易速傳真 (EFX) 2010 Q4 法說會逐字稿

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  • Operator

  • Good day, and welcome to the Equifax Q4 2010 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.

  • Jeff Dodge - SVP of IR

  • Thank you, and good morning, everybody.

  • Welcome to today's conference call.

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

  • Today's call is being recorded.

  • An archive of the recording will be available later today in the Investor 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 2009 Form 10-K and subsequent filings.

  • During the fourth quarter of 2009, we recorded two one-time items, a restructuring charge and a tax credit, which will be excluded from our discussion this morning.

  • Also, we will refer to a non-GAAP financial measure adjusted diluted EPS from continuing operations attributable to Equifax, which excludes the impact of the one-time items in acquisition-related amortization expense.

  • These items are included in our non-GAAP reconciliation, included with our earnings release and posted on our website.

  • Please refer to the non-GAAP reconciliation in our various investor presentations, which are 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.

  • Rick Smith - Chairman, CEO

  • Thanks, Jeff.

  • Good morning, everyone.

  • Thanks for joining us this morning.

  • The focus and execution of this team enabled us to deliver another strong performance in the fourth quarter.

  • We continue to capitalize on our strategic investments; we execute well on our key Interpress initiatives; and we are benefiting from a modestly improving business environment.

  • Although the headwinds may have abated, they have not yet become strong tailwinds for us, so our focus going forward will continue to be on the execution of our strategic priorities and delivering on commitments to our customers and our shareholders.

  • Quick review of the quarter.

  • Total revenue from continuing ops was $482 million, up 11% from the fourth quarter of 2009 and ahead of the expectations we gave you during our earnings release last October.

  • I am going to spend some time talking about this next point, which is operating margin.

  • Operating margin was 23%, which was flat when compared to continuing operations from 2009.

  • A couple key points you need to know.

  • This is a strong focus area for us as a leadership team.

  • We are committed to the stated goals we have given you over the last couple years, which is our long-term objectives of getting to 24% to 26% operating margin; that is still well within our reach.

  • If you look at the quarter, it is important you break a few things out.

  • You look at the individual business units.

  • First, Commercial, a strong 32.2% margin.

  • USIS at 36.3%, up 250 basis points over a year ago.

  • TALX at 24.4%, up 330 basis points year-on-year.

  • PSol at 30.9%, up 280 basis points.

  • The reason we are not getting the lift that maybe some of you expected is consistent with what we told you in the past.

  • We have made significant investments, starting in the fourth quarter and probably continue through the early part of the second quarter of 2011, in our International operations, predominately in our go-to-market areas.

  • So that is sales, marketing, product management.

  • Now, I'm convinced that will pay the dividends we want.

  • So that is why you are seeing some compression in margin in International.

  • Plus we decided to make some investments, as Lee has talked about in the past, in IT to position us for long-term growth as well.

  • So if you look at the underlying business units, strong performance there in margin.

  • We will get the lift.

  • And I will talk more about the outlook on the margin for 2011 in my concluding comments.

  • The adjusted EPS from continuing operations was $0.62, up 10% from $0.56 last year.

  • For the year, total revenue from continuing ops was $1.9 billion, up 8% from 2009.

  • And operating margin was 23%, down 60 basis points year-on-year.

  • Adjusted EPS from continuing ops for the year was $2.31, up 6% from $2.17 last year.

  • As always, I'll go through some key business points.

  • During each quarter in 2010, business conditions progressively improved.

  • Consumer credit trends generally improved sequentially and more significantly from their levels a year ago.

  • As a result, major banks have started to release a significant amount of the reserves due to an improving outlook for future credit losses.

  • [M&A] activity picked up, albeit gradually, but with still relatively conservative underwriting practices.

  • We saw our clients apply much more discipline to their decisioning activities and intensify their evaluation of new or unique solutions that would significantly improve their confidence in those decisions.

  • We experienced strong demand from many of our newer products, as customers are increasingly looking to Equifax for decisioning technology, innovation and thought leadership.

  • All of our business units strengthened their management teams throughout the quarter -- throughout the year, as well as strengthening many, many customer relationships.

  • As a result, we were able to deliver strong and improving performance each quarter in 2010.

  • Along with this improving pace, we stepped up our investments to ensure that we are well-positioned for business opportunities and growth in 2011 and beyond.

  • One of our most strategic priorities is acquiring a diverse array of unique data assets.

  • We've been leaders in developing closed exchanges, and in 2010, we developed one of the most unique data assets through a new closed exchange.

  • This new exchange will include the positive data records on consumers' paying history with all their major telecommunications companies and who are currently contributors to our data negative exchange, which was established in the mid-1990s in the US.

  • So we've taken the negative data for telcos and utilities and we've now added positive data.

  • That started in 2010.

  • The data contributors have provided now over 1 billion positive data records on 140 million unique consumers.

  • The important thing here is that over 20% of these consumers that we now have are not in our credit database or do not have sufficient credit history to calculate a credit score.

  • Extremely unique, extremely powerful, no one else in the US has this kind of database.

  • We are just beginning to scratch the surface in terms of new products that we can leverage in this unique asset.

  • For example, solutions that improve decisioning for fraud, new account applications from consumers without a credit file, as well as improving lending decisions that combine data from both databases.

  • More to come on that.

  • We really see that database as being a game-changer in the US.

  • Next, we continue to grow The Work Number, adding over 250 new data contributors and almost 3 million new active records.

  • We relaunched our Personal Solutions website with new products and services.

  • We operationalized our credit bureau joint venture in India.

  • It is exceeding our targets for both bank participation and the volume of records in the database.

  • Russia had a great year for us, exceeding our expectations and further positioning us to be a leading competitor in this growing geography.

  • We recruited seasoned and highly-skilled executives new to Equifax for our IT leader and our corporate development leader, and have successfully transitioned to new leadership in each of our business units, a testament to over organizational bench strength, when you make that kind of change in leadership in one year.

  • We expanded the role of LEAN and Workout across all business units and centers of excellence, and expanded our world-class Equifax-owned shared service operation in Costa Rica, providing high-quality, low-cost services to our business units around the world.

  • We continue to make competitive inroads with our Analytic Solutions.

  • In 2010, for example, 34% of our online transactions in the US included a score from a model developed by Equifax.

  • This is up from 30% in 2009.

  • We've talked a lot about innovation here.

  • We've intensified our commitment to innovation.

  • We launched 72 new products last year, contributed over $176 million to our 2010 revenue from products launched between 2007 and 2009.

  • That is up 31% from the NPI contributions a year prior.

  • It's a very critical effort for us in maintaining our competitive edge in the marketplace, something we remain very committed to.

  • We accelerated our investment in International, as I've talked about a number of times, to ensure that we are well-positioned to capitalize on future growth in these markets.

  • Those investments specifically are in India, Brazil, UK and other Latin American countries.

  • We've staffed up our sales organization, we've acquired companies that strengthen our market position and we've leveraged new product innovations to drive growth, high-value services for our customers.

  • During the year, we also tightened our strategic focus by divesting businesses that did not fit our long-term strategy.

