易速傳真 (EFX) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Q3 Earnings 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) I would now like to turn the conference over to Mr.

Jeff Dodge.

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 Chairman and Chief Executive Officer, Lee Adrean, Chief Financial Officer and Nuala King, Corporate Controller.

Today's call is being recorded.

An archive of the recording will be available later today on our Web site 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 and 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 2007, Form 10-K -- or 2006, Form 10-K and subsequent filings.

You should also reference the risk factors included in TALX Corporations March 31, Form 10-K and June 30, 2006, Form 10-Q.

I would also like to point out that the company's use of non-GAAP financial measures including diluted earnings per share adjusted to exclude acquisition related amortization expense and certain 2006 legal and tax matters a measure we call adjusted EPS and operating income, operating margin and net income adjusted to exclude the impact of the 2006 legal and tax matters are explained in our earnings release and a full reconciliation between each of the non-GAAP measures and the corresponding GAAP measure is provided in the tables accompanying the press release and in our GAAP, non-GAAP reconciliations found on the investor center on our Web site.

Now I'd like to turn it over to Rick.

Thanks, Jeff good morning everybody and thanks for joining us this morning.

Our performance this quarter is attributed to the diversification of our business mix and also the strategic initiatives that we launched last year that are gaining some solid traction for us and we will walk through some of those throughout the presentation this morning.

Total revenue $492.5 million, up 25% over 2006.

Our International, North American Personal Solutions and North American Commercial businesses, again, delivered strong double-digit revenue growth.

U.S.

Consumer Information Solutions was down 1% year-on-year, driven primarily by the Mortgage Activity and Marketing Services.

The Core Online business was up 1% for the quarter.

And TALX delivered $70.4 million in revenue.

Operating Income was $129.2 million, up 7% and adjusted operating income increased 12%.

Diluted EPS was $0.48, down from $0.61 in 2006, 2006 included a $0.10 benefit related to the favorable impact of the 2006 tax and litigation matters mentioned in our opening comments.

Adjusted EPS was $0.58, up 5%.

For the year-to-date, total revenue was 1.4 billion, up 17%.

TALX contributed 9 points of that growth, again, year-to-date, diluted EPS was $1.53, down 6% and adjusted EPS was $1.73, up 8%.

Based on our year-to-date performance and market trends we expect revenue growth for the full year to be approximately 19% and adjusted EPS to be between $2.28 a share and $2.32 a share versus the guidance we gave you in June of $2.25 to $2.33 a share.

I'll go through some of the specific highlights now by businesses.

First in the U.S.

Consumer Information Solutions business they continue to address customer needs for effective decisioning tools, for managing risk and cross-selling their existing customer base.

Online Consumer Information Solutions grew 1% with their online transaction volume up 5%.

Regional Teleco customers contributed significantly to this growth while our largest national accounts were down slightly.

We ended the quarter with 29% of our Online transactions delivered through one of our platforms, a decisioning platform during the period, up from 27% for the same period last year.

Through September, 16% 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 33% of names listed included a score from Equifax model.

Mortgage Reporting was down 3% for the quarter.

Our Settlement Services venture continued to gain transaction in the marketplace.

As you will recall that was a new product we launched in late 2005 through 2006.

Credit Marketing Services revenue declined 6% for the quarter as customers continue to focus more on managing their existing customers for risk and revenue growth versus acquiring new customers.

Direct Marketing Services revenue was down 1% compared to the third quarter of 2006, but up 3% from second quarter of this year as we started to benefit from the integration of our DMS Data Assets into Solutions for a Traditional Financial Institution Clients.

North American Commercial Solutions continued to deliver outstanding performance with revenue growth of 45%, our U.S.

Commercial Database continues to add depth and breadth to its files.

As of the end of September over 20% have 4 or more relationships with members of the small business financial exchange and over 75% of the business folders contained at least one financial account and one trade account.

Over 80% of these folder had at least 2 accounts while over 49% of the folders contain at least 5 different accounts.

We also signed a three-year, multi-million dollar contract with the Fortune 500 Company for a Global Enterprise Wide Data Integration Solution that facilitates a single view of their prospects and existing customers leveraging the Unique King and matching technology of our Austin-Tetra assets.

North American personal solutions has continued to do execute on its strategy and deliver outstanding financial performance, delivering revenue growth of 19%.

Revenue generate through direct response activities was up 25% while revenue through our call center was up 17% for the quarter.

Approximately, 71% of revenue during the quarter was subscription based, up from 61% in third quarter 2006.

Subscription customers grew to 1.4 million by end of the quarter up from 1.2 million in the second quarter of 2007.

As evidenced by our consistent performance during the past few quarters we have clearly refocused our business model to deliver more consistent growth and profitability in our Personal Solutions business.

Next, International.

International revenue growth was driven primarily by our high value-added solutions including Enabling Technologies, Predictive Sciences and Marketing Services.

Europe grew revenue by 20% in the quarter as Core Information Services in both the United Kingdom and Iberia experienced strong volume gains.

