易速傳真 (EFX) 2011 Q3 法說會逐字稿

Good day, everyone, and welcome to the Q3 2011 Equifax earnings release conference call.

Today's call 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, 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'll 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 filings with the SEC including our 2010 Form 10-K and subsequent filings.

We will refer to a non-GAAP financial measure adjusted diluted EPS from continuing operations attributable to Equifax which excludes acquisition-related amortization expense and the loss on the merger of our Brazilian operations with Boa Vista Servicos.

Since our Brazilian operations were merged with Boa Vista on June 1, we will also present revenue growth excluding Brazil from Q3 of 2010 to Q3 of 2011 providing clearer understanding of our revenue growth for the businesses that will continue to be reported in our operating results.

These measures are detailed in our non-GAAP reconciliation included with our earnings release and posted on our website.

Please refer to the non-GAAP reconciliation and our Investor Relations presentations which are posted in the Investor Relations section under the About Equifax tab on our website at www.Equifax.com.

Now I'd like to turn it over to Rick.

Thanks, Jeff.

Good morning, everyone; thanks for joining us today.

We delivered what I'd call another very solid performance for the third quarter; the performance is broad-based and the contribution of our organic growth initiatives continues to accelerate.

All five business units delivered revenue growth in the quarter; three business units comfortably exceeded and two met the expectations we outlined for you during the last quarter's earnings release.

We also expanded our operating margin beyond the upper end of the range that we had targeted for the quarter.

It's clear, I think you'll agree, that product innovation is an important contributor to our revenue growth.

Our new products are gaining meaningful share with our customers and traction in all the markets we serve.

As a result our core non-mortgage organic revenue growth has accelerated each quarter this year, reaching 7% in the third quarter up from 6% in the second quarter and 4% in the first quarter.

This consistent and strong performance provides a healthy level of cash flow which we have allocated in a very balanced manner.

To date in 2011 we have invested $59 million in CapEx, $116 million on strategic acquisitions and investments, in addition to returning $134 million to shareholders through dividends and stock buybacks.

For the quarter total revenue from continuing operations was $490.4 million, up 4% from the third quarter a year ago.

When you exclude Brazil total revenue was up 8% which is our fastest growing quarter this year.

Operating margin was 24.8%, up significantly from a year ago driven by broad-based improvements in operating leverage and the merger we talked about many times now of our Brazilian operations into Boa Vista.

Finally, adjusted EPS from continuing operations was $0.65, up 8% from $0.60 a year ago.

And now as I usually do, I'll jump into some highlights business unit by business unit, give you a quick outlook for the fourth quarter and then Lee will give you the financial details.

I'll start with USCIS.

They continue to make great progress on their Decision 360 initiative which we've talked about now for a couple of years.

A couple highlights there, we have significantly strengthened our revenue position with a large bank as their primary credit reporting partner, signed a two -- new two-year agreement representing over $20 million in contract revenue.

In addition, this client signed a two-year multimillion dollar agreement for our IXI wealth complete solution.

They also signed an exclusive VOE/VOI contract with TALX, that offering gives you a clear example how our differentiated data assets differentiate us from our competition.

Also during the quarter we completed the migration of a large credit card issuer from a competitor to our platform of consumer credit information products.

This competitive take away is a great opportunity for us and we expect it will generate over $25 million in incremental revenue over three years.

Despite sluggish bank lending activity, our online information services continued to deliver strong growth.

Year-over-year volume was up 9% continuing to reflect strong customer demand for our core product offerings.

As uncertainty in the environment and competition increases our customer's need for more accurate decisioning tools has intensified.

And we expect that to continue for the foreseeable future and position us well due to our unique data assets.

Next, our value added analytics continue to capture customer mind share.

During the quarter 38% of our online transaction volume included an analytical component of an Equifax model.

This represents the eighth consecutive quarter of year-over-year gains in the penetration of our analytical solutions.

Lastly for USCIS is -- successfully leveraging its diverse data assets to enter new areas of decisioning value chain, broadening penetration with our new large customer segments, gaining share and creating demand for new decisioning applications.

For example, for our telco utility customers our NPI initiatives have resulted now in contracts signed over just the past few months representing approximately $22 million in incremental new revenue for 2012.

