易速傳真 (EFX) 2012 Q2 法說會逐字稿

Good day, and welcome to Q2 2012 Equifax Conference Call.

Today's conference is being recorded.

At this time it is my pleasure to turn the conference over to your host, Mr. Jeff Dodge.

Please go ahead, sir

Good morning.

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.comDuring 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 expectation.

Certain risk factors inherent in our business are set forth in the 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 contributable to Equifax which excludes acquisition related amortization expense, and the loss on the deconsolidation of Brazil in 2011.

Since our Brazilian operations were merged with Boa Vista on May 31st, 2011, we also present revenue growth, excluding Brazil, to provide a clear understanding of our revenue growth for those businesses that will continue to be reported in our operating results.

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

Please refer to the non-GAAP reconciliation and our investor various investor presentations, which are posted in the Investor Relations section under the About Equifax tab on our website for further details.

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

Thanks, Jeff.

Good morning, everyone.

Thank you for joining us this morning.

It should be no surprise we are quite pleased with our second quarter performance.

We continue to execute well against our strategic initiatives, capturing available opportunities from a cyclically strong mortgage market, while continuing to deliver solid nonmortgage organic growth, but consistent with our long term business model.

Shortly we'll update you on our full year outlook, but first let's take a quick look at some high level financials for the second quarter.

Total revenue was $536 million, up 10% from the second quarter, when you -- excluding Brazil.

Total revenue was up 14% for the quarter, and up 15% in constant dollars.

Operating margin 24.8%, up 130 basis points from a year ago and consistent with the model we have laid out for you over the past few quarters.

Finally, adjusted EPS was $0.74 a share, up 21% from $0.61 a year

ago.

Throughout 2011 and the first half 2012, we have delivered solid nonmortgage organic performance with little to no help from the macro economy in most of the developed parts of the world.

What we've been doing is focusing relentlessly on executing our strategic objectives, attracting and developing a world class management team, and leveraging our fierce determination to drive innovation and growth across the enterprise.

For the past seven years we have initiated a number of enterprise-wide programs which have contributed greatly for solid financial performance during a period of weak economic and business conditions.

And to a relatively stronger performance in the most recent quarters where economic and business conditions have been somewhat more stable.

You've heard us talk about the following seven points that I'll go through here in a minute in the past.

But what is important is with each passing quarter these seven points become more ingrained into our operating DNA.

We have become an even stronger company.

I'll go through the seven points now that we've been focused on now for a number of years.

Number one is an intense focus throughout the company on innovation and growth.

Our NPI process simply gets better every day, and we are now developing new targets after reaching a best in class level of revenue contribution in 2011.

You've

heard us also mention our 4G teams, which draw upon some of our best and most talented individuals to develop strategies for opportunities that could potentially generate significant incremental revenue.

Second is our strategic pricing.

Strategic pricing is a proven driver of profitability,growth and stronger customer relationships.

Our products typically have a very high ROI for our customers.

With our unique data assets, it's very important that we understand this value so we can price our services accordingly.

In 2007 we launched this effort hiring some of the best talent available to develop our corporate pricing strategy.

Over the past five years, strategic pricing has driven significant incremental revenues for Equifax.

By adopting a revenue management mindset, we become more effective at pinpointing the right offer at the right time and the right price.

Strategic pricing is a -- is driving greater pricing consistency and value for our customers, while leading to greater value for Equifax shareholders and our bottom line.

Number three, we've also developed a valuable discipline and structure around getting the voice of our customer into every product offering.

Through that process, the intimacy we develop with our customers gives us an edge in the design and development of the unique high value solutions that will enable our customers to drive incremental revenue growth and profit.

We've also become more highly valued business partner and often times are presented with opportunities that we wouldn't normally have because of these unique capabilities.

Another fundamental discipline is how we challenge ourselves to continually drive incremental operating leverage as we grow.

This relentless focus keeps us from getting complacent in our thinking.

Our global LEAN COE works closely with each business unit to ensure that we operate at peak efficiency.

They also identify industry leading best practice that is could be adapted to the environment and integrated into our daily operations.

LEAN is but one tool we use.

We also have worked with customers and vendors to ensure that our interactions are the best and most cost efficient that they can be.

