易速傳真 (EFX) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the fourth-quarter earnings release conference call. (OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded.

I would now like to turn the conference over to Mr. Jeff Dodge.

Please go ahead.

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;

Lee Adrean, 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 yesterday and filed in a Form 8-K federal.

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

During the call we will be making certain forward-looking statements to help you understand Equifax and its business environment.

The 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 10-K and subsequent filings.

Today's call is also 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 would like to turn it over to Rick.

Thanks, Jeff.

Good morning, everyone.

Thanks for joining us this morning.

Our fourth-quarter performance was solid and broad-based and enabled us to close what was yet another successful year for Equifax.

During the fourth quarter, we delivered strong revenue and EPS growth, along with improved operating margins in our high-growth business units.

Revenue was $390 million, up 8%.

Marketing Services, Europe, Latin America and Personal Solutions all delivered double-digit growth, while North American Information Services growth was in line with our expectations and up from their third-quarter performance.

Net income was $63 million, driven by improved operating margins in Marketing Services, Latin America and Personal Solutions.

Diluted EPS was $0.50, up 4%, excluding a $6.4 million severance charge in the quarter, which I will talk about later for realignment of our organization.

Adjusted EPS was up 11% to $0.53.

For the year we met or exceeded our guidance in all areas.

Revenue was $1.55 billion, up 7.1%.

Net income was $275 million, up 11%, and diluted EPS was $2.12, up 14% on a non-GAAP basis.

Excluding certain items which are not representative of ongoing earnings trends, EPS was $2.01 a share consistent with the updated guidance that we gave you at our September analyst and investor meeting.

Across many dimensions, 2006 represented a very important transition year for this Company.

We developed a very powerful roadmap for our future success, which included our Growth Playbook which many of you saw at the analyst and investor day in New York.

We also created a new set of values and vision for the Company, and again we reorganized the Company to drive growth going forward.

Through all this change, the team did not take their eye off the commitments that we made to our shareholders.

Revenue growth was delivered across all business units.

Most of the business units improved their operating margins, their leveraging scale and sound cost-containment initiatives.

We talked a lot about NPI, new product innovation.

Throughout the year that has accelerated during the year and is providing good momentum as we enter 2007.

Our core North American Information Service segment led by Dann Adams delivered revenue growth of 3% in the fourth quarter, rebounding from an operating challenge and a difficult year-over-year comparison they faced in the third quarter.

We talked about that on our last call.

Volume from our largest 20 customers in the fourth quarter was up 12% for the three months ending December, exceeding the overall unit growth, volume growth of 9%.

So strong contribution once again from our top clients in North American Information Services.

Commercial Solutions further established leadership position with double-digit revenue growth and the acquisition of Austin-Tetra, which is moving along quite nicely.

You will recall we bought that business back in the late third quarter, early fourth quarter 2006.

Enabling Technologies continues to gain traction.

We ended the year on a very very strong note with 30% of US online transactions delivered to one of our operating platforms for the fourth quarter, and we signed a long-term contract with a major telco making us the preeminent provider of decision technologies for this industry.

As expected, and you have been reading about this, the Mortgage Reporting sector has had a very tough quarter.

For us the loss of AmeriQuest volume and the branch versus prior year for fourth quarter, we slightly underperformed in the Mortgage Banking Index, which was virtually flat for the quarter.

Our mortgage business was down about 22%, and AmeriQuest, again one of our largest accounts, accounted for 10 points of that decline.

Marketing Services, driven by strong performance in Credit Marketing, completed another year of impressive growth and improved operating margins.

Revenue growth occurred across all major sales channels with regional sales and resellers driving significantly above-average growth in the quarter.

Personal Solutions, we have talked a lot about this throughout the year.

Started slow, finished strong.

They refocused their marketing strategy.

It is working.

We have met our targets for double-digit revenue growth for the quarter and 20% operating margins.

For the quarter revenue grew 18%, and operating margins finished at 26.5%, so exiting the year with great momentum going into 2007.

In 2006 we provided solutions in 235 situations where customers' consumer datafiles were breached by third parties.

Approximately 63% of revenue during the quarter was subscription-based, up from 47% in the fourth quarter 2005.

You will recall that we talked about building a business model, shifting the business model to a subscription-based business model, and they are well on their way.

This has given the business a strong foundation for improved growth and profitability in 2007.

Sales channel mix is also becoming more broad-based.

Revenue for the quarter generated through online advertising grew at 63%, and the new call center growth strategy delivered 68% growth for the quarter.

This year Europe has successfully moved.

Where they focused on restoring their operating margins by focusing on cost, they are now focusing on growth.

The business has delivered many unique solutions and increased business with existing customers.

We completed the development of a secure hosting environment for our largest government customer to process highly sensitive consumer information.

We increased our share of wallet with new products, including a fraud database and a blended commercial report and our market share gains with our account management scores.

Latin America continued to grow and improved their operating margins.

