易速傳真 (EFX) 2007 Q2 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to the second quarter earnings release conference call.

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

Later we will conduct a question-and-answer session.

Instructions will be given at that time.

(OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mr.

Jeff Dodge with Investor Relations.

Please go ahead.

Good morning.

Welcome to today's conference call.

I am Jeff Dodge, Investor Relations, and with me today are Rick Smith, our Chairman and Chief Executive Officer; Lee Adrean, Chief Financial Officer and Nuala King, Corporate Controller.

Also joining us today is Bill Canfield, President of our fifth and newest business segment, TALX.

The financial information that will be discussed during this call and reconciling information relating to certain non-GAAP financial measures, including diluted EPS adjusted for acquisition related amortization expense, a measure we refer to as cash EPS, is included in a press release that we issued yesterday and filed with our form 8-K.

For this webcast we have also posted a PDF copy of the presentation should you have difficulty accessing the webcast.

The press release and the PDF file for the presentation can be found in the investor center on our website at www.Equifax.com.

During this call we will 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.

You should also reference the risk factors included in TALX Corporation's March 31, 2006 form 10-K and June 30, 2006 form 10-Q.

Today's call is being recorded in addition to being webcast live over the Internet.

The replay will be available on the website at www.Equifax.com.

Now I would like to turn it over to Rick.

Thanks, Jeff, and good morning, everyone.

The team delivered a solid performance in the second quarter against some challenging economic headwinds while also undertaking a significant strategic initiative with the acquisition of TALX Corporation.

As you can see on this chart here, total revenue up 17% to $454.5 million.

Our international business led by Rudy Ploder, North American Personal Solutions led by Steve Ely; and our North American commercial business led by Michael Shannon all delivered strong double-digit revenue growth.

US Consumer Information Solutions increased its growth in online consumer solutions from the first quarter of 2007, and our new TALX business unit delivered $35.3 million of revenue in the period from May 15 to June 30, meeting our expectations.

Net income was $70.1 million, up 1% on a non GAAP basis excluding the impact of certain litigation matters, net income was actually up 9%.

Diluted EPS was $0.51, down 4%.

Cash EPS, a non GAAP measure, was $0.57 and consistent with the guidance range we issued on June 4 of $0.55 to $0.57 a share.

US Consumer Information Solutions met the economic challenge with accelerated growth in online consumer, offset by decline in the marketing services business.

Online consumer information solutions accelerated growth to 5.4%, up from 4.6% in the first quarter.

Regional and smaller customers contributed significantly to this growth.

Enabling technologies continues to drive growth in this segment and strengthen our customer relationships.

We ended the quarter with 30% of our online transactions delivered through one of our platforms during the period, up from 27% for the same period in 2006.

Increasingly we are being recognized for our analytical expertise.

In addition to financial services we have developed analytical solutions for retailers, telecommunication companies, utilities and insurance companies.

Our customers use these tools to benchmark their portfolios, conduct competitive analysis, increase their share of wallet and fine-tune their competitive analysis.

I'm sorry; fine-tune their approval and rejection cutoffs.

Today we have developed a unique scoring model addressing diverse decisioning needs, including a generic risk assessment, bankruptcy risk, auto lending account acquisition, response and activation models, behavior models, fraud identification and collection recovery.

Through June 17% of our online transaction volume included scores for models built by Equifax.

This compares to approximately 13% for all of 2006.

In credit marketing over 35% of the names listed include a score from an Equifax model.

Mortgage reporting was down 1% as the market continues to struggle with sub prime risk and tighter underwriting standards.

Both marketing services business units, DMS and CMS, after two years of strong growth declined as customers scaled back on the size and scope of their marketing campaign due primarily to a more difficult market environment.

North America commercial solutions delivered an outstanding quarter.

The performance had revenue growth up 41%, grew primarily by our U.S.-based business which accelerated its growth from the first quarter of 2007.

We continue to broaden our database; at the end of June over 56% of our business folders contained at least one financial account and one trade account.

