易速傳真 (EFX) 2007 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Equifax first-quarter earnings release conference call.

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

Later there will be an opportunity for your questions and instructions will be given at that time.

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

I would now like to turn the conference over to Jeff Dodge with Investor Relations.

Please go ahead, sir.

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 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 may also be found in the investor center on 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 inherent in our business are set forth in filings with the SEC including our 2006 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 would like to turn it over to Rick.

Thanks, Jeff, and good morning, everyone.

The Equifax team delivered outstanding first-quarter performance.

This performance underscores the breadth and diversity of our businesses.

Revenue was $405 million, up 8% in the U.S.

Online Consumer Information Solutions accelerated their growth in fourth-quarter 2006 while International North American Personal Solutions and North America commercial all delivered double-digit revenue growth.

Net income was $69 million, 10%, and diluted EPS was $0.54 a share, up 13%.

Revenue growth for the quarter was accomplished in the face of challenges created by an eroding credit quality of subprime and Alt-A mortgage lending here in the U.S.

We have been observing this increase in risk in subprime mortgage lending since early 2006.

Based upon analysis from our database, passthrough subprime loans, 30 plus delinquency rates are up 648 basis points since the first quarter of 2006 and 90 plus delinquency rates are up over 400 basis points for the same period.

However for Equifax, the revenue risk is limited as consumers take advantage of more product offerings and liquidity in the market.

With increased competition, providing consumers with more alternatives, we have experienced an increase in the average number of credit reports sold for every closed loan going from approximately 4.15 in 2003 to almost 7.9 in 2006.

Demand for our portfolio products has also increased, something we have talked to you about routinely.

Also the growth in the private-label securitization market which represented 34% of originations for the first nine months of 2006 versus only 10% of the market in 2003.

The current environment, while different, is not new to the U.S.

Since 1998 there have been five years where the volume of closed mortgage loans declined versus the previous year.

In three of those years, Mortgage Reporting Solutions delivered solid revenue growth.

In the current environment, Mortgage Reporting Solutions revenue is down 13%, with Ameriquest, which stopped originating new mortgages to their storefront locations about a year ago, represents 7 points of that decline.

That is a headwind that will go away obviously as we move through the second quarter and into the third quarter.

Although there have been serious repercussions from these aggressive lending tactics, the overall market is financially stronger.

We believe that the greater breadth of product offerings available to consumers, banks' overall financial strength and the availability of capital for investing in financial assets will continue to support an active mortgage lending market.

As a result, the recent trends in subprime lending are not expected to hurt our ability to grow the U.S.

consumer business.

Our core U.S.

Consumer Information Solutions online segment grew volume by 10% in the quarter.

This growth was broad-based as we increased penetration in our regional customers and channel partners while volume from our largest 20 customers in the first quarter of 2007 was up 8% compared to the same period in 2006.

Enabling technologies, a cornerstone to our growth strategy, continued to gain traction to contribute to our revenue growth.

We ended the quarter with 29% of all online transactions delivered through one of our platforms during this period, up from 26% the same period 2006.

Recently a very large U.S.-based global financial institution selected InterConnect to automate their risk decisioning processes to capture new cross-selling opportunities, displacing a previous technology provider and strengthening our existing relationship with that customer.

This solution crosses multiple lines of businesses including credit card, consumer real estate, auto, and small business, and this win represents our second major competitive take away in as many quarters.

A topic I know you were all interested in and we talk about routinely is VantageScore, and VantageScore is progressing well and it is in line with our initial expectations.

We currently have over 60 major financial institutions and retail institutions in various stages of evaluation.

VantageScore has been recognized as an alternative risk management scoring solution, recently a top five bank endorsed the use of VantageScore in their internal risk evaluation procedures and four institutions have already implemented VantageScore into their risk underwriting process, including mortgage, credit card, and prescreen decisioning.

Clearly our analytical tools such as VantageScore, among others, are becoming more widely accepted by customers and are contributing to our growth strategy.

While no single product will drive overall growth alone, we are changing the game through our predictive sciences, expertise and collectively, these analytic risk products represent an important growth contributor.

