易速傳真 (EFX) 2009 Q3 法說會逐字稿

Good day and welcome to the Equifax third quarter earnings release conference call.

Today's conference is being recorded.

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

Jeff Dodge.

Please go ahead, sir.

Good morning and welcome to today's conference call.

I'm Jeff Dodge, Investor Relations, and with me today are Rick Smith, our Chairman and Chief Executive Officer; 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 relations section in the About Equifax tab 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 2008 Form 10-K and subsequent filings.

We will also refer to certain non-GAAP financial measures which are explained in the non-GAAP financial measures reconciliation attached to our earnings release, including adjusted net income, adjusted operating margins, adjusted diluted EPS and operating results excluding the impact of foreign exchange.

Please refer to the non-GAAP reconciliation section included in the earnings release and posted in the investor relations section under the About Equifax tab on our website for further details.

Now I would like to turn it over to Rick.

Great; thanks, Jeff.

Good morning, everyone.

I think everyone will agree that the third quarter financial results that we released last night again underscore the resiliency of our business and our ability to deliver good operating performance, good margins, significant free cash flow in a very difficult environment.

For the quarter, in summary, total revenue was $451.9 million, down 4.1% in constant dollars from the third quarter of 2008.

Operating margins were 23.5%, flat when compared to the second quarter of 2009.

Our adjusted EPS was $0.57.

Changes in foreign currency negatively impacted EPS by approximately $0.02 for the quarter.

Some exciting news we announced yesterday -- we announced a definitive agreement on a strategic acquisition that will significantly expand our ability to provide unique decisioning solutions to our customers.

IXI Corporation is a leading provider of wealth and asset data as well as proprietary measures of income and spending through a unique database developed with information from over 95 leading banks, brokerage and financial institutions.

IXI's data sharing exchange pools anonymous data from 30 brokerage firms, nine of the top 10 banks, the top 15 annuity issuers and many others.

This unified database contains an estimated 75% of full-service brokerage assets, 90% of discount brokerage assets, 40% of retail bank deposits and 80% of variable annuity assets.

IXI's sophisticated analytics make it a leader in segmentation and targeting solutions.

With IXI's data and proprietary measures we will be able to deliver a comprehensive view of consumers' capacity, ability and propensity to pay their obligations or support their spending activities.

Finally, IXI also broadens our served markets with positions in both health care and insurance sectors.

Once closed, the acquisition of IXI will further enhance our strategy of delivering differentiated data and decisioning solutions through best-in-class data, analytics and technology.

As you might guess, I will answer any questions you might have on IXI as we move to the Q&A in a few moments.

Let me now move on to some more significant highlights within each of the five business units.

US Consumer Information Solutions met our expectations for the quarter with revenue down slightly from the second quarter and margins holding steady at 35%.

We continue to make very good progress on solutions selling as we leverage TALX, Personal Solutions and our Commercial products and capabilities to deliver unique and powerful solutions to our customers.

Employment and income attributes are helping solve problems for many of our major customers as they seek to improve their risk-based decisioning and address new regulatory compliance requirements, such as the Credit Card Act of 2009.

Again, I'll give you some insight on that, if you have an interest, during the Q&A.

Staying with USCIS, our mortgage -- our strategy for Mortgage Solutions continues to deliver strong results.

Mortgage settlement services again increased its share with more volume from our large customers.

Also, capital markets, leveraging our broad base of service offerings in the mortgage sector, including settlement services, grew significantly with the delivery of unique solutions for two large customers.

The first solution focuses on the risk assessment for whole loan pools using our extensive analytics and consulting resources to build proprietary models.

The second solution addresses loan modifications utilizing analytical capabilities and the vast the data assets to assess and size the impact of a loan modification program.

The US lending environment remains difficult.

I think you know that.

Risk management continues to challenge financial institutions, given their ongoing exposure to higher-risk consumers.

Debt outstanding in all major lending categories except for student loans declined from 2008 levels as banks continue to tighten their credit underwriting standards and consumers continue to pay down their obligations.

First mortgage over-30-day delinquencies increased in September and is up 248 basis points from September of 2008 and the banks continue to close accounts and reduce credit limits.

Year-to-date July, new bank card accounts opened were down 46% from year-to-date in July of 2008.

For the fourth quarter USCIS revenue is expected to be down modestly from the third quarter, very much in line with the typical seasonal trends as online activity tends to moderate.

Move on to the next business unit, which is International.

They met our expectations for the quarter with local currency, sequential revenue growth and improved operating margins, as we have mentioned we would deliver during the second quarter call.

Both Europe and Latin America delivered solid single-digit local currency growth in the second quarter.