Revenue growth in local currency for the quarter was 11%.

U.

K.s Core Consumer volume was up 27% with volume from the top 20 customers up 23%.

Growth from the top 20 was broad based including banks, retailers and government.

Utilities and debt collection customers were the principal drivers for growth with our small regionally based customers.

Latin American revenue grew 16%, 9% in local currency.

With Enabling Technologies, Predictive Sciences and Marketing Services all growing double-digits, 5 of our 6 countries' delivered strong double-digit revenue growth, Marketing Services, Analytics and Enabling Technologies represented 30% of International revenue in third quarter, up from 27% in third quarter of 2006.

Canada Consumer revenue was 28.2 million, up 14%, 6% in local currency as new pricing initiatives were implemented from Marketing Services, were implemented and Marketing Services continued its strong performance from the second quarter of 2007.

Finally, in international last week we closed the acquisition of the number two credit reporting company in Peru.

This continued our focus on completing strategic tuck-in acquisitions to strengthen and solidify our Latin American franchise.

Last TALXs, TALX's revenue grew 7% to 70.4 million when compared to the same period in 2006.

The Work Number grew 14% while adding almost 6.6 million total records to the database during the quarter, twice our target objective.

We now have 45.3 million active and 158.9 million total records in that database, an outstanding quarter for the Work Number.

We currently have 8 million total records in backlog which is down from 10 million records in the second quarter of 2007.

We are making great progress on integration, E-I.D.

Verifier, one of our Enabling Technology platforms used for I.D.

verifications is being implement to do enhance the securities customers access to the Work Number and TALX will soon be assessing our commercial database for credentialing new employment and income verifiers.

Revenue synergies, today customers will be able to access the Work Number via E-Port, our Internet based enabled distribution portal which is used by many customers today for a credit based solutions.

And we are going to talk a lot more, Bill will specifically about the synergies as will I when we are together this Friday in New York at the Investor Conference.

I will now turn it over to Lee for more financial details.

Thank you, Rick, 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, consolidated revenue was $492.5 million, up 25%.

Operating income was $129.2 million, up 7% from 2006 which included the favorable net impact of several litigation matters in 2006.

Operating income adjusted for these matters increased 12%.

Net income was 67.9 million, down 14% from 2006, which included the favorable net impact of several litigation matters and a one-time tax benefit in 2006.

Adjusted net income increased 2%.

Earnings per share adjusted for acquisition related amortization and the litigation and tax matters noted above was $0.58, up 5% from $0.55 in the third quarter 2006.

In our U.S.

Consumer Information Solutions business, Online Consumer Information Solutions revenue was 161 million, up 1% when compared to the same quarter last year.

Online volume was up 5%, driven primarily by Teleco and regional customers.

Mortgage Reporting Solutions revenue of 17 million was down 3% from the third quarter of 2006.

Growth in our new Settlement Services offering helped partially offset lower demand for traditional tri-merge mortgage credit report.

Credit Marketing Services revenue of 39 million declined 6% for the quarter.

Quarter-to-date our prescreening revenue which is primarily used for new account acquisition is down 15%.

Our portfolio review products are up 5% continuing the trends we experienced in the second quarter where financial institutions focused more of their marketing on cross-selling and risk management of current customers.

Direct Marketing Services revenue was $27 million down 1% compared to the third quarter of 2006.

The operating margin for U.S.

Consumer Information Services was 39.8% down from the adjusted operating margin in the third quarter of '06 at 40.7%.

This reflects continued focused investment in new products and technology to support future revenue growth and expenses related to the conversion of Bank of America to our Interconnect Enabling Technology platform.

North America Commercial Solutions revenue was 16.7 million, up 45% from the third quarter of '06.

U.S.

Commercial Transaction volume was 1.2 million, up 28% from Q3 2006 primarily driven by growth from our ten largest customers.

Transaction based revenue in the U.S.

Commercial business now represents over 63% of total commercial revenue in the U.S.

In October of 2006 we acquired Austin-Tetra to add a critical strategic technology to our commercial business.

Beginning in the fourth quarter this year, year-over-year growth in this business will include Austin-Tetra in both the prior year and current year periods and reported growth will likely be in the teens.

In North America Personal Solutions revenue grew 19% to $38.6 million.

Operating margin was 26.9% for the quarter compared to 48.1% for the same period in 2006, which benefit from a litigation settlement in our favor.

Excluding that settlement adjusted operating margins in Q3 '06 was 20.4%, the increase in adjusted operating margin reflects a shift to more efficient marketing channels and leverage from increasing scale in the business.

Our international business grew revenue by 17% in the quarter to $122.9 million.

Canada Consumer revenue was $28.2 million, up 14% in U.S.

dollars and 6% in local currency.

Europe delivered revenue of $47.6 million, up 20% in U.S.

dollars and 11% in local currency, and Latin American grew revenue 16% in U.S.

dollars to 47.1 million in local currency Latin American revenue growth was 9%.

TALX delivered 70.4 million in revenue representing the first full quarter since the acquisition closed on May 15.