North American Commercial Solutions completed its first quarter as a separate operating segment with revenue growth of 41%.

We now have over 80 million trade lines in the database with approximately 65% active.

The depth of information we have on individual businesses is also increasing.

Today almost 50% of our business folders have five or more trade lines.

We've also exceeded our goal for enrolling new nonfinancial data providers by over 30%.

The additional trade data will add substantial value to both the database as well as the accuracy of our analytics and enabling technology solutions.

North American Personal Solutions' marketing strategy continues to reposition this business, enabling it to deliver 24% revenue growth for the quarter.

Our sales channel is becoming more diverse.

For example, revenue for the quarter generated through online advertising grew 22% and the call center revenue grew by 79%.

We now have over 270 customers using our data breach services.

During the quarter, data breach sales exceeded our expectations by almost 30%.

Approximately 62% of revenue during the quarter was subscription based, up from 44% first quarter 2006.

And as you recall, about that time we set a goal to build a subscription business to over 70%.

Steve Ely and his team are well on their way.

Monthly subscription customers grew from approximately 550,000 to just over 1 million in 2006 and it jumped another 19% to the 1.2 million by the end of the quarter.

Finally, we launched Learn at Equifax on our website where consumers can go and learn about credit and how to become smarter shoppers for their financial service needs.

International realized 14% revenue growth while simultaneously improving their margins.

Canada grew revenue 5% and improved its operating margin.

Consumer online volume was up 3% and we are accelerating our penetration of enabling technologies.

Our patented technology in the area of ID authentication delivered year-over-year growth of 26% in Canada.

Europe grew revenue by 21% in the quarter with strong contributions from both UK and Iberia.

UK's core consumer volume was up 20%, with volume from our top 20 customers up 19% driven primarily by financial services, retail, and government.

We put new leadership in Iberia and it has already implemented the value based pricing strategy used in Latin America as well as signing a large customer in their retail sector.

Latin America's operating margin increased by 393 basis points as they continue to leverage value-based pricing strategies and new product innovation.

Revenue growth of 13% was driven by marketing services, analytics, and enabling technologies, which represent 30% of the revenue in Latin America in the first quarter, up from 24% in 2006 -- in the first quarter of 2006.

New product innovation was ahead of our expectations for the quarter and marketing services in Argentina and Chile enjoyed a particularly strong growth quarter.

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

The global centers of excellence that we have introduced you to, our business support functions, are all moving aggressively to identify opportunities to facilitate revenue growth or drive out unnecessary expense.

I want to highlight the activities of a couple of our CoEs; global operations and global sourcings.

Global operations has set their charter to drive operational efficiencies and achieve exceptional customer satisfaction, superior service, and data quality.

Led by Owen Flynn, this organization has already developed internal service level agreements with each of the business units and has already identified opportunities which have the potential to reduce our annualized operating expense as we more efficiently utilize our global resources.

Global operations is a critical enabler for us to achieve our goal of growing revenues faster and expense on a sustained basis.

Global sourcing is focused on leveraging our global purchasing power.

Recently the Gartner Research Firm recognized our outsourcing center of excellence as a leading example how outsourcing operations should be approached and managed, a recognition we are really proud of.

The fundamental objective is to reduce our infrastructure costs, sustain or improve our operating margins, and strengthen our competitive position.

Our NPI process we've talked a lot about over the last 18 months continues to gain traction and create momentum for long-term revenue growth.

The team is working aggressively to deliver on our objectives for 2007 revenue from our 2006 class of new product initiatives and their pipeline for products in the build and launch phase has never been stronger.

They're also increasing their support of our international business.

Our current focus is to develop an integrated strategy for current enabling technology solutions and determine what new platforms or products are needed to support Rudy and his growth strategies outside the U.S.

As many of you know, our corporate development activities are aggressively focused on emerging opportunities.

We're developing international opportunities that will drive long-term revenue growth with particular emphasis on China, India, Mexico, and Russia.

We anticipate that we will be in a position to make a strategic investment sometime in the following few quarters.

A pending acquisition of TALX Corporation is progressing well.

The shareholder vote is scheduled for May 15 and we expect the transaction to close May 16.

