易速傳真 (EFX) 2009 Q1 法說會逐字稿

Good day and welcome to the Equifax first-quarter 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.

Thank you and good morning.

Welcome to today's conference call.

I am Jeff Dodge, Investor Relations.

With me today are Rick Smith, our Chairman and Chief Executive Officer, and Lee Adrean, 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 businesses are set forth in filings with the SEC including our 2008 Form 10-K and subsequent filings.

We will also refer to several non-GAAP financial measures.

For Equifax Consolidated in the first quarter of 2009, these measures include adjusted net income, adjusted operating income, and adjusted operating margin.

These measures determine net income, operating income, and operating margin by adjusting for certain items indicated in sections A and B of the non-GAAP financial measures reconciliation attachment to our earnings release.

We also provide adjusted diluted EPS, which adjusts for acquisition-related amortization and the items just noted.

We will also present operating results excluding the impact of foreign exchange so that you will have a clear understanding of the fundamental business operations.

Please see the sections of our earnings release entitled reconciliation of non-GAAP financial measures to the comparable GAAP financial measures for further details in the non-GAAP reconciliations posted in the investor center on our website.

Now I would like to turn it over to Rick.

Thanks, Jeff.

Good morning, everyone.

The first-quarter results in our opinion were solid.

The team did I think a very good job on many fronts and we actually exited the quarter with some good momentum.

I will talk about that momentum and some of the highlights in a little bit.

Total revenue for the quarter was $452.9 million, up 1% on a reported basis and 2% in constant dollars over the fourth quarter of last year and slightly ahead of our expectation when we last reported our earnings.

The adjusted operating margin was 24.5% and the adjusted EPS was $0.58.

As I traditionally do, I will go through some highlights.

First by business unit then I will get into some individual -- some enterprisewide highlights in the second.

Let's start with USCIS.

They benefited from above-average growth in the mortgage refinancing.

Obviously a nice little boom there in the first quarter.

And that offset some of the softening -- softness we had in other lending activities.

Our banks, as you might guess, are increasingly focused on how our unique data assets can help them in their risk management activities.

And we recently won a really exciting piece of new business with a top-five card issuer.

This card issuer now is integrating the attributes from the Work Number into their monthly portfolio review process.

It's a very creative approach where we deliver unique data attributes that will improve their decisioning on existing account holders and deliver solid revenue for Equifax.

This is something we've been working on now for a number of months.

It is exciting for them because we help solve some great new problems they have.

It's exciting for us again because it's going to be a nice revenue producer going forward.

For another top five bank, we received global approval on an opportunity that will integrate the Work Number information into an enterprisewide solution.

This unique combination of information will be used for various risk management and collection activities across multiple businesses within that bank.

Both these opportunities underscore a significant and fundamental shift in how these institutions evaluate and manage risk and also underscores the powerful value of the Work Number database into the banks.

Analytics and enabling technology solutions within USCIS continues to support our operating performance and will become increasingly important when we begin the recovery process.

During the quarter, 27.2% of our online revenue was generated through one of our enabling technology platforms, up from 26.8% in 2008.

VantageScore market acceptance continues to increase with three of the top five financial institutions and seven of the top 10 credit card issuers now Equifax customers.

VantageScore also received endorsement as a risk assessment tool with integration of the score into S&P and Fitch's rating analysis for residential mortgage loans.

Mortgage settlement services, a product we launched a couple years ago, continues to deliver revenue at an accelerated pace.

In the first quarter, revenue was over 3 times the level of 2008 and outpaced fourth-quarter revenue by 49%.

The MBA Application Index was up 9% in the first quarter, driven by a particularly strong refinancing activity in March, which has continued into April.

Let me just wrap on mortgage and say this, that the combination of unique services we are providing the mortgage marketplace, which includes not only core credit data but now the Work Number and now ESS is allowing us to grow at a rate much faster than the Index and actually take market share and mortgage.