  • During the year, as you know, APPRO, our loan application processing business, and DMS and DBS, our Direct Marketing Services business, were sold as well.

  • As you know, in November, we quadrupled our dividend from $0.04 to $0.16 a share.

  • The resiliency of our business model and the strategic opportunities for growth gave myself and our Board and the confidence to establish a new dividend payout target of 25% to 35% of our net income going forward.

  • Looking forward to 2011, our focus will be to leverage on our strategic investments we've already made, while continuing to deliver improved operating performance and strengthening our competitive position globally.

  • Our key priorities for 2011 and beyond will make us a much stronger competitor domestically, as well as internationally.

  • Over the course of 2011, you'll be hearing about a handful of points that I'll walk you through now that are important to us.

  • Number one is we are making a sizable investment -- have been and will be -- in linking all of our US of data assets, giving customers the ability to leverage Decision 360 insights throughout their organizations.

  • This will be a disruptive force in the marketplace.

  • It will open up new product opportunities and markets by developing personal-centric solutions that are unmatched by our competitors.

  • The technology platform we've been developing will also give us the ability to launch more products at a much faster pace.

  • So the important thing there is we have been doing Decision 360 for about a year now -- you know that.

  • That is leveraging The Work Number, both VOI and VOE, IXI and the credit data.

  • It has been manual process, which takes a little more time and a lot more cost.

  • This linking of the databases make it much more efficient and much faster for our customers and for us.

  • Number two, continuing to broaden our product line and strengthening our market position in the mortgage sector.

  • It has been a very important sector for us.

  • We are a leader in that market, and we will continue to invest and grow and strengthen our position there.

  • Number three, strengthening our international franchise, investing in our larger geographies to make us a more valuable partner for financial institutions, governmental agencies, telcos, retailers and small and medium enterprises.

  • Establishing a strong competitive position and a growth engine in India is very important for us.

  • Important fact for you -- to date -- and we just launched this in the -- I think it was the late third quarter of 2010 -- to date, we have 115 different data contributors in India.

  • And we have 63 million records loaded into the database, with many more on the way.

  • We are really pleased with the progress we are making in India in a short period of time.

  • Next point is we are going to continue to deliver strong, sustainable growth in a number of records in The Work Number database.

  • That is a vehicle for strong growth in The Work Number going forward.

  • Next, we are going to continue to build on our market share gains we've been getting the last couple of years in Personal Solutions and in our North American Commercial Solutions businesses.

  • Next, we are going to invest in and expand our presence in ID management space.

  • The acquisition of Anakam in the fourth quarter significantly broadened our capabilities and product lines in this sector, and we will build upon that even further in 2011.

  • That is a space that is new to us and I am very excited about growth prospects going forward.

  • Lastly, we are going to continue our elevated investment in technology and analytic services by expanding our analytical resources and technology platforms.

  • We are going to build analytical insights across multiple data unique assets, enabling us to offer customers high-value solutions that no competitor can match.

  • Financially, as we look forward, we expect economic conditions to continue to improve modestly in 2011, with the expectation that the economic landscape gets a little better towards the back end of the year than the first half of the year.

  • And our successful performance that we had in 2010 -- so the combination of a modestly improving environment plus our execution and performance in the past give me confidence that we can deliver on the long-term growth objectives we've told you of 6% to 9% over the coming years.

  • Let me break down the specific business units, first with the US.

  • While the US underwriting standards continue to be conservative across all virtually all lending products, banks have moderated their underwriting standards as they have become more comfortable with their ability to manage risk.

  • We expect our Decision 360 products, which incorporate credit, wealth and actual -- not scored -- income data, to increase their penetration in 2011 as customers look for solutions that deliver greater precision for their decisioning activities.

  • For the first quarter of 2011, USCIS revenues are expected to be up mid-single-digit range when compared to continuing operations from 2010.

  • As I've said many times, we are going to continue to invest aggressively in the UK, Brazil and India, as well as all over Latin America, to ensure we are well-positioned to continue to capitalize on the long-term growth opportunities in those geographies.

  • For the first quarter, we expect International revenue, excluding any impact of foreign currency translation, to be up in the low- to mid-single-digit range when compared to the first quarter of 2010.

  • Next, on the TALX, we continue to have great opportunities to grow and expand TALX.

  • Augmenting and diversifying our Employer BPO services should enable us to sustain double-digit growth in The Work Number.

  • For the first quarter, TALX is expected to deliver upper-single-digit revenue growth.

  • On the PSol, we continue to gain share in PSol and that will continue.

  • We will continue to invest in the enhanced customer loyalty and web experience and invest in new products for PSol.

  • And for the first quarter, we expect that business to be up in the upper-single digits when compared to the first quarter of 2010.

  • Lastly, we will continue to invest in North American Commercial Solutions, driving further market share gains and above average growth in the US.

  • For the first quarter, North American Commercial Solutions should deliver upper-single-digit to lower-double-digit growth when compared to the first quarter of 2010.

  • With that, Lee, if you can give the details of the financials, it would be great.

  • Lee Adrean - VP, CFO

  • Thanks, Rick, and good morning, everyone.

  • This morning, I will be referring to the financial results from continuing operations presented on a GAAP basis, except for the exclusion of the 2009 restructuring charges and the fourth-quarter 2009 tax credit, or as otherwise noted in my comments.

  • You should also refer to the Q&A and non-GAAP reconciliations attached to our earnings release for additional financial information.

  • In each quarter of 2010, our business unit leaders achieved or exceeded their commitments and executed well.

  • Fourth quarter was no exception, as all five of our business units met or exceeded the guidance we gave during our last earnings release.

  • For the details, consolidated revenue of $482 million was up 11% on a reported basis.

  • Excluding the impact of changes in foreign exchange rates, revenue grew 10%.

  • During the quarter, acquisitions added approximately 1 percentage point of growth.

  • Constant dollar organic growth of 9% was the strongest we have seen in several years.

  • On a non-GAAP basis, operating margin in the fourth quarter was 22.8%, flat when compared to the fourth quarter of 2009, excluding the restructuring charge.

  • Excluding amortization of acquisition intangibles, operating margin for the fourth quarter of 2010 was 27.6%, a great indicator of our strong cash-generating capability.

  • Diluted earnings per share from continuing operations was $0.50, up 16% from $0.43 in the fourth quarter of 2009.

  • Excluding the impact of acquisition-related intangible amortization, adjusted earnings per share attributable to Equifax was $0.62, up 10% from $0.56 in the fourth quarter of 2009.

  • During the quarter, we repurchased 1.5 million shares of stock for $51 million.

  • As of quarter end, our remaining Board authorization for share repurchase was $105 million.

  • Moving to the individual business units, US Consumer Information Solutions revenue was $191 million, up 12% from the same quarter in 2009 and well ahead of the expectations we communicated during our third-quarter earnings release.

  • Online Consumer Information Solutions revenue was $117 million, up 1% compared to 2009.

  • Our year-over-year online credit decision volume trends have improved every quarter this year, beginning the year in the first quarter down 15%, improving every quarter sequentially, and ending the year in the fourth quarter showing growth of 4%.