With that, let me now turn it over to Lee Adrean and he will give you greater insight to our financial details.

Thanks.

Lee?

Thanks, Rick, and good morning, everyone.

All financial information I'll be discussing is presented 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 you are aware, effective January 1 this year, we completed our organizational realignment, which changed our operating segments.

Therefore the results for the first quarter of 2006 have been recast to align with our current organizational structure.

We've provided you with quarterly history for 2005 and 2006 in our 8-K filing for our year end 2006 earnings release on February 1.

For the first quarter this year, consolidated revenue was $405 million, up 8% over last year.

Net income was $69 million, up 10%, and diluted earnings per share was $0.54, up 13%.

Adjusted earnings per share, a non-GAAP measure defined as diluted earnings per share adjusted for acquisition related amortization expense was $0.58, up 12% from $0.52 in the first quarter of 2006.

In our U.S.

Consumer Information Solutions business, Online Consumer Information Solutions revenue was $162 million, up 5% compared to the same quarter last year.

Online volume was up 10% driven primarily by telco, regional banks, and channel partners or resellers.

Mortgage Reporting Solutions revenue of $18 million was down 13%.

As we noted earlier, Ameriquest represented 7 points of that decline.

In early May of 2006, Ameriquest closed all of their storefront origination points and our revenue from that significant customer dropped by 80%, hurting year-to-year revenue comparisons since then.

As we anniversary this event in mid-May, the Q2 effect on revenue growth will drop by half compared to Q1 and in the third quarter, the year-over-year revenue drag from that client will disappear.

It is important to note that when we include all sources of North American Mortgage revenue, both that sold directly to mortgage lenders by our Mortgage Reporting Services unit and that sold to resellers by our Consumer Information Solutions unit, we estimate that mortgage related revenues were down only 2% year-to-year.

Credit Marketing Services revenue of $40 million in the quarter represents a gain of 2% over the prior year.

Although the trend is below our longer-term expectations for this business, it reflects lower account acquisition activity from some of our mortgage lending and credit card customers.

During the quarter, our product mix shifted away from prescreen account acquisition activity to more portfolio review projects as we would expect in a slightly more challenging credit environment.

Our long-term expectations for growth in this business segment remain in the 5% to 8% range that we indicated during our analyst day last September.

Direct Marketing Services revenue was $27 million in the quarter, up 5% compared to the first quarter of 2006.

North America Commercial Solutions revenue was $14 million, up 41% from the first quarter of 2006.

U.S.

commercial transaction volume was $1.1 million, up 64% from the first quarter of 2006.

Transaction based revenue in the U.S.

commercial business now represents over 84% of total commercial revenue in the U.S.

In North America Personal Solutions, revenue grew 24% to $38 million.

The operating margin was 16.5% for the quarter compared to 2.9% for the same period in 2006, continuing our progress to reposition this business for sustainable growth and profitability.

Our international business grew revenue by 14% in the quarter to the $106 million.

Revenue was up 9% in constant dollars.

Canada's consumer revenue was $24 million, up 5% in U.S.

dollars and 6% in local currency.

Europe delivered revenue of $42 million, up 21% in U.S.

dollars and 9% in local currency.

This business has shown very good growth performance in 2006 and year-to-date in 2007 after a few previous years with very little growth reflecting the effect of our growth strategy for Europe.

Latin America grew revenue 13% in U.S.

dollars to $40 million.

In local currency, revenue growth was 12%, up from 8% in the fourth quarter of 2006.

For the Corporation as a whole, the operating margin was 28.9% in the quarter.

Operating income was $117 million, up 7%.

EBITDA, a non-GAAP measure defined as operating income before depreciation and amortization, was $138 million, up 6% for the quarter.

We continue to expect our effective tax rate to be in the range of 37% to 38% for the full year.

However during the quarter, discrete items related to state and foreign taxes reduced our effective tax rate to 36.3%.

This contributed approximately $0.01 to our earnings per share for the quarter.

We did not repurchase Equifax shares during the quarter due to the pending acquisition of TALX, so we applied available free cash flow to reducing outstanding debt by $48 million, bringing debt down to $456 million.

