使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Good day and welcome to the Equifax second earnings release conference call.
Today's conference is being recorded.
At this time, I'd like to turn the conference over to Mr.
Jeff Dodge.
Please go ahead, sir.
Jeff Dodge - IR
Good morning.
Welcome to today's conference call.
I am Jeff Dodge, Investor Relations, and with me today are Rick Smith, our Chairman and Chief Executive Officer; and Lee Adrian, 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 in this business environment.
These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations.
Certain risk factors inherent in our business are set forth in filings with the SEC including our 2009 Form 10-K and subsequent filings.
Actually that was the 2008 10-K.
We also refer to certain non-GAAP financial measures for Equifax Consolidated in the second quarter of 2009.
We provided adjusted diluted EPS which adjusts for acquisition-related amortization and certain items indicated in Section A of the non-GAAP financial measures reconciliation attached to our earnings release.
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 refer to the non-GAAP reconciliation section included in the earnings release and posted in the investor center on our website for further details.
Now I would like to turn it over to Rick.
Rick Smith - Chairman and CEO
Thanks, Jeff, and good morning, everyone.
I think as you all know, economic conditions in most of the geographies around the world in which we operate remained weak throughout the quarter making the environment for many of our customers very challenging.
In these difficult times however, we are pleased with the progress we are making.
We continued to invest in NPI to fuel growth long-term, continued to expand into new markets, and we're leveraging lean systematically across the Company to drive good operating performance and I will walk through some examples of those later on.
For the quarter, total revenue was $455.4 million, down 5% in constant dollars over the second quarter of 2008 and now 1% in constant dollars over the first quarter of 2009.
Operating margin was 23.5%.
That's largely driven by business mix and lower demand for some of our high-margin online products.
And again, we'll get into some details later on.
Adjusted EPS was $0.57 a share.
I will go through a few -- as I always do, a few highlights, a few of the more significant highlights and I will go business unit by business unit starting off with US Consumer Information Solutions.
They met our expectations for the quarter as we experienced strong mortgage demand throughout the quarter.
As you know, that was driven by rates which really are at the lowest level we've seen in about 40 years.
Although operating margins softened in the quarter due to higher mix of mortgage activity, the online solutions operating margin, which represents over 60% of the USCIS revenue was comparable with the prior year and the quarter, reflecting the value of our products, our disciplined approach to pricing, and benefits from many lean and expense management initiatives that we have implemented over the past year or two.
Mortgage settlement services as you know is a product we launched a few years ago.
It delivered strong growth as we continue to take share in this market.
At our current run rate, we expect this product to more than double our 2008 revenue.
And we're well on our way to reaching our longer-term strategic objectives for this business.
We are also starting as we talked last time billing two multimillion dollar projects announced last quarter where we are integrating the work number employment verification and income attributes with our core credit data attributes to enhance the effectiveness of our client's risk decisioning activities.
This is a great example on how we are aggressively -- how aggressively customers will implement these types of high-value solutions and our sales efforts are heavily focused on virtually all of the large national financial institutions and regional banks.
It's a great example of how we leverage Dan Adams' [US IS] business and the TALX Work Number attributes.
The US business environment remains very challenging as banks continue to reduce credit card limits to all risk categories and open fewer accounts than in each of the two prior years.
In fact, year to date, new bank card account openings are down 39% compared to 2008 and delinquencies for all lending products as you know continue to rise.
For the third quarter, USCIS revenue is expected to be down modestly due to the recent moderation in mortgage refinancing activity and a lower level of activity in the credit marketing services when compared to the second quarter.
On the international front, continued weakness in many global economies adversely impacted our financial performance.
Although international fell short of our expectations for the quarter due in part to some difficult year-on-year comparisons, we continue to maintain our competitive position in those markets and we've got a strong franchise.
Despite a challenging economy, Canada was able to improve their operating margins through new high-value products, pricing discipline, and tight management -- tight expense management.
Operating margins in some of our larger geographies, particularly the UK, Brazil, and Argentina were lower as demand for our higher margin products, online services, were down.
In response to these challenges, we in each of our international geographies, each general manager has developed detailed plans for aggressively investing in new products, leveraging the opportunities in their pipeline, aggressively managing their expense base with the help of lean, and identifying new data sources to integrate into their decisioning solutions.
We expect these plans will enable us to maintain our competitive position, create opportunities for us to further leverage growth in these economies when they do recover, and strengthen our franchise.
In the third quarter, we expect international revenue excluding any impact of foreign currency translation to be up modestly from the second quarter of 2009.