We are well positioned on the mortgage market not just refinancing but the primary first mortgages rebounds as well in the future.

Wrapping up in USCIS, obviously tight expense management is important.

We are continuing to leverage numerous lean process activities in our global operations team and the restructuring initiatives they've undertook in prior quarters resulted in solid operating margin for the quarter.

For example, one thing that we said we launched in global operations to improve the process centers on our consumer dispute activity, where we are shifting consumer disputes from a traditional call center to online.

We shifted an additional 6% to online.

As you shift them from the traditional phone activity to online, our cost goes down and service level for our customers goes up.

Move on to international.

Internationals revenue declined slightly in the first quarter in constant dollars with global currency growth in Latin America offset by declines in Canada and Europe.

Online volume in Canada declined 6% driven by the recession, rising unemployment and lower consumer confidence.

Revenue from the US and international banks operating in Canada has declined more than revenue from the in-country Canadian banks.

We've implanted our unique syndicated fraud solution called Citadel in Canada with a major Canadian bank and expect several more banks to follow during the next few quarters.

In Europe, we are intensifying our focus on expense and operating margins as revenue growth remains challenging in the near term.

UK continues to operate in a very difficult economy, although the rate of decline and the availability of secured credit to households has been decelerating.

Banks are still very risk-averse and continue to tighten their underwriting standards.

As bank's delinquency and loss rates intensify, demand for our suite of collection products resulted in double-digit growth during the quarter.

And despite a very challenging lending environment, our commercial revenue grew sequentially from the fourth quarter.

Spain is a great success story.

In Spain, they are delivering double-digit growth through new product innovation and value-based pricing.

Despite operating in one of the worst performing economies in Europe, a significant portion of the growth is coming from our suite of collections products including 11 new collection scores and a telco bureau in Portugal.

Onto Latin America, Latin America's growth was broad-based with all countries contributing on a local currency basis.

Brazil continues to make good progress.

Revenue in the financial and telco sectors delivered strong double-digit revenue growth, as did our marketing and analytical services product suites.

Our strategic partnership with a ACSP is driving incremental growth through new and broader product offerings and we continue to get commitments from banks to add their data into our database.

More broadly, our suite of collections products is performing well particularly in Chile, Peru, and Argentina.

Now moving on to TALX, as it did throughout 2008, TALX delivered strong growth in the quarter, continuing to penetrate and grow, penetrate the market and grow the Work Number while leveraging the countercyclical opportunities in the tax management services business.

The Work Number revenue was up an amazing 12% from the first quarter of 2008 with strong revenue growth, government agencies, and mortgage.

Tax and Talent Management Services revenue was up 9%, driven by tax management services, which was up 25% due to the increases in tax credit services and unemployment compensation claims.

That business, that tax management business is a fantastic countercyclical business.

It's got a lot of wind in its sails right now.

As far forward as we can see, unemployment claims will continue to rise and we are in an environment of increased tax incentives.

So we are well positioned for growth in that business as well.

Back to the Work Number, we added 69 new data contributors in the first quarter and we also continued to expand and broaden the Work Number's customer base.

But in first quarter, 15 cross sell opportunities with Dan's business were closed.

Customer interest remains extremely strong as the pipeline has well over 100 additional active prospects.

North America personal solutions grew 3% from the fourth quarter of 2008 as new marketing efforts including TV advertising offset softness in breach activity and in individual transaction sales.

Our advertising campaign has helped drive a 7% year-over-year increase in direct to consumer subscription sales partially offset -- offsetting sales declines in our breach and transaction product lines.

And in this environment, transactions sales are a discretionary spend.

The good news is we have shifted this business to largely a subscription-based business, which is helping, but breach and transaction are in fact down year-on-year.

Finally, on the North Americans commercial solutions came in about equal to our revenue expectations for the quarter as lower demand in Canada driven by the deepening recession was offset by modest growth in our US business segments.