As a reminder, we intend to repurchase approximately $700 million in stock over a reasonable period following the completion of the TALX acquisition.

In summary, the diversity of our revenue base and the performance driven culture of our leadership team enabled us to deliver a very solid broad-based performance for the quarter.

Now I'll turn it back to Rick.

Great.

Thanks, Lee.

As I said in the opening comments, the breadth and diversity of our business units enables us to deal more effectively with challenges in the economy and different business environments around the world.

Subject to the approval of TALX shareholder and completion of the acquisition, which is expected to occur, as I said, early in May, May 16, we will further diversify our business.

We are excited about the opportunity that these two great companies will have in the coming years and look forward to reporting to you our progress in the coming months.

So thanks for your support and your time and now we would like to open it up for any questions you might have.

(OPERATOR INSTRUCTIONS) Mark Bacurin, Robert W.

Baird.

A couple of questions.

Rick, you made an interesting comment about in consumer information services certainly have seen a nice acceleration in growth over the last few quarters, which is surprising given the kind of subprime issues.

And I think you said something about one of the drivers has been an increase in the number of credit reports that have been issued per loan.

Can you just comment on what is driving that trend exactly and -- (multiple speakers)?

Sure, what's happening is the consumers who are in the marketplace now have so many more options than they had a few years ago, so every time they are exploring a different option, be it a different lender or a different product, as you know there are multiple products out there now.

Every time that happens, the credit grantor is looking for a different piece of information from us.

So the exact stat I recall was 4.1 apps per closed loan in 2003 and, Mark, that grew to the 7.89 or 7.9 in 2006.

So that is a nice positive trend for us.

It enabled us to get different bites of the apple.

And that is growth coming from the actual resellers or the institutions pulling them, not for the consumer themselves pulling the report which would (multiple speakers)?

Correct.

Correct

Perfect.

And then could you also comment on -- I don't know if there is a way for you to actually measure this, but presumably with loan growth slowing, that you would have also seen increased -- increase related to just overall risk management.

And I don't know if there is a way that you can specifically measure what volume growth was related to risk management versus loan origination.

Sure.

I think Lee had maybe mentioned in his comments.

We are seeing a shift from acquisition related products, so products we help credit grantors find and source new loans to more of a portfolio -- you call it risk, which is a portfolio review.

We sell a lot of products there and we're starting to see and have seen now for a few quarters a shift towards more portfolio growth products -- portfolio review products.

Great.

And then I know we're still a few weeks away from the TALX acquisition closing, but I'm sure you have had lots of discussions about new product opportunities, revenue growth opportunities.

Can you share with us any of the stuff you've learned that you're excited about kind of hitting the ground running here?

Yes, I stand firm with what I said before that I think the assumptions we have contemplated in our initial discussion when we announced TALX are conservative as relates to revenue growth.

We have got some of the best and brightest minds locked in a offsite meeting yesterday and today about I guess 100 miles south of Atlanta.

I have no idea if it is 100 miles south of Atlanta.

It can't be much but they are locked into a facility for two days just putting pen to paper and plans, bringing these plans alive of how we can drive much faster revenue growth, so stay tuned.

At the time of close, Mark, we'll give you a lot more clarity.

Okay great.

And then you mentioned that several good stats about VantageScore.

Are those relationships ones that Equifax specifically has signed with those institutions or is that VantageScore the JV that would be the other two partners also?

That is a great question.

The ones I specifically cited, the 60, the 5 and the 4, whatever the numbers were, are specific to Equifax relationships, not the LLC, but ours.

And those are in place and currently generating revenue for Equifax?

Were driving revenue at the rate we had contemplated when we launched this thing.

It is meeting all of our expectations.

Great.

Thanks.

Great quarter.

Kyle Evans, Stephens Inc.

Nice quarter.

If I look at the accelerated closing process on TALX and a close date of the 16th, when do you guys think the earliest you could be in the market buying back stock is?

Kyle, I would say a couple days or a week after the close.

Okay, and have you looked at -- have you done any more thinking in terms of accelerated stock repurchase program, Dutch tender, thought anymore on that?

Yes.

