易速傳真 (EFX) 2012 Q1 法說會逐字稿

Good day and welcome to the first quarter 2012 Equifax earnings' release conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Jeff Dodge. Please go ahead sir.

Good morning. Welcome to today's conference call. I am 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. And our Company recording will be available later today in the investor relations section in the Equifax tab of our website at www.equifax.com.

During this call wall be making certain Forward-looking statements to help you understand Equifax and its business environment. These statements involve a number 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 2011 form 10-K and subsequent filings. We will refer to a non-GAAP financial measure adjusted diluted, EPS attributable to Equifax which exclude acqusition-related amortization expense.

Since our Brazilian operations will merge with Boa Vista on May 31, 2011, we also present revenue growth excluding Brazil to provide a clearer understanding of our revenue growth for those businesses that will continue to be recorded in our operating results. These measures are detailed in our non-GAAP reconciliation tables included with our earnings release and also posted on our website. Please refer to the non-GAAP reconciliation and our various investor presentations are posted in the investor relations section under the about Equifax tab at our website for the details. Now I would like to turn it over to Rick.

Thanks, Jeff and good morning everyone. As most of you know, we made a number of commitments to some important foundational principles which have guided this company for the past six and a half years. These principles include an intense focus on growth, new product innovation, accountability, lien, strategic acquisition as well as leveraging our analytic expertise and unique data assets across all business units. All execution against these commitments continues to pay off. [ ]broad-based performance we delivered throughout 2011 position as well for 2012.

For the first quarter strong double digit growths in our four largest business units resulted in record revenue growth and record growth in adjusted EPS results were significantly ahead of our expectations as we entered the year. Shortly I will update you on our full year outlook, but as you would assume, our optimism and confidence for the full year has improved. Taking a quick look at some of the high level financials for the quarter total revenue was $523 million up 11% over a year ago excluding Brazil. Total reference was up 15% for the quarter and up 16% in constant dollars. Our operating margin was 24.7% up 160 basis point from a year ago.

Finally, adjusted EPS was $0.70 which is up 21% from $0.58 a year ago. As I normally do, I will go through some highlights of each of the five business units and hand it over to Lee for the financials.

Starting with US CIS, they had one of its, their strongest quarters ever bolstered by very broad based growth. The theme by the way you are going to hear this performance in the first quarter was extremely broad based. Great growth in Auto, Telco, [ ] Mortgage, and Insurance.

We also increased our transaction with new products accelerated transaction activity in many of our larger customers and drove new strategic placement programs across the board. Along with strong revenue performance operating margins in on online consumer information solutions end credit marketing services expanded nicely during the quarter and where the primary drivers behind a 241 basis point improvement in US CIS's operating margin versus a year ago. Our execution and targeted verticals continues to improve and is delivering meaningful incremental revenue growth. During the quarter, we had double digit growth in our Key Client Program, and to refresh your memory, the Key Client Program are the top four banks in the US that we focused on. Also had great double digit growth in our channel partners in addition to Telco, Auto, Financial services, and Insurance sectors, all double digit growth.

We have consolidated all of our analytic town throughout the organization to further leverage their expertise, their familiarity with our [ ] data assets and deep understanding of our customer's need in today's fast changing and highly competitive market that was done just for the quarter ago and the benefits of that new structure should yield in the coming quarters. Continuing with US CIS transaction with our new products continues. Of the products launched in 2009, 2010 and 2011, 29 of those products are now delivering revenue that exceeds our NPI target for the quarter and those are allowing us to win in the market place. We are also in the beginning stages of developing strategies for new applications that use our vast data assets and analytical capabilities such as mobile payments and marketing.

We continue to make good progress in the government secretor particularly with our ID management solutions. In retail banking, we have completed the development of a DDA checking account score which will be used in the account opening process. This new product will be launched in second quarter. Finally, US CIS has intensified their sales efforts to increase the penetration of TALX Workforce solution products into the financial sector and performance was significantly ahead of our target for the first quarter.

Moving on to International. International excluding Brazil continues to leverage its strong market position to deliver strong double digit growth at very attractive margins. As we have said in the past, International is a very important contributor to our long-term growth. We continue to invest aggressivelyto expand the contributions of International revenues, but will maintain our disciplined approach to ensure they deliver an appropriate return to the shareholders.