We also anticipate some margin improvement as the effects of product mix shift, NPI, and further cost reductions take hold.
Again, that is a margin improvement sequentially versus the second quarter of 2009.
Next onto TALX, TALX had another outstanding quarter exceeding our expectations for both revenue growth and operating margin.
Outstanding growth in The Work Number.
It was up 23% year-on-year.
The Tax Management Services business was up 15%.
That solid growth enabled TALX to improve their operating margins to 23%, up a full 550 basis points from 2008.
We added 62 -- actually 62 new Work Number data contributors and 2.2 million records to the database in the second quarter.
During the quarter, we closed 10 cross-sell opportunities with the support of the US IS.
I think you'll agree TALX has been a great addition to the Equifax franchise.
We continue to demonstrate the benefit from the power of leveraging USCIS salesforce and customer base to generate new sources of revenue for The Work Number and most importantly, when you combine the attributes of The Work Number with the attributes of our core credit file, we are able to solve more problems for customers than we could ever solve in the past.
In the third quarter, TALX revenue should be up nicely when compared to the second quarter and continuing if not expanding its strong year-over-year double-digit growth rates.
Margins are expected to expand slightly, benefiting from the various lean initiatives and the continued operating leverage in the business.
Next onto Personal Solutions.
PSol was impacted by obviously the weaker consumer spending for financial services products.
The good news is our direct-to-consumers subscription revenue was actually up 3% for the quarter as declines in transaction products, breach activity, and select partner programs contributed to a 10% decline in total revenue.
New direct to consumers subscriptions increased and our average revenue per subscriber was up for the quarter, further demonstrating the value of our offerings.
We launched an exciting new product last quarter called Debt Wise with a national advertising campaign including television, online page search, direct mail.
Preliminary results have been very encouraging, with both responses and conversion rates.
We also have an exclusive deal with Primerica, who is rolling out this product to their entire national sales force.
For the third quarter, we expect Personal Solutions revenue to be down slightly from the second quarter's reported revenues.
North American Commercial Solutions was negatively impacted by weaker demand for credit and marketing services.
US financial institutions pulled back while we were experiencing some gains in a nonfinancial sector.
Despite weakness in our US risk and marketing products, revenue from our data management solutions was up slightly during the quarter and Canada showed continued signs of improvement.
Commercial solutions third-quarter revenue should be comparable to second-quarter excluding the impact of any foreign currency translation that might exist.
Now across the entire enterprise, I will go through some highlights first.
NPI, we've talked about NPI for quite some time.
It continues to thrive.
We launched 15 new products during the quarter.
Our year-to-date vitality index in 2009 is more than double the vitality index for 2008, which means the revenue we are generating is twice that we generated in 2008.
And we are on track to deliver our targets for this year and for 2010, which we've talked to you about before, which is $200 million.
When this economy does turn, the impact we are going to get from launching all these new products should be magnified.
Early in the year, we introduced our analytics and enabling technology organizations.
We integrated -- I'm sorry -- our analytics and enabling technology organizations into a global COE, supporting all of our business units.
That's led by Rajib Roy.
We've made great progress in streamlining our installation activities.
We have significantly reduced the installation cost and the time it takes to install and we are improving the quality of our application code.
This not only improves the bottom line but also time to revenue as we're able to implement quicker with less upfront cost for the customers.
I've got great expectations from that group over the coming quarters.
As the challenges associated with assessing risk and opportunities increase, customers are looking for solutions to help make them make better decisions.
For example, our [treasuring] products, which now include employment and income attributes, are delivering new revenue growth and generating strong customer interest for account acquisition, account management, and collection activities.
These are brand-new products we just launched over the past quarter.
In addition, we are helping customers determine the most appropriate frequency for their portfolio reviews and develop better segmentation schemes for evaluating risks.
Frequently the benefits from these solutions whether reducing and losses or increasing revenue can range from over 4 to 10 times the cost of the solution, so a significant ROI for our customers.
Now as our customers traditional markets shrink, they are looking for other opportunities to drive revenue growth and profitability.
For example, cross-selling and up-selling to existing customers to strengthen their market position and customer loyalty.
This will result in new opportunities for Equifax as we develop new applications which leverage our vast database assets and analytical resources.
I'll tell you one of the most exciting new product opportunities that we are working on now is leveraging our credit data, wealth data, income data, and employment data to help banks in the area of DDA.
That is a top growth area for banks and we are uniquely positioned to help our customers grow in the area of DDA.
Our lean initiatives and other cost reduction opportunities continue to deliver improved operating efficiencies and lower our cost structure.