(multiple speakers) There is one important issue here because of the deal structure, it being a tax-free deal as to the extent of the stock compensation in the deal, there are limits on how much stock we can buy in bulk as opposed to in typical open market transactions.

We are seeking clarity from the IRS on that point but we are evaluating both the open market as well as accelerated share repurchase approaches.

The point, Kyle, I think you know is we plan on being as aggressive as we can within the guidelines of the tax-free structure for TALX but as aggressive as we can in buying back those shares.

Okay, on the general corporate expense in the quarter up about 27%, is there some impact of the TALX deal in those numbers?

No, there isn't.

I think what that really reflects is that over the last year, we have done a number of things to build a stronger platform for growth across the entire company.

In fact, Rick kind of referenced a couple of them.

We have significantly enhanced our strategic marketing capability in support of new product innovation.

We have built up our global sourcing capability.

We have added some human resource programs.

And importantly, we are adding certain activities within our IT area to expand our capabilities in development as well as our platforms and processes for managing the size of IT spend we have across the company.

What you look at last year's first quarter was the lowest quarter last year by a fairly wide margin and we fairly quickly jumped up into the mid 20 range starting in the second quarter.

We've kind of operated at that level since then and I would anticipate that through this year, we would continue to operator at that rate.

So the year-over-year we're comparing to the last quarter before we added some of these programs that we think are important to the growth strategy we have and are starting to see the results in the revenue line.

Again, Kyle, I remain committed to the point we made at the analyst meeting in September of '06 and I reiterated it here, and that is to build a model that is driving growth at a faster rate than expenses.

And we had to make some investments to get us to that point and to lease points have been relatively flat for four quarters now.

You should start to expect to see us bring more leverage to the bottom line.

Great.

Last question to dig a little bit deeper on the mortgage side.

It sounded like if Mortgage Reporting Solutions on a standalone basis was down 13%, did you say that as a company as a whole including the online piece where you sell direct, you were only down 2%?

That is correct.

I do want to point out that because we sell -- because our products find their way into the mortgage market through multiple customers and channels, the Mortgage Reporting Solutions is a very firm number.

We do work fairly hard to understand what other sales through our U.S.

CIS unit, online CIS unit, also find their way to the same place.

But that is an estimate but it should be reasonably close and it is certainly reflective.

We did see volume in our reseller market increase nicely this quarter and a fair portion of reseller volume does go into the mortgage market.

So we are very confident directionally that we are more in the 2% range than the 10% plus range in terms of what we experienced in the mortgage market.

Is that lower decline, that 2% number, is that a function of what Rick was talking earlier about more apps per loan event?

Yes, and it's a function of the diversity of mortgage lenders.

The larger lenders we tend to reach directly, but there are a lot of smaller lenders particularly as you get into some of the more arcane product offerings where our primary revenue is coming through the reseller channel.

And when I look at the midteen decline that you had in '06 in mortgage reporting, how much of that was the Ameriquest shutting down shop?

You're saying from '07 versus '06?

'06 versus '05, that full year '06.

I don't recall off the top of my head, but if we can't get it to you here, Kyle, we can get it to you through Jeff off line.

Ballpark number, I think at the time we were saying about half of that decline was due to Ameriquest shutting down their retail origination (multiple speakers).

Again, if you want to follow-up with Jeff, we will give you the exact number.

I think that sounds [directionally] correct.

Great.

I will do that.

Thanks.

Andrew Jeffrey, Robinson Humphrey.

A question, Rick, along the lines of marketshare in your U.S.

consumer business.

You'd mentioned a couple of notable wins it sounds like.

Could you just characterize those for us as being based on price or functionality or a function of both?

I noticed that revenue per transaction was down a little bit this quarter and I'm wondering how much of that has to do with marketshare gains and how much of that has do with mix or anything else in the market?

So a couple of questions, one, characterize the market share and two, what's going on with pricing?

Sure.

First, the two marketshare wins we clearly view is based upon functionality.

We think InterConnect offers significant advantages to the marketplace that others do not have.

You've heard us talk about some of the rewards and recognitions we have gotten over the past year or so in the area of technology, and that is coming to bear some fruit for us.