As expected, (inaudible) the consumer declined slightly compared to the second quarter.

Revenue from new product initiatives represented over 12% of international revenues during the quarter.

In Brazil over 24% of revenues were from new products launched in the last three years.

And with a few lean initiatives now underway, we have already identified solid expense reduction opportunities across the international properties.

In the fourth quarter we expect international revenue, excluding any impact of foreign currency translation, to be down slightly from the third quarter, again consistent with our normal seasonal patterns.

On the TALX, TALX continues to make an outstanding contribution to our business.

The combination of unique data and counter-cyclical services enabled it to deliver another quarter of double-digit growth and significant margin improvement when compared to 2008.

In the quarter we added 52 new work number data contributors and 3.2 million records to the database.

Operating margin in the quarter expanded 530 basis points to 21.4% when compared to third quarter of 2008.

We continue to expand the use of the work number through cross-selling and the development of new products, helping our customers solve new problems.

And our tax management services segment also turned in an outstanding double-digit growth quarter.

In the fourth quarter TALX revenues should be up slightly when compared to the third quarter, continuing the trend of strong double-digit year-on-year growth.

North American Personal Solutions focused on initiatives designed to reduce churn and increase revenue per customer during the quarter.

Our direct to consumer subscription revenue was up 2% in the quarter as subscriptions in service increased.

The recent launch of Debt Wise, which I believe we introduced back in the second quarter -- that product has gone well and we expect it to become a nice contributor to revenue growth in 2010.

For the fourth quarter we expect Personal Solutions revenue to be down slightly from the third quarter, reported revenues again in line with our typical seasonal patterns.

The last business unit, North American Commercial Solutions, continues to be negatively impacted by the significant contraction in financial institutions lending to small businesses.

Despite a weak environment, the operating margin improved as aggressive expense initiatives, including lean, began to deliver good results.

Consistent with previous experience, Commercial Solutions fourth-quarter revenue should be up when compared to the third quarter, in local currency.

Now some summary comments before I turn it over to Lee.

Our new product initiatives continues to deliver solid top-line results.

We launched 13 new products during the quarter, and the Vitality Index, which includes revenue from products introduced in the preceding three years, it had 100% of target through the third quarter.

We recently completed an extensive strategic review of our Technology and Analytical Services organization -- we call that now TAS -- and have identified a variety of new opportunities which have the potential to deliver significant incremental revenue over the course of the next five years.

The voice of the customer work uncovered many unmet or unsatisfied client needs globally.

Increased regulation is introducing new complexity to the marketing of financial institutions, product and services offerings and increasing compliance requirements.

Both of these are severely straining customers' internal resources.

More intense risk management will create new opportunities for information-based technology-driven solutions as many financial institutions significantly revamp current underwriting standards.

The new strategy will focus on enabling technology and analytical opportunities that utilize our vast data assets as well as those not tied to using our data, which is a change for us as a Company.

We will also increase our investment in software technology, analytical capabilities and acquisitions that will accelerate revenue.

Lean continues to improve our operating efficiency, and we've identified new opportunities to further reduce costs.

Our approach in implementing lean is broad-based and includes events undertaken with both customers and outsourcing partners.

In USCIS we have decreased expenses and created a better consumer experience through an improved online dispute resolution process.

For P-Sol, we have worked with an outsourcing partner to improve the effectiveness of our cross-selling initiatives.

And for International we have initiatives underway in Brazil, UK, Canada and Spain that will drive near-term savings and longer-term operating efficiencies, including mail automation, local outsourcing, dispute handling and first call resolution.

All of our business units and all of our COE's have lean initiatives underway and are now finalizing our plans for 2010.

Finally, in closing, our strong balance sheet and free cash flow will enable us to evaluate attractive strategic opportunities.

We will continue to apply the same rigorous analysis and due diligence in evaluating these opportunities as we have in the past.

Although there are certainly difficult economic and competitive challenges, we will aggressively pursue those opportunities which support our strategy, strengthen our franchise and better position us for the economic recovery.

Lee, I will now turn it over to you, and you go over through some details on the financials, please.

Thanks, Rick, and good morning, everyone.

This morning all financial information that 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 release for additional financial information.

For the third quarter compared to the same quarter in 2008, consolidated revenue of $451.9 million was down 6.6%.

Changes in foreign exchange rates unfavorably impacted revenue by $12.4 million compared to the third quarter a year ago.

In constant dollars revenue declined 4.1%.

Operating margin was 23.5% in the quarter compared to 22.2% in 2008.

On a non-GAAP basis, adjusting for restructuring and asset write-down charges, the adjusted operating margin Q3 of 2008 was 25.6%.

