易速傳真 (EFX) 2008 Q1 法說會逐字稿

Good day, everyone and welcome to the Equifax first-quarter 2008 earnings release conference call.

Today's conference is being recorded.

At this time, I would like to turn the call over to Mr.

Jeff Dodge.

Please go ahead, sir.

Good morning and welcome to today's conference call.

I am Jeff Dodge, Investor Relations and with me today are Rick Smith, our Chairman and CEO, Lee Adrean, our Chief Financial Officer.

Today's call is being recorded.

An archive of the recording will be available later today in the investor center of our website at www.equifax.com.

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

These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations.

Certain risk factors inherent in our business are set forth in the filings with the SEC, including our 2007 Form 10-K and subsequent filings.

In this call, we will refer to several non-GAAP financial measures for Equifax consolidated in the first quarter of 2008.

These measures include adjusted net income, adjusted diluted EPS, adjusted operating margin and adjusted operating income.

These measures exclude acquisition-related amortization expense.

We also refer to EBITDA defined as operating income before depreciation and amortization.

TALX's adjusted operating margin excludes the incremental impact of amortization from our acquisition of TALX.

Please see the section of our earnings release entitled Reconciliations of Non-GAAP Financial Measures to the Comparable GAAP Financial Measures for further details and the GAAP to non-GAAP reconciliations posted in the investor center on our website.

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

Thanks, Jeff.

Good morning, everyone.

With double-digit organic growth in our international North American personal solutions and North American Commercial Solutions businesses and the performance of TALX, we continue to demonstrate the diversity and resiliency of our business model.

We anticipated a challenging quarter and each one of our business leaders stepped up and delivered.

They strengthened their franchise, their relationships with customers, leveraging our data assets and our solution engineering capabilities.

We made significant improvement with the margins in our core U.S.

Consumer Information Solutions business.

This is something I committed to do.

We had our earnings call for the total year back in February and I am thrilled that the team stepped up and delivered as I promised and you will get more details from Lee later on.

TALX, North American personal solutions and North American commercial all delivered strong growth and operating performance while international sustained its outstanding growth and operating margins.

At the same time, our new product revenue is accelerating and the revenue synergies between TALX and the U.S.

Consumer Information Services business are gaining significant traction.

Given this tough environment in the U.S., I am very proud of what we accomplished in the first quarter.

Total revenue was $503.1 million, up 24%.

TALX contributed 19% points of that growth.

Equifax, excluding TALX, grew 5%.

Operating income was $126.2 million, up 8% and adjusted operating income increased 19%.

EBITDA grew to $164.1 million, up 19%.

Diluted EPS was $0.50, down 7%, while adjusted EPS was $0.60, up 3%.

I will now go into some business highlights for each of the five business units.

First, U.S.

Consumer Information Solutions.

Aggressive cost management delivered significant benefits.

Operating margin improved 200 basis points to 38.6% when compared to the fourth quarter of 2007.

They accomplished this while investing in the business for future growth.

Equifax Settlement Services revenue continues to accelerate.

First-quarter gains made in Settlement Services offset the declines in our traditional tri-bureau mortgage reporting products.

Enabling Technologies continues to grow and our customer intimacy continues to rise.

For the quarter, 31% of our online transactions were delivered through one of our enabling technology platforms, up from 29% in the first quarter of 2007.

Most of the gains occurred in our telco and regional sectors.

We now have every major telco carrier using or implementing an InterConnect platform.

And 19% of our U.S.

online transaction volume for the first quarter included scores from models built by Equifax.

In Credit Marketing, over 45% of names listed, including a score -- included a score from an Equifax model.

Credit Marketing Services' revenue declined 12% in the first quarter as customers continue to minimize their account acquisition activities and focus more on their existing portfolios where we, again, experienced double-digit growth with portfolio management services.

Direct Marketing Services' revenue was down 14% in the first quarter, reflecting the general slowdown in customers' marketing activities.

Finally, two new products were launched during the quarter, while the first-quarter revenue contributed from previously released products approached $6 million.

TALX continued to deliver on its objectives and is making significant progress in delivering revenue synergies.

In fact, we are now estimating that the revenue synergies between TALX and U.S.

CIS will be two to three times our original estimates when we closed the deal last May.

The Work Number continues to build its franchise and to deliver double-digit growth.

While the Work Number is not immune to the overall economic environment, it delivered 10% revenue growth in the quarter as the database grew to $174 million, up 19% when compared to the first quarter of 2007.

Also during the quarter, a large Equifax partner has agreed to add over 300,000 employees and retirees to the Work Number database.

Our U.S.

Consumer Information Solutions customers are very interested in how the Work Number products can assist them in assisting -- in assessing their risk.

At present, some of the largest credit card issuers have entered into agreements to test various products for enhanced risk assessment.

We have also conducted tests for customers across multiple industry sectors, including auto, mortgage, consumer lending and collections.