So two very, very large names.

Hopefully shortly we will actually release those names.

When you see the marquis nature of those companies, it will impress you, I promise.

So clearly based upon functionality.

As it relates to North America pricing decline, the volume versus price decline is about where we expect.

We talk about price decline.

That 2% to 4% a year offset by predictive sciences offset by enabling technologies.

That's what you saw in the first quarter in North America.

Still when you pull it altogether, very, very healthy margins.

Our online U.S.

information services margin for the quarter of over 47%, still a very, very strong, healthy business.

So no surprises at all there, Andrew.

Okay, I appreciate that.

In the Personal Solutions business, it seems like you're finding your stride here a little bit from a revenue growth standpoint and some of the big data breach incidents probably don't hurt.

It seems you are getting your fair share.

Could you talk a little bit about the channel growth there and customer acquisition costs?

It looks like the margin came down quite a bit over where you were in the second half.

And again, just a volume versus cost trade-off question in that business and what we might expect prospectively here?

Yes.

Good question.

First of all, the growth is broad-based.

As you mentioned, it is across a lot of different channels.

We invested heavily last year in this call center to help us save more clients and attract more clients.

That grew at a phenomenal rate in the first quarter.

Our indirect channel is growing at a very strong rate.

Our online advertising 22%.

So broad-based growth, as you had mentioned.

Specific to the margin, the margin year-over-year is actually up quite significantly from like 2% last year, 3% last year to 16%, 17% in the first quarter here.

As far as this margin in the first quarter versus the latter half of last year, our advertising spend is bumpy throughout the year.

So I would not really compare quarter-over-quarter trends.

What I have always talked about is PSOL being a strong double-digit growth business and a 20% margin business and I'm still as committed to that vision today as I was back in September of 2006.

So can we think about maybe pushing toward 20% on a full-year basis then in '07?

Yes, I think so, Andrew.

A key point on last year's fourth-quarter margin was 26% or 27%, and that is a function of in the December quarter where you have got a lot of competition from holiday advertisers for advertising space, which both pushes up the cost of that ad space as well as makes it hard to get the prime space.

We tend to cut back on advertising in the fourth quarter.

So you'll typically see a strong quarter in the fourth quarter, but the average -- and the first quarter tends -- will probably typically tend to be a little below average because it is a good advertising quarter.

So we have higher advertising spend.

So a little bit of seasonality in the way the margins play out due to the timing of our advertising spend.

So yes, you should think 20% when you think about PSOL as being our goal.

Thank you very much.

Chitra Sundaram, Cardinal Capital.

My question was on the Commercial Solutions business.

Can you comment on the drivers of the operating margin decline, 12.2% to 9.4% and what that kind of indicates for the range going forward both '07 and beyond that?

Yes, the margin is down a little bit year-to-year and it predominantly represents as we added Austin-Tetra -- right now including the amortization of acquisition intangibles, Austin-Tetra is around a break even.

When you add that in, that pulls the margin of that business down.

As Austin-Tetra grows, you're going to see very good leverage there.

You actually actually see that each of Canada and our U.S.

commercial product areas showed some margin improvement year-to-year since when you add in Austin-Tetra at this early stage of its development with the burden of acquisition amortization; that pulls the total down.

But the individual progressions are all good and we would expect those margins to be expanding over the course of the year.

So pretty much we could -- just based on the footnotes in the press release, net of tax $5 million, amortization expense -- a good chunk of that would be Austin-Tetra?

Just if I look at the core operating margin for the business?

Is that a (multiple speakers)?

No, actually Austin-Tetra was a fairly small acquisition.

Its amortization in the quarter is in the ballpark of $0.5 million.

That by itself on a small business is several points of margin.

The $5 million -- after-tax which is about $8 million pretax represents the sum total of acquisition related amortization that Equifax as a company has.

Got you.

Thank you so much.

Nat Otis, KBW.

Nice quarter.

A lot of my questions have been answered, but just the one question I would have is more on the international front.

Any comment on the talks between Experian and Serasa?

Then just also going into your talk about a possible acquisition in the near future in maybe China, Mexico, India, or Russia, where a focus might be?