This revenue was up 7% when compared to the same period in 2006 as an independent company.

The Work Number delivered revenue of $29.1 million, up 14% for the quarter.

Total records in the Work Number database grew to 158.9 million, up 20.6 million or 15% from the same period in 2006.

Transaction volume for the Work Number was 3.6 million for the quarter, up 22% from the third quarter of 2006.

And the Tax and Talent Management Services segment delivered $41.3 million in revenue during the quarter.

TALX operating margin was 14.2%, adjusting for incremental amortization from the acquisition of TALX, the adjusted operating margin will be approximately 28%.

Like Equifax generally, this TALX is a high margin, strong cash flow business.

For the corporation as a whole, operating income was $129.2 million, up 7%.

EBITDA, a non-GAAP measure defined as operating income before depreciation and amortization and adjusted for the net favorable impact of certain 2006 litigation matters was $168.1 million, up 24% for the quarter.

Operating margin was 26.2% in the quarter.

On a non-GAAP basis excluding the impact of our TALX acquisition in 2007 and the 2006 litigation matters mentioned previously operating margin was 28.2% in 2007 compared to 29.3% in the third quarter of 2006.

The difference reflects increased cost of litigation and increased investment in marketing and technology infrastructure to support future revenue growth.

We repurchased 11.1 million shares during the quarter for $441.6 million.

We have now repurchased $621 million against our $700 million post acquisition share repurchase program.

Outstanding debt was 1.4 billion, up from $504 million at the end of 2006.

Reflecting the acquisition and subsequent share repurchase.

In summary, a solid performance across a diverse set of businesses all of which are providing critical, high value information based decisioning tools to our customers.

Now let me turn it back to Rick.

Thanks, Lee.

As I mentioned at the beginning, this strong performance in the quarter is really attributed to the diversity of our businesses, our broad based end market mix, our high value-added product offerings, a lot of the strategic initiatives that we have launched like NPI and pricing.

I am really proud the way this leadership team has stepped up and we look forward to sharing more successes in the coming quarters.

As many of you know we are hosting an Investor Conference this Friday at the New York Stock Exchange.

There we will (inaudible) clearly for you.

The strategic vision and an update from last year and some great progress the team has made on some of the commitments we discussed in 2006 and we hope we can see many of you there.

Operator, I would now like to open up for questions.

(OPERATOR INSTRUCTIONS) Kyle Evans of Stephens.

Good morning, Rick and Lee.

Could you help us quantify total corporate exposure to mortgage and maybe dig down a little bit within the CIS, Canada and Work Number businesses?

We traditionally talked, Kyle, the ebbs and flows on any one quarter as different products and geographies grow.

But we talk in range of 10 to 15%, excluding TALX now.

For the third quarter for the Core Full Equifax business it's about 12%, total exposure to the mortgage market, that's (inaudible) and then the TALX business if you take the Work Number, the Tax business in (inaudible) and put it all together and look at the exposure they have in mortgage it's about the same kind of range.

So 12 to 13% for TALX.

Okay.

Thank you.

On TALX, could we dig down a little bit there?

A nice record addition quarter at 6 million but the backlog fell to 8 million.

What are some of the initiatives that that you have place to get that backlog juiced backed up.

That's actually good news., Kyle.

Getting backlog is actually good-- here's the process.

Once a customer agrees to provide us the data it sits in what we call backlog.

The longer it sets in backlog the longer it takes for me to monetize that, have verifiers come and actually access that data today.

We have been sitting at 10 plus million for quite sometime.

Bill and his team have done a fantastic job in getting that down to 8 million.

You should think about as it comes down that's good news because my verifiers now have more data in the database for which they can access and pay me.

It does not impair your ability to continue putting up 6 million new records a quarter going forward?

No.

Kyle, I would note, Bill Canfield has long said about 3 million records a quarter is a reasonable target.

I think the 6.6 million reflects the positives of accelerating some of the backlog can drive revenue and still higher than trend at Work Record additions.

Does that make sense, Kyle.

It does actually.

On the verifications side of the business are you starting to see some acceleration there via cross selling through your larger sales force.

We absolutely are, we will talk to you on Friday, I assume you will be in New York, about dozen of clients a who have crossed sold generating significant revenue.

I mentioned before you will see it on Friday and so is Bill and Dan, far more bullish today than we were at the time of the acquisition.

There is great synergy here and you will see it on Friday.

We will give you specifics.

I will be there on Friday.

One last question.

The international growth was very strong in the quarter and as I look out in 2008 could you help me think about how sustainable common currency growth, right around the double-digit market is for the international businesses?

Yes, exclude the currency and look on local currency.

The thing we are doing in Latin America of new product transfers from other parts of the world to Latin America, pricing initiatives in Canada, value based pricing in the UK, Marketing Services in the U.K., New Leadership in Iberia which is bringing our new decisioning platforms to Iberia.

A lot of those initiatives are just gaining traction.