These are large revenue sources that we had not even thought of six months ago.

Today, we have 24 cross-sell deals closed with a robust pipeline that includes many of our strategic accounts.

In many cases, we are running multiple projects for a single client.

The interest level is high and our customer reaction to the Work Number has been very positive.

North American Personal Solutions continued to deliver outstanding performance with 14% revenue growth and 25.7% operating margins.

Subscription customers grew to 1.4 million in the first quarter of 2008, up from 1.2 million in the first quarter of 2007.

In the first quarter, we provided services for over 127 data breaches where sensitive information about consumers were exposed.

Approximately 68% of the revenue was subscription-based, up from 62% in the first quarter of 2007.

The newest product offering, Credit Report Control, which enables customers to lock and unlock their credit file online, continues its strong performance with over 50% of new subscription customers opting for this feature.

North American Commercial Solutions revenue grew 20% for the quarter while improving their operating margins.

During the quarter, we signed a multimillion dollar contract with a major financial institution who has now fully integrated our solutions into their small business credit approval process.

We also secured a long-term commitment with a large telco, displacing a competitor as their primary credit risk solutions provider.

We continue to add trade lines to the database, which were up 2% from year-end.

As of the end of March, 57% of our business folders had five or more trade lines.

Six new products were launched during the quarter.

Our latest announcement was for the Business Fraud Advisor.

The Business Fraud Advisor helps lenders fight what has become a rapidly growing $50 billion problem.

Leveraging our analytics, expertise, knowledge of industry and third-party data, we have developed a solution that features ID authentication, verification of application data and fraud prediction.

Finally, significant progress has been made on providing a broad array of decisioning capabilities to our clients.

Our existing data asset now includes credit information on over 25 million small businesses and marketing information on 16 million businesses.

Financial institutions are already using our InterConnect and APPRO-enabling technology platforms.

Through a partnership, we expect to shortly provide midmarket and smaller customers with a robust decisioning engine.

Last, on international.

International had an outstanding quarter, delivering double-digit revenue growth in every geography.

Revenue was $129.9 million, up 23% while maintaining margins above 30%.

Value-added solutions continued to drive growth in market penetration.

Marketing services revenue grew almost 8% in local currency and Predictive Sciences' local currency revenue grew over 15% in the quarter.

Europe's revenue.

Revenues were up 13% to $47.7 million as our U.K.

operations delivered strong growth for the quarter.

Our growth in the U.K.

has been driven by several factors.

We have developed unique, anti-money laundering products, which have resulted in strong revenue growth from existing and new clients.

Our market-leading Predictive Sciences has enabled us to secure long-term partnerships, relationships with new and existing clients and providing high-value decisioning capabilities and our flexibility in adjusting to customers' needs has enabled us to build long-term relationships with some of our largest customers.

Latin America's revenues were $53.2 million, up 34% with broad-based growth in each geography.

Brazil continues to penetrate new markets with double-digit growth from banks, telcos and insurance companies.

In addition to our partnership with ACSP in Brazil, we are turning the corner on making significant progress in restoring our competitive position and revenue growth in Brazil.

Canada Consumer was up 22% to $29 million as it continued -- $29 million -- as it continues to build marketshare and increase share of wallet with our large customers.

We are currently converting a large global credit card bank onto the InterConnect platform.

This effort will be supported by the global Enabling Technologies Center of Excellence, another great example of how we globalize our value-added solutions.

With the market interest high and active discussions underway with many customers, InterConnect will become the standard of Enabling Technologies in Canada.

15 new products were launched during the quarter and the new product revenue for the quarter exceeded $4 million.

And we continue to make good progress on our global expansion initiatives.

Last week, we announced our investment in Global Payments Credit Services LLC, a leading credit information company in Russia.

Once we receive regulatory approval, we will rebrand the company and assume responsibility for its operations.

In India, we have begun hiring key individuals who we will have -- who will have critical leadership responsibilities once we receive approval for our credit bureau license application and we are working very closely with our partners who have very strong reputations with financial institutions across India.

I will now turn it over to Lee for some details on the financials.

Thanks, 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 and non-GAAP reconciliations attached to our earnings press release for additional financial information.

For the quarter, consolidated revenue was $503 million, up 24% and was positively impacted by the acquisition of TALX, which will anniversary midway into the second quarter.

EBITDA, a non-GAAP measure, was $164 million, up 19% for the quarter.

Operating income was $126 million, up 8% from 2007.

Adjusted operating income, adjusted for acquisition-related amortization, increased 19%.

Operating margin was 25.1% in the quarter, up from 24.5% in the fourth quarter of 2007.

On a non-GAAP basis, adjusted for acquisition-related amortization, operating margin was 29.4% in the first quarter compared with 30.8% in the first quarter a year ago.

Net income was $65.7 million, down 5% from 2007.