Move on to international -- in international, strong growth in all three geographies reflects continued progress across a broad range of strategic initiatives.

All three geographies continue to penetrate the customer base with core product offerings and credit information, analytics and decisioning platforms.

We also made strategic investments that expand our footprint in Latin America and increased our ownership in Russia.

International continues to drive revenue growth in new product innovation with over 14% of revenue this year from products launched in 2008, '09 and 2010.

On to Brazil.

Our investment in Boa Vista has created a much stronger competitor in Brazil.

Through this investment and future investments we expect three or four things.

One, to participate in double-digit revenue growth over the next five to 10 years.

Two, further leverage our current investment in new products, decisioning platforms and technology with a much broader and richer base of consumer information.

And three, benefit from Boa Vista's strong customer relationships, particularly with the large financial institutions where they had stronger relationships than we did at Equifax.

Finally the integration of our operations into Boa Vista is on schedule and in line with all of our expectations.

On to Europe.

Europe had a very strong quarter of double-digit revenue growth as we continue to deepen our relationships with existing customers, introduce new product offerings and enhance customers' decision-making activities and broaden our unique data assets as we did with the acquisition of Workload earlier this year.

On to TALX -- TALX successfully completed two very important strategic objectives during the quarter with the acquisition of DataVision and our recently closed acquisition of eThority.

These two companies broaden our service offerings to both employers and verifiers while further strengthening our market position.

I'll give you a little insight on both.

First, DataVision -- they're going to enable us to provide extremely cost effective end-to-end employment and of income verification services to all of our customers.

The range of capabilities start with the work number, the most automated and constant [affected] service, continuing then to the IRS 4506-T tax return information and ending with manual verification of employees of companies that we don't have on the work number database.

[Deftly] said, what DataVision has is they've developed an extremely flexible, easy to install workflow management software that can be easily adapted to many different data sources.

As a result our manual verification services can be delivered more cost effectively than any of our less automated competitors.

Next, eThority -- they've broadened our service offerings to employers leveraging our core competency and analytics and giving us the ability to introduce new analytical solutions to the TALX customer base.

These high-value services will further differentiate us in the marketplace resulting in a higher retention rate and accelerating growth through the work number database.

On to PSOL, North American Personal Solutions has developed a great rigor and discipline as it executes on its strategic initiatives.

Three straight quarters of solid double-digit growth and six quarters of year-over-year margin improvement is being driven by relentless focus on four areas.

One, improving its engagement with consumers.

Two, continually driving improvements in key operating leverage such as churn, conversion and customer lifetime value.

Three, increasing the return on marketing spend.

And four, like all other business units, launching new products that continue to enable, engage and empower the consumer to make better decisions -- financial decisions.

Finally, North American Commercial Solutions continues to win share in the marketplace with another quarter of strong double-digit growth.

We've launched several new products that will continue to fuel that growth in the fourth quarter and beyond.

We've created great synergies with our IXI business when we launched small business assets which leverages $2 trillion of investable assets reported in the IXI database to deliver additional information, informational value for customers' targeted marketing initiatives.

We also launched QTC, Quote-to-Cash Advantage, a premier decisioning platform for [non-FI] customers which is a direct competitive alternative to both of our major competitors' product offerings in this space.

QTC Advantage is an extremely user-friendly customizable system that helps customers manage their accounts receivables more effectively, improving their cash flow and minimizing risk.

Finally, Lending Trends Benchmarking was introduced in our commercial solutions business.

This product compares the portfolio of an individual institution with the market as a whole to identify trends, risks and opportunities.

The institution can then develop a more effective portfolio strategy that will maximize their revenue opportunities while minimizing the inherent risk of the portfolio.

As a company our performance this quarter again demonstrates the culture we have here, a culture of accountability, accountability to ourselves, accountability to our customers and accountability to our shareholders.

Despite what's become a continuously sluggish business environment, this focus on execution has enabled us to deliver very strong financial results in 2011 and, more importantly, position us for continued solid growth in 2012 and beyond.

We're going to continue to deliver solid revenue growth in all of our businesses focused on winning share with unique products and services, improving our operating margins and generating sufficient cash to satisfy our investment opportunities while also meeting our commitment to our shareholders.