International new product innovation, a key industry focus, were major contributors to the strong double-digit growth in both Europe and Latin America when you exclude Brazil. NPI represented 9% of revenuefor the quarter, had some very successful products, came out of the mix, and new products were introduced into these markets. And from revenue, from financial institutions, Telco and Auto sectors all grew at strong double-digit growth rates for the quarter.

In the UK, our personal solutions product line grew an amazing 53% in the quarter. To ensure continuous success, we are leveraging the skills and expertise of our North American personal solutions team led by Trey Loghran and our technology platforms to support a broader or diversified product portfolio mix in the UK. Our local services which represents almost 10% of Internationalrevenue delivered strong double-digit growth in all geographic segments.

In short, a strong broad based performance driven by solid execution in our core business initiatives. Moving on to TALX, Workforce Solutions experienced very strong broad base growth. Again the theme you are going to hear across the Company. Like locals acrossall verticals for the work number, mortgage, consumer finance, government, and pre employment were all of strong double-digit. We have identified a number of new opportunities to further monetize the work number database.

For example in 2011, over $48 million of revenue came solely from historical records in the database. Pre employment screening, audit reviews and due diligent activities are all creating new opportunities to leverage these historical records, and that trend will continue going forward. Total records for the database were up 4% for the quarter. We added 79 new contributors of data in the quarter.

In addition, a number of initiatives are underway to broaden and further penetrate our verifier base. We're making good progress on bundling additional services with out existing verifier customers and entering nonmorgtage-related verticals to drive highly profitable incremental revenue growth. Finally, for TALX, the e-thority acquisition which were made in 2011 is enabling talks that develop high-value added endless products offerings that will deepen our relationship with employers who contribute data into the work-number database.

Next North American Personal Solutions delivered another strong performance driven by its high value product offerings, strong customer relationships, and commitment to continually improving performance under a key metrics such [ ]and subscriber base. Market penetration continues to be strong as new-billed subscribers additions in the US grew by 14% in the quarter. We are also leveraging our US technology platforms and product portfolio in Canada as I mentioned before in the UK to further their success in the direct to consumer market.

Finally, North American Commercial Solutions their results were below our expectations for the quarter with growth of 1%. Transaction based revenue on the risk side grew 10%, but project-based revenues fell as we saw corporate clients cut back on or delay or reduce the size of discretionary spend on projects. However based upon the current pipeline of revenue opportunities, we see growth improving in commercial for the balance of the year. Overall our performance for the first quarter was better than we expected and provided a very strong start to the year. Lee, if you would take it from there.

Thanks Rick, and good morning everyone. This morning I will be referring to the financial results generally presented on a GAAP basis. You should also refer to the Q & A and non-GAAP reconciliation attached to our earnings release for additional financial information.

Continued strong execution from our four largest businesses coupled with a better than expected mortgage market and incremental operating leverage in our transction-oriented segments enabled us to deliver a very successful first quarter performance. Compared to the same quarter in 2011 for the first quarter of 2012 consolidated revenue of $523 million was up 11% on a reported basis and 15% when Brazil is excluded from 2011 revenue.

Excluding the impact of changes in foreign exchange rates revenue is also up 11% or 16% excluding Brazil. Operating margin was 24.7% compared to 23.1% in the first quarter of 2011. And diluted EPS attributable to Equifax was $0.58 up, 27% from the first quarter of 2011.

Excluding the impact of acquisition-related intangible amortization adjusted EPS attributable to Equifax was $0.70 a share up 21% from the first quarter a year ago. Moving to the individual business units. US consumer information solutions revenue was $218 million up 20% over a year ago. Online consumer information solutions revenue was $149 million up 24%. About one-third of this growth came from the mortgage sector which explains the acceleration of growth from the fourth quarter 17% growth rate.

The remaining drivers of this high growth were largely the same factors which drove the fourth quarter. New products, conversion of new customers, certain pricing actions taken a year ago, and growth in transaction demand from existing customers. First quarter online volume was up 16% continuing the strong double-digit growth that began in the fourth quarter. Mortgage solutions revenue of $34 million was up 26% compared to the first quarter a year ago. Both core mortgage reporting and settlement services delivered strong double-digit growth in the quarter. Consumer financial marketing services revenue was $34 million up 2%. Credit marketing services delivered broad based double-digit growth in the quarter more then offsetting a lower-level of project revenue in our IXI segment.