Next our strategic M&A is an integral part of our long-term growth model, where our objective is to drive one to two points of incremental growth from strategic acquisitions.

We've developed a very rigorous process of determining the value and understanding the risk of the acquisition, how they fit in our existing strategy, incremental revenue opportunities and the most effective way to integrate them into our company and business units.

We mitigate these risks through in depth analysis and thought, always challenging ourselves in developing a detailed set of milestones that measure our progress.

Next is service business, the quality and depth of your management team is paramount.

Our global human resources COE drives the acquisition and development of our talent across the globe.

We develop mentoring programs, identify high potentials who are given out of the box challenges, giving us the opportunity to develop them beyond their current job, and devote considerable effort towards rigorous (inaudible) planning.

Finally, Equifax is gas a strong commitment to its shareholders.

Just in the last two years, with dividends and share repurchase, we have given back over 50% of our cash from operations to our shareholders.

The disciplines are fundamental to how each of our business units operate, and coupled with our strategic initiatives, a large part of why we have been able to deliver consistent and strong operating performance in these uncertain times.

As I always do, I'll go through some highlights for each of the five business units, and then turn it over to Lee for the financials.

In the second quarter each one of our business units continued to do capitalize on the respective opportunities in USCIS.

They again delivered impressive double-digit revenue growth, while expanding their operating margin.

With some major contract wins in the government sector, technology and analytical services delivered strong double-digit revenue growth in the quarter.

We continue to be very optimistic about the opportunities in this sector, and believe we have the technology and expertise to capture significant market share in ID management solutions.

We also had strong double-digit growth in Telco, auto and insurance further demonstrate the broad-based appeal of our solutions.

We continue to deepen relationships with many of our financial institutions customers by appending unique work number information to their portfolio reviews, particularly with credit card lenders.

That's a trend we've seen now developing for the past few quarters, driving great new incremental revenue for the work number and value for our customers.

We're making great progress with our Key Client groups.

We call them KCP.

They are the four largest banks in the U.S. It's an organizational structure we put in a few years ago and its paying great dividends.

That group is now driving double-digit revenue growth year-to-date, and deepening our relationships with crossline products and services across the enterprises.

International continues to drive broad-based revenue growth, as both Europe and Latin America deliver double-digit local currency revenue growth in the quarter.

New product innovation continues to be a key growth driver with year-to-date revenues from new products launched in the prior three years, coming in above our expectations.

In the UK, the team continues to win against the competition by focusing on the customer and delivering high value solutions to meet their business needs.

We're also driving stronger market and client penetration with our analytical services offerings, though in the second quarter, revenue from all product offerings that embedded our analytical capabilities grew strong double digits.

Work force solutions have delivered record revenue and profit driven by very broad based growth across multiple market segments, continuing strength in the mortgage market and the acquisition of the year ago DataVision.

Double-digit organic growth in the government, auto and pre-employment sectors, in addition to mortgage, underscores the strength of our year-to-date growth in verification revenue.

Year-to-date, DataVision is ahead of our expectations,benefiting from strong mortgage activity, but also through new customers and expanding relationships with existing customers.

Finally, we're aggressively leveraging our strong market penetration by cross-selling additional products and services, which will further strengthen our customer relationships, particularly for those who contribute data to The Work Number database.

North American personal solutions had a record quarter and continues to improve it's operating rhythm going to subscriber base, minimizing churn and launching high value products.

(inaudible) growth continues driven primarily by the new Equifax complete product suite.

This suite of products provides such features as credit scores from all three bureaus, unlimited Equifax credit reports and scores, identity theft monitoring and debt repayment calculators.

And this year, we finally introduce -- or we introduced a family plan version, which combines all three features for two adults and up to four minor children.

Watching the fourth quarter 2012, customers on the Equifax complete family of products now account for nearly 50% of our subscriber base.

North American Commercial Solutions revenue was approximately flat in local currency for the quarter.

In this uncertain economic environment a number of key financial institutions demonstrated caution in taking on new customers by reducing new lending activity in the small business sector causing overall transaction-driven revenue to flatten.

In addition, product-driven revenue, most often related to marketing campaigns or customer -- new customer product initiatives, were also flat to prior year.

As business clients generally are exercising caution in their discretionary spend, it's a trend that we see now for two quarters in a row.