Diluted earnings per share for the quarter was $0.47, down from $0.56 in 2008.

Excluding the impact of acquisition-related intangible amortization and the restructuring and asset write-down charges and income tax benefit realized in Q3 2008, adjusted earnings per share was $0.57, down from $0.63 in 2008.

Compared to the immediately preceding quarter, which is the best indicator of current business trends and our guidance for the quarter, consolidated revenue of $451.9 million was down less than 1% and down 2% in constant dollars.

Operating income was also down less than 1%, and operating margin was essentially flat.

Excluding the impact of acquisition-related intangible amortization, adjusted earnings per share was flat when compared to the second quarter.

Also during the quarter we had a discrete tax item which reduced our tax rate to the quarter by approximately 3 percentage points or $0.02 per share.

We reduced total debt during the quarter by $85 million.

US Consumer Information Solutions revenue was $200.7 million, down 4.9% from the second quarter of 2009 and in line with the expectations we communicated during our second-quarter earnings release in July.

Online Consumer Information Solutions revenue was $131.4 million, down 13% compared to 2008 and down 2.5% from the second quarter, reflecting the expected decline in reseller activity due to a softening in mortgage activity offset partially by increasing volume from telcos.

For our core product, total credit decision volume was $116.4 million, down 20% compared to last year.

Revenue per transaction increased 7%, driven primarily by mix, as large national account volume was down significantly more than regional, reseller and telesales volumes.

Telco volume was flat.

Mortgage Solutions revenue of $22.5 million was up 35% when compared to the third quarter of 2008, though down $6 million from the second-quarter levels.

Core mortgage reporting revenue was up 24% for the quarter as mortgage activity remained relatively strong despite a slight increase in rates.

Both core mortgage reporting and settlement services revenues were up nicely from a year ago due to increasing market penetration and share gains, but were down from the second quarter when mortgage refinancing activity peaked.

Credit Marketing services revenue of $25.7 million was down from the prior year by 14.4% compared to the year-over-year decline of 23% in the second quarter.

The decline resulted from lower prescreened volumes and pricing in what remains a competitive market.

During the quarter, revenue for archive and other projects increased as banks and other market participants reassessed current credit conditions and selectively test new marketing approaches.

Direct Marketing Services revenue was $21.1 million, up 4.7% from the second quarter though still down 7% compared to the third quarter of 2008.

Operating margin for our US Consumer Information Solutions segment was 34.6%, down slightly from the second quarter as a result of lower revenues.

International's revenue was $114.9 million compared to $132.5 million in 2008.

In local currency, revenue was down 4.1% from a year ago but up 3.7% from the second quarter, consistent with the expectations we communicated during our second-quarter earnings release in July.

By region, Latin America's revenue was $52.3 million, down 11.8% in US dollar terms and down 2% in local currency when compared to the second period of 2008 -- I'm sorry -- the same period in 2008, but up 6% in local currency from the second quarter.

Europe delivered revenue of $36.5 million, down 19% in US dollars and down 8% in local currency when compared to the same period in 2008, but up 5% sequentially in local currency compared to the second quarter.

Average revenue per unit increased during the quarter as volumes with our largest customers declined proportionately more than volume with our smaller customers who typically pay a higher unit price.

Canada consumer revenue was $26 million, down 8% in US dollars and down 2.7% in local currency when compared to the same period in 2008.

Revenues were also down 2.7% in local currency when compared to the second quarter.

The International business unit's operating margin was 27%, down from 30% a year ago but the improved from 25.3% in the second quarter.

Operating margins in Latin America and Europe both increased from the second quarter, reflecting the benefit of higher revenues.

TALX revenue was $83.1 million for the quarter, up 13% from the third quarter of 2008.

The work number continues to deliver broad-based growth with revenue of $37 million.

We now have 45.5 million active records in the database.

Increased verifications in the mortgage, consumer finance and government sectors drove growth during the quarter.

[Fax] and talent management services delivered $46.1 million of revenue, up 13% compared to the prior year and the TALX's operating margin was 21.4% compared to 16.1% in 2008.

In North America Personal Solutions revenue was $37.1 million, down 9% and in line with the expectations we communicated during the second quarter earnings release.

Direct-to-consumer subscription revenue was up 2% year-over-year, but breach and transaction revenue continued to decline in this environment.

Operating margin was 27.3% for the quarter compared to 29.8% in the prior year and 21.5% in the second quarter.

North American Commercial Solutions revenue was $16.1 million, down 3.7% on a reported basis and down 1.9% in local currency.