The operating margin for US consumer information solutions was 36.5% up from 34.1% in the first quarter of 2011. Our International revenue was $121 million, excluding Brazil following its deconsolidation in the second quarter of 2011, reported revenue grew 12% and local currency revenue growth was 15%. By region, Latin America's revenue was $47 million. Excluding Brazil from the prior year comparison, reported revenue grew 15% US dollars and 18% in local currency. Growth was broad based beginning with solid double-digit growth in consumer and commercial information. And strong double-digit growth in technology and analytic services and marketing services.

Europe's revenue was $43 million-dollar up 15% in US dollars and up 18% in local currency. Workload which accounted for approximately 5 points of growth along with solid double-digit growth in UK analytical services, UK personal solutions, and Iberia were the primary contributors to another strong performance in this geography. Added a consumer information revenue is $31 million up 5% US dollars and 7% local currency. Strong double-digit growth in our analytic solutions including conversions to our generic risks or portfolio insight and neighbor view were the principle drivers of this growth.

Internationals operating margin was 31.8% up from 23.4% in 2011. Reflecting primarily the deconsolidation of Brazil in the second quarter. Marching expansion in the UK and Canada also contributed positively.

For the quarter, TALX Workforce Solutions revenue was $114 million for the quarter up 14%. Verification services with revenue of $57 million was up 37% for the quarter. Approximately 60% of that growth came from broad-based organic growth in mortgage, government, consumer finance, and pre employment online verification.

While the remaining growth came from acquisition of Datavision in August a year ago. Employer services revenue was $57 million down 2% primarily due to lighter unemployment compensation claims activity. The TALX operating margin was 2 % up from 21.9% in the first quarter of 2011. Largely due to the strong performance in verification services.

North America Personal Solutions revenue was $50 million up 11% from a year ago. Strong double-digit growth in business to consumer subscription revenue was driven by single-digit growth and ending subscriber volume and double-digit growth in [ ]as new customer purchase and existing customers trade up to the higher value Equifax complete suite of products. Canada exhibited strong double -digit growth as a result of leveraging our US technology platform and product portfolio in Canada. Strong double-digit growth in subscription revenue more than offset declines in both breach and transaction revenue and our operating margin was 28.3% down slightly from 28.7% in the first quarter a year ago reflecting stronger marketing activity.

North America Commercial Solutions revenue was $21 million up 1% on a reported and local currency basis. Strong double-digit growth in transaction revenue was offset by lower risk and marketing project-related revenue. The operating margin was 16.8% down from 24.9% in the year ago quarter. Primarily resulting from lower project revenue and continued investment in the long- term strategy for this business.

Corporate expense was up 49% compared to the first quarter of 2011. Largely due to executive stock-based compensation that occurred in the second quarter of 2011, but was moved to the first quarter of 2012 to coincide with our annual board evaluation of management and to additional incentive compensation driven by very strong first quarter out performance. Now let me turn it back to Rick.

Thanks Lee. The second quarter outlook assuming current exchange rates and excluding Brazilis expected to deliver revenue growth from a continuing operations between 12% and 14% and adjusted EPS from continuing operations is expected to be between $0.70 and $0.73 a share which will be up 15% to 20% when you compare to second quarter of 2011. With strong performance in our core markets and continued effective execution on our initiatives, our optimism and confidence for the full year of 2012 outlook has clearly strengthened from a quarter ago.

Although the mortgage market has been much stronger in the first quarter when compared to original expectations, we now expect it to start slowing as we exit the second quarter and enter the third quarter for the balance of the year and come closer to the range we gave in our release in February. As a result, our view of the full year is that revenue get for the Company excluding Brazil, will now be between 10% and 12% which is at or above the upper end of our long-term growth rate target that we have talked about in the past. As we have said in the past earnings, should grow an additional; 2% to 3% as a result of improved operating and financial leverage. If the mortgage market does better than we expect, we should be able to deliver even stronger performance for the year. Time will tell how the mortgage market unfolds.