Rudy has only been at this now for 10 months so I'm, and you will see it we will lay it out for you in the three-year plan.

The long-term growth for international over the next three years is at 9 to 11%.

Great.

Thanks.

I will get back in queue.

Thanks, Kyle.

Thank you.

Our next question comes from the line of Mark Bacurin of Robert W.

Baird.

Good morning everyone.

A couple questions.

I guess first on TALX overall revenue of 7%.

I know you said the Work Number was up like 14 so that would imply that Tax and Talent piece was quite a bit weaker.

Can you comment on what's going on there?

I know that was the less strategic part of the acquisition when you made it.

Are you deemphasizing revenues there?

Absolutely not.

I will have Lee jump in and give you some flavor there.

It's a story within a story and I will come back and give you some thoughts on why I am bullish on that going forward.

The Work Number was up 14%, the combination of Tax and Talent management this quarter was up 4% versus a year ago, actually last quarter that same comparison was up 1%, the tax business gets slowed down in the year and the talent management business which had peaked in the third quarter last year dropped off with the slowing from TSA, which people may recall if they had followed TALX in the past.

Both of those businesses are moving positively, the Tax business has recovered very nicely and is strengthening its growth rate and the Talent Management business also each quarter for the last three quarters has grown sequentially and is positioned for a stronger fourth quarter which I think Rick may want to --

One more point, Mark, that the non-Work Number performance was really dragged down in the third quarter due to the Pan business.

It had a very difficult year over year comparison in the third quarter.

The Tax business performed very well in the third quarter.

And back to Pan, the good news is that, they signed a very large corporate account in the third quarter which further diversifies their revenue stream away from the TSA and will give them significant revenue list in the fourth quarter and beyond.

The story there is very good.

Rick, I am going to ask about the international partnerships.

You told us six months ago it would be about six months for Mexico or India or China.

Maybe you are holding it for Friday but I didn't hear it in the commentary, so just curious.

I talked about Peru.

Peru wasn't one of the original four.

Oh, you are right, you got a good memory, no, you'll hear.

I do want to save that for Friday.

There's some exciting things going on and we will announce that on Friday.

Very good.

Just also was curious, any lift this quarter from Vantage Score, I'm starting to see a few little things leak out from some retailers.

(inaudible)

We have solid performance, we think I've we may show you some stuff on Friday specifically but we have of the top 20 banks are either using it or testing it, Telecos are using the testing, we have hundreds of clients right now either using it and or testing it so we are doing what we expected it to do.

One final one for Lee, for the last several quarters the U.S.

Consumer business has been putting up mid single-digit growth which was actually surprised seeing what's going on in the credit markets and this quarter were you finally did see growth tail off to being up just a modest 1%.

As you look out are we starting to hit some tougher comps?

Was there anything specific in the quarter that drove that, we finally saw that revenue slow down relative to what I would have thought would have happened a couple of quarters ago at least?

No, I don't think there's anything in particular, I think you are reading in the papers every day it is not just a tough mortgage market but the banks are being a little more cautious on their general consumer credit marketing focusing more on their current customers and doing a little bit less new marketing and that caused the pull back from the first and second quarter growth rates.

There's nothing particular in the comparables this year to last year either in the third quarter or in the fourth quarter.

And we are obviously working very hard with our customers.

We think we've got solutions that help them address their current needs and are carrying those out active with the customers but nothing particular in year-over-year comps, just a little bit more pull back in the third quarter compared to the second quarter in new marketing.

And Mark, Rick, one last thought, this may or may not have been a part of your question but as we look at what's happened in the U.S.

Credit Markets in general U.S.

Consumer and again as Lee said we are reading it every day in the papers we see the data every day here at Equifax, obviously, those trends in behaviors and head winds we've taken into consideration as we have given you updated guidance for the fourth quarter and total year.

Very good, thank you.

Thank you.

Thank you and your next question comes from the line of Andrew Jeffrey with Robinson Humphrey.

Please go ahead.

Hi, good morning.

Hi, Andrew

Rick, can you talk a little bit about what you think sort of the (inaudible) operating leverage is in the U.S.

Consumer Information business.

You have been investing pretty heavily, you've had this (inaudible) conversion that's weight a little bit in the second half.

As you look out longer term, should all else being equal on a relatively normal credit demand environment.

Is this a business that we should thinking about as having some pretty good operating leverage at some point?

The answer is yes, it is not just a B of A transition and not just NPI as well.

We are investing in core infrastructure technologies that service customers to a higher standard of availability which is important to them.

It's a high fixed cost business, right?

By and large and when the business is growing you get significant lift or operating leverage as you call it and when the business slows as it has done this quarter you tend to get obviously some margin compression.

But it's a wonderful business.

It's a great franchise.

It throws off a lot of cash.

It's a business that will get through this U.S.

economic downturn and once again not only grow but gives us the leverage and margin we are expecting.

Okay.

It sounds like operating leverage is going to be at least at the margin predicated on a reacceleration in growth.

To that end you obviously had a good Teleco quarter for reasons that I think most people understand, a more challenge, FI quarter.