On a non-GAAP basis, adjusted net income increased 7%.

Diluted earnings per share were $0.50, down from $0.54 in 2007, reflecting the lower GAAP net income and an increase in average shares outstanding as a result of the TALX acquisition.

Adjusted earnings per share was $0.60, up 3% from $0.58 in the first quarter of 2007.

We repurchased 1.1 million shares during the quarter for $37 million.

And outstanding debt ended the quarter at $1.4 billion, flat when compared to year-end 2007.

In U.S.

Consumer Information Solutions, online Consumer Information Solutions' revenue was $156.9 million, down 3% when compared to the same quarter last year.

For our core product, online transaction volume was flat compared to last year with all sectors either slightly up or down for the quarter.

Mortgage Reporting Solutions' revenue of $17.5 million was unchanged when compared to Q1 2007.

Growth in our Settlement Services business enabled us to offset reduced Trimerge mortgage credit reporting revenue, a reflection of declining mortgage application volume.

Credit Marketing Services' revenue of $35.4 million was down 12% for the quarter.

Our prescreening revenue, which is primarily directed towards new account acquisition, was down 24% as financial institutions reduced new account marketing in this uncertain period.

Revenue from our Portfolio Review products, which are used to manage and sustain existing customer accounts, was up 16%.

Direct Marketing Services' revenue was $23.4 million, down 14% compared to the first quarter of 2007.

The operating margin for our U.S.

Consumer Information Solutions business was 38.6%, up two points from 36.6% in the fourth quarter of 2007, but down from 41.2% in the first quarter of 2007.

The activities we undertook to improve the operating margin in the first quarter will continue to benefit us for the remainder of the year.

TALX delivered $79.6 million in revenue, up 8% compared to the same period in 2007 when they were not part of Equifax.

The Work Number delivered revenue of $36.3 million, up 10% for the quarter from its results a year ago.

We added 8.3 million records to the database during the quarter.

We now have 174 million records in the database, which is up 19% from the first quarter of 2007.

We currently have 7.6 million total records in backlog, down 15% from the fourth quarter of 2007 and closer to the level that we would like to maintain prospectively.

The Tax and Talent Management Services unit delivered $43.3 million in revenue during the quarter and TALX operating margin was 16% on a GAAP basis.

The adjusted operating margin would be approximately 30%.

In North America Personal Solutions, revenue grew 14% to $43.1 million.

Operating margin was 25.7% for the quarter compared to 16.5% for the same period in 2007.

North America Commercial Solutions revenue was $17.3 million, up 20% from the first quarter of 2007.

Excluding the foreign exchange benefit related to our Canadian commercial business, revenue grew 13%, driven primarily by strong growth in U.S.

risk and marketing solutions.

U.S.

commercial transaction volume was 1.3 million, up 13% from Q1 of 2007.

And transaction-based revenue in the U.S.

commercial business now represents 59% of total commercial revenue in the U.S.

Our international business grew revenue by 23% in the quarter to $129.9 million.

In local currency, revenue grew 11%.

Canada Consumer revenue was $29 million, up 22% in U.S.

dollars and 4% in local currency.

We are starting to benefit from our strategic pricing initiatives as the online volume was up 3% for the quarter.

Europe delivered revenue of $47.7 million, up 13% in U.S.

dollars and 10% in local currency.

The U.K.'s core consumer volume was up 8%, driven primarily by growth in financial services, retail and government sectors.

Latin America grew revenue 34% in U.S.

dollars to $53.2 million.

In local currency, revenue growth was a strong 18%.

Six of the seven geographies delivered double-digit growth in local currency and transaction volume growth in Brazil is beginning to accelerate.

During the quarter, online volume in Brazil was up 11%.

Operating margin for our international business was 30.5%, essentially flat with 30.7% in 2007.

In summary, we made great progress in the first quarter and it is a good start to the year.

While the strength and diversity of our business continues to support our performance across different economic conditions, we will continue to challenge ourselves and find ways to control expenses while investing in critical growth opportunities.

Now let me turn it back to Rick.

Thanks, Lee.

We are currently obviously in a period of a lot of economic uncertainty, especially in the U.S.

However, we continue to believe that our full-year guidance for 2008, revenue growth of 9% to 12% and adjusted EPS of $2.48 to $2.58, is achievable.

I'd like to now, operator, if we could open it up for questions.

(OPERATOR INSTRUCTIONS).

Mark Bacurin, Robert W.

Baird.

Good morning, everyone.

A couple questions.

Very surprised actually to see flat year-over-year growth or flattish results on mortgage and you alluded to Equifax Settlement Services gaining some traction.

Could you just talk about specifically how many customers you have signed up, what you see for kind of continuing trends there and I think the guidance reflects a flattish number, but assuming ESS continues to gain traction and the comps get easier in the back half of the year, it looks like you might actually have growth in that segment now?