Along with our improved outlook for the year, I want to provide you with an update on each of our business units, and how they are looking for the balance of the year. Starting with USCIS we expect them to deliver double-digit revenue growth despite tougher year-on-year comps as we exit this year. TALX Workforce Solutions is expected to deliver upper single-digit growth for the year as the continue to drive new product innovation, market segmentation, and expand the record count for the work number database. Personal solutions will continue to leverage from momentum from 2011 to deliver revenue double-digit revenue growth in 2012. In commercial solutions, we have a great, we had great customer traction with our transaction -based services, but as I mentioned before, we experienced some challenges with our project-related revenue.

But the pipeline is strong, and the momentum will pick back up, and as a result, we anticipate 2012 revenue growth will be in the upper single-digit range. International excluding Brazil should continue to deliver strong double-digit revenue growth for the year. So Operator, with that we would open it up for questions.

(Operator Instructions). We will take our first question from Carter Malloy with Stephens Inc.

Hey guys. Congrats again on a great quarter and outlook. First off, I want to talk about the core OCIS business. Really big growth in their even when we strip a way a lot of thingsI assume pricing played a key role there. If you can give us sort of an overview of pricing as well as specifically within the affiliate channel there. What type of moves we saw this quarter?

Again let me start with a very high level, the growth as you stated in USCIS was extremely broad based. Almost every major vertical that you can think of was up strong double-digit. Which is great. NPI continued to play a big role as well. On pricing we did announce a series of pricing initiatives middle of last year, Carter, which will sunset as we exit the second quarter of 2011, and that did pay some dividends for us. Mortgage was obviously was strong. That gave us a little bit of growth as well. Transaction volume though was extremely strong as Lee mentioned in his numbers as well. Specific to the - -was it the resale market?

Yes.

I do not have those numbers broken out.

Okay.

We do not have those, Carter.

Understood no worries. And then as far as your International outlook, also very strong there and good performance. Can you drill down specifically on Europe and UK sort of external of Iberia, and also why [ ] is up so much, and should that will continue.

Yes, the growth in Europe was broad based as you mentioned. Iberia was very strong which is counter intuitive to what you read and see in the markets in general terms in Iberia. UK continues to be extremely strong across all verticals, all markets. Most of it organic. Lee gave you breakout there, if you extract out of the workload acquisition, I believe it is like 13%/ 14%. Specific to In the UK, that growth, it has been a renewed focus from the leadership team in the UK leveraging best practices and ideas that have helped the US win, helped Canada win, we are now employing those at a rapid rate in the UK. So that was just a fabulous result in UK.

Great, and lastly, of the work number revenues, how much of that is mortgage related.

We do not break that out specifically, Carter, but again if my words and Lee talked about it as well, the work number growth was extremely broad based, and you are getting accelerated growth from non-mortgage and the great growth from the mortgage sector. So it is broad based not just mortgage.

Understood would it be fair to say that it is still at this point a majority mortgage at least.

Yes.

Thanks so much for the color and again congratulations.

Great. Thanks you Carter.

Next we will hear from Andrew Jeffrey from SunTrust.

Good morning, guys. Thanks for taking the question. A couple actually. Rick, as you consider the mortgage environment in your expectations for a normalization if you will. Can you talk about what you think sustainable volume growth is in a recovering US consumer credit economy within your US CIS segment.

Are you referring to core non-mortgage, or a core mortgage?

No, I am actually asking about what you think total volume growth will be in the segment assuming a more normalized mortgage environment rather than the upside we have seen in the last couple quarters.

Yes, if you exclude the upside of mortgage and look at just the core so you forget some of the new product innovation initiatives that Rudy and his team are driving. I think you would expect mid single digit kind of growth going forward for core US CIS.

Okay. And I am not sure if you mentioned it in your prepared remarks this quarter, but how much revenue growth did US CIS enjoy from NPI.

I did not. It is mentioned 29 products that exceeded our expectations over the last four years. I do not have thatoff the top of my head. They are performing at or above the company level.

So if is safe to assume that it is a couple points at least kind of consistent with prior quarters.

Yes.

Okay. And then one more, if I might regarding incremental US CIS profitability. Given the very high level of volume margins are up year on year, but we have not really seen a meaningful acceleration. Should we expect one or what is the dynamic there as we continue to see volume recover.

Are you referring specifically to US CIS?

Yes, the segment margin.