Over 80% of these folders have at least two accounts; all over 48% of the folders contain at least five different accounts.

As with consumers, small businesses have multiple relationships.

Our unique database reflects that at least 41% of small businesses have lending relationships with three or more financial institutions.

So far in 2007 in the commercial business we have launched three new products.

The first is our Data Select; this allows customers to select specific data elements from a database to customize their report.

Second is a business failure score leveraging our analytical capabilities?

And last is an ID assist, which helps in the ID verification process for our customers.

As competition amongst financial institutions for small-business relationships intensifies, our information, analytics and enabling technologies become more critical to support commercial customers' profitable growth.

Great story with our North American personal solutions.

They continue on its track of delivering double-digit revenue growth and improved operating margins as it expands its sourcing channels and concentrates marketing on subscription based products.

Revenue generated through direct response activities were up 31% for the quarter while revenue through our call center was up 87% for the quarter; approximately 69% of revenue during the quarter was subscription based, up from 38% in the second quarter of 2006.

Subscription customers grew by 34,000 to 1.2 million by the end of the quarter.

On July 16th we began testing a nationwide direct response television advertising campaign, promoting Credit Watch Gold as we work to continue expanding the market for these services.

The campaign will target consumers in select markets who would consider purchasing credit monitoring products to protect their identity.

Tests will occur in two, three-week phases; mid-July through early September.

And it will be conducted in 33 markets across the United States, reaching a total of 18 million households.

While we are excited about the potential this initiative offers, we will rigorously assess its ROI before committing to a more extensive use of TV advertising.

International revenues performance was outstanding.

Again, growth was broad-based, including core consumer information, marketing services, enabling technologies and analytics.

Canada consumer revenue grew by 8%, up from their 5% growth in the first quarter primarily driven by core consumer information and marketing services.

Europe grew revenue by 20% in the quarter as core information services in both UK and Iberia experienced strong volume gains.

Local currency growth for the quarter was 11%.

UK core consumer volume was up 28% with volume from the top 20 customers up 21%, driven in part by strong growth with two of our larger customers.

We recently promoted a manager -- I may have talked about this before -- from Latin America who has provided new energy and leadership to Iberia.

During the quarter they delivered revenue growth through a new unit pricing strategy, new customers and increased penetration of existing customers.

This is an outstanding performance for Iberia.

Latin America revenue grew 14%, 9% in local currency as enabling technologies, analytics and marketing services continue to gain traction with our customers.

Revenue growth was broad based as five of the six country markets delivered double-digit revenue growth.

Marketing services, analytics and enabling technologies represented 27% of the revenue in the second quarter, up from 25% in the second quarter of 2006.

TALX, we talked about that.

We closed that May 15th.

It met our expectations for the quarter.

All the business segments within TALX were intensely focused on their financial objectives, as well as the businesses within the core Equifax, at the same time focused on integrating TALX into the Equifax organization.

They had some great performance in the quarter; almost 5.3 million total records were added to the database during the quarter.

There are now 42.2 million active and 152.3 million total records in the database; this is a strong, strong performance to the Work Number in the quarter.

And we currently have approximately 10 million total records in the backlog as a result of adding some very, very large new clients over the past two quarters.

While we are in the early stages of integration, all is going well.

A lot of energy is being focused on synergies on the revenue side, as well as on the cost side.

So off to a good start, albeit early with TALX.

Let me now turn it over to Lee who will give you much greater insight on the financials.

Thanks, Rick and good morning, everyone.

This morning, all financial information I will be discussing will be presented on a GAAP basis except as otherwise noted.

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

For the quarter financial results were in line with the guidance we gave on June 4th.

Consolidated revenue was $454.5 million, up 17%.

This was aided by the acquisition of TALX during the quarter but also reflects solid 8% growth from the traditional Equifax businesses.

Net income rose to $70.1 million, a 1% increase from the second quarter of 2006, which included the favorable net impact of several litigation matters.

On a non GAAP database excluding the impact of these litigation matters, net income increased 9%.