Declining revenue growth in risk management driven primarily by a decline in transaction volume was partially offset with double-digit growth in data management services.

The operating margin was 17.8% in the quarter compared to 14.8% in the same quarter a year ago.

Our third quarter performance was solid and very much in line with our expectations when we gave guidance in July.

In this environment we will continue to aggressively manage our expense base in an effort to protect margins, earnings performance and cash flow while investing in critical growth initiatives as such as new product innovation and the acquisition of IXI.

Now let me turn it back to Rick.

Thanks, Lee.

A quick look forward, as we always end, as we think about the fourth quarter.

I expect the environment to be stable across all of our businesses and very much in line with economic environment that we experienced in the third quarter.

Assuming current exchange rates, consolidated revenues for the fourth quarter of 2009 is expected to be down slightly from the third quarter, which is in line with our normal seasonal trends.

Adjusted EPS for the quarter is expected to be between $0.53 and $0.58 a share.

As I started, I'll end.

We have a strong franchise, a resilient business model and a diverse portfolio that delivers real values for our customers and our shareholders.

We've got a great strategy for the long-term that will enable us to deliver value to all of our stakeholders.

We continue to aggressively pursue enterprise-wide initiatives that drive value and operational excellence, such as new product initiatives, strategic pricing, lean and work out.

We've already delivered significant incremental revenue and bottom-line savings, and these will drive even further into our business operations over the coming years.

You can expect that we will continue to grow and protect our core business franchises throughout the world.

We will look for synergies across our business units and embrace a team-based approach to selling solutions, and we'll increasingly leverage our analytics, decisioning tools and differentiated data capabilities to build greater customer affinity and strengthen our competitive position while also looking for acquisitions that continue to add to our strategy.

So, with that, operator, we will turn it over to Q&A, if you would.

(Operator instructions) Michael Meltz, JP Morgan.

On IXI, can you talk a little bit more about financial details on that business?

I might have missed that section on the call.

And what can you tell us in terms of revenues?

It looks to me like it's probably a little bit cash accretive going forward.

Let me just give you a high level, and then I'll get to the specifics of your question.

It's a great business.

Everyone should know this, that this is a company that we have been working with.

Tom Dailey, who runs it, and our teams here have been working together now for about 18 months, maybe even a little longer, getting to understand each other's data assets, customer needs, so on and so forth, synergies we can generate.

It's a great exchange.

It's a unique data asset.

We are good at both those -- managing unique assets in an exchange environment.

It gives us very, very unique insight into customers now, the propensity to pay, ability to pay, capacity to pay using credit data, income data, employment data and, now, wealth data.

Having said all that, we don't break out, necessarily, smaller businesses like this.

I can tell you this, that the multiple we paid [when] you look at the 2010 revenue is somewhere in the upper 3's, so a very reasonable price.

It's a strong double-digit growth business, and your last comment there is accurate; it will be accretive for us, modestly, in 2010.

Okay.

And, based on that last comment, I know in the 8-K you said it's going to be funded through the revolver.

Will you remind us, what is your current cost on the facility?

It's under 1%.

We use the facility as a backup to our commercial paper program.

All of our short-term borrowing is currently in commercial paper, which we are issuing at comfortably under 1%.

Okay, and then two other questions for you.

On CIS, I understand the sequential slowdown; you always have that in the fourth quarter.

What's the expectation on margin there?

Do you think you can still keep margin over roughly stable going forward?

We will continue to manage across the entire enterprise expenses in line with revenue fluctuations.

That includes USCIS business.

The thing that I think we have accentuated in the past is we are investing heavily in growing certain products across the USCIS.

And as they grow, their margins are a little dilutive to the overall USIS margin.

So from time to time you might see some fluctuations driven by revenue compression, as you've alluded to in the fourth quarter, and to faster-growing products that have slightly dilutive margins short-term.

Above 34% in the fourth quarter?

Yes, in that range.

Okay.

And then last question -- on regulatory, can you just give an update as to the two sides of the coin, I guess; one, how you see CFPA, how that's going to impact Equifax going forward?

And then, secondly, I know you spoke about your clients' needs changing and things that you can do for them.

Just give us a better sense as to exactly how you see some of this shaking out for you.

We spent a lot of time, obviously -- and Ken is with me here.

He spends a lot of time in Washington with industry associations, with our lobbyists and others, in trying to understand the landscape.

Specifically, the CPFA -- as you know, at one point in time the bill had excluded the credit bureaus from that regulatory body.

It was then thrown back in to be included.

It's still working its way through the committee first and then it, eventually, the House.

We are very, very close to it.

It's too early to say what the impact is going to be.

It then has to make its way to the Senate.