  • Mortgage Solutions revenue of $29 million was up 27% compared to the fourth quarter of 2009.

  • Both core mortgage reporting and settlement services contributed double-digit growth in the quarter, outpacing the Mortgage Bankers Application Index, which was up 9% from the fourth quarter a year ago, as we believe we have continued to gain share in these services.

  • Consumer Financial Marketing Services revenue was $45 million, up 46%.

  • Credit Marketing Services delivered strong double-digit growth, driven by double-digit increases in both the prescreening and portfolio review product lines.

  • And in what is already typically a seasonally strong quarter, our new IXI business delivered strong growth, benefiting from a robust pipeline that developed over the course of the year.

  • Although banks have significantly tightened their historical underwriting standards, we are beginning to see some improving trends that will support our growth expectations for 2011 and beyond.

  • Pre-screen acquisition grew 20% for the quarter, after growing 17% in the third quarter, two sequential quarters of strong double-digit growth.

  • For the last four months, our online inquiry volume has experienced positive year-over-year growth, something we have not seen since the beginning of 2008.

  • And although still significantly below the peak in 2007, new bank card account origination has been trending up gradually since February.

  • The operating margin for US Consumer Information Solutions was 36.3%, up 250 basis points from the fourth quarter of 2009, driven primarily by improving margins in Mortgage Solutions and Consumer Financial and Marketing Services.

  • Our International Business unit's revenue was $126 million, up 7% from the fourth quarter in 2009.

  • In local currency, revenue was up 6% from a year ago, nicely ahead of our expectations.

  • By region, Latin America's revenue was $60 million, up 10% in US dollar terms and 7% in local currency when compared to the same period in 2009.

  • Europe's revenue was $36 million, up 1% in US dollars and up 6% in local currency when compared to the same period in 2009.

  • Both the UK and Spain delivered positive local currency growth, despite challenging economic conditions in both countries.

  • Our Canada Consumer Information revenue was $29 million, up 10% in US dollars and 5% in local currency when compared to the same period in 2009, with particular strength in fraud services and marketing services offerings.

  • For International in total, Technology and Analytical Services, Marketing Services and Personal Information Solutions all delivered double-digit growth.

  • International's operating margin was 23.6% from 27.5% in 2009, reflecting the increased portion of Marketing Services versus online transaction revenue within our product mix, and acceleration of our investment in building our franchises in the UK and Brazil.

  • TALX revenue was $102 million for the quarter, up 14% from the fourth quarter of 2009, also ahead of the expectations we communicated during our third-quarter earnings call.

  • The Work Number continues to deliver strong double-digit growth, with revenue of $54 million, up 30%.

  • Double-digit revenue growth in collections, consumer finance, mortgage, pre-employment and government sectors all contributed to this strong performance.

  • Tax and Talent Management Services revenue was $48 million, flat compared to last year.

  • And our TALX operating margin was 24.4%, up from 21.1% in 2009.

  • North America Personal Solutions' revenue was $38 million in the quarter, up 5% and on par with the outlook we gave during our third-quarter call.

  • Direct-to-Consumer subscription revenue was up 8% year-over-year, driven by increases in both average subscribers and average revenue per subscriber, as we have focused increasingly on higher value offerings.

  • Operating margin was 30.9% for the quarter, up from 28.1% a year ago, driven by improved productivity.

  • I would remind our investors that the fourth-quarter margins tend to be seasonally high, and we continue to think of PSol as a mid-20s margin business.

  • North America Commercial Solutions revenue was $25 million, up 12% on a reported basis and 11% in local currency, driven by strong double-digit transaction volume growth and renewals in our data management and marketing segment of our US operations.

  • Revenue was slightly better than the expectations we communicated in our third-quarter call.

  • And operating margin for the quarter was 32.3% compared to 34% in the year-ago quarter.

  • Corporate expense for the quarter was up approximately $7 million compared to 2009, excluding the restructuring charge in 2009.

  • This increase was driven by increased investment in our IT infrastructure, additional professional fees associated with tax planning and staff development programs, deal costs associated with the Anakam acquisition, and higher incentive expense due to our stronger financial performance.

  • For the full year, consolidated revenue from continuing operations was $1.9 billion, up 8% on a reported basis and 7% on a local currency basis.

  • On a GAAP basis, operating margins was 23.1% compared to 22.3% in 2009.

  • Excluding the restructuring charges a year ago, the operating margin in 2009 was 23.7%.

  • Excluding the amortization of acquisition intangibles, adjusted operating margin for 2010 was 28%.

  • Diluted earnings per share from continuing operations attributable to Equifax for the year was $1.86, up 9% from one $1.70 in 2009.

  • Excluding the impact of acquisition-related intangible amortization and the restructuring charge and tax credit in 2009, adjusted earnings per share was $2.31, up 6% from $2.17 in 2009.

  • During the year, we reduced total debt by $175 million, and we repurchased 5.2 million shares of stock for $168 million.

  • As you think about your financial modeling for 2011, you should also consider the following.

  • Corporate expense for the year will be up at a mid-single-digit percentage range, which we expect to be less than our rate of revenue growth.

  • Our corporate tax rate we expect to be between 36% and 38%, and we expect capital expenditures to be in the range of $75 million to $95 million for the year.

  • Now let me turn it back to Rick.

  • Rick Smith - Chairman, CEO

  • Thanks, Lee.

  • Just a quick recap.

  • Then we will go to some Q&A.

  • In 2011, as you think about this, the year-over-year revenue growth should be relatively consistent each quarter throughout 2011 when compared to 2010.

  • For the first half of the year, we will continue the strategic investments we began in the second half of 2010 that I mentioned before.

  • We expect operating margins to begin the year at levels similar to the second half of 2010 because of those strategic investments.

  • However, we expect that they will improve nicely as we exit 2011.

  • For the first quarter of 2011, assuming the current exchange rates, we expect revenue from continuing operations to be up 6% to 8% from the year-ago quarter.

  • Adjusted EPS from continuing operations is expected to be between $0.56 and $0.59.

  • That is up 6% to 11% from continuing operations versus the first quarter of 2010.

  • Let me refresh everyone's memory -- as you know, we sold a few businesses last year.

  • Those businesses that have been sold contributed $0.03 of cash EPS earnings last year that are not continuing in 2011.

  • Therefore, another way to look at it is cash EPS from continuing operations in the first quarter of 2010 was $0.53 a share, and again, we are targeting $0.56 to $0.59 a share this year.

  • We have great confidence in the long-term health and growth of Equifax.

  • Our disciplined execution and strategic investments should enable us to consistently deliver multiyear revenue growth in the 6% to 9% range, with another 1 to 3 points of growth in adjusted EPS resulting from operating and financial leverage.

  • Okay, operator, we would like to now open it up for any questions that they may have.

  • Operator

  • (Operator Instructions) Carter Malloy, Stephens.

  • Carter Malloy - Analyst

  • On the International business, what is the driver of deceleration in growth from 4Q to 1Q?

  • What specific geographies is that?

  • And maybe as a follow-up to that, the investment you guys have been making in, I believe, over 100 headcount in new sales in Brazil, is that fully loaded into the model, and so can we expect margins to stay or maybe even improve on the international front?