In 2009, we have conducted 21 lean events and trained over 423 employees across all of our business units and our COEs.
In USCIS Consumer Service Operations, consumers are increasingly accessing us through the Web, which reduces our staffing requirements and in higher cost service channels and provides a better, more efficient consumer experience.
In TALX using lean, we are reducing the cost structure and improving productivity in Tax Management Services.
For example, we have reduced the cost of unemployment hearings leveraging lean by 30% and improved the core productivity by 26%.
And in international, we have developed a matrix organization where our in country personnel are aligned with global operation experts to ensure best practice sharing and leveraging of common tools and metrics.
Finally, we have talked about this a number of times; we are making good progress in our efforts to establish a credit reporting business in India.
We'll have a more detailed report coming to you in the coming quarters.
Now Lee, I will turn it over to you for the financial details.
Lee Adrean - VP and CFO
Thanks, Rick, and good morning, everyone.
This morning all financial information I will be discussing is presented on a GAAP basis unless otherwise noted.
You should also refer to the Q&A and non-GAAP reconciliations attached to our earnings release for additional financial information.
For the second quarter compared to the second quarter of 2008, consolidated revenue of $455 million was down 9%.
Changes in foreign exchange rates unfavorably impacted revenue by $22 million.
In constant dollars, revenue declined 4.8%.
Operating margin was 23.5% in the quarter, down 1.9 points from a year ago.
Diluted earnings per share for the quarter was $0.47, down from $0.54 in 2008.
And excluding the impact of acquisition-related intangible amortization, adjusted earnings per share, a non-GAAP measure, was $0.57, down from $0.64 in the second quarter 2008.
Approximately $0.03 of decline resulted from the year-over-year change in foreign exchange rates.
Compared to the first quarter of this year, which gives you a sense of the current business trends and momentum, consolidated revenue of $455 million was up 1% but down 1% in constant dollars.
Operating margin excluding the impact of the first-quarter restructuring charge was off 1 point resulting in operating income down 4% from the first quarter.
Excluding the impact of acquisition-related intangible amortization, adjusted earnings per share was $0.57, down $0.01.
We also reduced total debt during the quarter by $76 million.
Turning to the individual business units, our US Consumer Information Solutions revenue was $211 million and in line with expectations we communicated during our first-quarter earnings release in April.
Online Consumer Information Solutions revenue was $135 million, down 11% compared to 2008 and down 2% from the first quarter.
For our core product, total credit decision volume was $117 million, down 20% compared to last year.
Revenue per transaction increased 8% as our large national accounts represented a smaller share of the volume and other end-user segments with higher average prices increased their share.
Mortgage Solutions revenue of $28.6 million was up 60% when compared to the second quarter a year ago.
Core mortgage reporting revenue was up 29% for the quarter, driven by strong mortgage refinancing activity and increased market share.
And settlement services grew almost threefold over last year.
Credit Marketing Services revenue of $27.4 million was down 23% for the quarter but flat when compared to the first quarter.
Driving that decline was prescreening revenue, which was down 32% as financial institutions continue to reduce the level of new account acquisition activity.
Revenue from our portfolio review product line was down 5% muting the overall decline.
Direct Marketing Services revenue was $20.2 million, up slightly from the first quarter but down 15% compared to the same second quarter last year, reflecting a continued weak consumer marketing environment.
The operating margin for our US Consumer Information Solutions business was 35.2%, down slightly from the first quarter affected by the strong growth in our mortgage reporting and settlement services businesses, both of which have lower operating margins than our core online products.
Our international revenue was $105.2 million compared to $137 million in 2008.
In local currency, revenue was down 8% from a year ago and down 2% from the first quarter.
By region, Latin America's revenue was $47 million, down 23% in US dollar terms and down 8% in local currency.
Difficult year-over-year comparisons, lower activity levels from banking sector clients, and some projects which drifted into the third quarter negatively impacted growth during the quarter.
Europe delivered revenue of $33 million, down 12% in local currency and down 29% in US dollars.
In the UK, market conditions continue to be challenging as our consumer transaction volumes decreased to 22%, while our revenue mix shifted from financial institutions towards telcos, which have behaved in a more stable financial fashion.
Canada consumer revenue was $25.2 million, down 3% in local currency and down 16% in US dollars from a year ago, but up 9% in local currency compared to the first quarter.
Online transaction volume was down 4% year-over-year.
International's operating margin was 25.3% compared to 28.7% in the first quarter.
In our TALX business unit, revenue was $86 million for the quarter, up 12% from the second quarter of 2008.