Any indication that we are normalizing in terms of financial institutions volumes or bottoming in financial institution volumes?

How should we think about the demand environment here as far as stabilization versus the potential for any worsening?

I will leave you with this thought here, is that we have seen in the early part of October versus what we saw in September use the term I think normalizing, a stabilizing effect in the U.S.

financial sector.

It has not significantly improved nor has it deteriorated.

So we've seen a stabilization from September through October at this juncture.

Again it's important I continue to underscore that view with our guidance.

We went into this with our eyes wide open clearly analyzed trends by every business unit as we postdated updated guidance for you.

Okay.

Thank you.

Thank you.

And our next question, Fred Searby with JPMorgan.

Please go ahead.

Yes, thank you.

Kind of a follow up but in terms of the prescreen business and Credit Card Marketing prospecting with the historic down market strategy that we are clearly not seeing right now can you just give us your thoughts on what the banks are saying and when they are going to have confidence to go out and sort of pick that up?

And then secondly just to clarify something, you took don't your guidance for revenues for low into the range at 19%.

It was almost symbolic.

I'm wondering if it stabilized September, October, what have you specifically seen that maybe you do that so far into the quarter in October?

Thank you.

Sure.

Thanks, Fred.

As far as the banks and maybe the attitude of the banks on acquiring new customers versus managing portfolios versus cross-selling products to their existing clients, it has ebb and flowed over the quarter, Fred.

From a more inquizitive tone, if you will at the early part of the quarter to more of a stop, manage the credit risk within a portfolio, almost a bit of a paralysis as we exit the third quarter from the F Is themselves, but I would say how I would categorize them now is really looking at ways and by-products to managed and understand the current risk trends within their portfolio, look at ways to cross-sell other products to existing clients.

But the actual acquisition, trying to go out into the marketplace and find new customers has slowed.

And Lee had mentioned earlier what that V-percent was for CMS, that's a direct reflection of their attitude, let's manage the risk in the portfolio, let's cross over the current customers we are comfortable with and let's slow down the acquisition of new clients.

As far as the revenue growth we gave you range back in June of 19 to 22% and just looking at the overall environment and all the great things, we tend to focus on the U.S.

economy but there's some great thing going on I hope you are seeing.

Within the U.S.

Commercial P-Sol , International, when I put it together, Lee and I look at the most likely scenario for the balance of the year with feel confident that business will deliver approximately 19% revenue

If I could follow up with one question, you mentioned Vantage Score, I think you said you had 8 out of the 20 largest banks testing or using it.

Have you had any large banks or customers, are they actually replacing the FICO score or are they just using it in tandem and testing it?

In most causes right now they are using it in tandem with FICO.

I've been pretty consistent when I talked about this.

I think over time they get comfortable with Vantage Score, they will replace Fair Issacs with FICO with this score.

Let's not forget this also use generic scores, they have their own scores as well.

I see it as an augment that they will do with generic scores generated in house and replace FICO, over time.

Great, thanks, guys.

Thank you and your next question comes from the line of Michael Meltz with Bear Stearns.

Please go ahead.

Great, thank you.

I think I have three questions.

Lee, can you isolate for us what was the TALX impact in the quarter and TALX dilution in the quarter?

Actually I have not calculated that precisely.

It's more or less in line with our expectations which would have been in a $0.02 to $0.03.

Okay.

Can you tell us your guidance for the year, you gave us adjusted cash EPS guidance.

Has anything changed on your GAAP guidance?

I think it was $0.29 of non-cash amortization?

To be honest, Michael, we manage to the adjusted cash EPS figure and I literally haven't done the calculation.

I don't think that the amortization has changed, meaningfully it's up.

It might be up a $0.01 as we've done our final allocation of purchase price.

We had slightly higher amortizable intangibles and a slightly shorter life.

So the effective amortization in cents per share might be a $0.01 higher.

In the U.K., I still am struggling to understand how consumer credit volumes grew 27% in I think a tougher lending environment than we have here in the U.S.

What's going on there driving that?

Because certainly that's kind of a record performance for your business.

Thank you.

It is a continuation of some things we put in motion, Michael, a couple of years ago which is new leadership, new sales programs, new product introduction.

Value based pricing.

And let's not forget we are a number two player in that marketplace.

We are always looking for ways to differentiate our offering versus the number one player there and the team is doing just that.

And it truly is pretty broad- based; it is not any one customer, not any one vertical.

And we talked to you about the government program, the program we call ID Verification, which we lost a couple of years ago.

That particular program continues to is strengthen as well.

So it true is broad-based performance.

Lee, had you made a comment about CMS and I think you said quarter-to-date when talked about prospecting down 15%.

Were you talking about Q4 or were you just referring to Q3 that way?

I'm sorry, that was the Q3 result for the quarter, third quarter.

Okay.

Thank you for your time.

Thanks, Michael.

And your next question comes from the line of Dhruv Chopra with Morgan Stanley.

Please go ahead.