Diluted earnings per share was $0.51, down 4%.

Normalized cash earnings per share, a non GAAP measure defined as diluted earnings per share adjusted for acquisition related amortization expense and the litigation related matters noted above was $0.57 a share, up 8% from $0.53 in the second quarter of 2006.

A lower than average tax rate for the quarter contributed $0.01 to EPS.

The US Consumer Information Solutions online consumer information solutions revenue was $165 million, up 5.4% compared to the same quarter last year.

Online volume was up 5.1%, driven primarily by regional and small customers.

Mortgage reporting solutions revenue of $19 million was down 1% in the second quarter.

With the loss of a major customer in May 2006 now fully anniversaried year-over-year comparisons will become more favorable going forward.

Credit marketing services revenue of $40 million represents a decline of 3% for the quarter.

Year-to-date our prescreening revenue is down 12%, driven primarily by declines with our mortgage and telecommunications customers, as well as a few financial institutions who have reduced their marketing activities for 2007.

Our portfolio analysis and management products were up 7% as financial institutions become more internally focused on cross selling and risk management in their current customer base.

Direct marketing services revenue was $26 million, down 9% compared to the second quarter of 2006.

North America commercial solutions revenue was $15.3 million, up 41% the second quarter of '06.

US commercial transaction volume was $1.2 million up 39% from the second quarter of '06.

Transaction based revenue in the US commercial business now represents over 68% of total commercial revenue in the US.

In North America personal solutions revenue grew 24% to $38.6 million.

Operating margin was 19% for the quarter compared to -36% for the same period in 2006.

Excluding the impact of the litigation loss contingency a year ago, operating margins in the second quarter last year would have been 9%.

So we are up significantly showing the leverage of growth in that business.

We are very pleased with our progress in personal solutions as we repositioned it over the last 18 months for sustainable growth and profitability.

Our international business turned in another good performance, growing revenue by 15% in the quarter to $115.3 million.

Canada consumer revenue was $26 million, up 8% in US dollars and 6% in local currency.

Europe delivered revenue of $45.2 million, up 20% in US dollars and 11% in local currency.

And Latin America grew revenue 14% in US dollars to $44 million and local currency revenue was up 9%.

So all businesses contributed nicely in the international sector.

TALX delivered $35.3 million in revenue, representing a partial quarter beginning with the acquisition on May 15th, meeting our expectations for the quarter which are consistent with the second quarter guidance we issued on June fourth.

The Work Number delivered revenue of $15.5 million.

Transaction volume for the Work Number was 3.5 million for the quarter, up 15% from the second quarter a year ago and TALX and talent management services delivered $19.8 million of revenue during the quarter.

On a pro forma basis, excluding the impact of purchase accounting adjustments, revenue for the full quarter ending June 30th would have been $70.9 million, up 7% from the same period in 2006.

The Work Number revenue was up 19% for the full quarter while TALX and talent management revenue was up 1%.

The TALX operating margin following the May 15th acquisition was 12.8%.

Excluding the increase in amortization of acquisition related intangibles, operating margin would have been 26.4%, up from a year ago.

For the Corporation as a whole, operating income was $119.8 million, up 24%.

EBITDA, a non-GAAP measure defined as operating income before depreciation and amortization and adjusted for the 2006 litigation matter was $149.4 million, up 14% for the quarter.

Consolidated operating margin was 26.4% in the quarter.

We continue to expect our effective tax rate to be approximately 37% for the year.

However, during the quarter discrete items related to state and foreign taxes reduced our effective tax rate to 35.8%.

Given our expectations, the second half will have a higher tax rate than the first half.

We repurchased 4.2 million shares between May 15th and quarter end, paying $179.3 million, an excellent start on our announced $700 million post-acquisition repurchase program.

Outstanding debt at the end of the quarter was $1.2 billion up from $504 million at year end 2006.

This includes $550 million in the recent debt offering plus $75 million in assumed TALX debt as well as our new commercial paper program.

Our access to capital remains strong.