Revenue driven by strong growth in Marketing Services, Analytics, and Enabling Technologies represented 24% of our revenue in 2006, up from 22% in 2005.

During the quarter, all six of the accompanying markets had comparable or increased operating margins and five of six had double-digit revenue growth in local currency.

So strong performance from Latin America.

In order to deliver on our commitments and to drive consistent, reliable performance, we felt adjustments to the organization were necessary.

Many of you were with us at the New York Stock Exchange when we unveiled our long-term business strategy we call the Growth Playbook.

As a team, we are absolutely committed to delivering on these goals that we laid out for the next four years.

To achieve more timely decision-making, we reduced the number of layers in the organization significantly.

I'm very confident this will make our organization more effective in executing our business objectives.

The new structure will also be built around four distinct market-facing business units and supported by global Centers of Excellence designed to support revenue growth and drive greater operating efficiencies.

We have experienced with Centers of Excellence -- we call them COEs -- that concept in the USA and we will now execute this concept globally.

The realignment also better leverages the skills at Equifax's senior leadership team as members take on new leadership roles within the organization.

I will walk you through all those changes now.

The four business segments are US Consumer Information Solutions, which will be led by Dann Adams.

This will include US consumer reporting, mortgage reporting, credit marketing services and direct marketing services.

North American Commercial Solutions -- a big growth vehicle for us that we have talked about now for the last year -- will be led by Michael Shannon.

As you know, Michael formerly led our European operations.

This will include our rapidly growing US Commercial Solutions business, along with Austin-Tetra, and our commercial solutions operations in Canada.

International we will incorporate the Company's operations in 12 countries, including Canada, Latin America, and Europe.

Obviously Canada will not include the commercial business we just talked about under Michael's responsibilities.

So Canada, Latin America and Europe and that will be led by Rudy Ploder who previously led our successful operations in Latin America.

North America Personal Solutions Equifax Consumer Products Company will continue to be led under Steve Ely's leadership.

The traditional global Centers of Excellence, including HR, finance, corporate development and legal, will be complemented with additional global Centers of Excellence in the following areas.

We have created a global operations organization Center of Excellence which will be led by Owen Flynn.

Owen is formerly the head of our Marketing Services business.

Prior to that, he was our Chief Technology Officer.

He's got a vast array of experiences across Equifax over many years.

His team will be realigning existing business operation groups throughout the Company, including consumer services, business services, product fulfillment, database fulfillment, data operations, process re-engineering and international operations.

A significant opportunity there for Owen Flynn to make a big impact on our efficiency and customer services level to our clients.

You have heard us talk a lot about expanding Enabling Technologies into our international geographies.

It is a core part of our growth playbook. [Paul McCowan], previously Senior Vice President of our APPRO productline, will lead Enabling Technologies globally, including development and fulfillment of a loan origination and decisioning platform.

So I should say all loan origination and decisioning platforms.

Interconnect and the APPRO productline.

Marketing will now become a global effort.

It was primarily historically a North American effort.

Now a global effort led by Paul Springman who will have responsibility for all strategic marketing, marketing communications, public relations, product management, data services and predictive modeling.

Bob Webb will assume the new title of Chief Information Officer overseeing global technology strategy, architecture, systems development, technology infrastructure and datacenter operations.

This realigned structure is an important step as we position the Company for sustainable growth and profitability and to be more competitive in a dynamic market environment.

And, by the way, what we will do after the call Jeff will work with you to get an organizational chart that reflect all those changes, so it is easier for all of you to follow.

In 2007 you should expect us to continue our growth focus.

We will continue to innovate with new product.

That is a core part of our strategy, and as I said earlier on, we have great traction already as we exit 2006 and enter 2007.

Number two, we will look for opportunities to improve our operating efficiencies.

There's a lot of things we are looking at renting from our sourcing organization to embracing new tools internally called [LEAN] to leveraging the competencies of Owen Flynn and his group as he looks for efficiencies across our new operating model.

We will also acquire or build new differentiated data assets, which we talked about being a cornerstone to our strategy, and we will continue to leverage and invest in our Enabling Technologies and predictive sciences capabilities.

We are going to move our entire organization to a new high-performance meritocracy-based culture that will enable us to continue delivering the performance we described during our investor day.

We have spent a lot of time redesigning our performance management system.

We have cascaded this communication in our global kickoff meeting last week, North American meetings and international meetings over the past week as well.

It will be a new culture for Equifax in 2007 and beyond, and we will be deliberate and decisive as we have always told you in the area of acquisitions as we focus on technology, data assets, potential market expansion opportunities that will give us broader longer-term platforms from which to grow and deliver profit.

The global economic outlook for 2007 will have some challenges as did 2006.

The countries where we have operations or objectives for 2007 are in line with the long-term performance targets we detailed during our investor day.

We expect revenue growth to be in the range of 6 to 10%.

We expect quarterly year-over-year growth to be in a lower portion of this range in the first quarter and increase over the course of the year as new products and markets yield increasing results with the first-quarter growth naturally at the lower end of that range.