It is up 240 basis points which I consider to be pretty good. One of the wash-outs you have to look for in that business, a couple things. First, when mortgage happens to be a strong driver of growth certain of the mortgage revenue is very high incremental margin. Certain of it such a tri-merge reporting or our settlement services, have significant pass through costs. So the blended margin on the incremental mortgage is not the same as just selling a whole lot more credit reports.

So you have got to be a little careful on that point. The other, and it comes back to the point you raised about NPI is we are not going to sustain - -Rick said mid single-digit, and of course internally we are trying to push the higher levels them that, but we are not going to sustain that simply sitting here and waiting to sell more credit reports. So we are driving a lot of investment in new product. We are moving into some new end-use markets and channels, and all of that takes some level of investment and at these rates of growth, I think people will be very very happy with the growth we are achieving while still expanding margins. 240 basis points is darn good, and it is not going to accelerate from that rate of growth. But we do think over the next year or two we continue to see some improvement in the margin in that segment.

Great. Thank you.

Thank you.

Our next question will come from Georgios Mihalos from Credit Suisse.

I wanted to lead off on the OCIS side. You mentioned a number of different things driving outsized growth there. Has anything changed on the competitive front? Are you winning more business competitively?And as you kind of look out to the back half of the year and going forward on the pricing side, obviously it has been favorable now for the last couple of quarters, Should we expect kind of a more normalized environment where there is a bit of a negative delta between your report growth and your actual OCIS revenue growth?

Two good questions. On the first piece. It is a couple of thoughts as a continuation of what you have seen in the last couple years, George. It is one, because we have a unique data asset. We are solving problems we couldn't solve before. Hence, the customers are spending new moneys that they have never spent before. So the pie of opportunity has grown clearly.

That is number one, and number two, as we have highlighted in the past, we have taken share in different sectors, different verticals over the past few years in US and that continues to benefit us. As far as pricing goes, we have invested a lot of money, a lot of time and energy on segmentation, bundling, strategic pricing, and the general trend is improving trend there. The spike you are seeing now over the last six months or so, I am not sure that is sustainable at this level long term. It does not mean we will not continue to invest in strategic pricing, but we have got a significant step up as you know. We used to see one to two points of compression and pricing we are now seeing pricing expansion. I would think long term you get closer to equilibrium, possibly. So I would not count on the expansion you have seen now lasting forever.

Great. That's very helpful, and just last question from me. Can you just give us overall what the contribution for mortgage was in the quarter just overall mortgage business in general.

We tend to say that mortgage runs between 14% and 22% of total revenue. We are clearly in that range. We are somewhere in the upper teens for the first quarter.

Okay thank you.

Sure.

And next we will go to [Rheina Kumar] with Evercore Partners.

Good morning I am calling in for David Toquet. Can you provided us with update on the Boa Vista merger meeting including the key milestones and where you see the margin outlook for this business?

Sure, I was just down there, and I met with the team. It is going as planned. Integration of products, people, strategy with customers is all going well, culture, financially it is going well. We are in the process now of developing a medium term new platform IT platform for the business.

So it is hitting on all cylinders. It feels good. It has been well received in the marketplace by our customers as well. It is on plan as we expected and hoped for a year ago.

Great. Also, what is your revenue outlook for TALX maybe breaking it down between verification services and employer services, and where do you see this business progressing from here?

We do not break the forecast out at that well, but I gave you number earlier. So we expect them to be for the year in the upper single-digits. With strong growth this year.

Okay. Thank you.

Thank you.

And next we will go to Eric Boyer with Wells Fargo.

Hey, thanks. Just on your guidance. What is the implied operating margin now with the raised outlook.

When we talked earlier, I think it was first quarter when we had the last call, the commitment was to give 50 to 25 basis points improvement year on year, and that was long term goal not just short term goal. So that still stands.

With the increased revenue I guess you are just investing more into the business.

Correct.

And then you talked a lot about analytics recently you mentioned it was 10% of International revenue. What is that number for the entire Company? And also you talked about organizational changes you are making around analytic talent. Can you talk a bit more about those changes and the opportunities you are seeing with analytics overall?

Actually we do not break out the total percent of revenue coming from analytics. We just typically give you numbers as a percent of data that comes through the system. I gave you the International just as some insight that analytics is really making a big difference in the International platform, specific to the organizational change. Yes, we had disbarred activities across the company.