During the quarter we expanded our bank credit facility from $500 million to $850 million.

We launched a senior commercial paper program backed by our bank lines, and we successfully accessed to credit markets, issuing $300 million of ten-year bonds and $250 million in thirty-year bonds.

This provides important flexibility to finance our share repurchase program or other capital needs.

We also made a strategic decision regarding our Atlanta technology facility.

On June 28 we entered into an agreement to purchase the facility which we had previously leased.

As consideration, Equifax will pay almost $30 million and assume $12.5 million of outstanding debt.

The transaction is expected to close this month.

This capital investment was not included in our most recent guidance for capital expenditures in 2007.

In summary, we had a solid performance during a quarter with new economic challenges primarily driven by higher interest rates, the increasing price of oil and continued concern over sub prime lending.

These trends are expected to continue through the foreseeable future.

Now let me turn it back to Rick.

Hopefully you see a strong performance in the leadership team that I'm very proud of and a strategy that is full of opportunity for Equifax in the quarters and years ahead.

And we just completed our update of our strategic vision.

Updated when we shared with many of you in September of 2006 at the New York Stock Exchange; on October 26th of this year we will again meet with investors and analysts at the stock exchange to discuss that updated strategy and our progress against that vision and strategy and we hope to see you all there.

Operator I would now like to open it up for any questions that the audience might have.

(OPERATOR INSTRUCTIONS) Kyle Evans, Stephens.

It looked like you guys, the revenue in the online CIS business outgrew the volume just slightly.

Could you talk a little bit about pricing trends in that business?

Yes, as we've talked before, we have initiated a series of strategic pricing initiatives across the entire company, including the US IS business.

We have -- I'm not going into a lot of details here but we have teams now looking at all different segments; behavioral patterns, purchase volumes and trying to strategically think about how we price our clients.

And it is really helping us gain some attraction.

You know we initiated that process about two years ago in Latin America.

We elevated that now beyond Latin America and we are getting benefits across the business, including US IS, as you just noted.

On the 7% pro forma year-over-year growth in TALX based on our numbers it looked like the Work Number kind of came in where we would have expected it if it were still a stand-alone business.

But that 7%, that $71 million looks a little bit light.

Did something happen in the [pan] business or tax management business there?

Yes, all in all the Work Number was unbelievably strong.

We talked about the adds to the Work Number database, which will help significantly in the third and fourth quarter.

Pan had a slight miss but that is fairly de minimus right now.

TSA took a little more time to come up to speed.

The unemployment business we are strong, strong, solid growth.

The tax credit business had some challenges.

Bill has done the right thing.

We changed leadership there.

Increased the focus and we will get that back on track.

Lastly, and then I will jump back in queue.

Can you -- in the past the TALX management has kind of broken out revenue in that Work Number business, and so we can quantify mortgage exposure can you talk about how much of the verification Work Number came from mortgage and also help us understand how much of the before online CIS business came from mortgage (multiple speakers)?

Sure.

Let me have Bill -- Bill is with us -- Bill, why don't you answer the first question on mortgage exposure for the verification Work Number?

Sure.

Thank you very much.

Our mortgage revenue for the quarter was flat with the same quarter last year.

No growth, but holding its own with regard to the volume.

It was about 27%.

It is the first time that it has been under 30% of our mix.

But the other segments that we have, pre-employment screening, consumer, finance and even our government work overcame any lack of growth in the mortgage industry.

Thank you.

And then Rick, this mortgage exposure in the core CIS business?

It is traditionally been -- we've talked in the range of 12 to 15% for the quarter.

It was around 13%, Kyle, basically flat from the first quarter 2007.

Thanks, guys.

Andrew Jeffrey, Robinson Humphrey.

One follow-up, just a housekeeping on TALX, I guess a question for Lee.

How are we going to see operating income reported in that segment, Lee?

Is that going to look like it did in the second quarter net of, or I guess inclusive of, intangibles amortization in that segment?

Yes, that is correct.

One area where we adjust for acquisition intangibles is in cash EPS.