I also believe that the housing environment will improve in the US, and the economies will strengthen as we exit in 2007 as well as giving us further strength.

Diluted EPS is expected to be between 215 and 223, up 7 to 11% over 2006.

EPS is on a non-GAAP basis, excluding the effects of the onetime charges mentioned previously.

Capital expenditures are expected to be in the range of $70 million to $100 million.

We talked about this at the investor day.

This will reflect our increased investment in new products and technology infrastructure.

EBITDA, a non-GAAP financial measure, is expected to be between $555 million and $575 million for the year.

Thanks for listening, and I will turn it over to Lee Adrean who will give you more specifics on the financials.

Thanks, Rick, and good morning, everyone.

As usual, I will be presenting all financial information on a GAAP basis except where otherwise noted.

You should also refer to the Q&A, which is attached to our press release for additional financial information.

As Rick mentioned, we're realigning the organization to better support our new strategy.

As a result, we have taken a severance charge in the fourth quarter, amounting to $6.4 million.

In addition to reporting segment results as they existed in 2006, we have also included quarterly revenue and operating income for 2005 and 2006 for each of the four newly defined business segments.

Additional revenue detail for certain business units, which we will also be reporting in 2007, is included.

This way you can build your estimates for 2007 and beyond on the new segment basis that we will use for reporting starting in 2007.

For the remainder of my time, I will focus on the financial performance consistent with the organizational structure in 2006 as we have been reporting in the past.

For the quarter consolidated revenue was $390 million, up 8% over the prior year.

Net income was $63 million, and on a non-GAAP basis, net income was $68 million, up 8% as adjusted for the charge related to the organizational alignment and the adoption of FAS 123R.

Diluted earnings per share was $0.50, up 4% and on a non-GAAP basis earnings per share was $0.53, up 12% as adjusted for the severance charge and the adoption of FAS 123R.

In North America US Consumer and Commercial Information Services revenue was $204 million, up 3% when compared to the same quarter last year.

Online US volume was up 9%, driven primarily by financial services, resellers and telco accounts customers.

During the fourth quarter, approximately 30% of US online transactions were processed through one of our Enabling Technology platforms, up from 26% in the fourth quarter of 2005.

Our Commercial business growth continues with revenue of $11 million, up 84% from the fourth quarter of 2005.

Transaction-based revenue in the commercial business now represents over 59% of total commercial revenue.

Mortgage reporting services revenue of $15 million was down 22% as Rick mentioned previously.

Canada's revenue was $30 million, up 6% in US dollars and 3% in local currency.

Marketing Services delivered total revenue of $74 million, up 11%.

Operating margins were 40.3%, up from 37% in 2005 as we have seen strong operating leverage on this level of revenue growth.

Credit Marketing services revenue of $44 million represents a gain of 17%, and Direct Marketing Services revenue was $29 million, up 2% compared to the fourth quarter of '05.

In Personal Solutions revenue grew 18% to $32 million, and the operating margin was 26.5% for the quarter compared to 13.9% in 2005, again showing strong operating leverage on the good revenue growth.

Europe delivered revenue of $41 million, up 17% in US dollars and 7% in local currency.

The operating margin was 20.6% for the quarter, down from 25.8% in the fourth quarter a year ago.

Latin American grew revenue 10% in US dollars and 8% in local currency to $40 million.

Operating margin was 32.8%, up from 24.7% a year ago.

For the Company as a whole, the operating margin was 28.2% in the quarter.

On a non-GAAP basis, the operating margin adjusted for the charge related to the organizational realignment and the adoption of FAS 123R was 30% as compared to 29.3% in 2005 as we have shown nice operating margin expansion for the year.

During the quarter we repurchased 1.4 million shares of our stock in the open market for a total of $51 million and at quarter-end had $133 million remaining under current authorizations.

In summary, our fourth-quarter performance was solid and broad-based.

For the full year, consolidated revenue was $1.55 billion, up 7%.

Net income was $275 million, up 11%.

On a non-GAAP basis, net income was $266 million, up 8% as adjusted for certain items.

Diluted earnings per share was $2.12, up 14% for the year.

The incremental effect of FAS 123R on stock option and equity compensation expense for 2006 was $0.04 per share.

EPS adjusted for FAS 123R, as well as the realignment, litigation and tax matters noted previously, was $2.05, up 10% from the prior year on a comparable basis.

On a non-GAAP basis, earnings per share adjusted for the charge related to organizational realignment and certain litigation and tax matters disclosed in prior quarters was $2.01.

That does incorporate or in other words that is after absorbing the expense for FAS 123R stock option expense.

This EPS is on a comparable basis for 2007 guidance and is the number of that we view ourselves growing from as we move into 2007.

In North America US Consumer and Commercial Information Services revenue was $836 million, up 4% when compared to last year.

Online US volume was up 6%, driven primarily by financial services customers throughout the year.

Approximately 27% of our US online transactions were processed through one of our Enabling Technology platforms, up from 23% in 2005, showing good progress in embedding our technologies and added value into our clients.