Obviously, we will leverage all of our resources in the Senate to make sure that our voice is heard.

So, too early to say if it's a win or a lose, but it's top of mind.

On the second part of your question, there's an interesting development that has occurred which we are working through right now.

It has to do with credit card reform.

I mentioned that, I think, in my earnings discussion, credit card reform in 2009.

A specific piece of that is Reg Z.

And within Reg Z, there is strong language about credit card issuers either issuing a new card or raising a limit for a current cardholder having to verify the consumer's ability to pay that obligation and the vehicle to verify their ability is income.

So we are working heavily, obviously, and further understanding the components of Reg Z and working very closely with all of our credit card holders in helping them.

There are many other -- I think that's going to be a great opportunity, by the way, for the work number and eventually for some models we can build for IXI.

There are many other regulatory things that are moving on, some pretty exciting things that are occurring.

It's too specific right now for some individual clients, for me to mention.

But right now, the regulatory landscape with the exception of CPFA, is more wind at our back than wind in our face.

Your comments on IXI -- I understand it's small.

On the margin side there, any reason to think that margins -- I know you need to scale up on revenues, but margins can't be 20% plus on this business?

The cash operating margins on this business are pretty comparable to Equifax.

The one watch-out as we roll in this business, we will obviously also have some acquisition amortization.

So our reported operating margins -- this will actually be a drag on the Company from a reported perspective.

But from a cash perspective, this will be very comparable to the characteristics that we have as a Company.

The only caveat to say on the drag -- if you think about the size for the overall Equifax, it's not big enough to impact the margins of Equifax as a Company.

(Operator instructions) Carter Malloy, Stephens.

On IXI, I think it's primarily marketing, and so I'm assuming that it's going to fall in your Direct Marketing Services line.

But if not, please let me know.

And on that, as you look to sell it into your risk base, are you able to sell it or will you be able to sell it on a real-time basis kind of next to your core consumer credit information?

Carter, repeat that second point again?

Sure.

Are you going to be able to sell the IXI data on a transactional real-time basis next year, core information?

Back up to the first part of your question, the first one is, it is -- will be consolidated.

I think maybe Lee mentioned, or I will -- it is more like CMS and will be reported as part of -- as a CMS business, Carter, not BMS.

The answer is -- yes, on real-time transactions, it will be part of and linked into our InterConnect decisioning platform our customers will access.

And then, on TALX, I think the last time we spoke at the end of July on a conference call you guys were feeling good about it in the quarter.

I don't think it was going to be up sequentially as well as margins.

So can you talk about what happened there in the latter part of the quarter, just to slow that down?

I've always got to put things in perspective, Carter, as I hope you do as well.

It is a business that has been growing strong double-digit now throughout this very difficult environment.

It grew 13% this quarter.

I may have been a little more optimistic on a couple of points going into the third quarter.

It's a solid business for us and it's doing everything and more than we ever expected, and margins up 350 basis points sequentially year on year.

They work in a tax credit business.

There were some customers that couldn't actually use the tax credit, so we had assumed tax credit would be stronger, the tax management business was going to be stronger than it actually was in the quarter.

And then [Pan] had a few things that slid out, and mortgage obviously had a little bit of slowdown towards the end of the second quarter.

But all in all, you think about it and you take a step back and say it's up 13%, the margin has expanded over 530 basis points -- one hell of a performance in the quarter.

It's tough to complain about that.

Can you comment maybe just on the credit card cross-selling and that product, also moving from batch to a transactional basis?

Carter, it is going unbelievably well from not just cross-selling and understanding limits but understanding risks.

We talked about the Reg Z.

This ability to leverage the work number with credit card customers and soon to be home equity loan customers is solid, really solid.

The pipeline even for future revenue growth is now stronger than it has ever been, as well.

And, Lee, you said the tax rate was down in this quarter.

Can I assume that it goes back to the mid-37 range?

I would say, in the fourth quarter, it's probably in the 33%-34% range, again.

Next year will be higher than that.

It's just the timing of rolloff of certain uncertain items that we expect to clear in the fourth quarter.

I noticed your website has changed recently to be a lot more consumer focused.

Have you seen an improvement in conversions from your [SCM] and TV ad buys?

That's a great observation.

We have spent a lot of time -- that's our storefront.

It's a place for our employees to go, it's a place for our investors to go.

We've cleaned the thing up and made it much more consumer friendly after a lot of work with some internal thought and some outside consultants who are experts there.

And yes, conversions are up as a result, which I think bodes well for P-Sol as we go into 2010.

Dan Leben, Robert W.

Baird.