But on an operating level acquisition related intangibles are amortized in each of our business segments.

So you will see that depressed in the near-term, obviously, with revenue growth and profit growth you will see that margin expand over time.

Okay, and in commercial, Rick, it would appear that maybe there is a little bit of a near-term trade-off between revenue growth and profit growth.

Could you comment on that and what we should expect for the rest of this year and then at what point do you think the margins start to expand meaningfully in that business?

A good question, Andrew.

We are going to continue to focus on growing that business.

It is a growth engine for us, so we are going to invest heavily in getting more trade data, more resources, more decisioning engines.

So expect us to focus on growth, not margin.

But over time as you get scale we would expect that to be a strong 25% margin business.

But right now think about it as being a growth business.

Okay, and then finally, within US consumer information service, NIS I guess overall, it would appear that you should have some opportunities for operating leverage in that business; haven't really seen it to date.

As we look out to the second half should we begin to anticipate that a little bit?

Which business was that, Andrew?

In, sorry, the US consumer information solutions business overall, where operating margin was down about 120 basis points in the second quarter.

That was simple.

We made some investments.

There were a couple of things.

We made some investment in that business, which is the right thing to do on the infrastructure and technology.

Number two is we had some onetime litigation expenses that were higher than in the past.

And number three, and we've talked about this before, we won a significant account to move to InterConnect and transition off another third party platform.

We've got some transition costs that we will have to carry throughout the balance of the year.

But it is a huge win for us and will be a big lift for us in 2008.

So somewhat interim margin pressures it sounds like.

Yes.

Okay.

Thanks a lot.

Mark Bacurin, Robert W.

Baird.

A couple of things.

I guess on the marketing side first.

Understand prescreen credit stuff would be weak given the environment we are in but on the direct marketing side, I wanted to dig a little bit deeper and see are there specific industry verticals or were there any specific projects that you may have seen pushed back just from a timing standpoint; where there any losses?

I just wanted to understand that.

No, there are a couple things.

Let me talk about the CMS market if I could for a second first, and then come back to DMS.

CMS, you're right, the acquisition side of the house is slowing.

The portfolio management side, which we've always talked about as being kind of a countercyclical product offering is growing strong double-digit.

But it is only roughly 20, 25% of that CMS business.

And so it is not enough to offset the acquisition slowdown right now.

On the DMS side there are a couple things.

We get new leadership we are putting in place out there right now.

But secondly, there was a postage increase sometime in the middle, early part of the quarter and as a result direct mailings dropped off significantly.

Do you think that is a -- I mean typically you will see the slowdown tick back up, are you seeing any sins yet that we are kind of getting past that initial shutdown through the postage --?

No, we're not, and here is how I think about the entire marketing services business for the balance of this year.

I see us basically flat year-over-year.

Second question on last quarter I think you talked about where we expect over the next quarter or two to hear something on China, Mexico, India.

Just wondering where you stand on those negotiations and still comfortable with seeing something now over the next 90 days?

We are very very active in those countries and stay tuned.

If you come to the October session you may hear something about all four of them.

Build, it sounds like plants there would be a partnership rather than a Greenfield do-it-on-your own type.

Absolutely.

I'm not a big fan of doing a de novo.

Another big picture question; a lot of noise I guess over the last few months about this authorized user issue as it relates to the credit score and trying to assess opportunities and risks for you.

It would seem that there is an opportunity to sell more VantageScore's and also potentially to get more near-term boost from more aggressive risk management; but also wondering if there are any risks, as well.

I don't see any risks, Mark, I said I see it definitely being opportunity for VantageScore but I don't see risks to the business at all.

Have you seen any benefit at least in terms of institutions wanting to talk to you on VantageScore or have you seen a more aggressive kind of scrubbing of portfolios as banks are trying to get their arms around how bad of an exposure item this is?

The answer is absolutely yes.

Great.

And finally on the TALX transaction, you talked a little about early stage, but still comfortable with revenue synergies.