Our Commercial business growth continues with revenue of $26 million, up 66% from 2005.

Mortgage Reporting Services revenue of $72 million was down 16% for the year compared to the Mortgage Banker Index down 17%.

Canada's revenue was $118 million, up 7% in US dollars and flat in local currency.

Marketing Services delivered total revenue of $277 million, up 9% showing good growth for this business.

Operating margins moved up to 35.7% from 33.5% in 2005, again showing good margin expansion.

Credit Marketing Services revenue of $166 million represents a gain of 10%, and Direct Marketing Services revenue of $111 million was up 8% compared to 2005.

In Personal Solutions revenue for the year grew 10% to $126 million, again exiting the year at an 18% growth rate showing the progress we made throughout the year with that business.

The operating margin was 10.8% on a GAAP basis, and on a non-GAAP basis, excluding the impact of certain litigation matters, Personal Solutions operating margin was 14.8%, up from 11.8% in 2005.

Our European operations delivered record revenue of $154 million, up 8% in US dollars and 7% in local currency showing good expansion and growth from the prior year.

The operating margin was 23.1%, down slightly from 23.5% in 2005 and in about the range that we expect going forward in the near-term.

Latin America's record revenue of $154 million was up 21% in US dollars and 14% in local currency.

Operating margin was 29.8%, up strongly from 26.3% in 2005.

For the Company as a whole, operating margin was 28.2%.

On a non-GAAP basis, the operating margin adjusted for certain items was 29.7% compared to 29.2% in 2005, again showing good focus on managing margins even as we grow the business.

Cash from operations was $374 million for the year.

We repurchased 6 million shares of our stock on the open market for a total of $213 million during the year, and total debt outstanding declined $52 million from the end of 2005 to end 2006 at $504 million.

Though I have only been here for a few months, it is clear to me that Equifax has delivered solid performance in 2006 and is positioning itself for an even better 2007 with a well thought-out strategy and an organizational realignment that will enhance our success in the years to come.

Now I will turn it back to Rick.

Thanks, Lee. 2006 was a great year for Equifax on many fronts.

I will say, as I shared with my team over the last couple of weeks, they have delivered on the softer side, the strategy, the vision, gave processes in place, driving innovation, all while delivering on the financial commitments.

I asked an awful lot of my team in 2006, and I am extremely proud of their ability to deliver and have great confidence that the momentum that we have in this Company will continue in 2007 and beyond.

We will deliver against those commitments that we outlined for you in New York in September of 2006.

So with that, I will stop, and operator, I will turn it over to the audience to answer any questions they might have of Lee and I.

(OPERATOR INSTRUCTIONS).

Nat Otis, KBW.

Just a couple of quick questions.

First, with respect to your '07 guidance, I just want to check and see what your share repurchase expectations are that go along with that?

Our current expectation is that we will use our available free cash flow for share repurchase.

We did not anticipate meaningful further debt reduction from these levels, and that would suggest something that in in excess of $200 million likely in share repurchase.

I would note we do expect, as Rick mentioned, capital expenditures will be higher in 2007 than 2006, so that does factor into the level of free cash flow we will have.

But we would expect something in excess of $200 million based on current operating plans.

And you don't have any expectations for any future charges associated with realignment?

It was just this quarter, correct?

Well, you know, I hate to say never.

You're always looking at ways to optimize organizational structure.

This was explicitly around driving, as we talked before, around driving growth, driving efficiency and growth and alignment around our customers.

We were not outlined around the customers' needs, but you will always be looking for other ways to optimize efficiency and effectiveness.

So there's nothing contemplated at this point in time.

I don't want to mislead you, but I would never want to say we will never look at reorganizing our Company going forward.

Thank you.

Just last question.

Any color on the Settlement Services business as you go into '07?

Any type of expectations or how that is going?

Yes, it is gaining momentum.

We have got leadership in place.

We've got an operating model in place.

Got a plan in place.

We're landing new customers.

We added three or four new customers as we exited 2006 the fourth quarter, and I was bullish when we created this venture that it would be another way for us to get different bites of the apple along the value change of the mortgage market, and I am as bullish today as I was then.

Thank you.

Congratulations on a nice quarter.

Brad Eichler, Stephens Inc.

A couple of questions.

First, just on the revenue growth guidance that you put out of I guess 6 to 10, it sounds like you are going to start the year at the lower end.

You could finish the year higher.

A two-part question.

One, what would it take to finish out closer to that 10% goal for the year, A)?

And B), is the way that the year could sort out could we actually see growth in the latter part of the year above the top end of that range?

Yes, there is a couple of things that we would hope would happen that would get us closer to the top end of that range if not above that range.

Internally things we can control obviously, we have got great traction.

We have talked about it in the area of new products, and I told you in September and I gave you an update at the end of the third-quarter call that we are around $50 million of new products launched this year or launched last year for revenue in 2007 (inaudible) to grow.