Yes, the ESS is gaining significant traction and interest.

Its value proposition is significant, Mark.

Our ability to reduce the cycle time from once they have approved a loan to actually close that loan is far faster than most anyone else in the industry.

The unique thing there is, by the way, it is not just an ESS sale, we are the only ones in the industry that can offer an employment verification, income verification, credit file, credit score and the ESS product.

Every mortgage lender that I have talked to, that Dann Adams or Tom Madison has talked to is intrigued.

I remain convinced that this is one of the single largest growth levers we have and it will continue to accelerate throughout this year and into 2009.

That's great.

And then in terms of the TALX synergies, very encouraging to hear you say two to three times the level there.

Just hoping you could maybe give us some more color on specific new products you are seeing there and then in terms of the cross-selling activity you alluded to, is most of that stuff now in the backlog or is that already contributing revenue in terms of contracts you have already signed?

Yes, that's a great question.

We have closed 24.

We have an amazing pipeline -- I am speaking of cross-sell now.

We have closed 24.

Those 24 obviously are starting to contribute revenue to the Work Number.

The pipeline is extremely strong on both the new products and on the cross-sells.

Bill Canfield, Dann Adams and I meet once every other week with teams, just rapid fire, going through all the different opportunities, issues we have, obstacles we may have internally, get those out of the way to close those opportunities faster.

So it is accelerating across the board and we have incentives in place, we have goals in place, we have MBOs in line.

On new products, just think about this.

Anyone who is offering -- who is underwriting a risk today in this environment is interested in knowing that that individual is employed and what their income profile looks like.

That goes from auto to bank cards to mortgages, any loan you could possibly think of.

So we know all those customers on the core Equifax side.

Right?

That is our historical customer base.

So we are bringing Bill and the Work Number into those clients to describe what they can do for them.

So I can tell you, everyone we've talked to is interested.

It is intriguing.

The major banks, especially the credit card issuers right now, Mark, love what the Work Number can do for them.

That's great.

And then just hoping maybe you can give us -- obviously it seems like the environment is probably about as bad as it could get for you guys in the financial services vertical and we have clearly seen a softening in the U.S.

consumer business over the last couple of quarters.

Can you give us a feel for are we getting toward kind of the trough here?

What are clients telling you with regard to their plans for the rest of the year?

Just trying to get some sense of -- my expectation is you might get some lift in the back half of the year, but wondering if you are seeing that yet from client conversations.

We are not seeing any significant improvement.

It hasn't deteriorated if you look at what we have seen recently.

I would expect this.

When you start to see the credit grantors, especially the credit card issuers, start to do more acquisition of risk that will be an indication for me that we've kind of hit the bottom.

So keep an eye on that.

We keep an eye on that obviously and when you see that start to balance and you see the portfolio acquisition stuff start to grow then I will be encouraged.

Very good.

Thank you.

Andrew Jeffrey, SunTrust.

Hi, good morning.

It looks like a nice performance internationally, particularly in Latin America, Rick.

Could you elaborate a little bit on what you're seeing on the competitive front and whether the modest acceleration you are seeing in that region is a function of marketshare or just overall economic growth?

Yes, it is a combination of both, and a third element as well.

We continue to try to innovate, bring new products.

We have a full-time effort on just adjacency transfer, which is bringing products that have been successful in one part of the world and bring them to other parts of the world.

Latin America, Canada and Europe.

That is a great way to add value to our clients, help them grow at a faster rate, and we've got great competition in every market in which we operate.

We think we can do some things better than our competition in all those markets and have proven so in the past.

I'll give you an example on the adjacency transfer.

I mentioned in my notes early on the InterConnect transfer to Canada.

It didn't exist a couple of years ago.

Now we have, I think it is five or six different large banks across Canada either testing or installing InterConnect.

So we continue that in all parts of the world, trying to differentiate and add value to our customers to grow.

But there is no doubt that the Latin American economy is one of the stronger economic regions in the world, and we do benefit from that.

The thing I am really proud of, Andrew, is our growing success in Brazil.

We have talked about it now for a couple years.

I alluded to it back in February at this ACSP partnership we have signed, will yield benefit.

It is already yielding benefit and should accelerate going forward.

Okay.

Looking at the commercial business, I realize there is some seasonality to the margins in that business.

It looked like good year-over-year improvement in the first quarter.

Should we expect a ramp as the year progresses, and how close are you to scale in that business where we might expect the kind of mid-to high 20s, at least full-year operating margins over -- either in '08 or '09?

Sort of where are we progression-wise in terms of scale?

I'll give you a thought and then you give them the specifics, Lee.

As far as scale, this thing will continue to grow.

I have always said this is a double-digit growth business for as many years ahead as I can possibly see.

I want to get this thing to a couple hundred million dollars in revenue.

And when it gets to that kind of plateau, I would expect it to be mid-20s as far as its operating margin goes.