I'll end, before I turn it over to Lee, with a quick look at the fourth quarter; I'll give you some insight to what I think -- yes, that's it, then we'll turn it over to Lee.

USCIS online volume trends are expected to improve modestly in the fourth quarter in addition to an increased level of revenue from positive telco database and NPI.

With the upcoming quarter we expect USCIS to deliver high-single to low-double-digit revenue growth versus fourth quarter of 2010.

International, we'll continue delivering strong revenue and operating margin results for the fourth quarter.

Excluding the impact of foreign currency translation in Brazil, we expect revenue to be in the upper-single-digit range when compared to fourth quarter 2010.

In TALX we will offset the current weakness in the mortgage market and what was a very, very strong mortgage market growth in the fourth quarter 2010 with organic growth this year, our growth initiatives and modest contributions from DataVision and eThority.

For the fourth quarter growth is expected to be in the low-single-digits.

Personal Solutions is expected to continue adding new subscribers and increasing average revenue per subscriber as it has done throughout the year.

For the fourth quarter PSOL should again deliver very strong double-digit revenue growth.

Finally, North American Commercial Solutions will continue winning market share and executing on NPI to again deliver very strong double-digit growth when compared to a year ago.

Now Lee, if you'd give them the financial details.

Thanks, Rick, and good morning, everyone.

This morning I'll be referring to the financial results from continuing operations generally presented on a GAAP basis.

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 we delivered strong results both in terms of revenue growth and operating performance.

Compared to the same quarter in 2010, for the third quarter of 2011 consolidated revenue of $490 million was up 3.5% on a reported basis and 8% when Brazil was excluded from both years.

Excluding the impact of changes in foreign exchange rates, revenue was up 2.5% on a reported basis or 7% excluding Brazil.

Operating margin was 24.8% compared to 23.3% for the third quarter in 2010.

Diluted earnings per share from continuing operations attributable to Equifax was $0.54 a share, up 11% from the third quarter of 2010.

Excluding the impact of acquisition-related intangible amortization, adjusted earnings per share attributable to Equifax was $0.65 a share, up 8% from $0.60 in the third quarter of 2010.

Also during the quarter we repurchased 1.4 million shares of stock for $44 million.

Moving to the individual business units, US consumer information solutions revenue was $202 million, up 4%.

Online consumer information solutions revenue was $136 million, up 6% as online credit decision volume trends continue to improve.

Third-quarter online volume was up 9% again reflecting the value of our decisioning solutions for a variety of applications, particularly in the face of modest loan growth.

Mortgage solutions revenue of $32 million was flat compared to the third quarter a year ago.

Core mortgage reporting was down from the very strong quarter a year ago as mortgage application volumes declined while settlement services was up nicely for the quarter as we continue to increase market penetration.

The Mortgage Bankers' application index was down 2% for the third quarter of 2010.

Consumer financial marketing services revenue was $35 million, up 3%.

And the operating margin for our total US consumer information solutions business was 36.6%.

Our international business units' revenue was $119 million.

Excluding Brazil following our deconsolidation in the second quarter reported revenue grew 17% and local currency or constant dollar revenue growth was 12%.

By region Latin America's revenue was $45 million.

Excluding Brazil reported revenue grew 18% in US dollars and 16% in local currency.

Local currency revenue growth was broad-based as all major product lines delivered double-digit growth.

Europe's revenue was $41 million, up 16% in US dollars and up 11% in the local currency.

Contributors to the growth include consumer and commercial information, personal solutions and Workload, an investment asset information company in the UK which we acquired earlier this year.

Canada consumer information revenue was $33 million, up 16% in US dollars and 9% in local currency.

All product lines contributed to the growth in the quarter with technology and analytical services delivering double-digit growth with fraud services being the key contributor.

Overall our international operating margin was 29.3%, up from 25.2% in 2010.

TALX revenue was $103 million for the quarter up 4%.

A decline in mortgage activity was more than offset by approximately double-digit growth in the non-mortgage customer segments and the acquisition of DataVision.

The work number with revenue of $57 million was up 4% for the quarter.