Number two is we're expanding the pricing, analytics and actions that we started in Latin America now to the rest of the world, and that is having tangible benefits for us as we segment our client base differently and think more strategically about pricing.

So accelerating in that area.

Third is externally would be things like the economy.

If we get a rate cut of any sort in the US, that will obviously help us as we exit the year.

If the housing market, in fact, does bottom and that actually rebounds and helps the mortgage business, that will help us in 2007.

I expect P-Sol to continue to expand at strong double-digit growth rates.

If we get a little more lift there, obviously that pushes us higher up in the range.

And the last point I would leave you with is, in Latin America obviously the greater growth has slowed a bit in Latin America.

That is largely driven by Brazil.

We have new leadership in Brazil.

Rudy, as you know, is a hands-on leader down there with his new leader.

He started in mid to late fourth quarter.

If we can get him hitting on all cylinders and get that growth back to the growth rate we have experienced in the past, again that pushes us up in that range of 6 to 10%.

Okay.

Maybe this is a question for Lee, but you have got $330 million of your debt classified as current.

It sounds like you're not going to pay down your debt.

It is obviously an opportunity to look at the capital structure of the business.

With $500 million-ish in debt and $575 million-ish in EBITDA and very consistent cash flows, you obviously could support a much higher level of debt giving you more flexibility.

What do you think is the optimal capital structure for the business?

Well, we clearly think that over time we would expect to see the Company operate on average at a debt to EBITDA ratio that is above 1, not below 1.

I think over the last couple of years debt was paid down in part to leave the Company with the flexibility for strategic steps such as acquisitions that might make sense.

I think the way to think about this is, as I said, we're going to apply our free cash flow in the coming year toward share repurchase if and as we have appropriate opportunities for acquisitions that are consistent with our strategy, you probably ought to think about those as being funded in a way that will push our debt and level of leverage up.

So expect to see over time that our leverage has increased most likely due to acquisitions, but I think if we went a substantial period without appropriate opportunities, we might drive it up just purely through borrowing and share repurchase.

And then, Rick, just a final, any update on VantageScore rollout?

It is going well.

You may have seen that the Justice Department I guess it was yesterday closed its investigation into VantageScore.

Client acceptance is good.

The contesting is good.

Large customers are obviously first in line to test this.

We will expect to see revenue in 2007.

We are on track.

Mark Bacurin, Robert W. Baird.

A couple of things.

First, Lee, could you tell us what -- commercial growth saw a nice jump in the quarter in terms of the growth rate, but some of that was Austin-Tetra.

Can you tell us what it was --?

Can you repeat that?

You cut in and out.

Sorry.

In the Commercial Business segment, could you tell us what the growth rate was excluding Austin-Tetra?

Excluding Austin-Tetra, it was I believe about 50%.

Austin-Tetra revenue in the quarter was just under -- that is for the year -- I think the quarter was also about 50%.

Austin-Tetra revenue is just a few million dollars.

As he looks that up, the total year increase in the US Commercial business, excluding Canada and Austin-Tetra, was up 44%.

And he will get the fourth quarter specifically for you.

But Austin-Tetra was very small.

It sounds like you did see a nice acceleration in the quarter, even if we back out Austin-Tetra.

So is that just gaining traction with that commercial database and starting to see more of that (multiple speakers) transactional revenue?

Absolutely and that is going to continue into 2007 and beyond.

The margins in that business are surprisingly strong for a Company this early in its lifecycle.

I guess the question is, how are you going to manage the margin on that business going forward given that it is still in its infancy and trying to grow --?

I would say I see that the margins will continue to expand over time, and I would see that in the outer years, maybe '08, '09, that it is a 30 plus kind of margin business.

Great.

And then shifting over to Personal Solutions, I did not hear -- I may have just missed it -- the breakdown of subscription versus more onetime type revenue.

Yes, I had that somewhere.

Our goal, as we talked about in September, was to get P-Sol to about a 70, 75% subscription over time, over the planning horizon.

We talked about revamping our entire strategy, look and feel and pushing the subscription product.

They ended the quarter I want to say -- give me a second -- at 60 -- you guys, 60% some-odd. (multiple speakers). 63% for the quarter, up from 47% in the fourth quarter of 2005.

So they are well on their way.

Great.

And I heard you mention in Personal Solutions a new call center strategy, as well as some of these new channel partners.

Can you give us a little more color on the nice (multiple speakers) improvement in growth there?

Yes, we have created a new call center partner.

We have been proactive as customers are calling in to cancel products to upsell, cross-sell, extend.

Just being very, very proactive in our ability to retain clients, and the benefit is the retention rate is increasing.

So that is what I meant by that, and that is really proving to be a great benefit.

On the channel strategy, it is being smarter by who we chose on our online channel partners to partner with, putting our advertising dollars with those who will give us great returns.

Great.

Very good success in that business.

And then just finally, Rick, I was hoping you could touch on with the organizational realignment you talked about some efficiency improvements.

You care to venture I guess at this point as to order of magnitude what kind of cost savings we might be able to squeeze out of this process?