No uniformed standardized approach to analytics, and we have seen through other structural changes we have made, if we create one centralized team your ability to exchange ideas and best practices leverage investments in one location for the benefit of another location move talent around, so on and so forth, just made a lot of sense. We got a great new leader, Brian, a guy who's been with us for a couple years. He came from one of the large banks where he led their risk team there, really understands analytics, and he is building a world class team to take analytics to the next level for us.

Thanks a lot.

Sure.

Next we will hear from Julio Quinteros with Goldman Sachs.

High guys, good morning. I wanted to just go back to some of the comments around discretionary spending in general. And it sounded you like you had to areas where discretionary was a little weaker in the commercial segment and it sounded like also inpart of the - - if I am not mistaken, it was part of the marketing area as well. Can you talk a little about the dynamics around discretionary spending in those areas. Is this typical project-based work? Just a color in the die in terms of what we might be seeing on the discretionary side of the project-based work. If you will.

Yes. I would say it is - - whenever you look at project-based work it tends to be lumpy, Julio. At times that lumpiness can be to our benefit. At times that lumpiness can be to our demise. And some larger projects that both the marketing side of CMS, the non-risk side of CMS was looking at and also commercial just did not manifest itself in the quarter. So I do not think it is not something systemic that I worry about long term. It is just unevenness short term.

Okay. And then on the commercial side, - - sorry, I guess on the marketing side is there any way to sort of isolate whether the lumpiness and project-based work is coming out an particular vertical? I guess the financial services vertical is the one that I am trying to zero in on in terms of just some of the lumpiness her on the project-based work.

Yes, on the marketing side it was noncommercial on the marketing side it was coming out of their a bunch

Got if. And then if parse through, I just trying to want make sure I understand the drivers of the upside. I think you gave the number for the NPI contribution, but it also sounded like some pricing and volume components, maybe just to help us understand the upside surprising and relative to your own numbers or your own expectations. Was it more volume or NPI, more new client, spending? What would you say was the most relevant component there to the upside here?

Are you talking any specific business unit or - -.

Yes, I guess if you wanted to focus on the US CIS part, sir.

In general terms including US CIS it is a far higher level of execution on our side. It is NPI continued to run at very good levels. It is customer spending more money with us they have not spent in the past. Obviously mortgage is up as well.

It is truly extremely broad based. Pricing as you mentioned was a benefit as well. I will be honest, we are getting a little help from the market which is encouraging, excluding mortgage now, because we know that is pretty strong. I would not describe the market in the developing world as robust by any means, but for a couple quarters now we are seeing a little help from the economy, banks starting to lend more, consumers starting to borrow more. So the underpinnings of a healthy business are starting in the very early stages of moving down the right path and helping the company.

Okay. And then just lastly on the competitive front with the Transunion transaction that went out, any changes in the competitive dynamics that you guys would expect to see at this point or anything you would have seen already.

No, two years has been and it will be a good competitor. We have good leadership team, good products, and I think the fact that Advent and Goldman Sachs now own them give them some cash to possibly do some more things that they would not have done in the past. We respected them before they were bought by Advent and Goldman, and we respect them now.

Thanks, guys. Good luck.

Next we will go to Shlomo Rosenbaum from Stifel Nicolaus.

Hi guys. Thank you very much for taking my questions. Can you guys just isolate what was the constant currency organic revenue growth excluding mortgage.

I believe it was around 9% to 10%.

9%.

9% flat.

Yes.

And then - -Go ahead.

Shlomo, very simply, the mortgage markets combination of intiatives our own plus the market activity was about 5% acquisition was about 2% and organic non-mortgage was 9%. Out of that is the 16% constant dollar growth ex Brazil.

Shlomo, the nuance in Lee's point there which should not be lost part of the mortgage get is the market itself, part of it is we invested heavily in innovation in mortgage. We are now selling products this year and last year that we have not sold in the past. A lot of that growth is just our innovation of our new products.

Okay. got you. I understand what you are saying. Can you talk a little bit of what you were seeing from the credit card banks with regards to the underwriting standards. We are hearing a little bit of loosening is going on over there.

I would agree with that. I would agree with that. But they are showing signs - - our data shows that they are showing signs of going down market subprime credit card issuance is on the rise. So it is nowhere close to what you saw back it in the 2004, 2005, 2006 time frame, but it is definitely a little more aggressive than you would have seen in 2010, 2011.