Because in the past I think last quarter you talked a little less about Russia but now they seem to be back in the mix.

If you could just have any additional comments there, it would be great.

First on Serasa, it is obviously public information that they are talking.

My view is it is a very complex transaction.

I think it is far from done, but -- so it is hard to predict what the outcome might be.

If there were to be a deal consummated between Serasa and Experian, I don't think the landscape for us or our strategy changes.

Serasa is a very formidable competitor today and Experian would be a very formidable competitor tomorrow.

So we've got a clear strategy in all Latin America including Brazil, and I don't think that changes one bit with or without Experian entering into Brazil.

As it relates to other markets, I am really excited.

We have had teams since we've last talked as a group traveling, studying, doing a lot of work specifically in China -- I will come back to that -- Russia and Mexico.

So I am excited with what I see in those three.

India will be the fourth in sequential timing for us.

Russia is exciting.

It is a maturing market.

It has got many of the same characteristics that China and India have, which is a growing middle-class population, a growing use of consumer credit.

So as I said in my talks there, I am bullish about all four of those and I remain bullish that in the coming quarters you're going to see us -- you referred to it, Nat, as an acquisition.

It may be an acquisition.

It may be a partnership with somebody or multiple partners, but you should expect us to make some sort of investment in one, two or three of those countries over the coming quarters.

That is very helpful.

Thank you.

Andrew Ripper, Merrill Lynch.

I've got a question on -- I have a question on Personal Solutions.

Just on Brazil, I understand the Congress is looking at various forms of legislation including the use of positive data for the credit bureau.

How do you think that could impact the market and is there any other precedent in other credit markets where that has happened to give us a sense of the potential or positive impact it could have upon you?

Sure, the question or the answer to the second question, is there a precedent where countries will start off with negative data only and eventually use positive data?

The answer is yes and the benefit is profound.

The credit grantor's ability to truly underwrite an individual is improved when they have transparency into both negative and positive data.

So every country we are in we are asking, Andrew, for the credit grantor's to open up their doors, provide more data, look at both -- and regulators as well -- look at both positive and negative data.

As you might guess, every country has their own legislation, privacy issues that we have to navigate, but where countries and grantors in general can provide both negative and positive data, their underwriting accuracy is enhanced.

Do you think this is likely in Brazil?

How big a benefit could it be to your business there?

Too early to tell.

We are hopeful but too early to tell.

Okay.

Second question on Personal Solutions.

I think you mentioned an increase in the subscribers doubling from 550,000 to 1 million, which is a pretty massive job.

Was that year-on-year figure and if it was, why didn't your sales growth in the quarter grow faster?

The number I think I referred to was it went from 550,000 at the beginning of '06 to 1 million at the end of '06 and then jumped to 1.2 million in the first quarter of '07 which is a 19% increase.

And the revenue growth for the business I think I reported was 23%, 24%.

So it is in line with what we expect.

Okay, but basically if you're taking end of Q1 '07 versus January '06, the subscribers have more than doubled.

So why is the revenue per subscriber coming down?

(inaudible) there is an accounting obviously treatment for something that is subscription versus transaction based product but --.

Yes, there's effects in there.

One is, as we have shifted our model from a transaction model which was a substantial portion of our revenue last year to a subscription model, the subscriber count is only relative to the subscription portion of our revenue with the transaction revenue going the other direction.

That is the primary factor.

Yes.

Okay and just a quick one to finish off on VantageScore.

I guess although you started to generate sales, you're not going to quantify the numbers for us.

As the rollout of VantageScore gathers pace, do you see as having an impact upon returns for the business?

Do you think it will be margin enhancing and the customers that are using you at the moment, presumably they are using VantageScore alongside FICO rather than instead of FICO.

Can you comment on that please?

Yes, I would expect -- again, we're not going to disclose the financials, as you had noted.

I would definitely not expect VantageScore to be dilutive in any fashion to our margins.

It would be either balanced with our current margins if not enhancing.

But as I have said all along, VantageScore is all about providing customers options.

It is all about leveraging our analytical capabilities, which are so important to us.

It is not going to materially change the financial picture of Equifax over the coming years either from a margin perspective or from a revenue perspective.