The intent all along was not to take cost out.

Obviously, in doing the restructuring and severance, some people did result in cost out.

It was more about driving better decisioning, so taking layers of the organization out, empowering our people more by having greater experiment control for our managers and aligning people around customers to drive growth.

So you should not think about the overall cost year-over-year coming down, and I will use some of that cost savings to reinvest in faster growth.

Druv Chopra, Morgan Stanley.

A quick question on the Personal Solutions.

Obviously very impressive improvement in revenue and operating margin as you guys had suggested, but can you walk through some of the key drivers there?

I mean is the fraud or consumer fraud driving some of this, or can you provide more detail?

Sure, I simplified in a couple of main categories.

In April we talked about after a slow first quarter and slightly improved second quarter a need to rethink everything.

We re-designed the entire web page, so the usability of the web page getting the products was better.

We segmented our customers clearly into three main categories, and their buying needs were much different as a result.

We repositioned from an annual subscription to monthly.

We emphasized subscription versus transaction.

So it is a massive revamp that really has resulted in a higher conversion rate, a higher retention rate.

We talked about the call center, which improved retention rate.

And then also on top of all the things we did there, the things that helped us on the outside, were data breeches.

I mentioned 230 plus data breeches in the calendar year 2006, and that trend is accelerating not declining.

That has obviously been a help as well.

But I give great credit to Steve Ely and his team for taking the challenge head-on and revamping their strategy and approach, and it is paying dividends.

One thing we should probably note, the margins in the fourth quarter at almost 27% and up very strongly from the prior year, there is a seasonal pattern to that business where we tend to have less advertising in the fourth quarter because it's not as effective competing with all of the other holiday advertising going on.

We tend to have more advertising in the first half of the year.

So the 27 -- I don't want anyone to think the 27% is representative of a go-forward margin quarter by quarter.

The margins for the year were up from 12% to 15%, and we expect further margin progress in 2007 and think this business has the potential to get into the low 20s over time.

So don't run with 27% and carry it forward to Q1 and Q2, but the margin trend is absolutely established and will continue.

Okay.

Great.

And then just quickly on the guidance comment and particularly on the quarterly side, what assumptions have you got in there in terms of FX?

Clearly the British pound and the Brazilian real are favorable this quarter so far.

FX added about $18 million to revenue in 2006.

Our current outlook is that we will see a lesser benefit, a third or a half of that level in '07.

Obviously if I could forecast FX, I would be running a hedge fund.

But we do expect some pickup but not to the same degree as in '06.

And then last question, can you talk about the potential expansion strategy internationally outside of the 12 markets today?

Yes, we talked a little bit in New York and when I saw you since then that we are moving all of our energy and planning and have been for months now around a few key countries -- China, Mexico and India.

We have done a lot of planning specifically to China and Mexico at this juncture, and I would expect that toward the latter half of 2007 that strategy will crystallize into some action.

Megan Talbott, Lehman Brothers.

The first question on the reorganization.

You talked a lot about its impact at the levels of management.

Could you give any color on impact on the ground to the salesforce?

Have you made any changes there in terms of compensation, etc.?

That is a great question.

First, on the structure, the answer is yes.

We have realigned primarily in the US where we had multiple products teams calling on the same customers and what we call customer focused teams.

So we are bringing DMS, DBS, CMS, Information Solutions, Predictive Sciences, Enabling Technologies, all focused on a customer and the profitable growth of the customer.

So that organization, yes, has impacted all the way down to the individual sales rep.

Secondly, to your question, we hired in mid-2006 a consultant working with Coretha Rushing, our new HR leader whom I think we have talked about in the past who came to us from Coca-Cola, and we have revamped the entire global sales compensation plan and aligned toward profitable growth.

We have a standardization of plans now around the world, again all aligning towards profitable growth.

We are also launching this new Performance Management System, which is brand new to Equifax.

It is very contemporary, a way to differentiate the performance of the great people from those who are averaging poor performance.

So a lot on the soft side, as well as the structural side, to drive growth.

Thank you.

And in terms of 2007, a quick follow-up to your guidance.

For the first-half coming in at the low end of the range is obviously a bit of a deceleration from what you have seen this quarter.

Anything specific going on there, specific segments you think might slow down in the first half of the year versus Q4?

No, it's just that if you look at any of the global macroeconomic trends, everyone is saying that the first half of 2007 will have a little more headwind than 2006 did and that is it.

Really our guidance was that the first quarter will come in potentially at the lower end of that range and accelerating as new products, pricing and all those other things I talked about take great traction.

Great.

And then just one quick current events question.

There has been a lot of press lately about an increase in folks trying to freeze their credit.

Does that have any impact on you, help you, hurt you in any way?

It has an impact.

There were 25, 26 different states -- roughly 26 in the United States who have different levels of legislation, different standards of legislation around file freeze with different time periods for implementation.

We are prepared to execute that and have been for some time.

We are also actively working with the federal government to enact a preemptive federal standard, and to date, though, across the board, the take-up rate of a file freeze is extremely low.