Are you starting to see some copycats from competitors in there.

I missed that. Say it again.

In other words, are you seeing some banks dipping their toes in and then you are seeing other ones following them a quarter later.

Yes, it is pretty universal.

Okay. And then, you will like this one, Rick, if you saw the mortgage bankers association application index up above 50% how come the mortgage dilutions was only up 26%.

That is great. One if you think about the applications, and you are right the MBA was up 50 some odd percent, a couple things are happening. One, is a massive backlog and many of these banks are locking in for four months the rates because they do not have the staff to get at the mortgage applications, convert the applications to actual underwriting originations.

Secondly, a percentage, and the GSC estimate between 25% and 30% of the volume we are now seeing in applications is tied to HARP and as you know, Shlomo HARP does not require that they pull a credit report at the time of initial underwriting, but they do require it at the time of actual approval. So the combination of those two say originations are loaning at lagging rate versus applications, but a big chunk of that will catch up once they actually get the approval.

So should we see some benefit in Q2 as we see some of that starting to flow through at the backend of those.

Yes.

Shlomo I would also point out, we have observed periods in the past where the MBA index subverges fairly significantly for some period from the volumes that we, and I think our competitors see. It is a sampling challenge for the MBA and just, I would not take the MBA application index as the definitive measure of market activity.

That is fair. And then just in terms of the timing of some of the corporate expenses, is that - - on a normalized basis if I am modeling out for different years, when should we expect the equity grants to come? Should we think of it now as we move from Q2 to Q1.

Historically, l we are always Q1, and we made that two years ago, Lee?

Yes.

Normally you would expect us to be on this cycle here which the first quarter. So there may be exceptions to that, but my preference is and normal protocol would be first quarter.

Shlomo one thing I would also point out, just thinking about the corporate line generally, we are undertaking some investments in systems infrastructure, some things that we deferred through the recession, but that are going to help us be more efficient and operate more effectively as an integrated company. Those just initial piece started hitting the first quarter, we are going to see higher levels of that investment later in the year. There is definitely a timing element in the first quarter, but that does not mean you are going to see a big drop-off in second quarter. We are undertaking some of the things that are going to allow us to operate as a highly intergrated company and bring all of our strengths to bear across all of our markets.

Is that going to be permanent step up in investment spend, or is that kind of a one-to two-year project.

It is probably a two-year effort.

All right. Thanks a lot for taking all my questions.

Sure. Thank you.

Next we will hear from Dan Perlin from RBC capital packets.

Yes it is actually Matt Rosswell in for Dan. One quick question and then sort of a longer question. The quick question is, the operating margin increase year-over-year, how much of that is tied to the Brazil change, and how much of that was kind of core operating expansion.

We said at the time of the consolidation, was it 9 months ago, Lee, that we would get about a hundred basis points of margin lift from the deconsolidation of Brazil. So you can just simply do the math and balance is standard operating leverage.

So you mean was that fully in the first quarter because your operating margins were up about 60 basis points year-over-year, and that would imply that core - - if Brazil is a 100 basis point pickup that would imply that kind of X Brazil margins would have been down year-over -year. Am I reading that correctly?

No our margins one year ago were 23.1%.

Okay. I see that now. Thanks youThe larger picture question, you've got revenue running ahead of expectations. It sounds like things are really good. Where should we see kind of reinvestment in the business this year, what sort of areas, and then any changes to kind of capital deployment?

I will take it first stab, and then you go to deployment piece, Lee. Continuing investment obviously in NPI, it is a slight part of our growth. Investment, Lee just mentioned a second ago. Investment of some of our systems infrastructure to allow us to operate more effectively and efficiently across the board.

Third, the support to growth will continue to invest in some staffing what makes sense particularly in the sales, product management , marketing, pricing. Those would be three main areas as first capital deployment, Lee.

Really no changes in terms of our priorities. Where we have appropriate acquisitions, we will pursue those. Appropriate meaning, they fit our strategy, and we can generate good returns for our shareholders. Beyond that given where we are on our current capital structure excess cash flow will generally flow back to the shareholders through share repurchase..

Thanks very much.

Thank you.

Operator at this point, we will conclude the call, and I thank everybody for their participation, and we will be available this afternoon if you have any other questions. Thanks again.

That does conclude today's conference. Thank you for your participation.