Doubled digit growth in consumer finance, pre-employment and government sectors and the acquisition of DataVision helped to offset the double-digit decline in mortgage.

Tax and talent management services revenue was $46 million, up 4%, and the TALX operating margin was 23%, up modestly from Q3 in 2010.

North American Personal Solutions revenue was $46 million, up 14%.

New products, pricing, volume growth and product mix all contributed to the strong growth during the quarter.

Direct-to-consumer branded subscription revenue growth was strong, up 21%, driven by double-digit growth in subscribers and healthy growth in average revenue per subscriber, reflecting a shift toward more feature rich premium offerings.

Operating margin for our Personal Solutions business was 32.8%, up from 31.9% from third quarter of 2010 largely benefiting from the improved pricing and product mix.

In our North America commercial solutions business revenue was $22 million, up 18% on a reported basis and 16% in local currency, driven by strong double-digit growth in commercial risk and marketing data management services in the US.

The operating margin for our commercial business was 23.6% compared to 17.9% in the year-ago quarter.

Corporate expenses were down $700,000 year over year or 2%.

Now let me turn it over to Rick.

Thanks, Lee.

Our business continues to perform very well in a sluggish economy because we've worked aggressively to diversify our revenue base during the past few years, capitalizing on our core competencies and unique data, leading edge analytics and high valued decisioning platforms.

As a result we are now less dependent on traditional consumer-based lending activities than we've ever been in the past.

That now represents about 30% -- approximately 30% of our revenue.

We've also increased our penetration in new segments such as telco and utility industries.

We expanded our geographic footprint in Latin America, Russia and India.

We've acquired new data assets that enable us to participate in a much broader range of decisioning, we've ingrained NPI into our DNA so every business unit is continuously innovating to assure that we have the most competitive high-value solutions for our customers.

So to wrap this up before we go to Q&A, for the fourth quarter assuming current exchange rates and excluding Brazil we expect revenue growth from continuing operations to be between 8% and 10%, operating margins will be in the range similar to the third quarter representing solid growth over operating margins in the fourth quarter of 2010.

And with that adjusted EPS from content operations is expected to be between $0.65 and $0.68 a share.

Given our strong performance to date and my outlook with the fourth quarter we'll end 2011 much stronger and better positioned than we entered this year.

Our early read as look at 2012 is that we assume no economic improvement in the geographies in which we operate around the world.

But with that, just knowing how well we're executing on our growth initiatives across the businesses, we expect 2012 will perform at levels equal to or better than the performance levels of 2011 and obviously a lot more to come on that.

I wanted to give you an early read that at this juncture I remain confident that 2012 is shaping up to be a very good year for us as well and we'll be back together giving you the fourth-quarter results -- obviously we'll give you great insight to the year at that time.

So with that, operator, we'd like to open up for any questions our guests might have.

(Operator Instructions).

David Togut, Evercore Partners.

A couple quick questions.

We saw very substantial margin expansion both international and in North America commercial.

Was all the international margin expansion organic or was some of that the accounting change with Boa Vista.

That predominantly reflects the deconsolidation of Boa Vista in international.

I see.

And then in North American Commercial Solutions, EBIT margins were up almost 600 basis points.

Is that a sustainable level or were there any call outs in the quarter?

No, I think -- the margins in that business will move around a little bit quarter to quarter because it's a relatively small business and some relatively small expenses can cause that margin to shift.

But we think that is sustainably in the low-20s moving toward the mid-20s.

And, David, last year the third-quarter 2010 for commercial was abnormally low as well.

I see.

Unit pricing trends, Lee, in online CIS, any significant changes in the quarter and any significant mix change small versus large lenders?

No, I think it's pretty much been trending as it has the last few quarters, down a couple of points.

That includes in it the fact that in the recession, margin -- the mix improved a little bit and it's returning to a more normalized mix.

But I think the trends are pretty much as they have been for some years.

Yes.

Any thoughts, Rick, in terms of key milestones we should measure you on with the Boa Vista combination over the next few quarters?

No, I'm very involved, I was just down there, David, meeting with the team, very pleased with the progress.

Everything right now is focused on integration, number one.

Exchanging of new product platforms where we can help them accelerate growth.