Profit remained solid and operating margins improved on a local currency basis.

During the quarter, we signed a comprehensive data agreement for a major telco, Telco's internal CRM solution, which includes our credit risk and marketing data, a custom model for developing scores and our unique ID number to link their customer files.

These solutions will use our Internet connect platform to automate their entire decisioning process.

That's an exciting new win for the commercial team.

We continue to expand our database and have over 100 million trade lines with almost 50% of the business (inaudible) was having -- now having five or more trade lines.

So great progress over the past few years.

Moving onto technology, we amended our current agreement with IBM to provide for improved service levels, global access and greater flexibility in resourcing our technology infrastructure.

This is a -- significantly enhances our relationship with a major strategic partner, enabling us to innovate bigger, better, and faster with lower costs and higher quality service levels.

Many of our new product initiatives continue to drive new sources of revenue and strengthen our market franchise in all of our geographies.

14 new products were launched during the quarter with NPI revenue increasing over 150% compared to the first quarter of 2008.

We are well on our way to our goal we've talked about, which is a vitality index of $200 million of revenue coming from NPI in the year 2010.

Capital Markets, we continue to sign customers, in fact at an accelerated rate and we are evaluating additional resources given the strong market interest.

Last week the Reserve Bank of India gave us a formal in principal approval, operated as a credit information company.

This is a great opportunity for us and our in-country partners.

Over the last 90 days, I spent a lot of time with customers in most of our geographies around the world.

While their business environments and needs differ, there are some very clear trends.

There is little to no focus on acquiring new customers.

Delinquencies and loss trends continue to rise and inherent risks in many lending portfolios has increased as delinquent accounts move more rapidly to write off.

As a result, many of our banking customers expect loan charge offs to continue to increase through the remainder of the year.

In addition, analysis of our top US consumer and commercial files continues to reveal the severe business pressure facing many of our customers.

Although existing generic credit risk scores continue to rank order risk, the newer loan vintages have much higher delinquencies and loss rates than prior vintages.

More highly leveraged consumers represent a bigger percentage of lending portfolios and drive overall -- higher overall portfolio risks.

The general risk scores continue to trend weaker or overall consumer risk.

Clearly the business pressures continue for many of our customers.

The need for products and services that expand their ability to more accurately assess risk will be critical as the economy begins to recover.

I believe we have that unique ability to address these opportunities.

In the meantime, we will continue to aggressively manage our expense base while investing for the future in new products, new markets, global expansion, and strategic acquisitions.

Now Lee will walk you through the details of the financials.

Lee?

Thanks, Rick, and good morning, everyone.

This morning all financial information I will be discussing is 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.

Our first-quarter performance was solid and exceeded the expectations we had at the time we last reported our earnings.

For the quarter, consolidated revenue of $452.9 million was down 10% compared to the first quarter of 2008.

Changes in foreign exchange rate unfavorably impacted revenue by $28.1 million.

Compared to the fourth quarter of 2008, reported revenue was up 1% and constant dollar revenue was up 2%, slightly ahead of our expectations.

During the quarter, we recorded an $8.4 million restructuring charge to cover severance expense as we took further steps to reduce overall headcount and operating expenses in the current business environment.

Operating income was $102.7 million.

Excluding the restructuring charge, operating income for the quarter was $111.1 million, down 4% from the fourth quarter and down 12% from the first quarter of 2008.

Operating margin was 22.7% in the quarter and 24.5% excluding the restructuring charge, down slightly from the first quarter of 2008.

Net income was $54.4 million, down 17% from the first quarter of 2008, driven primarily by the restructuring charge and the impact of foreign currency translation.

Diluted earnings per share for the quarter was $0.43, down from $0.50 in 2008.

Excluding the impact of acquisition-related intangible amortization and the restructuring charge, adjusted earnings per share, a non-GAAP measure, was $0.58 per share, down 4% from $0.60 in the first quarter of 2008.