When you guys look at the expense base and some of the discussions you've had around additional pieces you can do on lean, are there still significant more chunks of the cost that we can take out, or should we think about it more along the lines of when revenue growth comes back, that it's just going to be able to keep a lid on expense growth?

Dan, the first part of your question, we are -- if you want to use a baseball analogy, I think we are in inning number two in a nine-inning game with lean.

Andy's' doing a hell of a job.

We are training people, getting projects launched around the business.

But, as you know, it's a cultural change that takes time to get that implemented across the 6000 whatever, 500 -- 6800-person organization in multiple countries.

So there's still a lot [of juice] to be done.

And even when revenue continues to -- when it does bounce back, we will continue to deploy lean.

It's not just a lever in tough times; it will be a lever in all times.

And what have you heard initially from clients as they are starting to look forward to their budgets in 2010, both thinking about redeveloping scorecards and those types of budgets as well as on the marketing side?

I'd say on the marketing side, to start with your letter part, it's -- just talking to Dan Adams about that in the last week or so.

We are getting more confidence that the big banks, the big card issuers are going to step up marketing in 2010, obviously off dismal levels in 2008 and 2009.

But there's some pent-up energy to increase marketing.

And I think the most important think there is not just to increase marketing, it is to be smarter and smarter with our target marketing, which is why we feel we are very uniquely positioned, because of the work number combined with the credit file and, now, IXI.

We give credit card issuers a very unique insight into who to target and who not to target.

And then, anything on the other sides of the business, what you are hearing from budgets around risk management and so forth?

I think the underwriting standards that we've seen tighten -- I gave you some stats earlier, when we first kicked off the call -- will continue in 2010.

You talked a little bit about the mix shift to the smaller lenders.

Could you talk about pricing within the different buckets among the large and small customers?

Nothing really unique across -- I mean, there are pockets; you always have pockets of exceptions.

But in aggregate, what you have is obviously a smaller buy, if you will, across the big banks because of the pressure they've been under.

And the smaller banks become a bigger piece; hence, the mix, as you mentioned, actually has an uptick in pricing.

But by and large, if you look at it across the entire enterprise in every geography, Dan, that the trends that we have seen for the past couple of years are continuing.

Shlomo Rosenbaum, Stifel Nicolaus.

I just wanted to focus a little bit more on IXI and ask, how unique is that data?

Are there any other competitors out there, and how hard is it -- would it be for someone else to replicate this data?

Obviously, as the proud father of that new business, I'll say it's very unique because I think it is.

They have built pipes into all these institutions.

I think it's analogous to the work number.

They have assembled some $10 trillion in asset data.

It's run as an exchange, and it's an exchange -- obviously, something we have got deep experience in running.

So I think it's very unique.

As long as we are out there continuing to add value and service to our clients with the needs they have, which has combined the wealth data, the income data, the employment data and the credit data, I don't think there's any need for consumers to have to look for an alternative source.

And it's analogous to any one of our exchanges.

If you think about our exchanges, could someone replicate a telco exchange?

Could they replicate an [SBFE] exchange, could they replicate a telco exchange?

Yes, but they have not, because we are very, very good at it.

Do you have a lot of confidence that this is going to remain a unique source of this type of information?

Yes sir.

Just on the cross-selling in TALX, you gave -- just the last couple of quarters you talked about two new cross-sells with TALX, with USCIS.

And then, in the last quarter, it was like 10 new cross-sells.

Can you give any update as to either -- are there more customers getting on there?

Are there different areas within the same customers that you were able to sell further into, in the third quarter?

Or quantify any of that.

Here is a simple way to look at it.

It is becoming part of the DNA of our sales team.

They are leveraging that doggone database into every account they can possibly leverage it into.

It's becoming part of the selling process.

It's no longer viewed as (inaudible) as a cross-cell; it's part of what we sell [at] all of our customers.

So customers get it now.

And as I mentioned earlier, the pipeline is unbelievably strong, and it has grown strongly from even the second quarter, when we talked last.

How about any of the wins?

Can you give us any data on -- did you have more wins?

Was it up versus 2Q, or was 2Q just a very strong quarter?

So it was down in 3Q.

I'm just trying to get a sense of progress.

It is expanding, not shrinking.

It's growing.

I was just going to ask a little bit more on the cost side of things.

You talked about lean and just pushing that through the business.

Throughout this year, can you talk about the level of cost reductions or what you've taken out of the cost base and if there are any high-level areas or higher-cost items that stick out, just going into 2009, to where we are now?

So is the first part of your question -- where have we taken costs out up to today, and where are the future opportunities?

Is that what your question is?

Yes, and where have you taken them out up to today, any large things that stick out?