The Work Number continues to deliver broad-based growth with revenue of $39 million.
Work Number revenue was up 23% in the quarter compared to a year ago as we continued to deepen market penetration and leverage the USCIS sales organization and customer base to drive new revenue opportunities.
Mortgage activity and government services continue to benefit core Work Number growth.
Tax and Talent Management Services delivered $47 million of revenue up 4% compared to last year.
Tax Management Services was up 15% for the quarter, while Talane Management revenue declined to over 50% from a year ago due to hiring freezes at the TSA, our largest customer in this business segment, and other government-related clients.
The TALX operating margin was 23.2% compared to 17.7% a year ago and 21.5% in the first quarter.
In North America Personal Solutions, revenue was $37.5 million, down 10% from a year ago.
Operating margin was 21.5% for the quarter compared to 25.1% in the prior year as a result of increased advertising, particularly TV to drive increased new sales.
North America Commercial Solutions revenue was $15.7 million, down 11% on a reported basis and down 5% in local currency.
The operating margin was 15.4% compared to 15.9% in the second quarter of 2008.
In summary, the second quarter was challenging, however, each of the businesses are managing their expense base to keep margins within a range appropriate for the business conditions and the longer-term business strategy.
Now let me turn it back to Rick.
Rick Smith - Chairman and CEO
Thanks, Lee.
As I wrap up here and we will go to Q&A, dealing with this difficult business environment as you know is a challenge, but we are continuing to keep our eye on the long-term, investing in our strategic initiatives while carefully managing our expense base to ensure we generate the cash we need to invest in our future as well as meet the needs of our shareholders.
We've got a strong balance sheet.
We've got a resilient business model that will enable us to weather this storm successfully and we are continuing to build a complementary mix of businesses that will deliver that long-term ROI growth for our shareholders.
In the third quarter, we don't expect any improvement in the global economy.
We expect continued pressure on new account originations in the US and we expect the recent rise in mortgage rates that there will be less mortgage activity in the second -- in the third quarter than we saw in the first half.
Based upon that and the assumption that the current exchange rate remains as is, consolidated revenue for the third quarter of 2009 is expected to be down slightly from the second quarter and our adjusted EPS for the third quarter is expected to be in the range of $0.52 a share up to $0.57 a share.
Okay, operator, we'd like to now open it up for any questions that our participants might have.
Operator
(Operator Instructions) Carter Malloy, Stephens, Inc.
Carter Malloy - Analyst
Can you talk about the successes with cross-selling, TALX, Work Number?
I think you said you had two new significant customers.
I thought last quarter there was only one card issuer that signed up.
So can you talk about what type of returns on their spend they are seeing or (multiple speakers)
Rick Smith - Chairman and CEO
Carter, is that you?
Carter Malloy - Analyst
Yes.
Rick Smith - Chairman and CEO
Can you repeat that?
You cut in and out a few times.
Carter Malloy - Analyst
Sorry, it may be my headset here.
So just on your successes with TALX, I think you said you had two (multiple speakers)
Rick Smith - Chairman and CEO
Yes, that was just two significant ones.
I talked about last quarter which we just closed.
My point there was they have gone into the billing cycle now and it's actually generating significant revenue for us.
The cross-sells are amazing, Carter, right out.
It's every bank we go into.
Every financial institution we go into we talk about the value of combining attributes from employment income with our credit data to solve problems, whether it be collections, whether it be account management, whether it be triggers for setting limits.
I think we said we closed 10 new ones alone in the second quarter.
That's on top of many, many, many in the first half of the year as well as last year.
So it is doing everything and more than we expected and it's reflective.
Look at the numbers.
The Work Number up 23% and accelerating.
Carter Malloy - Analyst
And is that just because you found new levels --?
I know you guys worked on pricing for a long time to -- essentially trying not to upset the guys that are paying for the full reports by setting triggers or --
Rick Smith - Chairman and CEO
Yes, what this is, again, leveraging all the relationships that Dan Adams's team has with the banks to bring new data sources and to solve new problems for customers.
Carter Malloy - Analyst
Okay, then your core online business, can you just talk about price versus volume there?
Rick Smith - Chairman and CEO
Yes -- do you remember those numbers?
Lee Adrean - VP and CFO
Yes, transaction volume was down 20%, but our average revenue per transaction was up 8%, leading to a net decline of 12%.
And again, the issue there is one more of mix.
Pricing trends right at the moment are on core, credit reports are flattish.
But the very large national credit card lenders who tend to have the greatest volume and hence the greatest -- the best pricing have declined at a more rapid rate as they have really pulled back on their new account activity in particular.