  • Rick Smith - Chairman, CEO

  • Yes, I think quarter-over-quarter.

  • There's nothing unusual occurring that drives a sequential delta in International.

  • It is more seasonality and nuances than anything.

  • So Carter, there is no flags of concern there at all.

  • On the investments, yes, we talked about a number of investments.

  • We talked, I think last time, of adding something like 143 to 145-ish to Brazil alone on the front end of the business.

  • We are also investing in other Latin American operations.

  • We are investing in the UK as well, significantly.

  • And almost all those investments are, again, sales, marketing and product management.

  • So what I said earlier, Carter, as it relates to margin, that investment started in the fourth quarter of 2010, so you saw that reflect in the margins in fourth quarter.

  • It will continue through the first quarter and maybe the first month or two of the second quarter.

  • And then we are done with that surge of investment.

  • So the margin outlook I gave you, which is the first half of 2011, should look much like, in aggregate, the back end of 2010 and then improve nicely as we exit 2011.

  • Carter Malloy - Analyst

  • Can we assume that loading in all those new sales people, we will see some acceleration in growth in the back half?

  • Rick Smith - Chairman, CEO

  • Absolutely.

  • Carter Malloy - Analyst

  • Okay.

  • Also, can you talk about the mortgage exposure?

  • You talked about building out more products there -- what the mortgage exposure is in the business now and what your assumptions are and your guidance for overall industry activity.

  • Rick Smith - Chairman, CEO

  • As I think about mortgage, it is an important sector for us.

  • We are uniquely positioned to serve there, unlike anyone else.

  • We have got the employment data, we've got the income data, we have the settlement services offering, we have the credit file.

  • So it is important to us.

  • And while the mortgage is going to be cyclical and it obviously as an industry is a bit depressed at the current time, it is always going to be an important part of a bank.

  • So it's important to us to continue to innovate and think about how we can help the banks in the mortgage sector.

  • Great example is the launching -- I think we talked about it -- of undisclosed debt monitoring.

  • It's a really cool product, that all the banks are concerned about -- make sure they understand how much debt you have from the time they first underwrote you to the time they close, and is there any debt you've actually taken on that is undisclosed at the time of the initial underwriting.

  • That is just one of many examples of how we are trying to innovate mortgage.

  • To answer your question specifically, we talked about mortgage being in the teens as a percent of our total revenue.

  • It continues to be in that range.

  • I don't expect it long-term, even though we are going to innovate and grow it at a rate faster than the MBA, I don't expect the mix as a percent of the total to be disproportionate or much different than that midteens kind of range.

  • Because we are going to grow our non-mortgage-related products as well.

  • Carter Malloy - Analyst

  • Okay.

  • But I assume in building your guidance that you guys have taken into account the MBA approximately volumes (multiple speakers).

  • Rick Smith - Chairman, CEO

  • Oh, yes, yes, yes.

  • We don't expect -- the mortgage refinancing and the mortgage boom we saw in the third quarter has already -- it's started to slow.

  • It started to slow in the late third quarter, early fourth quarter.

  • We are not expecting a strong mortgage market environment in 2011.

  • Carter Malloy - Analyst

  • Okay.

  • And then on TALX, some nice improvement in margin there.

  • Can you talk about Dan's progress in that business since he has moved over and where that should ultimately shake out, in your mind?

  • Rick Smith - Chairman, CEO

  • I think he's doing a great job.

  • Bill Canfield has been there throughout the year as a consultant for him, helping him adjust.

  • Dan has brought his passion, his energy, his leadership, and most importantly, he has brought his knowledge of USCIS.

  • He and Rudy are working very, very well together on building new products, making joint calls, moving people around, so we can leverage the strength of both USIS and the TALX product offering.

  • So it is making a big difference.

  • We're accelerating new product innovation there.

  • He is taking his analytical mindset, Carter, which is something we really haven't looked at in the past -- but taking the analytics that have really helped us in USCIS in the rest of the world and now deploying those rapidly at TALX as well.

  • So he is doing a great job.

  • Carter Malloy - Analyst

  • But on the margin front on TALX, can we assume that he will hold or maybe even improve the margins we see now?

  • Rick Smith - Chairman, CEO

  • Yes, absolutely.

  • Carter Malloy - Analyst

  • Okay.

  • Thank you.

  • Operator

  • Georgios Mihalos, Bank of America Merrill Lynch.

  • Georgios Mihalos - Analyst

  • On the margin front again, appreciate your outlook -- lower in the first half, stronger in the back half.

  • Will you guys be able to hold margins at least flat for the full year compared to fiscal '10?

  • Rick Smith - Chairman, CEO

  • Let me make sure I clarify something -- I didn't say it will be lower.

  • It's a relative statement.

  • I don't expect the first half of 2011 to be lower than the second half of 2010; I expect it to look very much like that.

  • And then exit at a stronger rate in the second half.

  • And in answer to your question, yes, I would expect us to get year-on-year margin increase 2011 versus 2010, and continuing that in 2012 and beyond.

  • Georgios Mihalos - Analyst

  • Okay, great.

  • And just last question for me, just an update on the pricing front, what you are seeing on the OCIS side.

  • Rick Smith - Chairman, CEO

  • Nothing unusual.

  • You are seeing modest price compression on the data.

  • Let me get the exact numbers here.

  • Yes, very, very modest compression -- actually flat pricing on the online in 2010.

  • Georgios Mihalos - Analyst

  • Okay, thank you.

  • Operator

  • Julio Quinteros, Goldman Sachs.

  • Julio Quinteros - Analyst

  • Appreciate all the good detail.

  • What I wanted to do was just maybe sort of take apart the consumer credit side versus the mortgage side, and understand, in your business, as you guys think about the growth prospects, what is going to end up being the more important driver?

  • Obviously, you've already talked a little bit about the mortgage business being relatively flat; we can all see the data.

  • But what will it take even on that side to continue to drive growth?

  • And then on the consumer credit side, as you guys think about bank activity, how quickly do you guys think that the banks ramp up in terms of credit issuance, or what would be the main driver there, to really think about the growth there from those two aspects?

  • Rick Smith - Chairman, CEO

  • I would say -- let me start with the first part of your question, which is mortgage.

  • Ad I kind of hit on that a little bit earlier.

  • And is that I expect innovation to allow us to drive share gain in mortgage.

  • We have done it with ESS, we have done it with other new products, we have done it with TALX, we have done it with undisclosed debt monitoring.

  • We launched a team, a growth team, with -- I think it was roughly nine or 10 of our best and brightest last year.

  • We took them off their jobs full-time for about a month, and had them go look at the mortgage market and said, what else can we do in the mortgage market to add value and serve our customers in ways we haven't served them before.

  • And they came back with some amazing ideas, one of which was the UDM.

  • But many more beyond that.

  • So that innovative thinking about how we can add value to mortgage will enable us to grow mortgage, even though the market is going to probably not be cooperative in 2011.

  • On the online piece, or just the core consumer credit -- let me look at it that way -- what I expect there is continuing to take our products and offerings to new verticals and do things we haven't done before.