And then, I guess that's following up on some of the future things that would come out (multiple speakers) the question was asked beforehand.

I'll take a stab at this.

And, Lee, jump in if you have additional thoughts here.

Nothing has been sacred, number one.

We have leveraged application development and maintenance resources that were once largely onshore to outsourcing and largely offshore.

We've taken our PPO processes, ITO processes -- again, largely onshore -- moved those offshore.

We now have very, very large centers in India.

We have created a whole new analytics team that was once domiciled in the US, to do programming for our decisioning engines, and have built a world-class team now.

I just was down seeing them in Santiago, Chile -- very, very low expense base.

We have questioned almost every activity that we have in the Company and have taken cost out systematically there.

The places we have not cut are in the areas of growth, so it's NPI, marketing and things -- strategic pricing.

We continue to hold firm there.

But it's been every geography.

It's been every COE that we've looked at, either through lean, through workout or just through financial rigor.

But I'd say, if I had to give you an answer for where's the largest single bucket, to date, Lee, I'd probably say it's got to be in the area of outsourcing activities to low-cost countries.

Would you agree?

I would agree with that.

As far as, where is the next big book to come from, I don't think there's going to be one silver bullet.

It's going to be a series of continuing on the activities we have launched to date and leveraging lean fully.

And then, just on the marketing side of things, in terms of the budgets, we are hearing a little bit of snippets from yourself that there's just a little bit more activity in terms of preliminary interest from the issuers, both yourself and some of your competitors.

And when you hear some of the conference calls and talk to some of the banks, they seem to talk like, yes, we'll do it.

But it doesn't seem like a huge commitment.

If you look at some of the comments they have, they said they've increased their budgets but they're really just going to spend that money when they have confidence that they'll get a good ROI on that investment.

Do you have any sense from them that they are further along than what seems like just kind of a -- we'll spend it when it feels right?

Again, I think the point I made was that there is more buzz, if you will, in the credit card issuers to spend more money in marketing.

And again, it is targeted marketing with the right customers, which, again, I think is why we are so uniquely positioned now with our data assets of employment, income, credit and wealth data to help them.

So I would hope and expect an uptick in marketing as we go into 2010.

Jaime Brandwood, UBS.

I wondered if I might also be able to ask a little bit about IXI and the actual nature of the data.

Can you use that data on individuals, or do you have to use it on an aggregate basis?

And if you are using it specifically on individuals, who can you sell the data to, and for what purpose?

Right now, it is what we call here in the US on the ZIP+4 level, which -- ZIP+4 is a very, very consolidated level, somewhere between five and maybe seven homes.

So you can get very, very granular.

When you take that kind of analytics, that database combined with our analytical capability, our income and credit data, you can get awfully doggone accurate at the ZIP+4 level.

So you don't know what John Smith is doing, but you know what the seven people in that kind of area are doing, roughly?

Roughly, correct.

I wondered if I might be able to ask, when you talked about Credit Marketing Services you obviously said that the main reason for the decline there was the lower pre-screen volumes.

And I think you might also have talked a little bit about pricing pressure.

What have you seen on the portfolio management side?

What kind of growth are you still seeing in portfolio management within CMS?

Is it double-digit growth, or has it slowed down at all?

Yes, it ebbs and flows from quarter to quarter, month to month.

I was trying to remember the year-to-date numbers.

Volume up year to date, Lee?

I forget.

Year-to-date it's flat, flat to down just slightly.

Flat?

Okay.

And then I just wonder, on your comments on Latin America and Europe, whether you can provide a little bit of additional color on Brazil and the UK within those two regions.

What color are you looking for, economic wins (multiple speakers)?

I guess, your performance, so for example, versus the minus 2% in LatAm, did you actually see growth in Brazil?

And versus the minus 8% in Europe, were you actually down double-digits in the UK and still seeing growth in Spain?

Yes, and we don't break that out, as you know.

I give you this texture, though.

Brazil performed better sequentially, third quarter versus second quarter.

Brazil continues to be a very important market for us.

I've been down there twice now in the last three weeks.

So I'm still as committed to Brazil as I ever have been.

And we'll continue to build new products, win some share in some unique markets.

In UK, I think you can understand UK, UK is also up sequentially versus the second quarter but a tough environment.

And by the way, we continue to win and gain share in Iberia.

The reason I ask about Iberia, and specifically Spain, is that your erstwhile rival mentioned that they'd seen double-digit growth there.

I was wondering if you would echo that.

We've been talking now for a couple years.

We are the largest player in Spain.

We are the largest player in Iberia, and we continue to grow.