Any update you can give us with regard to either new customers that you signed, through cross selling efforts or new products that have -- being launched?

I mentioned in June when we gave the updated guidance at that time that I was much more optimistic at that time than I was at the time of the announced deal; that the revenue synergies would in fact be greater than we had planned the pro forma.

I remain very optimistic.

We, Bill and I and the integration teams meet every other week talking about synergies.

We have -- I can't recite exactly what they are.

Bill might know them -- if you do, Bill, jump in -- but there are a number of cross sell opportunities that we've already closed and there a number of cross sell opportunities in the pipeline.

We have 18 different new product ideas being worked on right now.

So we are getting a lot of traction, not just cross sell but new product ideas, leveraging the strength of both companies.

Great.

Thank you.

I'm bullish.

Kevane Wong, JMP Securities.

A few things.

First on the tax rate.

Could you quantify the foreign tax credit that you have in the quarter?

I am assuming that is one time.

I'm not going to break down the discrete items individual level.

As I indicated, I think our average rate for the year should be around 37%.

And the net benefit relative to that average rate for the year was about $1.2 million or $1.3 million.

Also on the -- there was a $6.3 million in expense for the new debt I'm assuming that went into the debt that runs off, over the time with the debt; for example versus actually having to add expense in the quarter.

You broke up a little bit and I lost part of that question.

As I recall there was an 8-K filing pointed to something like $6.3 million in expense for the new debt issuance.

I am assuming that wasn't in the quarter, but instead that sort of goes with the debt and runs off over the period of the debt.

Is that correct?

That is correct.

Okay, great.

And two other quick things on TALX.

Bill, first on the toll records including the backlog it looks like that was up only about 2 million records sequentially.

Should we reading into that or is that simply a matter of if you had a huge amount in the backlog that ran off you would expect that to resume its 3 million records per quarter run rate?

We had a huge runoff out of the backlog, and I think that is what you are saying.

A couple of major accounts that we were able to add records in the database this quarter and pull them out of the backlog and of course you always know that our goal is to get that backlog down.

We are pleased to have it, but it is still lost revenue when it is still sitting in the backlog.

But overall as far as the pace of records that you are adding on you are comfortable, as far as that hasn't changed, I just wanted to --.

No, the pace has been really strong.

And as Rick mentioned, several major accounts, not including the ones that we pulled into the active file are now in the backlog.

So we are finding great traction in some larger accounts that we were having trouble with earlier in our career.

Great.

And then lastly, talent management revenues.

Where does that sit between the two, Work Number versus TALX is sort of the way it breaks down now as far as what you guys are selling.

Where does the account management revenue sit?

Actually the line that we're going to report is TALX and talent management.

Distinct from the Work Number.

I would note, and it is just part of the beauty of the model -- Bill may be a little too modest to brag on this -- but the records on file were up 13%.

Transactions were up 15%; revenue was up 18%.

So you're seeing the beauty of good double-digit growth in records.

You're seeing increased transactions per record as it continues to gain penetration of the potential market.

And you are seeing some increase in revenue per transaction in moving to higher value transactions and the ability to also increment price.

It is a very, very good business model.

Excellent.

All right.

Thanks, guys.

Jaime Brandwood, UBS.

Just had a couple of questions, if I may.

I wanted to just start off by asking you about the UK, where clearly you've had a pretty good performance.

And I think you have been doing in recent quarters and yet we hear from your nearest competitor that things are pretty tough in that market.

Both in terms of demand for data from an origination point of view, but also in terms of the fact that banks are already about as nervous as they are going to get given the level of the (inaudible) rates that we have out there.

So could you explain what you think is happening in the UK is more related to you gaining market share rather than the industry showing a particularly good performance?

Absolutely, Jaime.

We have new leadership over there running our UK operation.

We have a new international leader who took over in January of this year who used to run just Latin America and now runs all of international.

As a result we're moving best practices and ideas and new products around the globe at a much faster rate.

We have new product initiatives across UK; we've got new pricing initiatives across UK and as a result they are in fact gaining market share.