We repurchased 400,000 shares during the quarter for a total of $9.1 million and we reduced debt during the quarter by $18 million.

Turning to our business units, our US Consumer Information Solutions revenue was $210 million, down 10% from a year ago and slightly ahead of the expectations we communicated during our fourth-quarter earnings release in February.

Online Consumer Information Solutions revenue was $137.2 million, down 13% compared to 2008.

All customer segments except for telecommunications were down.

For our core product, total transaction volume was $124.4 million, down 15% compared to last year.

Revenue per transaction increased about 2% year-over-year as our mix improved, driven by increasing mortgage activity, which typically carries higher average prices and declining activity with large national accounts, which tend to have lower average prices.

Mortgage Solutions revenue of $25.4 million was up 45% compared to the first quarter a year ago.

Core mortgage reporting revenue was up 19% for the quarter, driven by strong mortgage finance -- mortgage refinancing activity and increased market share.

Our settlement services business line also contributed to the growth with a threefold increase over last year.

Credit Marketing Services revenue of $27.3 million was down 23% for the quarter.

Prescreening revenue was down 42%, continuing a trend that is now in its ninth consecutive quarter.

Cumulatively, new account acquisition activity is off over 60% versus where we were three years ago.

Revenue from our portfolio review product line was down 3%.

Direct Marketing Services revenue was $20.1 million, down 14% compared to the first quarter of 2008, reflecting lower consumer marketing activity across multiple industry sectors in the current economy.

The operating margin for our US Consumer Information Solutions business was 36%, down slightly from the fourth quarter of 2008.

For the second quarter, USCIS is expected to generate revenue in the same range as the first quarter of 2009 to slightly up, assuming mortgage refinancing volume continues at current levels through much of the quarter.

International recorded $100.8 million in revenue, down 22% from a year ago.

In local currency, revenue was down 2% from a year ago and in line with our expectations compared to the fourth quarter.

For our total international business, marketing services revenue decreased almost 6% in local currency primarily due to declines in the UK, Canada, and Argentina, reflecting economic challenges in those countries partially offset by growth in Brazil.

Enabling technology services revenue grew 10% in local currency, driven by strong performance in Canada and Iberia in particular.

Finally, analytical services local currency revenue grew 4%, with strong performance in Brazil, Argentina, and Chile.

By region, Latin America's revenue was $45.9 million, up 7% in local currency although down 14% in US dollars due to the strengthening dollar.

Europe delivered revenue of $33.1 million, down 8 percent in local currency and down 31% in US dollars.

In the UK, market conditions continue to be challenging as our consumer transaction volumes decreased 13%.

Canada consumer revenue was $21.8 million, down 7% in local currency and down 25% in US dollars.

Online transaction volume in Canada was down 6%.

International's operating margin was 28.7% for the quarter, down from 30.5% 2008 but up from 27% in the fourth quarter.

In the second quarter, we expect international revenue excluding any impact of foreign currency translation to be up slightly when compared to the first quarter.

As of today, we would expect minimal impact from foreign exchange between the first and second quarters this year.

TALX revenue was $87.9 million for the quarter, up 10% from the first quarter a year ago and ahead of our expectations when compared to our comments three months ago.

The Work Number, as Rick mentioned, delivered broad-based growth with revenue of $40.6 million, up 12% from a year ago.

Tax and Talent Management Services delivered $47.3 million in revenue, up 9% compared to last year.

Tax Management Services, where we provide unemployment compensation and tax credit services, was up 25% for the quarter while Talent Management revenue declined over 50% from a year ago due to the hiring freeze of the TSA, our largest customer, and other government-related clients.

The TALX operating margin was 21.5% compared to 16% a year ago, showing strong progression.

In the second quarter, TALX revenue should be down slightly when compared to the first quarter due to the first quarter's seasonal W-2 express revenue but up in the low double-digit range compared to the second quarter of 2008.