  • I am really bullish on, as I mentioned before, this new database we have of positive telco and utility data.

  • I expect us to make headways, by the way, in the big banks.

  • We are doing that now at JP Morgan Chase, Citi, Bank of America and Wells, with our new structure we launched last year.

  • We talked last year about delving into insurance.

  • Had some great successes there, leveraging the Decision 360 in some insurance customers.

  • So a lot of innovation and ways to grow the core consumer credit in ways we haven't before.

  • Specific to the environment of consumer credit, I expect it -- again, as I said earlier, to modestly improved in 2011 over 2010.

  • We are seeing a slight uptick in our CMS prescreening business.

  • We are seeing a nice uptick in our portfolio management.

  • We would like to eventually think that the CMS pre-screen uptick leads to more online.

  • It's kind of muted right now, but like to -- we expect that to pick up in

  • Julio Quinteros - Analyst

  • Just

  • out of curiosity, when you guys talk to the banks, are they at all talking to you guys about possibilities of -- especially post-Dodd-Frank and Durbin interchange rules -- how are they thinking about credit as an opportunity to offset some of the potential lost energy?

  • I'm just curious if you guys have had any discussions along those lines as a thought process for helping them potentially offset some of that lost revenue there.

  • Rick Smith - Chairman, CEO

  • Yes, I'd say, one, they are cautious, but becoming more -- modestly more aggressive in getting back into the market.

  • But still cautious.

  • Julio Quinteros - Analyst

  • Okay.

  • Thank you, guys.

  • Good luck.

  • Operator

  • Dan Perlin, RBC Capital Markets.

  • Dan Perlin - Analyst

  • Just a couple quick questions, so I'm clear on the margin profile, because I knew there is a lot of discussion on it.

  • The area of compression that we expect to see is really going to be in International in the first quarter, and then throughout the year, improving in the back half.

  • But all the other segments look like -- and from your commentary, sound like -- they should continue to expand throughout the year.

  • Is that a true statement?

  • Rick Smith - Chairman, CEO

  • The one I would say -- and I don't have the exact data in front of me, so maybe I will give you my quick reaction, and then I will let Lee jump in.

  • The general answer is yes, I'd expect margin expansion continuing in USIS, margin expansion continuing in TALX, compression because of the investment in International the first half of the year and accelerating in the second half.

  • But one that is really -- I would expect probably a little compression just because it is abnormally high is PSol.

  • PSol in the fourth quarter at almost 31% is high.

  • And that ebbs and flows, as you know, with marketing spend.

  • So there is some cyclicality to that as well.

  • But generically, yes, USCIS expansion, TALX expansion, probably a little compression in PSol, a little compression in International.

  • Dan Perlin - Analyst

  • Got it.

  • And on the International side, I heard Lee mention investments, but I also heard him mention mix of revenues.

  • And I just wanted to flush out kind of the order of magnitude there -- for margin compression, sorry.

  • Rick Smith - Chairman, CEO

  • On the international front door in total?

  • Dan Perlin - Analyst

  • I thought his commentary was in relation to the International segment.

  • (multiple speakers) just hit the margin.

  • And then he said something about mix of revenue, which I missed.

  • And then obviously, we've talked a lot about the investments.

  • Lee Adrean - VP, CFO

  • We have commented for several quarters that a portion of the emerging margin pressure in International had come from online services in several countries being under pressure, and we were offsetting that with newer marketing services.

  • True in the UK, with pressure on consumer lending there; true in Spain, with pressures there; true on a specific sector or sectors in Brazil and Chile, as well.

  • And we've done a great job of bringing other products to market to offset that, but not with quite as strong a margin structure as online.

  • And we've said that for several quarters.

  • That continues to be an issue.

  • I think right now, the greater issue is the investments we are making in reestablishing a higher grade of growth in International.

  • I think the margin -- the product mix is leveling out.

  • Dan Perlin - Analyst

  • Okay.

  • So I was just trying to figure out the order of magnitude.

  • One, you obviously can control; the other one is a bit of a mix.

  • So you are saying the heavy lifting is really in investments, and that is what gives you all the confidence in the back half.

  • Okay.

  • Rick Smith - Chairman, CEO

  • That's correct.

  • Dan Perlin - Analyst

  • Okay.

  • Then just briefly, on the transactions that we saw in online USCIS.

  • I thought I heard you say up 4%, if I heard you right.

  • So that would be the first quarter in a long time that actually turned positive.

  • Was that the right number, first of all?

  • Lee Adrean - VP, CFO

  • Yes, that's correct.

  • Dan Perlin - Analyst

  • If we think about it in the context of the revenue per transaction in that quarter, it looks like it was down about 3% year-on-year.

  • I know previous -- someone else asked a question about pricing, but that doesn't seem to jive with that number.

  • So I'm wondering what is the disconnect.

  • Lee Adrean - VP, CFO

  • There are a couple of other revenue sources in the online business that usually remove pretty much in line with the rest of online, but periodically can cause a little bit of distortion, if you simply look at transactions versus total online revenue.

  • Dan Perlin - Analyst

  • Right.

  • Lee Adrean - VP, CFO

  • When we look at it, we break it down into the individual lines and get very precise.

  • If you look purely at the online credit report business, unit revenue was flat year-over-year.

  • Dan Perlin - Analyst

  • Okay.

  • So there is nothing in that mix that we need to be kind of concerned about as a downward trend.

  • Because the previous three quarters, you had negative transaction growth but you had revenue per transaction up, in aggregate -- I mean, with the data that we can see.

  • Lee Adrean - VP, CFO

  • Yes, and I would say on that -- I mean, the key thing over, frankly, a good part of the last two years, is if you take that measure -- kind of aggregate measure, unit revenue -- average unit revenue has been up a number of quarters over the last two years, which has been predominantly a mix-related issue among different customer sets.

  • We expect going forward that mix is not going to be helping us further.

  • In fact, some of the larger lenders who had become a slightly smaller portion of our mix in the last two years, as they retrenched the most significantly, are more likely to get a little more aggressive.

  • So I think what you will likely see is a return to the traditional pattern of slight reported average unit revenue declines year-over-year.

  • Dan Perlin - Analyst

  • Okay.

  • But with big [vibes] coming back, so that should be a high-quality problem to have.

  • Lee Adrean - VP, CFO

  • Yes.

  • Dan Perlin - Analyst

  • Got it.

  • Excellent.

  • Thank you.

  • Rick Smith - Chairman, CEO

  • The one thing I didn't give you clarity on, when you asked me the question on margin.

  • I told you that USCIS should expect margin expansion next year, TALX expansion next year, modest compression in PSol, just because of the marketing spend.

  • And one I did not mention was Commercial.

  • Commercial, you should also see nice margin expansion in 2011.

  • Dan Perlin - Analyst

  • That's great.

  • Thank you very much, guys.

  • I appreciate it.

  • Operator

  • Andrew Jeffrey, SunTrust.

  • Andrew Jeffrey - Analyst

  • Thanks for taking the question.