And some of our segments that have higher average pricing have become a larger portion of our base.
All of those segments except for mortgage are actually declining.
It's just some have declined faster than others and the ones that have declined the fastest have the lowest average price.
So that's a -- the 8% improvement, we love it but I wouldn't describe it as a sustainable trend.
I'd describe it as a mix issue.
Carter Malloy - Analyst
Sure.
Thanks for the color on that, Lee.
And I guess it kind of leads over to the credit marketing services as well.
Can you just talk about the pullback we've seen -- the issuers I see are pulling back and everybody is kind of still trying to figure out what the impact of legislation is and that is not really going out and wanting to acquire new accounts.
Do you guys think that that sentiment among the issuers will improve at all before the February enactment of the --?
Rick Smith - Chairman and CEO
Carter, I spent a lot of time this first half of the year out there talking to credit card issuers and the answer is no.
I don't expect, as I mentioned in my closing comments, I don't expect any improvement in the acquisition of new credit card customers for our banks in the foreseeable future.
Mailings alone in the first half (inaudible) were down some 70% and I expect that very dismal environment for credit cards to persist.
The good thing is when in fact they decide they want more risk and they want more credit card customers, we are so uniquely positioned to help them, as I mentioned earlier.
We have the credit data.
We have wealth data.
We have income data.
We have employment data.
We can help them target the right customers better than anyone else in this space.
But I don't expect that to happen any time soon.
Carter Malloy - Analyst
I would agree, and maybe there's a few opportunists who would do it sooner, but for the most part, we are at least a year away for everyone returning to the (multiple speakers)
Rick Smith - Chairman and CEO
I'm not sure if it is a year or if it is six months, but it's not going to be in the third quarter.
So what (inaudible) customers do right now is -- they currently have relationships.
How do we use our unique data assets to help them cross sell and upsell?
Carter Malloy - Analyst
Okay.
And then if I can squeeze one more in just real quickly on -- in Brazil with -- specifically on the business credit side, are you guys seeing Laercio there being more aggressive with pricing or -- the growth rates there seem to have kind of turned?
I am wondering if that's having any type of impact.
Rick Smith - Chairman and CEO
No, Lee mentioned a few things.
One, we didn't talk about Brazil specifically, but the Latin American business unit in general, which Brazil is an important part of it, you had year-on-year comparisons which were the most difficult.
We had some nice projects that slid into the third quarter and you obviously have the global economy slowing a bit in all parts of Latin America.
Now all three of those impacted us.
Hey, Brazil is an important market for us.
We are succeeding in many aspects in Brazil.
Serasa experienced a good competitor in Brazil.
We respect them down there, but we're going to continue to invest in growing Brazil.
We have got a great partnership with ACSP.
We continue to look for new ways to expand in Brazil.
Carter Malloy - Analyst
Okay, thank you very much.
Operator
Andrew Jeffrey, SunTrust.
Andrew Jeffrey - Analyst
Good morning, guys.
Lee, just stepping back from a high-level standpoint, you talked about some third-quarter guidance with USCIS down modestly, a little better margins in international.
It sounds like TALX continues to have a good outlook despite your view toward lower mortgage volume.
Yet, I kind of put all that stuff together and look at you are down as much a $0.05 sequential earnings, is there corporate expense going up there or is the USCIS margin going to continue to trend down?
How do I reconcile those pieces with the overall view?
Lee Adrean - VP and CFO
Yes, I think the biggest change from Q2 to Q3 that we currently expect is that you're likely to see mortgage revenues down perhaps in the range of $6 million if I just estimated it today based on some trending and you could see CMS and online based on current trends maybe down $2 million to $4 million.
That -- now the good news is the mortgage revenue because it's not the same margin doesn't have the same fall through effect that CMS or online would have.
But those effects are probably a couple of cents a share, call it $0.02 or $0.03 a share.
Everything else you've got some pluses, some minuses.
We don't see sustained positive momentum in any of our businesses, but we don't see strong negative momentum in any of the other businesses.
So everything else probably kind of roughly nets out.
It's the pressure we see in mortgage where rates have risen.
I think everyone knows that in June and into July, mortgage volumes were lower than April and May.
And we are not projecting a return to 4.5% mortgage rates.
So we are kind of projecting off of current levels and some continued, not dramatic but modest softening in CMS and online are the real drivers.
Andrew Jeffrey - Analyst
Okay, understood.
So when I sort of then look at TALX specifically versus mortgage, is it entirely a function of share gains that you'd expect an up sequential quarter?