California was the first state to enact it years ago, and it is insignificant in it usage right now.

But we are prepared and ready to act at the state level if we need.

Fred Searby, JPMorgan.

A couple of questions.

One, I enjoyed your analyst day, and you argued or you (inaudible) out a roadmap with the adjacencies and kind of emerging.

Can you talk about with CapEx going up what we should expect in terms of health care, and obviously on the commercial side, you're seeing some nice growth.

Where is the area of emphasis in terms of trying to accelerate growth and investment?

And then secondly, just looking at your European margins were down, what are you thinking in terms of 2007 as a target in Europe on the margin front?

Let me start with CapEx generally, and Lee, I will give a view and you can jump in.

CapEx in general, if I understood your question correctly, if you bifurcate the investment CapEx into two primary areas, CapEx for software development, which is new products, which is revenue growth and then infrastructure, the vast majority of the CapEx is going into new product introductions, so the software.

But we are making some investments in 2007 into our infrastructure.

We just need to update our infrastructure, and we are expected to have very, very high system reliability or system up-time as our customers measure it, and to do so, we need to make sure we're continually enhancing our infrastructure capabilities.

Specific to Europe, there were a couple of anomalies in Europe for the quarter.

You had some vendor credits that sunset.

You had the onboarding of, I mentioned in my earlier talk, a very large customer within the British government.

As that started off, it was a very good product, very good pricing, but the margins were a little dilutive to our overall business and also a little bit of a mix, product mix.

Put those altogether and you saw the drop to 21%.

On average I would expect as we look at 2007 and beyond that they should be somewhere in the low to mid-20s for operating margin.

Again, I would reinforce the margin was 23.5% in 2005, it was 23.1% or 23.2% in 2006, and our go-forward view is kind of right in -- kind of roughly in that range of 22, 23, 24%.

It may fluctuate quarter to quarter, but that range is probably the right range.

And just on your international expansion, you have talked -- you mentioned China and Mexico and India.

I think in the past you said you were looking at China, Mexico and Russia.

And have you kind of vetted -- I assume this means small bolt-on acquisitions as opposed to greenfield organic type -- trying to build a toehold or a foothold in these markets?

Yes, I agreed with the small acquisitions, maybe not probably more ventures.

De novo's are a type of greenfield as you call them.

Large acquisitions are in some cases impossible.

You may have small acquisitions in countries like Mexico and more likely to have small partnerships or ventures in countries like China, much like we have in our experience across Latin America and even Europe.

Out of curiosity, what happened to Russia?

There is only so much you can do, and right now China, Mexico and India have won the day over Russia short-term.

Brandon Dobell, Credit Suisse.

A couple of broader strategy questions I guess.

As you look at '07, what do you think are the main top two or three or four differences between what you're expecting to see in '07 versus the last couple of years in terms of sales strategy, sales alignment, pricing perspectives or strategy?

I'm trying to get a feel for how you guys get comfortable around the new initiatives or new products going forward versus what has been the case historically.

Yes, I would say simply I will start at the 10,000 foot level and come down.

Simply what is different is we have spent 2006 developing our strategy and starting to execute against that strategy at the back-end of the year. 2007 is all about delivering on all those initiatives we laid out for you in New York.

And they center on things like embedding more technology into our clients, embedding more predictive science into our clients.

We gave the data as we exited last year.

North America now to 30%, a goal we thought was unattainable just a few years ago.

Now we are on our way to getting 50%.

That is a big difference in the value proposition we offer clients and their growth rate hence our growth rate and our margins, so that will always be a strategy.

Number two, we talked about becoming smarter in our segmentation.

I used Personal Solutions as an example.

But we are doing the same level of customer segmentation across all clients around the world and thinking more intelligently about product offerings for those customers and pricing for those customers.

That has been a great success for us in Latin America.

It is starting to deliver for us in the US and Europe as well.

New product innovation, really just getting going.

We have built the process, built the system, built the innovation, got the team right on innovating in 2006.

That pipeline is now full.

We had 90 products that we have launched or are launching, new products over the nice last nine to 10 months.

That will deliver great momentum.

And then lastly, we talked about the restructuring of the organization.

So we are one team, one face, one voice to the customer to deliver profitable growth.

So there was a lot of momentum that was created in '06 that will differentiate us and make us feel better about 2007.

Great.

As you think about the sources of money that you guys are going after or the acceleration in growth that you expect, is it driven by more you think share gain?

Is it because of budgets for what you're going after are now accelerating because people are shifting from more acquisition to more retention?

I was trying to get a feel on the financial side from the customer's perspective why do you think it is going to be easy for them, or not easy for them, but why do you think they are going to be giving you money versus somebody else?

Sure.

I would say simply put it is two things.

One is, by offering new product solutions, be it Enabling Technology, Analytics through Predictive Sciences or just new NPI, like the ESS, the Settlement Services, that allows us to penetrate the market and provide products where no one provides those today.