Lee?

Yes, within this year, we are continuing to invest to drive the kind of revenue growth Rick just talked about.

I think you will see margins for the full year about the same or slightly higher than last year.

You may see some quarters over last year and some quarters a little under just as a function of the timing of that investment.

So we are still in a heavy investment mode to drive the kind of growth Rick talked and really focusing on driving the revenue while maintaining current margins right now, but obviously expect that margins will expand over time.

Thanks a lot.

Kyle Evans, Stephens.

Good morning, guys.

Thanks for taking my questions.

Could we start with CIS trends?

And if I heard Lee correctly, the online CIS volume was flat in the period.

Revenue was down 3%.

The difference would have to be a combination of price change and the change that are in those two enabling tech platforms that are in the segment.

Can you help us tease apart the impact of pricing change from those two platforms and maybe give us some rough perspective on the size of those platforms please?

Kyle, repeat the last part of your question there if you would.

The last part was the rough size of the two enabling tech platforms that are in the online CIS business.

You take the first and I'll take the second one.

Yes, on the pricing piece, obviously the pricing year to year is a function of mix and pure pricing in constant segments and you get some movement in both of those, but about down 3% year over year is about right and fairly consistent with what our historical experience has been.

As far as the enabling technology platforms, are you referring to the two wins I discussed earlier on or is this --?

Well, Lee said on the fourth-quarter call that he mentioned the origination platform and the broker compliance platform and the reason I ask is because the third to fourth-quarter pricing and volume numbers didn't really jive and I assume that the difference was those two platforms.

I am just trying to get some sense for what that did in the period.

Yes, I am sorry, Kyle.

I didn't understand the platforms part of the question.

Yes, we have a loan origination -- small loan origination software business that is reported in the online CIS sector.

We also have a brokerage offering.

Again, relatively small, but in the fourth quarter, as you note, both of those performed very well and were enough in a fairly flat quarter to kind of affect the trend even though they are not particularly large individually.

In the first quarter, they didn't have a meaningful impact on trends and I think what you're seeing flow through in terms of volume pretty flat and revenue down about 3% is pretty reflective of what happened with the pure online transaction volume in the first quarter.

Okay, great.

Next, maybe we could dig down a little bit on the Work Number business and specifically there, could you give us a mortgage exposure number for the period?

Could you give us an update on the progress of Work Number sales into the collections channel?

And lastly on that one, could you help us -- you are talking about a 2X to 3X the original revenue synergy projection, but we have got revenue growth that is running at about 50% of records growth, which has been historically the best predictor of revenue growth.

Yes, let me start with the first part.

We don't break out the mortgage component for TALX, but obviously it is a shrinking component.

TALX is not immune to the mortgage downturn.

The fact that, in this economic environment where hiring is slowing, where credit granting is lower, the mortgage market is in a meltdown.

The fact that we can grow that Work Number 10% I think is a strong testament to that business model itself.

The second part of your question was on collections.

That is the fastest growing segment we have right now.

In fact, we have teams getting together right now as you might guess.

We have things we do within Dann Adams' business on collection.

We have our own suite of collections products.

We have things we do with the TALX business unit around collections.

So we have a summit we are holding in the next couple of weeks to think how we can blow that particular product out at far faster growth rates than we have even seen now, but it is growing strongly.

It just is not a huge piece of our business yet, but over the next, I would say, coming quarters and years in this economic environment, it will become bigger.

The other part of your question was around if you have all these great revenue synergies, why isn't the revenue growth following the database growth, is that what you said?

Yes.

Again, I'd just say, in this economic environment, it is tough right now, number one.

Number two, it is important to know that when you look at the overall growth in the database of TALX, what has happened short term, because of all the layoffs, is the inactive files for this first quarter have actually grown at a faster rate than the active files because we had a 20% some odd increase in year-on-year active files moving into inactive files because of layoffs if that makes sense.

It does.

Okay.

The model is still a fantastic model.

I am thrilled it has grown double-digit in this economic environment.

Yes, those are some real headwinds to deal with there.

Lastly, pricing on the Work Number, is that going to hold up in the -- ex any mix shift changes, which I am sure you are experiencing as the mortgage continues to meltdown, has that held up constant?

Yes, pricing has.

Okay.

Great.

Thanks.

I will get back in the queue.

George Gregory, Credit Suisse.

Good morning, guys.

George Gregory from Credit Suisse in London.

I had one question for you.

I think, Rick, you mentioned that aggressive cost management drove an improvement in the U.S.

CIS margin versus the fourth quarter of 2007.

However, that 38.6% margin strikes me as being some way below the first quarter of 2007.

Now if I recall back to your full-year announcement in February, I remember you guys mentioning that there were some sort of restructuring elements in the margin dilution there.

So have those restructuring elements carried through to the first quarter or should we assume that there is negative operation leverage still coming through those margins?

Thanks.