Because I kind of assumed that especially in The Work Number you've got some pretty good mortgage lift in there, but it sounds like you are going to grow through any decline in mortgage.
Rick Smith - Chairman and CEO
Andrew, it's more than just mortgage.
It's really the manifestation of all the work that Dan and Bill have been doing over the last two years of building new products, leveraging The Work Number, cross-selling The Work Number into new accounts.
We talked about -- just got the billing going for a couple of very large credit companies.
All those great things will continue to accelerate throughout the year, offsetting a decline you'll see in mortgage.
Andrew Jeffrey - Analyst
Okay, so the underlying TALX business it seems is you are actually looking for that to accelerate in the second half of the year.
Rick Smith - Chairman and CEO
Correct.
Andrew Jeffrey - Analyst
Then Rick, qualitatively you've talked about good cross-selling momentum, which has obviously been one of the rationale underpinning the TALX deal.
When -- at what point do you think you can call out incremental contribution from cross sales in terms of really moving the needle in USCIS?
Rick Smith - Chairman and CEO
One, we track obviously the cross-sell value each and every month internally.
You are saying just sort of calling it out and communicating it externally?
Andrew Jeffrey - Analyst
Yes, your TALX is a good example, albeit a smaller business, where your share gains are clearly outstripping any cyclical factors.
So I'm wondering at what point you think we get to that level within USCIS?
Rick Smith - Chairman and CEO
I'll give it some thought, Andrew.
I'm not sure when we'll do that.
Andrew Jeffrey - Analyst
Okay, but you think it's a 2010 event potentially?
Rick Smith - Chairman and CEO
It might be.
I'm not trying to be flip here.
Our desire is to be as transparent as we possibly can with our investors and our analysts.
I think we've done a pretty good job of that.
We are thrilled with the value that TALX is bringing to our customers and to our shareholders.
We'll continue to find ways to make that more transparent for you.
Andrew Jeffrey - Analyst
All right, thanks a lot, guys.
Operator
Dan Leben, Robert W.
Baird.
Dan Leben - Analyst
Great, thanks, guys.
Just looking on the cost side, the costs were up quarter-to-quarter.
Help us understand how much that was impacted by mix issues versus what you were able to gain on the lean side and cost reductions.
Rick Smith - Chairman and CEO
Right, Lee?
Lee Adrean - VP and CFO
Yes, mix is a key driver there.
Our mortgage-related -- mortgage reporting and settlement services revenues were up about several million dollars and that will tend to drag through direct expense.
The other issue to be careful about, I think the currency impact affects our reported expense.
I think you can back into it from the currency effect on revenue and the currency effect on profit, but that's probably a $4 million or $5 million, I think a $5 million impact on expense from Q1 to Q2 reported.
So if you back out the effect of currency, we were up about $1 million on a constant dollar basis.
That was -- the effective mortgage was probably $2 million plus, so we are continuing to drive a very tight expense control.
Dan Leben - Analyst
Great, help us understand with NPI becoming a very significant driver of revenue next year, just kind of on average what those products look like from a margin standpoint and how we should think about mix impact from those.
Rick Smith - Chairman and CEO
The only clarification -- this is Rick -- I would give you is it's not just next year.
The NPI started two years ago.
It is a very important part this year.
NPI this year may be somewhere around $130 million on the way to $200 million next year.
And margin in general, it would vary buy product but in general, when we approve a new product launch, it is with the vision that when that product reaches its maturity, it is at or above the overall margin levels of Equifax.
Obviously we have the ability to launch products that are lower margin short term to accelerate growth, but eventually we are targeting something to be in that 25% to 30% range.
Dan Leben - Analyst
Great and then just stepping back on a higher level, in order to get the topline moving the right direction, other than banks just stepping out and deciding to take more risks, what else do we need to see go right?
Is it dollar volumes of credit we should be looking at?
Is it number of cards, number of auto loans, those types of things?
What are the key drivers you think we should look at?
Rick Smith - Chairman and CEO
I think it starts with unemployment.
Consumers have got to have employment before they are going to be willing to spend.
Secondly, you've got to have home prices start to bottom out and that is the largest single asset that the consumer has -- speaking now in the US -- largest single asset that a consumer has.
When those two things happen, consumer confidence will rise.
Then on the flip -- that's on the demand side.
On the supply side, it has got to be the banks getting confident that they have hit the bottom on losses.
Dan Leben - Analyst
Great.
Thanks, guys.
Operator
Michael Meltz, JPMorgan.
Michael Meltz - Analyst
Thanks, three questions for you.