  • Rick, you had a great year in TALX, with strong double-digit revenue growth, and despite a challenging economy, so a testament to share gains.

  • I think I heard you say in the first quarter you are looking for high-single-digit growth in what should ostensibly be an improving employment environment.

  • Is that conservatism, or law of large numbers, or is TALX no longer in your mind sort of a double-digit revenue grower?

  • How should we be thinking about that?

  • Rick Smith - Chairman, CEO

  • One, Andrew -- thanks for the question -- but I don't expect a significantly improving employment environment in the first quarter, to be honest.

  • I expect the first quarter -- in fact, the first half, to look much like the fourth quarter of 2010 looked.

  • Secondly, we had a nice run-up in the mortgage market in 2010.

  • That has already started to moderate a bit and I expect that to continue.

  • So I still am very bullish.

  • We've got great new products out there.

  • Dan is doing some great things.

  • So -- and it can be a great growth business for us, with expanding margins for as far as I can see.

  • Andrew Jeffrey - Analyst

  • Okay, so an improvement in the employment environment would be outside?

  • Rick Smith - Chairman, CEO

  • Absolutely.

  • Andrew Jeffrey - Analyst

  • From what you are thinking about.

  • Okay.

  • That's helpful.

  • And then one of the things I know you talked about -- I think you called out $176 million in revenues from new products that you'd launched in '07 to '09.

  • Can you sort of -- when you think about your 6% to 9% sustainable organic revenue growth longer-term, is it a couple points of that growth that should be coming from new products every year, as you look at recently launched solutions, as well as new initiatives you have in the pipeline?

  • Is that about the right level?

  • Rick Smith - Chairman, CEO

  • That's a great question.

  • Look at it this way -- when you break out the model and you think about the core economic growth, you think about products and initiatives and you think M&A.

  • The core economic growth is going to probably be in that 1% to 3% range.

  • Products and initiatives run 3 points of growth.

  • And then M&A, 1 to 2 points on top of that over time.

  • Andrew Jeffrey - Analyst

  • Okay.

  • So that kind of leads right into my next question.

  • You've been acquisitive, it looks like especially -- it sounds like IXI just had a fantastic quarter.

  • So you're starting to get some traction from recent acquisitions.

  • Where do you think you could fill in the blanks a little bit acquisitively?

  • Is it more data?

  • And then when you think about the things that you could do, is it a one to two-year lag between making an acquisition, say, of proprietary data and seeing it translate into revenue, or is that too long a time gap?

  • Rick Smith - Chairman, CEO

  • One, thank you for the commentary on IXI.

  • We are very pleased with it -- not just a great quarter, but a great year.

  • Culturally, process-wise, leadership-wise, they have really integrated well into the Company, which is great.

  • And the combination of IXI data, the TALX data and the credit data is really making a difference in the marketplace, so we're thrilled with that.

  • So thank you for noticing that.

  • As far as acquisitions go, we've got a strong balance sheet.

  • I don't depend on acquisitions for our growth.

  • Some unique assets out there we always look at in all parts of the world.

  • Geographical expansion is always interesting.

  • Strengthening our current international footprint is always interesting to us.

  • More data assets, more in the area of IT management is intriguing.

  • So the opportunity for M&A is good for us today.

  • As far as lag or timeline from the time we acquire, it really varies by (technical difficulty) actually buy.

  • My view is you buy a company that has already got great internal organic growth itself, because the synergies you get do take some time before you can actually realize those.

  • Andrew Jeffrey - Analyst

  • Okay, thanks.

  • Operator

  • Michael Meltz, JPMorgan.

  • Michael Meltz - Analyst

  • I have, I think, three questions for you, none margin-related though.

  • One follow-up from the last question on TALX.

  • I just want to clarify -- I don't think you're actually pointing to a deceleration at TALX.

  • You had Rapid Reporting in there that helped your 2010, so you only grew, say, 7%, 8% organic, and now you are pointing to high-single-digit.

  • Is that fair?

  • Rick Smith - Chairman, CEO

  • Great point.

  • You're right.

  • We grandfathered Rapid Reporting, I think it was in the third or fourth quarter last year.

  • You're right.

  • Michael Meltz - Analyst

  • Okay.

  • And then your CapEx spend ramped.

  • I know you have been talking about spending more on CapEx for four years now.

  • It ramped in 2010.

  • Your guidance, I'm actually intrigued to see implies a drop in 2011.

  • And so just explain to me a little bit -- are you feeling pretty good about where you are platform-oriented?

  • And now when you are talking about investments, it is people-oriented or data acquisition.

  • And so you are much closer to having these investments contribute to growth.

  • Is that fair, or how do you think about that?

  • Lee Adrean - VP, CFO

  • First, just a quick comparison.

  • The $100 million of CapEx in 2010 included $29 million to buy out the lease on our building, on our headquarters building, which was actually announced -- the intention to do that was announced in 2009, but the actual cash payment was in 2010.

  • So we were in the low 70s.

  • And we think that is -- we think a range from the 70s into the 90s is about an appropriate sustainable range.

  • But you're right, the bulk of that is new-product oriented.

  • So it is development staff and software development related to new products.

  • And then secondarily, it is the equipment to accommodate growth and then the new products.

  • And that is a very comfortable range for us.

  • Michael Meltz - Analyst

  • Okay.

  • And then the last question, when you are talking about all the go-to-market people in Latin America, is there a specific niche of the market you are targeting?

  • Is it basically -- we are seeing robust growth from Experian, from SMEs.

  • Is that what you're targeting here?

  • Or give us a little bit more detail around specific parts of the market that are appealing to Equifax that you are hiring to target.

  • Rick Smith - Chairman, CEO

  • Let me start at a little higher level and come quickly down to Brazil and the targeted markets there.

  • The investments we've made are in the UK, countries outside of Brazil in Latin America, and in Brazil itself.

  • So it is not just Brazil.

  • But specifically in Brazil, I talked about the 140 some odd people last time.

  • The majority of those are in the SMEs, but also in telcos and the banks as well.

  • Michael Meltz - Analyst

  • This might be too in the weeds, but an efficiency metric, what does a seasoned salesperson for Equifax -- what type of revenue bag should that be person be contributing?

  • Rick Smith - Chairman, CEO

  • We've got those metrics.

  • I don't have them off the top of my head specifically for Brazil.

  • But if you are interested in that, Jeff, reach out to Michael after the call.

  • We have a very detailed plan that we laid out and treat it much like you treat a CapEx investment, if you will.

  • Before we decided to make that kind of investment in Brazil, there was a return on that investment that we have, so we have some metrics by salesperson that Jeff can get you off-line.

  • Michael Meltz - Analyst

  • All right.

  • Thank you.

  • I've got to tell you I appreciate the detailed guidance.

  • Somewhere, Phil Mazzilli is either smiling or cringing.

  • Rick Smith - Chairman, CEO

  • Thank you, Michael, as always.

  • Operator

  • Eric Boyer, Wells Fargo.

  • Eric Boyer - Analyst

  • You saw great grosses in your new product initiatives in 2010.

  • Can you give us a sense of the growth you see with those initiatives in 2011, and whether those should have a greater contribution to the revenue growth rate in 2011 compared to 2010?