In North America personal solutions revenue was $38.4 million, down 11% from a year ago but up 3% from the fourth quarter consistent with the expectations we communicated during our fourth-quarter release in February.

Direct-to-consumer subscription-based revenue grew 7% for the quarter which partially offset declines in breach activity and single transaction sales.

Subscription-based revenue now represents 77% of total revenue, up from 71% a year ago.

Operating margin decreased to 15.5% from the quarter compared to 25.7% for the same period in 2008, largely driven by our increase in TV advertising during the quarter.

We expect Personal Solutions second-quarter revenue to be flat to up slightly compared to the first quarter's reported revenues.

North America Commercial Solutions revenue was $15.8 million, down 8% on a reported basis and down 1% in local currency.

The operating margin was 14.4% compared to 15.3% in the first quarter a year ago consistent with our ongoing investment in building the database with new sources of data as well as new products.

Commercial Solutions' second-quarter revenue should be comparable to the first quarter excluding any possible impact of foreign currency translation.

In summary, the first quarter was difficult but each of our business units met its challenges and continued to deliver not only on their short-term commitments but their long-term obligations as well.

Now let me turn it back to Rick.

Thanks, Lee.

The first quarter continued with many of the same challenges we experienced towards the middle to latter half of last year.

While the environment is generally not improved, I believe it's starting to stabilize.

We will continue to address the challenges we face but also keep our eye on the future and its business opportunities.

I think you will agree we've got a strong and resilient business model with a strong balance sheet.

We are also making important investments in new products that will create new sources of revenue growth and future -- and further diversify our revenue base.

The power of our unique data assets including the Work Number along with our analytical and decisioning platforms will help our customers solve more business problems and further benefit our shareholders.

For the second quarter of 2009, assuming the current levels of domestic and international business activity and current exchange rates, our consolidated revenue is expected to be comparable to slightly up when compared to the first quarter of 2009.

And at the current exchange rates, the negative estimated impact of the weakening dollar on revenues when compared to the second quarter of 2008 is expected to be between $28 million and $29 million, and our adjusted EPS for the second quarter is expected to be between $0.55 and $0.60 a share.

As we always do now, operator, we would like to open it up for questions.

(Operator Instructions) Carter Malloy, Stephens, Inc.

Great, thanks for taking my questions.

First, just quickly on the PSOL margins being down so much in the quarter, you said it is because of TV ads.

So should we expect the margins to stay down in this range going forward?

No, we said, Carter -- this is Rick.

I think I get the essence of your question.

You kind of cut in and out, but if the question was should you expect the PSOL margins to continue at these levels throughout the year?

No, we tend to have advertising and PSOL in general terms, not just TV advertising but the heavier piece of advertising is front-end loaded so you get the benefit throughout the year.

So our margins are lowest in the first quarter and they ramp up throughout the year.

Okay, then on the Work Number, great quarter -- they are happy to see the number up where it is.

But is the upside -- you talked about the new wins.

But is the upside from those new wins, it sounded like they weren't yet in the numbers.

So I just want to understand where the strength came from specifically this quarter and if those new wins weren't in there, how big maybe -- you know -- if you had --?

I am now going to quantify them.

They are going to be big, but I'm not going to give you the numbers.

I would look at this -- the Work Number is broad-based.

The growth is broad-based.

The Work Number is doing everything we expect.

It is delivering on its core growth.

We closed I think I said 15 cross sell opportunities.

We closed a ton of cross sell last year.

So the things we closed last year give you revenue this year.

The things you closed in the first quarter give you incremental revenue in the first quarter that will build throughout the year.

Okay and do you guys see that as a competitive advantage for the issuers that do adopt Work Number?

Absolutely, and I see it as a competitive advantage on many fronts.

I talked about it briefly as a differentiator in the mortgage space.

It is a clear differentiator in portfolio review.

So yes, we are looking at this as a massive differentiator versus the core credit data.