Good morning, gentlemen.

I had a question on the gross margins, they were obviously very sharply up sequentially and sort of looking back I think the strongest since the fourth quarter of '03.

Can you give us a sense on what's going on and what's driving that and is that sustainable?

I'm sorry, Dhruv, I'm sorry the question was that the gross margins were up?

Up to about 60% which was up sequentially and probably the highest since fourth quarter of '03.

Can you just highest since fourth quarter of '03.

Can you just provide a little color on what happened in the quarter?

You know, I think some of that may reflect the addition of TALX.

Keep in mine the Work Number GMs are extremely high and that helps, that maybe helping drive the mix.

I don't think a fundamental changes within the traditional Equifax business is other than the gross margin at our Personal Solutions business is probably also expanding nicely.

Okay.

Great.

And then a quick question, there's been a lot of press currently around credit freezes and one Senators view and another totally different view.

What are you seeing in the environment?

Are you literally going to have to go down and sort of have individual rules for 50 states or have you been successful in trying to come out with a national standard?

Drew, we may have to bring you to Washington in order to be successful at the Federal level.

No, we have not been successful.

Right now there are 39 states I believe that have local state laws.

Some mirror the laws the other states have enacted and there are 11 who are currently undecided at this juncture.

So we are currently operating within that framework.

It's not an issue for us.

We will find a way to deliver to the local states needs.

But our preference, sure as heck would be to have a Federal preemption and have one standard.

Sure.

In terms of financial commitments, we went through the whole factor a couple of years ago, that I guess is now known as the regulatory recovery fee, would that basically go towards funding some of the costs that you would have to incur?

Yes, I don't think the costs would be significant at all.

There may be some involved and won't materially change the financials.

We will price the product in the marketplace to recover whatever investment we have to make, Dhruv.

I think the most important thing is to date the states that you have had file freeze as a legislative offering the take up rate is diminimus so I don't see it as being significant.

Great and then just final question on Latin America I think you mentioned five out of the six countries strong double-digit growth.

If I recall that's been the case and I believe it's Brazil that's lagging a little bit.

Is that correct?

And if so, what are the steps apart from new country management that you are taking out there to get that.

Good memory, Dhruv, it is Brazil.

We put a new leader in there about nine months ago who is making good progress.

We are winning in a lot of places.

We are winning in Marketing Services.

We are winning in the non-FI's, the corporate accounts.

We are winning in the large banks and small banks with Marketing Services.

It's just that we, that [Sirossa] is a good competitor, they are view of value based pricing is different than ours.

They've been very aggressive in some of those sectors.

Having said all that I'm convinced we are on the right path, number one.

Number two, Rudy who runs our international team and I were just down in Brazil and we met with most of the major banks, and the encouraging news that's out there, Dhruv, is that with the sale of [Sirossa], by these banks, these large Brazilian banks to Experian, these banks are now interested in providing us with their negative data.

So that will enhance fairly significantly the database for which we can operate and offer value to the Brazilian client.

So the landscape will change favorably for us going forward and that's before we even talk about the advent of positive data which is on the horizon as well for 2008 in our belief.

Great.

Thank you.

Thank you.

Thank you and the next question comes from the line of Andrew Ripper with Merrill Lynch.

Please go ahead.

Hi, good morning, gentlemen.

Just a question on U.S.

Consumer Information and then I have follow-up (inaudible), how big a drag was the mortgage business on the Consumer Information side?

You mentioned that it was about 13% of sales for that business.

I think we mentioned and also that the mortgage business was down in third quarter versus third quarter 2006, 3%.

But within U.S.

Consumer Information through mortgage sales, you said you have all of your mortgage incorporated with the Mortgage Solutions, isn't the Consumer Information side affected by mortgage related inquiries as well.

Actually, our mortgage revenue, there's the part we record on mortgage reporting which is where we sell directly to lenders.

There is also some other streams that are mortgage related.

They are a little harder for us to have precisely but we do estimate those every period.

In total, the complete set of mortgage revenues as well as we can estimate it in U.S.

Consumer was probably down about 5%.

And that's a base of about $50 million a quarter.

Okay.

So slightly larger effect than the mortgage reporting line alone but comparable overall kind of percentage affect, 5% instead of 3%.

Okay.

Did that sort of change over the course of the quarter?

September was weaker than July and August.

Have you extrapolated the rates of contraction in terms of pitching your full year guidance?

Please state that one more time.

Just say presume the mortgage business deteriorated over the course of the quarter so I was asking have you extrapolated September rate of contraction in terms of pitching your full year guidance?

We did.

Yes.

And the other thing is we launched the ESS product.

The compression in the mortgage arena will continue.

The good news is that our ESS Business, the Equifax Settlement Services is gaining nice traction for us helping offset some of the compression.

The Bankers Association statistics suggest that origination was down 25% for the quarter and obviously your numbers compare very well with that.

Are you sort of saying that that's down for the Settlement Services products or are you sort of performing better than the origination statistics would suggest if you take the other fact out.