  • Rick Smith - Chairman, CEO

  • I think I heard you the essence of your question.

  • The essence of your question was great growth in 2010 from new products, and basically, will that continue in 2011.

  • Is that your question?

  • Eric Boyer - Analyst

  • Yes.

  • Rick Smith - Chairman, CEO

  • Our targeted contribution over a long period of time from new products to revenue is 10% of our revenue comes from product launches in the last three years.

  • We call that a vitality index; so it's a rolling three-year look, Eric.

  • And you may have some ebbs and flows, if you have a particularly large product launch one year that doesn't repeat, three years down the road.

  • In general terms, our objective clearly is 10% from new products.

  • Eric Boyer - Analyst

  • Okay.

  • So just as far as 2011 compared to 2010, can you just give us a sense if there is any kind of fall-off just due to the rolling off of products within that three-year cycle?

  • Lee Adrean - VP, CFO

  • No, I think we would expect a comparable contribution as a percent of revenue and a comparable contribution to incremental growth in '11 as '10.

  • Eric Boyer - Analyst

  • All right, great.

  • You had divestitures in 2010.

  • Are you mostly complete with those now?

  • I guess to ask differently, are their pieces of your business, without getting into specifics, that you feel are not core to where Equifax is going?

  • Rick Smith - Chairman, CEO

  • We continue to look at that, as you might guess, routinely, in our three-year planning process.

  • But at this juncture, no, I don't see a need or desire to dispose of any other piece of the portfolio at this time.

  • Eric Boyer - Analyst

  • And then anything that we should think about as far as being different from the normal seasonality of your business for the top line in 2011?

  • Rick Smith - Chairman, CEO

  • No, I gave you some thinking there that as you think about the year-on-year comparison as far as the growth year-on-year, quarter-over-quarter -- or quarter-to-quarter, it is going to look fairly similar each quarter.

  • So there is not expected to have a ramp-up as it relates to comparative growth versus 2010.

  • Eric Boyer - Analyst

  • All right.

  • Thanks a lot.

  • Operator

  • Dan Leben, Robert W.

  • Baird.

  • Dan Leben - Analyst

  • Just one quick one for me.

  • With the investments rolling off a little bit in the back half, is this kind of the end of kind of a four-year significant investment cycle, or should we expect a new pattern to be another set of investments coming in first half of 2012 and then ramping down in the back half of '12?

  • Rick Smith - Chairman, CEO

  • I'll answer it this way.

  • We have the ability, the balance sheet, the wherewithal to make investment as we need to make investments for growth.

  • So you will always see us making the right investment, either CapEx or organic growth and people.

  • However, as it relates to margins, which is probably the heart of your question, as I said before, this business model has the ability to deliver incremental margin and deliver the 24% to 26% margin over time.

  • That is the path we are on, even if we do decide to make incremental investments in organic growth.

  • Dan Leben - Analyst

  • Great.

  • Thanks.

  • Operator

  • Shlomo Rosenbaum, Stifel Nicolaus.

  • Shlomo Rosenbaum - Analyst

  • Just a few housekeeping things on some of the corporate costs.

  • Are some of the international costs in the ramp-up or any of that stuff being absorbed on -- in the corporate costs, or are they all being allocated to International?

  • Lee Adrean - VP, CFO

  • No, the International investments are entirely in the International P&L.

  • Shlomo Rosenbaum - Analyst

  • So the ramp-up, can you walk us through what some of the ramp-up in the corporate costs through the year are going to be comprised of?

  • Rick Smith - Chairman, CEO

  • You're referring to last year or for 2011?

  • Shlomo Rosenbaum - Analyst

  • 2011.

  • Lee Adrean - VP, CFO

  • Well, in 2011, as I said, we are looking at kind of a mid-single-digit percentage growth, which is slightly more than inflation but less than revenue.

  • And it really is kind of what I would describe as normal business growth at this point.

  • Shlomo Rosenbaum - Analyst

  • Okay.

  • And then everyone is asking about the margins.

  • The basic question everyone wants to get to is how long is it going to take for you guys to get to the bottom end of that long-term range?

  • Is that something we should think of in a year from now, when you get a ramp-up in the second half of this year?

  • Or is that something that is kind of an aspirational thing, that is one of those three- to five-year targets that companies put out all the time?

  • Rick Smith - Chairman, CEO

  • Great question and very direct.

  • I would like to think as we exit 2011, we are getting very close to that number.

  • And clearly, that number in 2012.

  • Shlomo Rosenbaum - Analyst

  • So you expect 2012 to be in the lower end over there?

  • Rick Smith - Chairman, CEO

  • Correct.

  • Shlomo Rosenbaum - Analyst

  • Okay.

  • And then last housekeeping thing about free cash flow.

  • How should we think about free cash flow through the year?

  • And are you expecting much better free cash flow numbers or just kind of looking at some of the ramp-up minus the cost for the building through the year?

  • How are you thinking about that, Lee?

  • Lee Adrean - VP, CFO

  • A couple things.

  • First, if you look at -- everyone has got a different definition of free cash flow.

  • We would typically look at cash from operations, less CapEx, less dividends.

  • And of course, we just raised our dividend.

  • That is a different effect.

  • But the key thing you might note in 2010 is that cash from operations was down.

  • And the prime driver of that -- there were two drivers -- but the prime one is we made some significant contributions to the pension plan this year.

  • Frankly, because that is a frozen plan, I think of that more as a financing step than an operating step.

  • But we do not expect that to recur in 2011.

  • I think we are very comfortable with how that plan is funded.

  • So I think what you will see is cash from operations, particularly due to balance sheet changes, such as the pension contribution in 2010, cash from operations should be up nicely.

  • It will also be up in line with net income.

  • So you will see stronger cash flow next year than this year, but largely due to balance sheet changes.

  • The pattern within year, seasonally, the first quarter is the lowest cash flow quarter just because of the timing of certain assets and liabilities.

  • And then the next three quarters tend to be fairly consistent among them.

  • Does that answer your question?

  • Shlomo Rosenbaum - Analyst

  • Yes.

  • Could you just remind us what the pension contribution was last year?

  • Lee Adrean - VP, CFO

  • The total contributions we made in 2010 were $50 million.

  • Shlomo Rosenbaum - Analyst

  • And what do you expect in 2011?

  • Lee Adrean - VP, CFO

  • $10 million.

  • Shlomo Rosenbaum - Analyst

  • Okay.

  • Thank you very much.

  • Operator

  • Manav Patnaik, Barclays Capital.

  • Manav Patnaik - Analyst

  • I will try and keep this quick.

  • Firstly, on the marketing side in CFMS, obviously some nice growth.

  • Is that basically a lot of seasonality, with benefits and marketing in the fourth quarter?

  • Or was there something more -- better than your internal expectations you have seen that could sort of be a leading indicator of better things to come?

  • Rick Smith - Chairman, CEO

  • I don't think of it as seasonality.

  • What we had is a strong growth in the account management piece of CMS, which was great.

  • And you saw a pickup in the prescreen as well.

  • So more of those than any kind of seasonality.