Sure.

Let me see if I can answer this way, George.

First of all, as you know, our model is a highly fixed cost model.

I am referring to now the U.S.

CIS business, which is wonderful in a growth environment because your incremental margin is significant.

When you are in a slow growth or negative growth as it has been for the last few quarters, obviously that puts pressure on our margins.

So that's a backdrop I think you're very aware of.

In the fourth quarter, we saw that economic environment obviously impacting our margins.

As I mentioned back in February, we had made a statement then that that economic environment in the U.S.

would not improve throughout 2008 or 2009.

If it does, we win.

But build a business plan and a cost structure that would allow us to regain our margins steadily throughout 2008 from a low of 36.6% in the fourth quarter of 2007.

So I am thrilled with the fact that the actions we took of outsourcing, restructuring, reducing discretionary spend, launching a process improvement called lean all yielded significant benefit in the first quarter of 2008.

So looking forward, George, I would expect that margin to continue, not at that significant rate of increase we saw in the first quarter or fourth quarter, but continued increase from the level of 38.6% back to our historical levels, which were in the range of 39% to 40%.

Okay, that's very helpful.

Thank you very much.

Dhruv Chopra, Morgan Stanley.

Good morning.

I was wondering if, Lee, you could just comment a little bit on the gross margin improvement.

How much of that was coming from mix shift with TALX versus some of these cost-saving initiatives that you put in place?

Yes, I think the gross margin did improve some this quarter.

It will tend to fluctuate a little bit period to period.

I think we were aided probably more by the strong performance of our international business there, but TALX obviously helps, particularly on the Work Number, very, very high gross margin in the Work Number.

So that growth in the Work Number and growth in international both aided us there.

Okay, great.

You guys have great insights into the consumer behavior and the retail financial institutions.

Can you give us a sense on what you are seeing from the consumer, particularly in the U.S.

and the U.K., particularly in light of sort of rising oil prices, rising unemployment, etc.?

Sure, one of the things that we look at, Dhruv -- let me talk about the U.S.

first.

We track so many different metrics, but one interesting metric we track is the number of times consumers go to the market looking for products, looking to be granted an auto loan, a credit card, a mortgage, home equity, and that is actually stronger than you might guess, stronger than I would have thought.

However, at the same time, the declinations, the unwillingness of the credit grantors to actually issue or grant that credit are obviously high.

So I think what you have is obviously a supply side credit issue.

There is no doubt about that, but what we are surprised to see, as I look back over the last quarter, the actual rate at which consumers were looking for credit at a far higher rate than I would have expected.

There is no doubt that the consumer is under pressure with $117 a barrel of oil.

We saw a slight increase in refinancing.

It didn't last long, back in mid-January through mid February.

That dropped off rapidly in mid February and continued at a bit lower rates throughout the month of March.

So everything you read, see and hear about the U.S.

consumer, the U.K.

consumer.

I'd say the U.K.

consumer right now is a little more resilient, but they are under a significant debt pressure as the U.S.

consumer is as well.

We don't expect significant improvement by any means this year in the U.S.

Some are calling -- Mark Zani, for example, if you have seen his pieces, just came out and said he is now expecting a rebound in the second half of 2008.

If we get that rebound in the second half of 2008 with all the cost initiatives we have already implemented, Dann Adams' business will be a benefactor.

Great.

Thank you.

Jaime Brandwood, UBS.

I wanted to start just by looking at a little bit more detail again at your volume trend in OCIS, which you described as flat year on year for the quarter.

I think, in Q4, you were marginally down.

Just wondered if you might be able to give a bit more granularity as to the slight improvement in the volume trend, if it was coming from a particular customer set or anything else you can say about that?

It is modest -- I will jump in and Lee, if you've got some additional thoughts, please do.

It is a modest improvement quarter over quarter.

Again, you did have some refinancing in the six week time frame in the first quarter, which is good.

Number two is our telco business, which is -- we are a big player in the U.S., had a nice uptick in the first quarter and we have continued to invest in our regional account, sort of midmarket segment in the U.S., which has always been a stronghold for us and it continues to grow at a nice rate.

So those three areas have helped offset to some degree continued pressure in the large national and international FIs.

Yes, that is very helpful.

And what is baked into your full-year '08 revenue assumption in terms of OCIS volume?

What kind of scenarios have you got built into that 9% to 12% group revenue growth assumption for OCIS volume?

We have said that the core U.S.

CIS business -- I will go back to February when we announced it -- would not improve over the environment we saw in the fourth quarter of 2007.

So I think there is kind of a 4% to 6% decline year on year is what we're going to expect to see for the balance of the year.

And again, I go back.

There are others out there, economists who are saying we should turn the corner in the second half of the year and if that happens, we will benefit, but we have built a cost model assuming it does not.

And the 9% to 12% top-line growth assumes that same environment we are in now, same environment we saw last in the last year and same thing goes with EPS.