I'd say the overall UK market is modestly positive.

I wouldn't say it is robust by any means.

So as a result when you're a relatively small player compared to Experian the way we grow is through market share; but not by buying market share, but by adding more value.

So you don't think necessarily that this is partly a reflection of perhaps pricing a little bit more competitively than Experian are?

No, that is what I'm saying.

We are doing just the opposite.

We're trying to find ways to differentiate ourselves from Experian by adding more value.

And a second question, and apologies if you already kind of touched on this, but in terms of our US consumer information solutions EBIT margin, the slight pressure that we saw there, was that mainly associated with the marketing part of the business, or was that mix driven?

No, it is driven by three main things, just some investments we decided to make in infrastructure, which we had to do to make sure we could service our customers at the level they demand.

Number two is we had some onetime litigation expenses that were higher than prior quarters.

And number three, we won a very large bank with a decisioning engine we call InterConnect, and we are transitioning from a third party to InterConnect, and that is costing us some onetime money through the balance of the quarter.

I'm sorry, the balance of the year.

The litigation items which you referred to, you haven't broken out separately I take it?

Correct.

Okay.

Thanks very much.

Bruce Simpson, William Blair.

Two questions for Bill Canfield.

I wonder if you can just make some commentary about your mortgage business.

You said revenue there was flat year on year end.

Is that a function of -- is increased documentation standards helping or hurting that product, or is it just simply lower volume out there?

And how much of it do you think is coming from sub prime fallout?

Good morning, Bruce.

Good to talk with you.

I think that the increased documentation is holding our revenue flat.

Every other indication would say that the revenue would be down because there are fewer applications.

We tend to get more hits now at the back end of the process as you probably remember, but I think that the increased documentation that is holding our percentages flat; normally I would expect them to be down.

Okay.

If you look at the closed loan dollar value in the US mortgage market in the second quarter, it was actually down 5% year-on-year.

So the fact that he is flat says he is outperforming the market, much like the core Equifax mortgage business, as well.

And then Bill continuing with you, if I may.

It sounds like maybe you had a little bit of a disappointment over in either in pan and/or in the tax credit business.

And are those sort of federal government timing issues related to WOTC and the re-uptake on the TSA, or are those kind of internal execution issues?

We did not have a disappointment in pan.

It was minor.

We missed our target by about 2%.

So it was a minor deal, and that was just because of a bad April, which I don't really have an impact on the financials here because it was pre-acquisition.

However, there was a disappointment in the tax credit business partly because of WOTC, partly because of execution and as Rick has mentioned, we have changed some management, reorganized the management team there and believe that we are back on the right track.

If I can just pull back and direct a question to you, Rick.

You started out the call by addressing certain challenges with higher rates in the sub prime fallout and so forth.

I wonder if you can just kind of make a qualitative comment about what you think is the status of the overall American consumer right now based on what you are seeing.

I guess I am a little bit surprised with what looks like accelerating GDP numbers and improving retail sale numbers that you would say, you're facing kind of a challenging credit environment.

The comment there was you had the sub prime meltdown, sub prime that expanded, you had higher interest rates, you had oil.

It is not dire by any means.

Overall I think the US and I am often asked this question by media that the US consumer is in pretty good shape.

As long as the unemployment rates continue to be very attractive consumer spending will continue to be in good shape.

The overall US credit score continues to rise almost an all-time high of almost 700.

If there is a headwind or a drag it is the debt service level that the US consumer is facing.

But as long as the unemployment rate remains at the current level, there is no big shocks to the system, I think the US economy is in pretty good shape.

So the fact that you are expecting flat revenue year-over-year in your marketing business as a whole is attributed, then, really to higher rates and kind of a shift from the life cycle from the moving from customer acquisition and back into customer management?

Exactly right.

Exactly right.

The acquisition of customers is on a slight decline, if not flat.

But they are very interested in managing the overall risk of the portfolios, so that particular piece of our segment is growing nicely.

And you think that is driven primarily by a rising rate climate?