Let me see if I can answer it this way.

We don't expect the mortgage market to improve in the fourth quarter if that's the heart of your question, in our earnings guidance.

We don't expect that 25% year-over-year decline to improve in the fourth quarter.

Just finally, that wasn't the heart of my question but just trying to understand why I'm looking at Mortgage Banker Association statistics saying down 25% for the quarter, you are reporting minus three for Mortgage Solutions or setting you down 5% for the quarter on the consumer side.

Is there any other thing I should be aware of you apart from the new Settlement Services product that is enabling you to do so much better than the origination numbers would suggest?

I would say there was a couple things.

We've traditionally looked at and reported our businesses out performing the market, number one.

Number two, is we did make this year some small affiliate acquisitions, relatively small but they will help.

And, third, ESS, is, again, gaining traction.

Thanks for your answers.

Sure.

Your next question comes from the line of Kevane Wong with JMP Securities.

Good morning, guys.

First could you give a little more detail on the Peru Credit Bureau acquisition?

Yes, it was, we are number one in Peru, it's a good market for us, we've been there for a number of years and we acquired number two player in Peru.

Nice little tuck in acquisition, fits right in with our strategy, little integration acquired.

Peru is not a big market for us so it's not going to be a significant revenue enhancer but strategically makes sense.

Can you give anything as far as revenues or pricing metrics, can you give us a little financial numbers?

It's in the single-digits in millions in terms of revenues, it's small.

And second, also, if you look at TALX one of the issues they had was with providing Verifications Services when they don't have the information on their own database.

Can you give us information on how much that's progressing, how much that's having on numbers?

You are referring to thin files or find it?

I think it would be find it where people are calling in saying, hey, I need this things verified and if TALX has it they will do it and if they don't have it TALX, they will search around, getting the information and then return it to the client.

Very familiar with that, it was hard to hear your question.

(inaudible) They are doing a great job, full-time leader in there now.

Running Find-IT for Bill, full-time, getting a good infrastructure in place.

We had a couple of big wins.

In fact if you will be at the conference on Friday, pull Bill aside he may say in his presentation, if not pull Bill aside and he will give you some specifics.

They had some nice wins in the Find-It in the quarter.

Simply said, good progress, real good progress.

Lastly, curious if you can give information as far as are you getting a particular risk scoring increase, that's helping?

Last quarter one of your competitors really had strong growth with risk scoring products and I was curious if you were seeing that sort of factor continuing this quarter, I don't know if it's quantifiable or just for the general feel that you can give?

One of the things I'm not sure if this will answer your question or not.

One of the things I mentioned early on in my discussion was the accelerated rate of growth of scores in general, the number of scores that will actually sell in with our data is growing nicely.

If that's what you're referring to, yes, risk scoring is a big part of our strategy as you know, on each of our full tenants and it's growing at significant rates.

Are you predicting a lot of people in portfolios that are sort of running their checks a lot more often than they have been because of where things are in the credit market?

Yes and we talk about it on the CMS side, they shift from acquisition strategies to really understanding the risk aspects of their portfolios.

So that's exactly what's happening now and that's going strong having that's strong double-digit growth.

It's the biggest piece of CMS.

Thank you.

Next question, Jaime Brandwood with UBS.

Good morning.

I just have a question, I think you talked about volume growth of around 5% in your U.S.

Online Consumer Information Solutions.

As far as looking back over the long-term history of this business and I'm really talking about going back literally the last 15 years, can you actually remember a period of time where that volume growth has gone into negative territory?

In fact, I'm not sure if we met when I was over in London with you or not but we've talked historically we've done an analysis in the U.S., all the way back to 1991 and it never, from 91 through 2000, now third quarter 2006, through 2006 has there been a year where there's been year-on-year negative volume.

And as you know there's been a lot of different economic cycles over that time frame.

So what do you think it takes to push that volume growth into negative territory just in terms of trying to assess the down side risks here?

I hope we never have to experience it.

I don't know.

There's no easy answer.

The impression is a significant recession, is it oil $200 a barrel, employment at 10%?

You can draw Armageddon in your own view.

But I think the point we continue to try to make is it is a resilient business.

It is a business that has been wonderful for 107 years, huge cash flow but it's only 50% of our business.

We continue to diversify ours, we continue to diversify ourselves into products, geographies, markets that are less dependent on the U.S.

economy I think we've done that.

Again just looking back to say 2001 where basically you sort of saw significant to your credit report volume in terms of reduction in interest rates cross the U.S.

economy.

To what extent, how much more does the Fed need to relax before that kind of impact starts to the filter through into your business?

I can't project that.

I think right now if I had to give you my true sense and this is only Rick Smith's view, I'm not a economist, we see the trends of behavior of the U.S.

Consumer routinely, I think what's plainly playing in the consumers benefit is a high employment rate that gives the U.S.

Consumer good confidence.

We do a survey on a quarterly basis of a couple hundred thousand -- 100,000 consumers in the U.S.

and right now even though there's a credit crunch, there's housing declines, there is home equity decline, the U.S.