So no improvement.

Just one slight refinement to that statement.

We are assuming kind of a similar environment we saw in the first quarter and the fourth quarter continuing through the year.

That would imply that you would see a fairly similar second-quarter growth rate.

The comparisons start getting a little easier in the third and fourth quarters, so the percent year to year will start getting more favorable, but we do expect that our overall U.S.

CIS line of business will be modestly down in revenue for the year if we continue more or less at these levels.

That's a good point.

I was referring to the economic environment.

You're absolutely right.

And I guess so you're just really just taking a kind of things stay as is approach rather than sort of baking in any potential deterioration?

Yes, we are not baking in any economic deterioration or improvement.

Okay.

And then just on your breakdown of CMS, I think you said the prescreen was down 24% and Portfolio Review products were up 16%.

Can you remind us of how that breakdown was in Q4 in terms of the CMS revenue decline of minus 16 in Q4 and therefore, what the sort of trends have been in those two pieces -- prescreen and Portfolio Review products?

I don't recall exactly what the breakdown was in the fourth quarter.

The trends obviously are, in a declining economic environment, portfolio reviews do obviously rise and the acquisitions decrease.

So Lee, I don't know if you have that readily available, but I wouldn't be surprised if it is kind of in that generic trend of down on acquisitions and up on Portfolio Review.

My recollection -- fourth-quarter CMS was down 16% --.

Yes, I am just wondering what the breakdown of that -- (multiple speakers) --.

I think what we saw in the fourth quarter was a similar reduction in the account acquisition, but actually somewhat lower growth on portfolio revenue.

I think the FIs were facing such a shock in the fourth quarter that they were just pulling back on a lot of spending.

Of course, Portfolio Review products help them optimize what they have as a good return on it, but I think there was just a knee-jerk pull back on spending.

They are starting to be a little more careful and thoughtful from what we can see.

So the Portfolio Review growth I believe was a little stronger this quarter.

Thanks.

And very lastly, should we be at all concerned with the slight slowdown in revenue growth in Personal Solutions Q1 versus Q4?

No, it's still -- we have always -- no, absolutely not.

It's still very healthy.

Yes, we have always said that business is going to be double-digit growth with kind of expanding margins in the mid-20s.

In fact, first of all, the margins jumped to a nice healthy 25% or 25.7% was fantastic.

You will see it and the breach volume ebbs and flows over time, new products ebb and flow over time.

The fact that it is still 14% I view as still very, very healthy.

Thanks very much.

Michael Meltz, Bear Stearns.

Hey, there.

I think I have two questions.

First, Lee, on repurchase, I think you have some cobwebs in your wallet there.

Can you talk a little bit about slow repurchase in the quarter, what the expectation is going forward?

Michael, you are just going to give Rick more encouragement.

Basically what we did is we spent our free cash card, quarters free cash flow and share repurchase.

First-quarter free cash flow tends to be the lowest free cash flow of the year -- quarter of the year just because of the timing of certain items within the year, but we did spend essentially 100% of our free cash flow in the quarter on share repurchase.

We do expect prospectively that we will spend the majority of our free cash flow this year on share repurchase.

Meaning as free cash flow ramps, repurchase might also ramp?

Yes.

Okay.

On commercial, I understand it is still a small line and you had a good quarter.

Can you talk a little bit though -- have you seen just tighter business credit standards?

Have you seen an impact on that business?

It doesn't seem like --.

That is a great question and the answer is no, not yet.

And the reason being too is that while there may -- and this is -- while -- the small-business environment may be feeling a pinch.

We read that in the paper daily, right?

We are so small out there that our ability to take share is so significant that we are seeing a way to grow through any slowdown the small business man might feel.

Okay.

And then just to clarify, you said, no, not yet, but it doesn't sound like you are expecting it either.

Again, the environment -- the small-business environment may be feeling a slowdown; we are not.

And I don't expect to see a slowdown because we are so small.

Okay.

Lastly, on DMS, can you talk a little bit about the softness there?

It is not a surprise, but what you are seeing and what the expectation is going forward.

Was that on EMS?

No, Direct Marketing.

Direct Marketing.

It has just been -- it is the victim of the economic slowdown.

The marketeers are just not marketing.

So all I know how to do there, Michael, is continue to try to integrate it into CMS, integrate it into DBS, try to find ways to make it a value-added product and not just a commodity.

But nothing unique.

Thank you.

Wayne Johnson, Raymond James.

Good morning.

[Jason Buser] in for Wayne Johnson.

Very happy to hear about the increased revenue synergies from TALX.

Any sense of a timeline on when we might fully realize this?

We are realizing some now.

It will ramp up each and every quarter.

This is not a future thing, Jason.

This is right now.

