significant market dynamic changes in any part of the world in which we operate. Again we've got great momentum in Latin America, good momentum in Europe. We're seeing improvement in the year-over-year performance in P-Sol. I would expect all those to continue. I expect commercial to continue to grow.

  • But the fundamentals of North America with mortgage, financial sector, telco sector -- and that is driven by consumer confidence, that is driven by price of oil, that is driven by interest rates -- I don't see that shifting significantly in the fourth quarter.

  • Megan Talbott - Analyst

  • And then a follow-up on your comments around your success with the regional customers. I think you stated that you are now averaging about six products per customer, and please correct me if I am wrong. Could you size that for us in terms of a comparison? How does this compare to your bigger customers and what a goal might be?

  • Rick Smith - Chairman & CEO

  • That's a great question. I have no idea, Megan. That is a great question -- you caught me off guard.

  • Obviously, in general though, the strategy is to penetrate as many products and technology to all customers. That has been a heavy focus for the large clients. And we are now bringing that down market. If interested, Megan, I will have Jeff Dodge follow-up with you and get you some specific numbers later.

  • Operator

  • Drew Chopra, Morgan Stanley.

  • Drew Chopra - Analyst

  • Quick question -- well, let me just start off with a housekeeping -- what was mortgage revenue as a percentage of total?

  • Rick Smith - Chairman & CEO

  • 13% to 14%.

  • Drew Chopra - Analyst

  • Okay. And then in Europe, obviously, very impressive growth on the revenue side. Is a lot of that just coming from rolling out these new products? Or are we looking at some sort of market share gains as well?

  • Rick Smith - Chairman & CEO

  • That's a good question. Three things. One is, you are seeing a slight improvement in their economic situation, both consumer spending, use of credit, GDP, which is giving us a little bit of lift. But the two points, the examples that I cited briefly for Europe, and which are part of the strategy that we talked about in New York -- new products and customer penetration.

  • Drew Chopra - Analyst

  • Okay. Just given sort of now that your strategic plan is well and truly underway, are you expecting to continue a similar kind of rate of share repurchases? Or is some of the cash flow going to be rediverted to new initiatives?

  • Lee Adrean - Corporate VP & CFO

  • Drew, this is Lee. We are planning on continuing share repurchase in the near term. I think what we have said is that we are for the moment comfortable with the level of debt we are currently carrying and have, over the recent quarters, started redirecting more of our free cash flow towards share repurchase. The debt level that we are currently carrying, however, is conservative, and we do believe that provides us the flexibility to pursue acquisitions as one means of carrying out our strategy.

  • So we definitely want to maintain the flexibility to pursue acquisitions, but do feel that at least in the near term, we have the cash flow also to continue repurchasing shares.

  • Rick Smith - Chairman & CEO

  • And Drew, we also talked about our CapEx increasing to facilitate organic growth. And we've got a lot of new products in the pipeline -- a lot of decisioning platforms in the pipeline. So we will invest there as well.

  • Drew Chopra - Analyst

  • And then just last question on Personal Solutions -- what are -- what were the ad spending trends in Q3 and what do you expect going forward?

  • Rick Smith - Chairman & CEO

  • In general, we have taken -- we look at the entire advertising strategy. Both online and off-line, we're going to focus more of our energy going forward as online versus off-line. I'm not convinced that you get a big bang. It is hard to measure and quantify.

  • When you hear Sean Hannity talk about the product and what the benefit is. So [owing] a tangible feedback on the benefit of the investment will make it and that will drive me towards online. And even online we're getting smarter; we have hired some new talent, who is very savvy in the area of tracking consumer advertising spend -- what the benefit is. So not all online advertising investments are the same.

  • So we are making some trade-offs as we speak, stopping some and increasing others. The overall level of spend for Personal Solutions, you should expect to be in the same general range we talked about, [for $20] million plus.

  • Operator

  • Andrew Jeffrey, Robinson Humphrey.

  • Andrew Jeffrey - Analyst

  • Rick, you have done a great job of delivering on the 7% to 10% organic revenue growth promise and the mix of business between North America and some of your other businesses has shifted around. As you look out to 2007, all else being equal, particularly having moved past some of the tougher comps, do you think your in a position to think about North American Information Services contributing more to that revenue growth next year than it did in 2006?

  • Rick Smith - Chairman & CEO

  • I will always protect North American franchise -- it is a key franchise. It is a cash flow engine. But as I have mentioned before, I would like to find sources of revenue growth outside of the core North American business, which would be geographical expansion as we talked about -- things like the commercial business, which is on the traditional consumer, focused in the U.S. In fact, I would like to find -- have less reliance upon -- that doesn't mean I don't want them to grow -- I want them to grow -- but I want to find other vehicles to grow at a faster rate so I've got less dependency on the core NAIS business.

  • Andrew Jeffrey - Analyst

  • So that sounds like a bit of a strategic shift of emphasis and maybe an acknowledgment that NAIS remains sort of a relatively cyclical business that will do better in up economies and not as well in flat to down economies?

  • Rick Smith - Chairman & CEO

  • Well, we talked about NAIS in September, when we saw you being a kind of 5%, 8% rate of growth business year-over-year through our planning period up to 2010. When you just naturally have places like P-Sol and Latin America and now Europe growing at a faster rate, that is going to make them a bigger piece of the overall enterprise, and commercial growing to 57%.

  • So it is not that it's -- I love that business. It's a 41% to 43% operating margin business, throws off a lot of cash. And don't misunderstand, I've got a lot of pressure on Dann to always think creative about how he grows that over the coming years. But there is other places for us to think about growing in the future as well.

  • Andrew Jeffrey - Analyst

  • And as a corollary, could you talk a little bit about broad international expansion plans and potential? Is it possible that we might see you go greenfield into some regions where you currently don't have a presence? Or would you be more focused on acquisitions to move into say, Asia-Pacific or other regions?

  • Rick Smith - Chairman & CEO

  • Yes, the countries we have talked about that we mentioned to you in September and the others is Mexico, China, Russia, Japan and India. And maybe one or two others we're looking at very hard.

  • Greenfield, Andrew, is not something that really intrigues me. De novo is a long haul process. You don't get any domain expertise, any local expertise. So I think what we end up saying is either some sort of partnership with local entities and/or acquisitions. And I would not be surprised, as I mentioned to you before, if you see us make a decision to enter one or more of those countries in 2007.

  • Jeff Dodge - SVP of IR

  • That will conclude our call. We will be available this afternoon if there are any additional questions. I want to thank everybody for participating. And, operator, with that, we will conclude the call.

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