It's going to be under the covers for a period of time until we get this thing fully integrated.

So there will be no real metrics you can -- you'll see on the outside.

But it is our intent, as soon as we think it makes sense, to increase our investment to take control of the asset we'll do so.

But a lot of work to be done.

Just finally, any thoughts, Rick, in terms of -- Rick and Lee, in terms of the tax rate for Q4?

Lee?

Yes, I mean the tax rate moves in a range that's probably anywhere from 34% to 38% depending on various items that may occur.

I would expect we're probably in the lower half of that range.

I don't expect us to be at the very top end of that range.

We were about 36.1% and I would expect we'd be that level or maybe slightly lower.

Okay.

Thank you very much.

Jaime Brandwood, UBS.

I just wondered in terms of your confidence on acceleration in the USCIS business.

I think you spoke about high-single-digit to low-double-digit growth in Q4.

Can you just talk a little bit around the different drivers there?

I think you talked about some incremental revenues in your telco business.

You also talked about the volume growth, the transactional volume growth going up a little bit.

Just if you could provide a bit more color there.

And together with that, with that revenue acceleration that you're expecting in USCIS, could we at last see a quarter where the margin in that division returns to a year-over-year expansion, that you start to see some operating leverage there?

Yes, let me see if I can give you a little texture there.

One, I'm highly confident in those numbers I mentioned and the reason being I've given you a couple of anecdotes of where we've taken some share in the marketplace, signed some very, very large new contracts.

Those are now behind us, revenue is starting to come in the door, that's number one.

Number two, Decision 360 is hitting on all cylinders right now in the marketplace.

So it's not necessarily just taking market share in that case, it's creating new demand for applications that never existed.

Number three, we talked I think it was last quarter, maybe the quarter before, about the (inaudible) telco database, that's starting to really run full speed.

I had mentioned $22 million in contracts signed since that.

And then NPI is significant across the board for USCIS.

You get a little lift in things like auto, so some core market growth as well in auto.

But most of it's internally generated growth.

Jamie, I would add one thing.

The fourth quarter last year was a little bit weaker seasonally than our typical pattern, so I'd just be a little careful.

We think we're going to have a very strong fourth quarter, as we get into next year probably not continuing, pushing double-digit rates.

But it was only a few quarters ago people were wondering if we could even grow this business anymore.

We're very confident we've got a solid growth path in this business.

The other question you had, which I think was margin.

I don't have the data in front of me.

I think we actually had incremental expansion in the third quarter sequentially over last year, is that correct, Lee?

I was just thinking year on year.

Up in the fourth quarter.

Fourth quarter will show expanded margin versus of a year ago.

Also remember this, that I'm more bullish now than I've been in quite some time on growth overall (multiple speakers) the USCIS.

We're making some investments there.

I mean, (multiple speakers) database for example up and running and that's going to be a significant revenue contributor for the future, that will require some investment.

So we're investing to sustain it, but accelerate the growth of that business as well.

The $23 million that you mentioned coming out of the telco database, is that annualized revenue or is that total over a period of a number of years?

No, I think it's at $22 million, I think.

But it's $22 million next year.

So contracts we sign this year that will deliver that revenue in 2012.

Okay great.

And very lastly, just North America Commercial, you're obviously continuing to gain market share there very clearly from Dun & Bradstreet and possibly also growing faster than the other rival.

Just wondering, to what extent beyond your capabilities and your different product offering -- to what extent is that driven, if at all, by you having a different price point to your competitors; i.e., are you cheaper in your offering than say a Dun & Bradstreet?

No, our philosophy in general terms is to compete on value not on price, and that applies to North American Commercial as well.

Okay, so not a driver basically?

No.

Okay, thanks so much.

Carter Malloy, Stephens.

Congrats on the quarter.

So first off, I know you guys talk about this a lot off line, but I just want to circle up on Decision 360 and NCTUE Plus as drivers of 2012.

Are those meaningful drivers in your statement that 2012 performance will be equal to or better than '11?

Are those a big part of the picture next year or are you leaving yourself room for upside coming from those two?

No, NCTUE Plus and Decision 360, that's just for the US.

We had growth going on in PSOL and North America Commercial Solutions and international as well.