I guess the better question I should have asked is will their competitors see it the same way so that it drives more rapid adoption from the rest of the guys out there?

Again, you cut out a little bit, Carter.

Please repeat that.

Sorry, I guess the better way I should've asked that question is do you think the competitors will see it as the same type of competitive advantage in that it will drive them towards more rapid adoption?

You are breaking up.

We're having difficulty understanding your question.

I'm sorry, guys.

I'm not sure what's wrong with my headset here.

I'm just thinking about it from a competitor's perspective.

If I am one of the other four big card issuers and I see that other guy adopted -- do you think that's going to drive (multiple speakers)?

I'm sorry, got it.

Yes, absolutely.

We have got activities going on with all the banks, all the card issuers, and there is a high level of interest across the board.

It's just the ones I mentioned today were the first two to fall in the first quarter this year.

Okay, great.

Thank you.

Andrew Jeffrey, SunTrust.

Good morning, thanks for taking my question.

If I look at your corporate expense line, it looks to me as though I get the subset of SG&A which is corporate, if I just look at the -- adjust for the charge you took, it looks like you continue to take a tremendous amount of expense out of the business, more than I would've anticipated.

Can you talk a little bit about the sources of some of those cost savings?

And just your overall comfort that as you -- as the market assuming it stays depressed ex-mortgage, as you continue to strip out costs, how can you be confident that you are not sort of cutting through fat and into muscle and bone a little bit, too?

Let me jump a little quickly on it, first response, Andrew, then I will have Lee add to my thoughts.

Number one, specifically on the first quarter, we had a delay in equity grants out of the first quarter into the second quarter which reduced the corporate expense rate below its normal natural run rate.

And Lee can quantify that for you in a second.

Number two, is we will continue to invest in growth at all times, but I am convinced there's a lot more things we can do with lean, Andrew, specifically to take costs out, drive efficiency across this Company.

We are ramping up lean.

I think I told you before we launched about a year and a half ago great benefits in 2008.

We are increasing our investment in lean, more resources, we are bringing to all parts of the Company, all parts of the globe.

So we are at the very early stages of reaping the financial benefits, the cost benefits, the process benefits out of lean.

So that's a way of saying I don't think this -- we are not close to the end yet on our ability to optimize this Company's expense base.

And number two, we will continue to invest in growth.

So Lee, you may want to add to that?

Yes, just set expectations at least.

About a year ago, we were running kind of $28 million to $30 million on the corporate line.

Brought that down in the fourth quarter was unusually low, which we commented on at the time and the first quarter is probably unusually low for reasons that Rick mentioned.

Our average for the next three quarters is probably in the $25 million or $26 million a quarter range, down from what had been $28 million to $30 million a year ago.

So we definitely have taken costs out but the fourth quarter and first quarter probably unusually low.

Okay, so --.

And I think to your point about obviously we are working to streamline where we can, we are working to be as efficient as we can but we are not -- we don't want to go so deep as to the concern you boys deserve, we are stripping out too much that we hurt ourselves in the longer run.

We're trying to be very conscious of that and to continue to invest in the right things for future growth.

Okay, then specifically on the USCIS operating margin, the margin declines seem to have moderated a little bit sequentially.

Assuming we see comparable level of volume declines in the second quarter and then let's extrapolate out to the rest of the year, do you think you can hold the margin around this 36 percent high-level, or does it continue to decline with the falloff in volume?

Andrew, this is Rick.

Yes, we've said all along that our plan is to hold the company wide margin 24% to 26%.

That goal remains.

The only way we do that is to make sure that we hold USCIS in that 36% to 38% range.

All right, so that's -- when you start to think about consolidated profitability, you continue to view the key lever as USCIS?

Correct.

All right, thank you very much.

Dan Leben, Robert W.

Baird.

Great, thanks.

Could you talk a little bit about the Work Number wins?