Just the first one is a clarification.
Lee, just because the vernacular might be off, you gave a third-quarter kind of a guidance for the USCIS.
So you are saying revenues of $200 million to $205 million and margin -- what are you saying on margin, slightly down sequentially in the third quarter?
Lee Adrean - VP and CFO
Yes, I would say revenue in the $200 million range and margins flattish.
(multiple speakers) Again, one of the key drivers, the biggest driver of revenue down is softer mortgage quarter and that does not have as much impact on margin in the business.
So we are looking to [fold] margins in spite of the revenue change.
Michael Meltz - Analyst
Okay.
Rick, you kind of breezed over something about DDA which I actually think is very important.
Can you -- I'm wondering if you do as well.
What are you doing -- is there potential to do an exchange of some sort and -- or are you just trying to gather data and could you just give us a little update there (multiple speakers)?
Rick Smith - Chairman and CEO
It's exciting.
I think -- not think -- I know.
The bank's number one challenge now is not bringing on more risk but bringing on more deposits.
So as we run around the country talking to all the CEOs and upper level management of the banks, they want help there.
So we have brought on a team now led by a banking executive who used to run retail banking for a large bank.
We are now deep in the throes of developing that strategy.
We are going to present it to a large bank in the next two weeks.
Exchange is only one element of it.
It's really leveraging the data sources we have of credit data, wealth data, employment data, and income data to help them target the right deposit targets.
It is exciting but I'm going to leave it at that now, Michael.
Stay tuned.
You'll hear more next quarter.
Michael Meltz - Analyst
But you think you are going to get DDA information or you're talking about products that are going to help companies target -- capture more deposit holders?
Rick Smith - Chairman and CEO
We're starting with the latter.
Michael Meltz - Analyst
Okay.
On Latin America, and I know this question was asked twice but I still don't quite understand.
I know you had a tough comp a year ago.
Can you talk a little bit about what you saw in terms of B2B volume --?
Your business is mostly B2B, or commercial.
Where did you see more of a slowdown in the period and what gives you confidence it doesn't get much worse going forward?
Rick Smith - Chairman and CEO
A point of clarification.
The heavy B2B that you are referencing is predominantly Brazil.
If you look at our other Latin American footprints, it is heavily B2C.
What gives me confidence that this thing is not going to continue to --?
Same things I said and I think that Lee said as well.
Comps were tough, as you mentioned.
Number two, we know specific large projects that we are working with in many countries that slid into July and August that we're going to bring back.
Third, we have a great transparency in the pipeline of new products that we have launched that will generate revenue going forward.
Let me be clear.
I don't expect a miraculous turnaround in the economies of Latin America.
They are not immune to some of the issues that the global economy has.
I am confident though that we will improve margins and we will improve the sequential growth rate in Latin America starting in the third quarter.
Michael Meltz - Analyst
Was the down 8% -- or 7% or 8% -- was Brazil worse than that?
Rick Smith - Chairman and CEO
I don't have that from my fingertips.
I don't we disclose that either.
Michael Meltz - Analyst
Okay, last question on cash flow priorities.
Lee, you've been paying down debt.
Where do you stand on your priorities and at what point are you going to start assessing repurchase?
Lee Adrean - VP and CFO
Yes, I think consistent priorities obviously investing in internal growth, which still always leaves strong excess cash flow.
Acquisitions if and as they present themselves.
After that, it's typically a blend between reducing debt and buying back stock.
In the current environment, obviously we have been a little more focused on paying down debt partly because of capital market conditions, but also just keeping our debt to EBITDA more or less in the range we would like it to be.
I think we've said in the -- that our general target is 1.75 to 2.25 times EBITDA.
We're kind of right in the middle of that and in this environment, we would lean towards being closer to -- towards the lower end of that range.
But I do think you will see in the absence of any significant acquisitions presenting themselves, I think what you will see over the course of the year is some mix of share repurchase as well as debt reduction.
But a clear leaning towards debt reduction.
Michael Meltz - Analyst
Okay, thanks for your time.
Operator
Andrew Ripper, Merrill Lynch.
Andrew Ripper - Analyst
Good morning, chaps.
A couple of mine have been asked already, but I've maybe got a couple more.
Just going back to the issue of pricing, can you give us a sense of how bank consolidations have affected average selling prices?
I guess given the number of deals that have happened in the last sort of 12, 18 months, if you strip out the mix effect, I think you said in response to an earlier question that the underlying price of credit reports was flat.
I know last time -- a lot of consolidation in the '90s in the US when average selling prices came under pressure.