  • Manav Patnaik - Analyst

  • Any takeaways from there, though, in terms of that continuing to maintain its momentum basically going into the quarters 2011?

  • Rick Smith - Chairman, CEO

  • The trends are positive and the hope is that, obviously -- as I mentioned earlier, the prescreen pickup eventually leads to a pickup in the online.

  • Lee Adrean - VP, CFO

  • One thing I would note.

  • We had -- I think it was 30% growth in that segment generally, CFMS in total.

  • Some of that was still affected by the addition in of IXI.

  • I think of the traditional credit marketing services as having grown at a double-digit rate from quarter to quarter off what was a pretty low base.

  • And then very strong growth in IXI, as we're really seeing what we expected when we acquired that business.

  • In total, I think that line of revenue kind of could grow in the very low double digits prospectively, as you've fully anniversaried IXI now, but you're still seeing a much better environment for credit marketing than we saw a year ago.

  • Manav Patnaik - Analyst

  • Got it.

  • That's helpful.

  • On the North America, on the commercial side, can you just remind us again of the seasonality in the margins, and also just sort of your take on what the competitive environment is there?

  • Rick Smith - Chairman, CEO

  • On the seasonality, there is a piece of that business that is strongly backend-loaded, meaning (inaudible) fourth quarter.

  • And as a result, the revenue tends to be higher in the fourth quarter than the prior three quarters, and as a result, the incremental margins there; so the margin is expanded in the fourth quarter versus the first three.

  • As far as the environment itself, the team is doing a great job.

  • We are gaining share in Commercial, growing obviously at a faster rate than the market itself.

  • So the growth prospects for Commercial are bright going forward.

  • Manav Patnaik - Analyst

  • Got it.

  • And just one last one, if I may, just on -- if you can remind us -- obviously, it looks like cash flow -- free cash flow guidance, or anecdotally what you've said, should show improvement.

  • You've already raised the dividend.

  • Just in terms of your -- the way you are looking at in terms of additional share buybacks and obviously the level of acquisition investment, could you just remind us of your priorities there?

  • Lee Adrean - VP, CFO

  • Within our free cash flow, if you take it as I defined, which is cash from operations, less CapEx, less dividends, obviously free cash flow is after we have already funded organic growth to the fullest extent of the opportunities we have.

  • And that reflects dividend that has got a dividend yield just slightly under 2% now.

  • The remaining cash flow is going to go to a mix of acquisition, share buyback, debt reduction; we are very comfortable with where we are.

  • We're a little bit at the lower end of our range on debt-to-leverage.

  • So first, we are going to look at acquisitions.

  • And if we have the right acquisitions that add strategically to what we do and we believe we can get a good return, that is going to be the first priority.

  • And at the current level of leverage, the remainder after acquisition would go to share repurchase.

  • Manav Patnaik - Analyst

  • Got it.

  • Thanks a lot, guys.

  • Operator

  • Bill Warmington, Raymond James.

  • Bill Warmington - Analyst

  • You've talked in the past about the need to generate organic revenue growth above 3% to 4% in order to produce operating margin expansion.

  • Given the investment you guys have made and where we are in the cycle, is that still the way you think we should look at that model?

  • Lee Adrean - VP, CFO

  • As I think Rick has stated, we are kind of at a -- we have made some important investments in our business right now.

  • I think the direct implication of what he said is we are not going to increase from this level; if anything, we will come off this level a little bit as we work through some key investments internationally.

  • With that being said, yes, somewhere, as we cross over that 4% you start seeing some margin expansion.

  • Bill Warmington - Analyst

  • Okay.

  • And then you'd mentioned a couple of emerging revenue opportunities, the National Consumer Telecom and Utilities Exchange PLUS and also Alternative Identification data.

  • When do you think these start to become some notable contributors to revenue?

  • Do you start to see it in 2011 or is it more 2012?

  • Rick Smith - Chairman, CEO

  • If you're being specific -- there are so many things we have going on in innovation and new products, as you know.

  • If your question is specific to the positive telco utility database and ID, the answer is yes in 2011.

  • Bill Warmington - Analyst

  • Perfect.

  • All right, thank you very much.

  • Operator

  • Nat Otis, KBW.

  • Nat Otis - Analyst

  • Not many questions left to ask.

  • Just a quick follow-up on the capital questions.

  • One, is there any buyback factored into your 1Q guidance?

  • Lee Adrean - VP, CFO

  • Yes -- essentially no.

  • It is hard to impact the current quarter with share buyback, certainly in a quarter where our cash flow is the lowest of the year because of some seasonal balance sheet items.

  • We really couldn't affect the first-quarter earnings per share.

  • Our guidance is really based on the progress of the business.

  • Nat Otis - Analyst

  • Okay.

  • And then can you give any color -- talking about acquisitions, can you give any color on the competition you are seeing out there with those data assets?

  • Rick Smith - Chairman, CEO

  • The competition?

  • Nat Otis - Analyst

  • Yes, competition now versus say a couple years ago.

  • I mean, there are certainly other players out there with capital as well to spend.

  • Is it -- it seems to be a little bit of a sellers' market maybe, but just any color on who you are going up against -- not necessarily specifically, but just the type of market for those data assets.

  • Rick Smith - Chairman, CEO

  • Generically, you would expect in this environment that the private equity firms are obviously flush with cash and getting back into the market.

  • But what we tend to be more successful is when we are not in an auction process, but we are actually cultivating relationships with people we've known and have worked with and establish that relationship and partnership and then buying them; like TALX is an example.

  • IXI is a great example of that.

  • Anakam is a great example of that.

  • Some of our International properties, great example of that.

  • So generically, [PE] I'd expect to be more aggressive going forward, but that is kind of our model.

  • Nat Otis - Analyst

  • All right.

  • That's helpful.

  • And then just lastly, any traction or anything on the horizon in kind of a public sector vertical market?

  • Rick Smith - Chairman, CEO

  • The benefit we get from Anakam, as I mentioned before, is they have a strong -- this is in the US anyways -- they have a strong working knowledge of the government sector in the US.

  • They've got strong relationships there and a strong revenue stream.

  • So we are trying to leverage that in the US.

  • We do a fair amount in the public sector in the UK, as well.

  • That is a good market for us.

  • So the answer is, yes.

  • I don't see it as a significantly changing our revenue profile going forward.

  • But we will leverage Anakam, their strength there, and we will continue to build out products in the UK.

  • Nat Otis - Analyst

  • All right.

  • Thank you, gentlemen.

  • Operator

  • David Parker, Lazard Capital Markets.

  • David Parker - Analyst

  • My questions have been asked.

  • Thank you.

  • Operator

  • David Togut, Evercore Partners.

  • David Togut - Analyst

  • Thank you.

  • My questions have been answered as well.

  • Jeff Dodge - SVP of IR

  • Operator, I know we've run over our normal time, so we will terminate the call at this point, and we will be available for the rest of the day to answer any other questions.

  • So thanks, everybody, for your participation, and with that, we will end the call.

  • Operator

  • And that concludes today's conference.

  • We thank you for your participation.

  • You may now disconnect.