Consumer by and large and I will show this on Friday in New York, by and large still feels pretty good.

And that's driven by high employment.

If that changes, I'd be concerned.

My other questions have been answered.

Thanks very much.

Thank you.

Our next question comes from the line of Bruce Simpson from William Blair.

Hi, guys, question about P-Sol.

And then about Commercial so with Personal Solutions it seems you really have a good success in building the subscriber base.

Where are those subscribers coming from?

Are you taking a way from your competitors or are they new people that have never described to processes like that before?

How big do you think that business can be?

I think you mentioned that you are up to about 1.4 million subs.

What's a realistic number over the next couple of years?

Good question, Bruce.

In general it's difficult for us to say exact where would they are coming from, competition versus new customers.

But the team has done an unbelievably good job on improving the effectiveness of their advertising, to attract new clients.

We have completely revamped the entire Web site so that once we get them to come to our Web site their ability to navigate to get to a product, to get to an education site, is far greater, easier than it has been in the past.

Our retention of clients is better.

So they are really hitting on all cylinders there.

We talked last year about trying to get this business to about 70 to 75% subscription.

As you recall, it wasn't that long ago it was the inverse of that, we were about 25 or 30% to subscription of balanced transaction and we reversed that.

So I'm comfortable with the range where I think it was 71% right now for the third quarter, 71 to 75% is probably where you are going to balance out as far as the mix.

And then Steve's challenge is to continuing to out there and find new customers to continue to come to his site and buy his products.

I've talked about this business of being a 20% plus margin business and growing mid-teens and that's how I see it growing in the future.

What's the balance between individuals that you've reached out to on a direct-to-consumer basis versus cluster that is you got through any kind of a third party relationship with a financial sponsor?

Good question again.

It is mostly a direct-to-consumer.

Predominantly, like 75% or better or?

Mostly.

I don't know.

It's 60 to 75%.

Then just very quickly on the commercial business, I think Lee made some comments that now when you lap heading into the fourth quarter it's probably kind of a teens level grower.

Can you update your thoughts about the size of the opportunity here now that you are at kind of a 65 million earner?

Also are you talking business away from D&B or are people paying for your product that have never had this service before?

The first question part of your question first.

I love this business and I'm as bullish today as I was when we talked in New York City when we first spiked it outer.

The fact that Austin-Tetra year-over-year, that's a one quarter issue.

We by someone else next year and then you have another variance that will change the growth rates again.

It's a solid business.

It's value-added.

No one else has the consumer data, small business exchange, we are rapidly expanding the files.

I told you I would like to build this thing over the next three to five years about $300 million globally and I talked about this business in the U.S.

being 150 to $200 million over that time frame as well.

I'm as convince today as I was last year.

That's the path we are on.

Michael Shannon who leads that business will tell you his story when he sees you in New York on Friday.

As far as where, taking the business, yes, we are taking the business from Dun & Bradstreet by enlarge because they are the predominant player in the U.S.

Thank you.

You're welcome.

Our last question comes from the line of Nat Otis with KBW.

Good morning, gentlemen.

I just have a couple of quick last ones.

First going back to Mortgage Reporting is there any way you can break out what component Settlement Services, how much it actually rings up there?

At this time we don't break that out.

Okay.

Any possibility for future break out if it gets material enough.

Yes, if it get's material enough we may consider that.

I think what you will see is Dan Adams, if you are going to be there Friday, talks a lot about ESS.

And where it's going, some big wins he has, he will provide texture for it.

Tom Madison is doing a heck of a job in mortgage in a tough mortgage environment.

We are lucky we bought this product last year.

It's making a difference.

It's solving problems for the mortgage industry.

It's helping to short-term offset the compression but when the mortgage market does turn and pick back up this thing is poised for significant growth.

Great.

Any color on how your marketing campaign went?

I think you had the Credit Watch Gold Marketing Campaign, just any color on how that progressed?

This was the direct TV?

Yes.

Great memory, we are still evaluating it to make sure it actually gives us what we call the return on marketing ROM versus other means of advertising.

So it's still being evaluated at this juncture.

And just last question, going in a historical perspective the transition from new customer acquisition to kind of customer management, any thoughts on how long that period can last?

You talked a little bit about a paralysis on there.

Any thoughts on how long it can last between just new customers slowing down and then the Londres realizing they need to pick it up on the customer management side?

It's tough for me to project that it depends on macroeconomic issues as you might guess but I don't expect it to materially change in the fourth quarter, probably even in the first quarter or first half of next year much but again that was factored into my guidance for the fourth quarter.

And again it's a good thing we are diverse series of revenue streams in this company because the U.S.

Market has slowed as you know.

Thank you.

Thank you.

Okay.

With that, operator, we will conclude the call.

We appreciate everybody's participation and we will be available this afternoon if there are any additional questions.

Thanks.

Ladies and gentlemen, this does conclude your conference for today.

Thank you for your participation and for using AT&T executive teleconference.

You may now disconnect.