Again another great quarterly performance executed against our strategic division, which we fundamentally believe is right for this company, the markets we serve and the investors who depend on us to perform.

And now, as always, Lee will give you the detailed financials.

Thanks, Rick and good morning, everyone.

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

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

Overall, business execution continued to be strong in the second quarter.

And mortgage activity continued at an elevated level throughout the quarter.

Three of our business units grew at double-digit rates, those being USCIS, Work Force Solutions and Personal Solutions.

And our international business, excluding Brazil in the prior year, grew 9% in constant dollars.

Compared to the same quarter in 2011, for the second quarter of 2012, consolidated revenue of $536 million was up 10% on a reported basis, and 14% when Brazil was excluded from 2011 revenue.

Excluding the impact of changes in the foreign exchange rates, constant dollar revenue was up 11% or 15% excluding Brazil.

Our operating margin was 24.8% compared to 23.5% for the second quarter 2011, and diluted earnings per share attributable to Equifax was $0.62 per share.

Excluding the impact of acquisition-related intangible amortization, and the 2011 loss on the deconsolidation of Brazil, adjusted EPS attributable to Equifax was $0.74 per share, up 21% from $0.61 in the second quarter 2011.

Moving to the individual business units, U.S. U.S. Consumer Information Solutions revenue was $230 million, up 19%.

Online Consumer Solutions revenue was $153 million, up 20%.

Over 50% of the growth was broad based organic growth driven by new products, overall growth and transaction volume from existing customers and certain pricing actions implemented the second quarter of 2011.

The remaining growth came from the mortgage sector.

Second quarter online volume was up 9%, driven primarily by double-digit growth in our Key Client Program and channel partners who resell our products, primarily into the auto and mortgage markets.

Average revenue per transaction was up 4% for the quarter.

Mortgage solutions revenue of $41 million was up 51% compared to the second quarter a year ago.

Both mortgage reporting through new products and (inaudible) transaction volume.

And settlement services delivered strong growth in the quarter.

Consumer financial marketing services revenue was $36 million, down 9%.

Revenue suffered in both credit marketing services and IXI as some large projects were canceled or moved to later in the year.

Our market tracking indicates that bank card new account openings are only up modestly over 2011, following strong growth last year,as financial institutions evidence some caution in their new account marketing, given macro economic uncertainty.

The operating margin for U.S.

Consumer Information Solutions was 38.3% in the quarter, up 36.5% from a year ago.

Equifax International's revenue was $119 million for the quarter, excluding Brazil following its deconsolidation in the second quarter of 2011.

Reported revenue grew 4% and local currency revenue growth was 9%.

By region, Latin America's revenue was $46 million, excluding Brazil for the prior year comparison reported revenue grew 7% U.S. dollars, and 12% in local currency.

Growth again was broad-based across product categories as consumer and commercial information delivered high single-digit growth, and technology analytical services and marketing services delivered strong double-digit growth.

Europe's revenue was $41 million, up 6% U.S. dollars and up 11% local currency.

Strong double-digit growth in analytical services, personal solutions and Workload, an acquisition we made a year ago, offset some weakness in our information and marketing services segments.

Canada Consumer Information revenue was $32 million, down 2% in U.S. dollars and up 2% in local currency.

And International's overall operating margin was 29.2%, up from 26.1% 2011, reflecting primarily the deconsolidation of Brazil in the second quarter 2011, and margin expansion in the UK.

For the quarter, Work Force Solutions revenue was $115 million, up 20%.

Verification services, with revenue of $63 million, was up 42% for the quarter, approximately 60% of our growth was organic and broad-based with strong double-digit growth in mortgage, pre-employment, and government uses.

The remaining 40% of our growth came from the acquisition of DataVision in August 2011.

Employer services revenue was $52 million, flat compared to last year.

As strength in our automated transaction services offset weakness in talent assessment and tax management services primarily due to lighter unemployment compensation claims activity.

The work force solutions operating margin was 23.4%, up from 21.6% in the second quarter 2011, largely due to the strong performance in verification services.

North America Personal Solutions revenue was $51 million for the quarter, up 12%.

Continued double-digit in U.S EDC subscriptionrevenue and in Canada, resulting primarily from greater penetration of our higher value, higher priced product offerings, as well as from growth to subscribers.