It's not just this quarter, it's not just this year, or last year (inaudible) strong growth (multiple speakers).

Yes, yes, I know.

My last question, Personal Solutions -- I think you made quite a lot of noise earlier in the year about a TV ad campaign that you were running and just generally pushing marketing spend towards that division a little bit more.

In terms of the margin improvement that you saw there quarter on quarter, is that partly because you've now reined in some of that marketing investment and you haven't got any kind of big campaigns planned, TV ad campaigns planned, for the second half?

Yes, our advertising investment in P-Sol ebbs and flows throughout the year.

So the short answer is yes.

Part of the benefit in the third quarter for P-Sol was a little less advertising spend.

But that [changes] -- as you know, you look at our quarter-on-quarter markets for P-Sol, it's very, very volatile.

You haven't got any plans at the moment for running another campaign or anything like that?

Well, obviously, we ran a campaign in the third quarter for Debt Wise.

That thing has taken off.

We continue to evaluate that.

Does that need more advertising spend going forward?

I don't ever see us hitting the level of spending, because I don't think we need to, as one of our competitors does (multiple speakers).

Andrew Jeffrey, SunTrust.

Rick, I understand how sort of aggressively you've analyzed costs throughout your USCIS business and appreciate the extent to which I think you are in the early stages of rationalizing expenses.

If I can ask you a little more pointedly, as I think about 2010 as, let's say, conservatively in environments in which, say, volumes are flattish, and maybe they are better and hopefully they are better, would you go so far as to say that the level of profitability in USCIS today is sustainable in that kind of environment, assuming we don't have another leg down in volume?

Yes.

The way to think about that question is, the profitability is a factor of multiple things.

It's revenue, it's the price and it's the cost.

Right?

And I would like to think, as we move into 2010 and beyond that the worst of the economic environment is behind us, as I mentioned in my closing comments, and we get some stability and some of the new products we have enabled USCIS business to actually start growing.

If that happens, obviously, we continue our pricing discipline, continue our cost disciplines, profits should be stable, if not up in 2010 and beyond, if that makes sense.

Okay, so in other words, it sounds like you are answering in the affirmative, if indeed the underlying assumption is that -- ?

Yes, yes.

Okay.

And then, as a little more optimistic view -- or maybe I'll ask differently.

Do you need, beyond that, meaningful volume growth, do you think, to start to drive the margin higher?

I would expect that, in the absence of that, stability is about as much as we could hope for?

I think, as you mature in some of the new products that we have introduced in the last two years and you get more scale in USCIS, in things like ESS, as an example, but there are many others, that time is on our side as well.

And I would expect, to be very specific, in areas like ESS, for margins to continue to improve in 2010 and beyond because it's just becoming a scale business.

And there are other new products we've launched in all geographies, but your question specifically -- US.

But yes, that will bode well for margins in 2010 and beyond as well, not just (inaudible).

And I guess a question for Lee, with respect to currency, I would expect that the fourth quarter would be a quarter in which currency is much less of a head wind.

How should we be thinking, I guess, especially in Europe about that, with regard to the down sequential revenue guidance you are giving?

Yes; you are correct.

Last year in the fourth quarter, the dollar was actually very strong.

And it has weakened since then, so actually currency becomes a favorable comparison in the fourth quarter.

I haven't broken it out by region.

Internally, we manage to constant dollars as we are managing the fundamentals of the business.

But currency overall for our international business would be a plus rather than a minus in the fourth quarter.

And even in light of that, you would expect the revenues to be down sequentially?

Obviously, up year-on-year but --

Well, the sequential guidance we give basically presumes that currency rates remain where they are today.

We don't try to project from today's level.

So we don't expect a lot of change in currency rates from Q3 to Q4.

But, Andrew, the heart of your question, I think, was we normally see a sequential -- a decline in the fourth quarter, a seasonal decline in the fourth quarter.

Right, okay, so currency at the current level is still consistent with that kind of decline?

Yes.

And then I think I missed what you said, Rick, about TALX in the fourth quarter, revenue.

I'm sorry?

You missed what, what I said?

I missed what you said.

Did you say it's going to be flattish or down sequentially?

No; it will be up slightly from the third quarter and continue to show strong double-digit growth year on year.

Okay, and we can expect, do you think just preliminarily, double-digit growth in '10?

Or, is that too aggressive?

(inaudible), Andrew.

We'll get to '10 when we get through 2009; how's that?

Operator, we'll conclude the call at this point.

We'll be available throughout the course of the day if anybody has additional questions.

So with that, I appreciate your participation, and with that we'll conclude the call.

Thank you.

That does conclude today's conference.

Thank you for your participation.