But those will be two nice growth drivers for USCIS next year.

And on those products, I assume they're at the USCIS, maybe even a little higher type of margin profile.

But as we go into next year and you're talking about performance equal or better, I assume that's top-line.

On the bottom-line are you saying that we'll be able to hold margins or do you think we'll actually see further expansion?

I think -- I'm not going to get into a lot more outlook at this point in time; I typically don't even talk about 2012 which we're wrapping up the third quarter of 2011.

I just wanted to give you some insight that I'm confident in this model for next year.

It's going to be a growth business and I would think we're going to be in this range if not expanding margins in the future.

That's great to hear.

And then lastly, circling back on B2B, is that -- the growth you're seeing there, is that more on the sales and marketing and database side of the business or are you seeing it more on the risk management side?

Both -- both sides, the risk management side and the marketing side are both growing.

Both of those are up double-digits?

I don't have the exact break out there, Carter, but they're both growing.

Hold on one second and Lee will grab it.

Sorry I'm making you dig through the file there.

Yes they, they both are -- they're both growing double-digits.

Okay, that's very helpful.

Thanks, guys.

Dan Leben, Robert W.

Baird.

First, can you talk a little bit about -- you mentioned a competitive customer win that's going to bring in some pretty sizable incremental revenue over the next few years.

Can you just talk about the dynamics that helped you win that deal and steal it away from a competitor, what they were really focused on in their evaluation?

Every time we go to try to either expand the pie or share shift business it's based upon value, and [a set of the] value at least in the US centers on [data] 360, trying to expose them to different data assets we have an intrigue them with that.

So that's the TALX number, the work number in TALX, it's IXI and now NCTUE Plus and that's what happened here as well.

Great.

And then you mentioned the NPI contribution internationally.

What's that generating overall in terms of additional revenues?

For international or for the Company?

For the Company.

It's roughly our vitality -- Lee, jump in -- the vitality mix for this year is 10% which is roughly $200 million.

Okay.

And then when you look at the acquisition pipeline, a couple nice deals in TALX.

Is that largely where the pipeline has shifted to that side of the business, outside of any additional investment in Boa Vista?

No, we did a couple really small nice tuck-in acquisitions in Latin America that we liked.

We talked about I think it was the first quarter we did an IXI like business over in the UK.

So it's balanced.

My focus really is on organic growth, to be honest, Dan, and then where we can have some nice small tuck-in acquisitions we'll do those.

Great.

And then last one for me, just can you talk about the acquisition contributions both in the quarter and what the expectation is on the fourth quarter?

Well again, we told you the core non-mortgage organic growth was 7% for the quarter, yet mortgage actually was down.

The contribution is about --.

Mortgage was -- yes, if you break out the constant dollar growth contributions, core non-mortgage was about 7%.

Acquisitions added about a point and a half, but mortgage comparison to prior year which had a very strong refinancing spike took away about a point and a half.

Fourth quarter more acquisition contributions, slightly higher, might be about 2%.

Okay, great.

Thanks.

Dan Perlin, RBC Capital Markets.

I just wanted to clarify a couple things.

So, Lee, on the overall margin expansion that you saw this year in aggregate, right, it was a little over 150 basis points.

Are you saying that's all a function of the adjustment to Boa Vista?

No, the increase in international was essentially a function of you take out the Brazilian revenue and, as we've said before, because of the [adjustments] we were making in Brazil that was operating kind of near breakeven, is pull out that revenue that had about a 400 basis point impact on international and about a 100 basis point impact on the Company.

50 basis points was improvement then spread across the remainder of the Company.

Got it, okay.

And then the timing of throttling up and/or down on investments within telco in North America, I was actually surprised to see USCIS margins not be up year on year this quarter.

I guess I kind of miss read how we left it last quarter.

I thought that was going to be up year on year.

And I'm just wondering, were there incremental investments as you progressed through the quarter within the Telco exchange or something else that kind of kept you at that level?

Or was it a function of this mortgage market pulling back a little bit relative to last year?

Well, a couple things.

I don't -- by the way, the margin we got out of USCIS for the quarter is largely in line with what Lee and I expected.

So I'm not sure if we communicated something different to you or your model shows something different.