Okay.

So that's not necessarily share gain.

That is penetration of the market place, allowing our customers to grow at a faster rate, providing solutions, hence income for us that did not exist before.

And secondly, yes, I do believe that things we're doing will allow us to differentiate ourselves from competition and take share of wallet, and that is a key metric we measure routinely.

And then finally, maybe some kind of 30,000 foot perspective on trends in spending on, let's say, a customer acquisition versus retention versus fraud management and those kind of, let's call, it back end analytics.

Kind of segment the market in those three categories, how do you think those things play out the next year or two?

Are you talking generically or are you talking P-Sol, or what is your --?

More generically.

Focused on the Consumer Information Services business for you guys.

Yes, I would say a customer acquisition obviously in a growing economy -- we talking about CMS here, the question?

Customer acquisition in a growing economy is a big growth product for us.

We saw that amplified in 2005 and early 2006.

As we talked last year, though, we saw a shift towards more retention portfolio management, risk management as the economy slows.

And the interesting thing is we actually saw in the fourth quarter of 2006 that our customer acquisition product line was actually growing, which gives us some hope that consumer behavior, consumer spending, in fact, may have bottomed and be more stronger than we expected in 2007.

Michael Meltz, Bear Stearns.

I think I have three questions.

Regarding the charge, can you tell us how many positions are impacted?

Yes, it was -- speaking from memory, I think it was about 169, Michael.

Okay.

Thank you.

And most of those were managerial level.

A lot of them was we took out layers of the organization.

Second, on the mortgage in the quarter, I know we're talking mostly '07 here.

But in the quarter, you for the first time I can think of in awhile you actually underperformed the index.

Can you just talk about if the index was flat, and you're saying AmeriQuest took you down I guess the 1000 basis points.

Why do you think you underperformed?

One primary reason, Michael.

We had some customer consolidation that resulted in lost revenue.

Can you give any more detail on that?

We had some customer consolidation and some lost revenue.

No, overall for the entire year -- I think lee gave the numbers -- we actually did outperform the index.

I don't spend a lot of time overly concerned or analyzing one particular quarter, and I am comfortable that it was really driven by some consolidation.

And I think we will see a -- hopefully you will see some momentum rebounding in mortgages as we go into the first quarter of 2007 as refinancing improves.

Okay.

And Lee or Rick, just one last clarification on the guidance.

So you are saying 6 to 10% and you're saying lower growth.

The press release reads a little bit differently than what you're saying on the call.

Are you saying at least 6% growth in every quarter this year?

We did not say that, but I think what we are saying is we will be in the lower portion of the range and we should move up.

So unless there's something really unexpected, I think that is a fair interpretation.

Bruce Simpson, William Blair.

Two questions.

One is just more general and it gets back to the notion of guidance.

I guess I'm a little surprised at the investor day the sense was kind of an 11% bottom-line target, and yet you positioned yourself with that at the top end of a fairly broad range.

And I think I hear you saying that that is because global macro targets are a little bit softer, and yet you are also saying some pretty enthusiastic things about rate of rebound in mortgage.

And so if you could just kind of summarize why your targeted EPS range is 7 to 11, instead of, let's say, 9 to 13 for next year?

Yes, I think very importantly a key portion of the multiyear outlook of 7 to 10% revenue growth and 11% bottom-line growth is ramping up new product innovation.

We have invested meaningfully in it in '06, are further expanding our investment in '07.

In '07 we're seeing the initial wave of products.

We have seen a couple of them starting in late '06.

It is treacherous to try to project exact ramp-up rates on new products, and I think what you will see and one of the key things Rick mentioned is too what was going to drive us potentially relatively higher in the revenue growth range was the success of those new product introductions.

But the point we are today is just seeing those hitting the market and starting to ramp up as we get greater visibility, we will have a better ability to project tighter targets and presumably a little higher targets.

Bruce, the only thing I would add is -- this is Rick -- in September the guidance we gave was EPS of 7 to 10 plus over time.

In some years you would be at 7 and some years you would be over 10, but on average over that four-year period of time, 7 to 10 plus.

So I see this guidance being very much in that line, if not, in fact, we're saying it may even be at the top end of that at 11%.

Okay.

And then I have a specific question with respect to Latin America.

Just as we have seen the year-on-year growth rates decelerate in the second half and now Rudy got a bigger seer, a backyard that he's got to watch over, what would you think about Latin American growth rates going forward?

Have we reached sort of a more mature and slower growth phase, or is this kind of a temporary slowdown?

I think that the slowdown you saw in the fourth quarter was driven by Brazil.

As I mentioned in my opening comments, we have a new leader there.

He is a very seasoned leader that will help Rudy play in a larger backyard, as you just said, including Canada and UK and Continental Europe.

We told the team in New York that we expect Latin America to be a double-digit growth business in a range of 10 to 12% over the next four years.

I stand committed to that as does Rudy.

I would like to thank everybody for the call, for participating, and with that, operator, we will conclude the call.

Thank you.

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