Yes.

Okay, thanks.

Nate Otis, KBW.

Good morning, gentlemen.

First thing, you talked earlier about regional business providing upside in the US consumer.

Is there any way you could maybe talk about more specifically what regions that were?

It is pretty broad based.

We have made a big investment last year -- I can't remember what time of the year -- in our inside sales team; giving them more tools, software that helps them manage client relationships and interactions.

We added more staffing.

We have our outside team, as well, is really been upgraded over the last year.

So across the country and largely across most verticals, as well, the regional team is performing quite well.

Then in PSOL is there any way to get an idea of what percentage of the subscription customers are coming to you from data breaches as opposed to more traditional means?

No, we track data breach revenue, Nate, if that's what you're looking for.

There is no doubt that data breach, the pace of breaches in 2007 is consistent with 2006, and it is virtually almost one a day, which is unbelievable.

But we don't break that particular level of detail out.

All right, great.

Thank you.

Dhruv Chopra, Morgan Stanley.

I had a couple of quick questions; firstly on Latin America you said five out of the six markets were double-digit growth.

Which was the one that lagged a little bit?

Brazil.

It was Brazil?

Yes.

And just on that, how are you expecting the competitive landscape to change, if anything, given the acquisition of Serasa and potentially sort of bringing some of Experian's tools into their fold.

Serasa was a good competitor and Experian is a good competitor.

We've been in Brazil for a number of years.

We've got new leadership down there.

We've got a great team, great relationships with banks, corporations, small companies.

So I don't think it -- we're not afraid of competition.

We will leave it at that.

And we will compete with Experian as aggressively as we would with Serasa or any other competitor in any part of the world.

If anything, I think the benefit is being owned by a public company versus almost a mutual, if you will, which is the way I describe Serasa being owned by a bunch of banks.

You may see a different or more disciplined behavior by Experian in Brazil.

And Lee I had a couple of housekeeping questions.

One is can you break out what the option expense was for the quarter?

Because that supposed to tick up with the TALX acquisition in 2Q, right?

Well, it would not tick up right away by a significant amount.

All of the TALX options became immediately vested.

So we are not adding an equity expense for options that are still in the vesting period.

We will, obviously, over time see an increase in the number of option holders and increased expense.

But that will come in over time.

Option equity compensation expense in the second quarter was about between $700,000 and $1 million higher than the first quarter but I don't recall the exact number.

It's probably around $5 million for the quarter.

Lastly the interest expense in the quarter was just a little bit lower.

Is that just a factor of timing with the debt coming on?

You said lower.

Lower than what.

Lower than what you expected?

Yes.

Yes.

It's probably a function of the timing of that debt, and obviously we incurred some debt upon the close, and then our increasing our debt balance as we buy back stock.

So timing of exactly how that plays out probably accounts for the difference.

Okay, great.

Thank you.

Michael Hsu, Bear Stearns.

I just wanted to clarify that you reconfirm guidance from the June call.

Michael, it has been our practice to issue annual guidance and only update if there are significant changes, which we did on June fourth.

But other than that it is not our practice to routinely reiterate or refine guidance quarter by quarter.

Okay, sure, thanks for clarifying that.

Could you just discuss the early business trend so far in Q3 and if the Q2 trends are generally persisting for the quarter?

The landscape hasn't changed from early part of July versus the second quarter, Michael.

It is the same challenges that existed in all environments exist today and the same opportunities exist today they did in the second quarter.

Thanks.

And also I noticed that your shares outstanding were a little higher than expected in Q2.

What was the reason for this, and what are your full year expectations?

I can't speak to how each analyst has modeled that.

Obviously we issued 20.6 million shares at almost the exact midpoint of the quarter, and then started repurchasing shares.

It's probably just the timing of that.

We also did have a higher than normal rate of option exercise, stock was performing very strongly in the latter part of the quarter, and that often drives some exercise.

Going forward if you look at the ending shares for the quarter, obviously we would think that that would come down as we repurchase shares.

Great.

Thanks.

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