Were those -- the two big wins, were those already significant customers, or is that a place where you are really significantly gaining share versus one of your competitors?

That's a great question.

They are customers of Dan Adams' USCIS business.

They are brand-new customers to Bill Canfield's Work Number team.

So as we said all along, we are looking at cross sells leveraging the customer base that Dan knows so well to bring the Work Number in.

So it's new for TALX.

It's new for the Work Number.

But they are existing customers for Dan.

So the whole goal is you get the foot in the door by selling the Work Number, providing value, generate immediate revenue, immediate profit, and use that differentiated product as a way to gain core credit share.

The example I gave you where that is working already is in mortgage.

Great, and could you just talk about the revenue from those deals?

Will it all show up in the Work Number or will there be some split between USCIS and the Work Number?

That's a great question, and it's something we are debating internally.

Because both teams make those sales happen and I think what you will find out over time is -- and both have does have an operational component to it as well.

We will probably end up splitting that revenue in some capacity between USCIS and Bill's Work Number team.

Great.

And then just a follow-up on the previous question, Rick, you mentioned the equity grants delay.

Lee, could you give us the actual number on that for how much was pushed out of the first quarter that will show up in the second quarter?

Between $2.5 million and $3 million.

Okay.

And then just last question.

Could you talk historically about the seasonality of expenses, what you see in terms of bump up in 1Q related to payroll and so forth and how we should think about that in the context of what you just did?

Say that one more time, Dan.

You cut out.

Just there's some natural seasonality with payroll expenses and so forth ticking up in the first quarter.

There's some natural uptick in expenses.

Could you give us a sense of what -- the just pure seasonal aspect of that was versus continued improvements on lean and so forth in terms of what happened in the quarter with expenses?

I guess what you are trying to get to, Dan, if we had a normalized first-quarter corporate expense rate, is that what you are saying?

Yes, but just seasonally there's a natural kind of uptick in dollars from the fourth quarter to the first quarter.

Could you just talk about what that size of that uptick is and just kind of progress sequentially in terms of getting costs out of the business?

Yes, if I look at -- yes, the key elements of the seasonal uptick are total -- and I tend to look at constant dollar, although it's probably pretty close even reported operating expense was up $11 million from Q4 to Q1.

$8 million of that was in personal solutions, which reflects -- in the fourth quarter we cut way back on our advertising because consumers have shown they are not very responsive to our product offerings during the holiday season.

It is after the holidays we see that pickup, so we pull back on our advertising.

The bulk of that, the bulk if not all of that step up in expense from Q4 to Q1 is advertising PSOL.

The other area where you tend to see it pick up in expense is in the TALX business unit, operating expense up about $8 million Q4 to Q1.

And the biggest piece of that is our W-2 business, which is a seasonal business predominantly in the first quarter and it includes a reasonable amount of print mail cost.

So it's very direct expense.

Those are the two key drivers of operating expense.

If I wash those two out, I actually think our operating expense was down sequentially, reflecting many of the steps that we have taken with headcount and other efficiencies.

Great.

Thanks, guys.

(Operator Instructions) Michael Meltz, JPMorgan.

Hey, guys, this is Dave Lewis for Michael.

Just a couple quick questions.

On the expanded IBM deal, can you just provide a little color on the incremental cost savings in 2009 and 2010?

I will start there.

The contract renegotiation was about far more than just costs.

It was a strategic realignment to leverage far more their resources they have globally to add flexibility, speed so we can innovate and bring new products to market at a much faster rate than we could in the past.

So that was the heart of the deal.

Yes, there was absolutely some cost savings not just from the contract itself but we actually brought more resources that were out outsourced at one point in time back in house and the cost savings is largely a result of us leveraging their global resourcing capabilities in India.

Lee, I'm not sure we want to actually quantify that benefit, so Dave, I will leave it at that.

Okay, thanks.

And a second question is for Lee.

Can you just give your thoughts on expectations for share buybacks going forward?