Can you make some comments please?
Rick Smith - Chairman and CEO
Yes, in general terms it depends on the contract you have with different banks, Andrew.
Sometimes if it's a volume contract, meaning that the higher the volume they purchase, the lower the price, obviously in that scenario, if two banks come together and the volume goes up with us, the price in fact might go down.
Remember also the incremental margin for this business is extremely high as well, so gaining volume is not necessarily a bad thing there.
Beyond just the consolidation though, however, and I have said this time and time again, we have not seen any downward pressure across most of the business lines.
It's been very, very disciplined.
Andrew Ripper - Analyst
Okay, just in terms of clarification on this mix impact, if you've got a big customer that's basically being less active, buying less credit reports, do they -- if their volumes fall by whatever it is 20%, 30%, does their average selling price go up?
You get a protection basically if you put less volume through Equifax, their average price goes up?
Rick Smith - Chairman and CEO
It depends, Andrew.
No two contracts are exactly alike.
But yes, oftentimes if a client has got a threshold of buying X number of products from us and they don't meet that threshold, their average selling price might go up.
Again, every customer is a little different.
Andrew Ripper - Analyst
Sure, okay.
And the looking at the European business, I think you said organically you were down about 12%.
And you see sort of the deterioration versus the last couple of quarters.
How would you contrast your performance with Experian, which is also contracting but I think their UK credit business was down about 5 in the quarter?
Is there a difference in mix that would be a disadvantage to you or how -- it just feels to me as though you are underperforming a bit in Europe.
And I wonder what your perspective is on that.
Rick Smith - Chairman and CEO
I don't necessarily spend a lot of time comparing and contrasting our performance to Experian in any one part of the geography.
They have got a little different business mix than we have.
If you look back for a number of quarters in 2007, 2008, we outperformed them in the UK -- or in Europe.
So what I am focused on is having the right strategy, the right leadership team in all parts of the world, executing on that strategy.
Andrew Ripper - Analyst
I know when you were outperforming, you did very well with governments here.
Has that sort of dropped away?
Is that one of the reasons perhaps?
Rick Smith - Chairman and CEO
Government has slowed.
Andrew Ripper - Analyst
Okay, thanks very much for your answers.
Jeff Dodge - IR
Operator, we have time for one more round of questions.
Operator
Nat Otis, KBW.
Nat Otis - Analyst
Good morning, gentlemen.
Just a couple quick ones.
One, any color on how the PSol ad campaign is going, how the traction is coming from it?
Rick Smith - Chairman and CEO
Yes, it's going well.
We track the -- from that, we have a special URL, so when a TV ad goes out, there's a special URL, sort of site that they go to.
We track that so the volume is good.
We then track conversion rates.
That's picking up.
It is still early stages, but the initial feedback is very positive.
Nat Otis - Analyst
How long does it take for you to get a very good picture on how successful?
Would that be another quarter or so or when do you really assess how well it worked for you?
Rick Smith - Chairman and CEO
Yes, I would think in the third quarter we have a real good feel.
Nat Otis - Analyst
Okay.
Any update on VantageScore?
Rick Smith - Chairman and CEO
Nothing more than we've said before.
I think every single bank is either using it, testing it, buying it.
Some of the rating agencies said they all endorsed it.
Paul, I'm looking to you.
Two of three rating agencies have now endorsed VantageScore, so it's going as planned.
Nat Otis - Analyst
Okay, just one last thing.
Going forward if say, the market in the back of the year took another leg downward and you guys were faced maybe with trying to make some further cuts from an expense standpoint to try to keep margins at least where they are, any thoughts on where some of the levers that could be pulled?
I mean in the past it has been headcount and other places.
Any thoughts on where you would look if things took a turn for the worse?
Rick Smith - Chairman and CEO
Absolutely, and that's something we look at every day and we always have contingency planning.
So yes, it's the same typical suspects.
It is deploying lean at an even more rigorous rate than we have to date.
It is looking at all discretionary spend.
It is looking at all technology spend; where could we get better contractual arrangements?
It is looking at offshore/nearshore versus onshore.
It is looking at structure.
It's all this.
Lee and I and the business unit leaders spend a lot of time laying out different sets of contingencies based on what might occur.
So it's not that we don't have that plan already thought through today.
We look at that all the time.
Nat Otis - Analyst
All right, very helpful.
Thank you.
Jeff Dodge - IR
I want to thank everybody for attending and we will be available this afternoon if you have any additional questions.
Thank you.
That concludes the call.
Operator
That concludes today's conference.
Thank you for your participation.