Yes, we're making investments, as we talked about before in the telco exchange.

And the ESS business which, as you know, we have, and USCIS grows it's a lower larger business.

It grew in the fourth quarter a little faster than the overall USCIS did.

And that's also, by the way, one of the things you'll see in the fourth quarter.

It's going to grow, it being ESS, at a faster rate than the rest of USCIS as well.

So it was in line with our expectations.

Okay.

But to be clear, now you're saying year-over-year growth in this line item in fourth quarter for margins?

Correct.

Okay, got it.

Thank you.

Manav Patnaik, Barclays Capital.

Just wanted to clarify one thing.

I think you mentioned that the margin guidance for the fourth quarter you said would be at the comparable levels of third quarter.

And I think, if I have my notes correct, last quarter you had guided to about 25% to 25.5% range, is that correct?

You're right, there's two things -- thank you for catching that.

Two things that are slightly different than when we gave guidance, one I just alluded to in the last question, is the ESS is now growing at a faster rate than we had anticipated.

We had some nice wins in ESS since we've last talked, and that margin is at a lower rate than the Company average.

So that puts a little drag on it.

And then secondly, at the time we last talked about margin outlook, the couple small acquisitions we just announced were not in my calculation.

That obviously puts a little drag on the early quarters.

So those are two little headwinds on the fourth quarter.

But the core business itself, if you exclude those two, will be in the range I just mentioned, or that I mentioned [in hindsight].

That makes sense.

And then just to get some more color on just your M&A strategy and pipeline.

You mentioned a lot of tuck-in acquisitions.

Internationally, I guess, everyone seems to be doing a lot of deals or there seems to be a lot of candidates available in Latin America.

I was just curious in terms of color in the Asia-Pacific region, is there a good pipeline there?

Is that of interest?

Just some thoughts around there.

We continue to look where it makes sense strategically for us long-term in all parts of the world.

I'd describe the M&A pipeline as strong now, more in the realm of tuck-ins than large transformational deals.

But we're looking at most countries that you could possibly imagine that have growing middle-class population, data privacy laws that are favorable to our kind of business model.

Nothing imminent at this juncture, but we continue to be very aggressive where it makes sense.

And then just finally on that, just thoughts on doing a more sizable acquisition.

I mean it seems like there's some assets out there that are up for sale now, and I guess with the continued economic environment, if it gets worse that is, there might be some more out there.

So I was just curious how you guys evaluate the opportunity on more sizable deals?

On the sizable deals, they've got to be good companies.

Unfortunately, most of the sizable deals that are either on the market or potentially coming on the market don't make sense for us at this juncture.

They're just not really solid companies.

I'm not going to buy a troubled company just because it's a good price.

Got it.

All right, thanks a lot, gentlemen.

Julio Quinteros, Goldman Sachs.

So getting through a little bit of crow this morning, a pretty big bowl full of it (laughter), congratulations on some strong guidance.

I wanted to talk a little bit about the --

You're not a fan, Julio.

You're not a fan (multiple speakers).

No, we call it like it is.

So 2012, maybe just kind of going back to the sustainability of your guidance here -- as you think about the build up for '12, where could be the biggest variances?

Obviously Europe was pretty strong, looking at the international segments when we think about what's going on over there, how much of a drag could that actually represent relative to the expectations for '12 to be essentially equal to or better with where you guys finished in 2011 here?

If you think of our largest -- by the way, let me start with the caveat that I had used before, and that is that there's no economic improvement globally, but that there's no significant decline economically in [any environment].

So it's just kind of status quo.

So if there were a massive double dip recession in Europe that would have some bearing on us.

But as I sit here now -- I don't want to spend much more time looking at 2012, but as I sit here now looking at our European footprint, Julio, I feel very confident in the growth initiatives we have in the UK in Iberia that we deliver good results in the fourth quarter and good results in 2012.

I wouldn't have said that we are confident in the overall growth rates for the Company level in 2012 unless I was confident that each individual geography when aggregated together would give us those kinds of results.

So Europe will be okay next year as long as there's no significant recession.

Okay.

And then maybe just coming back to the US, thinking about the HARP program in the mortgage business itself, how do you guys see that playing through as we go into next year?