Okay, thanks for your answers.

Robert Riggs, Credit Suisse.

I just had one quick question.

I was hoping you could kind of walk through how you think about the trade-off between driving margin expansion but at the same time investing for growth over the coming quarters?

I think you've got to do both and that's what we are all about.

I have said -- I sound like a broken record but go back to September in New York that we want our long-term vision is to get the margins to 30%, 31% and have sustainable growth in the 7% to 10% plus range.

You can do that.

I'm a big believer of investing in growth.

And NPI is our main vehicle for organic growth.

There's other things we're doing.

But we will continue to invest in growth.

But you think about things -- I gave two examples today and I'll mention a third verbally here.

In my opening comments, I talked about this creation of this global center of excellence in operations under Owen Flynn.

Kind of aggregating or cobbling together all of our operating activities under one leader, one seal, we will drive efficiency.

There is no doubt about it.

It will lower our operating costs.

Secondly, we talked about the creation of global sourcing, having global sourcing standards.

That is all about lowering costs so I can invest in growth.

We are also as a company now deep into the throes of learning about the pros of lean, as many of you are familiar, Six Sigma and Lean.

But applying lien here as a vehicle to make our processes more efficient.

So it is a long way of saying there's things we can do in different areas or different pockets of the company to take expense out, enabling us to grow top line.

So I think we can get that past the 7% to 10% plus top line and 30%, 31% margins over the coming years.

Great.

Thanks.

Megan Talbott, Lehman Brothers.

Just a couple of quick ones.

Rick, I was wondering if you could just comment on Europe?

That is another area where you seem to be gaining share really nicely.

So if you could just sort of talk about what you think is making you successful there in a market especially the UK which does not seem to be growing too much organically?

And also if you could just comment on what margins look like in the quarter in Europe and where we should think about those going forward?

Sure, as far as what is driving the growth, it is the same thing as driving growth everywhere else in our company.

It is that we restructured the organization over there, brought a new sales talent, restructured the sales organization, new sales compensation scheme.

And then lastly, we have been driving NPI aggressively, new product innovation, Megan, in the UK, which is helping us gain share and grow the market itself.

So same things we're doing there that we're doing in Iberia, we're doing in Latin America, we're doing in Canada in the U.S.

And Sandra and her team have done a real nice job in the UK this quarter as well as you know a few quarters last year.

As it relates to margin, --

Yes, last year for the year, the margins in the UK were in the 22% to 23% range for the full year.

We would expect those to be comparable or actually a little bit up this year, with good growth.

We are making some investments to drive that growth but net net would expect some margin expansion.

Okay, great.

Lee, just a quick follow-up.

On the gross margin for the quarter, you did see some compression there.

I know you had a tough compare.

Could you talk a little bit about what drove that and if there's anything we need to be aware of going forward?

Yes, there are a couple of things.

One, we had noted last year in the UK that we had had a vendor credit in the first quarter and also repeated in the second quarter that did not continue in the latter part of the year and it caused a decline in UK margins from the first half to second half.

That is an item that is in cost of services so it does affect this year's Q1 over Q1 compare that caused about a little under 1 point of margin contraction.

Second, with the changing mix of business in Personal Solutions with a greater level of subscription revenue and greater amount of breach activity, those revenue streams tend to have a higher -- actually on average a slightly lower sales and marketing cost to acquire that business particularly on the breach side, but a higher cost of service because there is more service activity including call center activity.

That contributed again probably less than -- between 0.5 points and 1 point.

The rest is predominantly something I mentioned that shows up if you think about the matrix of what business it shows up in and what line it shows up in, within our -- a lot of it we capture in our corporate expense, but we had -- our spending in the IT area to enhance processes, increase the robustness of certain platforms, and expand the capability of our development group and capability.

Those expenses, while they show up in corporate, are considered cost of service, and so that is contributing.

Last year interestingly cost of service grew notably less than revenue and SG&A grew faster.

This year you're seeing a little bit of a reverse and I really would focus people on the total margins rather than one or the other of those components.

Okay, that is really helpful.

Thanks a lot.

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Thank you.

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