Yes, as we said after the -- at our year-end earnings release, in the near-term, we are going to focus the majority of our free cash flow on debt reduction, given obviously the markets in the last 90 days seem to have stabilized.

In fact, for most of the last six weeks, the sentiment has been pretty positive but we have all seen over the last year and a half periods of positive sentiment followed by periods of extreme negative sentiment.

And we are still being very careful to manage our capital structure to ensure strategic flexibility going forward.

So the bulk of our free cash flow will go to debt reduction.

We will probably be looking at a minimum to offset the dilutive effect of share creep that does come from equity compensation programs but in the near-term may not do much more than that.

And I think the first quarter is consistent with that.

We may be up or down from that, but it's a smallish number compared to what has typically been a historic purchase rate.

Jaime Brandwood, UBS.

Good morning, everyone.

Just a few questions, if I may.

I wanted to pick apart a little bit in more detail the other CIS division.

I just wanted first of all on the OCIS division, I guess you have now seen a quarter of quarter-over-quarter stability in terms of revenue.

In terms of your overall commentary on CIS posting hopefully similar revenue in the coming quarter, would that extend to the online Consumer Information Solutions subdivision?

Yes.

And in terms of the drivers to that, is it purely about mortgage or are you seeing stability in any other kind of contributors to the online Consumer Information Solutions subdivision?

I would say right now it is primarily mortgage.

It is also telco.

Telco is not only stable but growing.

Okay, turning to the Credit Marketing Services division, can you talk a little bit?

I think you give the split there in terms of prescreen down 42%, portfolio review down 3%.

With prescreen, do you feel you are now getting to a point where you are seeing some sequential stability?

I think you said you were down more than 60% from three years ago.

Yes, the short answer is yes, Jaime.

I think that the prescreening business has kind of bottomed out.

And on the portfolio review, why do you think you stopped seeing growth there?

Is it just that you are lapping tough year-on-year comps or is there something else going on there driving that revenue into year-on-year decline?

Say that again, Jaime.

The portfolio review piece I think you said was down 3% year-over-year.

What has driven the decline there?

Yes, we have been up most quarters usually in the low to mid single-digit rate on portfolio management.

I am not sure we see any particular trend that this quarter happens to be down 3%.

This is not a large number and I don't know that we've pulled apart exactly what's driving it.

I think we continue to expect that to be kind of modestly up at a time when acquisition activity continues to be declining.

Okay, then just turning to the UK quickly, I think you said that in the UK your volumes were down 13%.

So not far off the 15% volume decline which you saw in your core product in the US.

Are you starting to see any kind of beneficial pricing impact as you've seen in the US, where I think you said your average revenue per transaction was up 2%?

We are not seeing the same effect at this point, and as I said, one of the effects of our business in the US is the strength of our mortgage business and the refinancing activity.

We are not as strong a player in the mortgage market in the UK and have not seen that same level of mortgage refinancing activity either.

Just one thing I would add to that just in general terms in looking at the online UK, in general terms I would say the online pricing in the UK has been relatively stable, a slight uptick in the first quarter 2009 sequentially versus the fourth quarter 2008.

But your revenue in the UK then is broadly also down about 13% year-over-year?

Yes.

Okay, then just very lastly, I missed your commentary on Brazil.

I am just wondering if you can just go over Brazil again, the growth that you saw there and how you see that business going forward?

Yes, my comment was that Brazil was good growth.

We didn't break the exact numbers out.

We had good growth, continue to get more data from the banks into our database, good growth in telco.

So overall, good performance.

Thanks very much.

We remain bullish, Jaime, long-term on Brazil.

Thanks very much, Rick.

Okay.

I would like to thank everybody for participating on the call and if you have any additional questions, we will be around to answer them.

Thanks again and we will conclude the call.

Ladies and gentlemen, that does conclude today's conference.

We appreciate your participation.

You may disconnect at this time.