Cross-selling -- I told you we closed I think it was 24, 26, a significant pipeline there and these credit grantors interested in using that product, it is so significant right now and the interest is so high that I would hope that we are up here next quarter talking about the second-quarter earnings and listing some pretty significant wins.

Excellent.

We will look forward to that.

One more question on the Bank of America conversion to InterConnect, are we still on track for the second quarter or third quarter?

It is the third or fourth quarter of this year.

Obviously as you might guess, B of A and a few other banks have got a few things on their plate right now.

Sure.

It has nothing to do with InterConnect's capability.

It has nothing to do with our resource capability internally.

It has everything to do with their prioritization.

Great.

Thank you very much.

Chitra Sundaram, Cardinal Capital.

Actually all my questions have been answered, but congratulations on a very well-executed quarter.

Thank you.

Thank you very much.

Ram Seshadri, Welch Capital.

Hey, guys.

I had a question about margins.

Have you seen the peak in margins, because, in your own words, the next couple of quarters and maybe next year doesn't look that great in terms of revenues and transactions in the U.S.

business, which is about 50% of revenues?

Hey, Ram.

This is Rick.

We heard like every third word.

If you could try that one more time, it would be great.

I am sorry.

My question is on margins.

Have you seen the peak in margins because 50% of business is U.S.

and it is kind of pressure?

Whereas you tried to do a very good job of bringing of margins this quarter.

I am wondering whether international would be able to offset that?

The simple answer to your question -- have we seen -- do we think we have seen a peak in the overall margin?

The answer is no.

I don't think you have ever seen a peak.

And I don't necessarily concern myself, and I know Lee doesn't either, with quarter-to-quarter variations in margin.

It is a kind of long-term roadmap that we are on.

We are investing now heavily in a process called lean.

Lean is a systematic way to make sure you do things more efficiently.

That will improve margins.

We will continue to invest in growth and that takes CapEx and operating expense, which puts some pressure on margin.

But no, I think this business can continue to grow at the rate we have talked about growing and continue to maintain and/or expand margins.

Just to follow up on that.

My fear is that in modeling, in putting your numbers through my model, I am not able to see that unless there are more drastic cost cuts on the way that we are not aware of because it is very hard to see the U.S.

business -- it is already declining at a 6% rate now.

And even if you assume that to be benefiting from year-over-year comparisons getting better in the third quarter and fourth quarter, but credit is contracting; it is not expanding.

Over what horizon are you talking about?

I am talking next six quarters, I am talking the same timeframe, '08, '09.

I just don't see the margins getting beyond where you already are.

Again, I will go back and I can go through each individual business and they are all a little unique and different.

U.S.

CIS, I mentioned it was a 36.6% last year.

Throughout this year, we will get that back over that 39%.

So if you think about that, that is what you should be thinking about for U.S.

CIS and probably staying in that level through 2009 and you won't see significant expansion beyond that until you actually see revenue growth in U.S.

CIS.

What kind of revenue growth in U.S.

CIS should I model?

Down 6% already and it is down a little bit more from the fourth quarter so we still haven't seen a bottom in that year-over-year --.

As Lee said, you will see year-on-year comparisons get a little easier in the second half of the year.

So you will actually see it -- what, Lee, did you just mention?

Closer to lower single digits, 2% to 3% in the second half of the year and then obviously as you go into 2009, those comparisons get a little easier again.

So I would not expect this to stay at this negative 6% through 2009 by any means.

Thank you.

Operator, we have time for one more question.

One more question.

All right.

Kyle Evans, Stephens.

Thanks.

Could you guys give overall mortgage exposure in the period?

That hasn't closed as you know, but it is approximately 10% if my memory is correct.

Yes, approximately 10%.

Okay.

Any change in the churn trends on the growing subbase in your Per Sol segment?

In fact -- that is a great question.

We focus a lot on churn and churn has actually seen a slight improvement.

I am not going to give you the exact numbers.

I don't think we disclose that, but have seen a slight improvement in the first quarter of 2008 versus all of 2007 and including the fourth quarter of 2007.

So Steve has done a nice job there.

Great.

Last question, you talked a little bit about the Direct Marketing Services' weakness.

Could you give us any differences that you have seen between the financial services end market and some of the other end markets that you service and is it a little bit rosier in some of the other end markets?

Yes, I alluded to -- I can't remember who asked the question; maybe it was Dhruv -- but we are seeing, in the quarter, actually some improvements from growth in telcos, some growth in our small and regional banks as well.

Is that what you were referring to or just DMS, I missed that?

Just in the DMS segment.

Just in the DMS.

Kyle, I can't think of any significant differences across the different verticals or sectors within DMS.

It's kind of universal across all verticals.

Okay, well that is a good answer.

Thanks.

All right.

I would like to thank everybody for their participation and we will be available later today if you have any other questions.

Thank you.

Thanks.

Ladies and gentlemen, this does conclude today's presentation.

Thank your for your participation.

You may disconnect at this time.