Is about that an incremental driver opportunity?

No, I'm not counting on it.

When you think about HARP one, I think they proclaimed at the time that was announced 5 million to 6 million refinancings, I think they did 840,000-some-odd, relatively insignificant.

Also HARP, it depends on the documentation which is a bit nebulous or unknown, at this time what documentation do they need?

And they're not going to need a credit file and they may need to verify employment or income, that's about it.

So it's not a driver in my 2012 outlook.

It's things like the telco database that we talked about, it's things like Decision 360, it's the continuation of NPI, it's the accounts that we've won this year that will continue giving us growth next year (inaudible) earlier.

Okay, great.

Thanks, guys, good luck.

(Operator Instructions).

Bill Warmington, Raymond James.

This is [Bethany Kester] standing in for Bill Warmington.

Congratulations on the strong quarter.

Can you talk about your strategy for growing the work number database in non-mortgage verticals and where you've been having success?

Sure, that's been a big part of Dan's focus is to become less dependent on mortgage, so things like collection has been great growth, the government sector has been great growth, entering now into the card market has been great growth, auto market is next.

So it's taking where we have great presence, knowledge and working relationships in the USCIS business and now bringing Dan and the TALX, the work number team into those channels.

Okay, all right, thank you for that.

And when can we expect you to make an announcement about the small business financial exchange contract?

That contract doesn't expire until the end of 2013, so it's not soon.

Very good.

Okay, thank you for that, and that's all that I have.

Andrew Jeffrey, SunTrust.

Rick, just -- we've talked a bit about the acquisition strategy.

Just stepping back big picture, when you consider Equifax's competitive position in the marketplace, particularly in the United States, how would characterize yourself as positioned competitively with the current technology set you have which seems pretty well differentiated in the context I guess the question is of additional acquisitions?

You've been relatively acquisitive over the last couple years.

Sounds like you still have an appetite.

Feels like there's a pretty deep moat around the business right now, feels like you're taking share.

Does there come a point at which you kind of step back and say, Equifax has a great suite of technology assets, it's time to change capital allocation, decision making or priorities a little bit at the margin?

Well, that's if you believe my customer needs are static and the competition is static, which is not ever true.

So my customer needs continue to grow and expand, they need different solutions and they (inaudible).

Conversely if I get different data assets that solve problems for them today that we couldn't solve yesterday I'm helping them greatly.

Secondly, competition will not sit still.

Competition -- they're smart and they will always find ways to mimic or mirror what I've done in the marketplace with our unique data assets.

So in a dynamic environment I'm going to continue to look at data assets that I think add value to my customers, help them solve problems, help them grow and help us grow.

So -- but you have to understand, if you think of our financial model, it is by and large driven by organic growth initiatives.

We've always talked about 1 to 2 points over time coming from M&A, the rest coming from organic, that holds true today.

That will hold true tomorrow.

We're going to be a company centered on organic growth primarily and where it makes sense augment it with acquisitions.

Okay.

So it sounds like your acquisition strategy would be somewhat tactical in that regard going forward, more like what we've seen in the last quarter or two rather than a TALX kind of transaction?

Yes, I don't see anything out there at that kind of level.

We'll always look at those, but I don't see those kinds of transformational deals on the radar screen right now.

Okay.

And then a question just going back to USCIS.

We've seen a big increase in mailing volumes; it sounds like you're thinking about a modest uptick in reporting volume.

How would you -- how do you relate the two -- if we continue to see a return towards a peak level, peak cycle mailing volumes, what does that imply for organic revenue growth in USCIS?

[I'd like to think] eventually as mailings go up consumers actually are extended credit and it trickles down from CMS to online.

We haven't seen -- that is the traditional model, typically maybe 45 or 60 days later after the mailing volume increases you see a nice uptick in online.

That trend has not repeated itself during this recovery period.

But having said that, I just gave you I think a very strong outlook for USCIS in the fourth quarter.

So hopefully that helps.

Thanks.

And there are no further questions at this time.

(Operator Instructions).

And there are no further questions at this time.

Okay, I'd like to thank everybody for their participation and we'll be available if there are any additional questions.

Thank you.

That does conclude today's conference.

Thank you all for your participation.