Operating margin for PSOL was 29.8% up from 27.7% in the second quarter 2011.

North America Commercial Solutions revenue is $20 million, down 2% on a reported basis, and down 1% on a local currency basis.

Transaction based revenue was essentially flat when compared to the prior year as Telecom and manufacturing sectors continued to perform well, but financial institutions pulled back on new lending in the small business sector.

As with the two prior quarters, project-related revenue declined, reflecting weakening conditions for small business operators.

The limited availability of qualified applicants, a lower rate of spend on capital equipment and a lower inventory level in anticipation of future sales were major contributors to a significant decline in the small business optimism index reported in June.

And right now we're seeing the impact of that in corporate marketing efforts to small businesses remaining cautious.

The operating margin was 14%, down from 20.9% in the year ago quarter, asthe anticipated pickup in revenue did not occur as expected.

Corporate expenses were up 25% compared to the second quarter 2011, due to investment in enterprises-wide infrastructure and growth initiatives, and compensation resulting from better than expected revenue and profit performance.

And our corporate tax rate of 35% was modestly better than expected as a result of a slightly lower foreign tax rate, and contributed $0.01 to company earnings per share versus our expectation expressed in the end of the first quarter.

Now let me turn it back to Rick.

Thanks, Lee.

Let me close briefly by briefly recapping the first half of the year, and then share our general outlook for the second half, and I'll describe some expectations specifically for the third quarter.

By any measure, we had an outstanding first half of 2012, with 15% revenue growth and 21% adjusted earnings per share growth.

This performance was well above our long term growth targets, aided by obviously strong mortgage refinancing markets in the U.S.

and strategic pricing initiatives, some operating leverage initiatives in the first half and obviously continued great execution against our growth strategies across all business units.

As I kind of frame up the second half of the year for you, let me do this.

Let's go back to our last earnings call.

And in the last earnings call, we talked about the total year coming, in between 10% and 12% top line, with EPS growing at two to three points faster than that where are we today.

We're now saying that our total year growth is slightly higher than that, total year growth will be between 11% and 12% with that same earnings per share acceleration of two to three points faster than the 11 to 12 points.

So largely in line with what we talked about in the first quarter earnings call with slightly higher revenue.

Why is that?

As we sit here today, we now expect the mortgage refinancing market in the U.S. to be slightly stronger in the third quarter than we had anticipated on the last call.

That will give us a little more growth in the third quarter.

Now, also as you look at the balance of the year, and by the way we expect the mortgage market as we did on the last earnings call to start to decline in the fourth quarter of this year, getting more in line with our expectation on our budget.

which is double-digit decline year-on-year.

Also, you say think about the balance of the year, we're going to be comparing our revenue in the mortgage sector to a much stronger third and fourth quarter a year ago.

So we expect the mortgage market to be, obviously, growing at a slower rate the second half of the year than it did in the first half of the year.

In addition as we mentioned before, we've now anniversaired some of our strategic pricing and operating initiatives that I've mentioned a few times.

Consistent with this view and incorporating our second quarter actual results, our constant dollar full-year outlook for individual business units has improved modestly.

I'll go through those one by one now.

We expect U.S. CIS to deliver double-digit revenue growth at a slightly higher level than we thought previously.

Work Force Solutions is now expected to deliver double-digit growth for the year versus our last call where we said upper single-digit.

Personal Solutions is also expected to deliver double-digit revenue growth for 2012.

Commercial Solutions where we encountered a much tougher business environment than we originally anticipated will likely be in the low single-digit range for the full year.

International, when you exclude Brazil, should continue to deliver low double-digit growth, a constant dollar growth for the year.

Again, for the full year, we expect the Company when excluding Brazil to grow top-line between 11% and 12%, and for adjusted earnings per share to grow the additional two to three points and we talked about.

And again this outlook assumes mortgage (inaudible) stronger as the third quarter returns to the budget levels which is down double-digits for the fourth quarter.

For the third quarter, assuming current exchange rates and the continuation of the mortgage activity we experienced this past quarter, our outlook for revenue growth and continued operations is between 9% and 11%, and adjusted EPS from continuing operations is expected to be between $0.71 and $0.74 per quarter.

Finally, an important scheduling note is on December 6 we're going to be hosting an investor day.

We'd love to have all you come.

We will be at the New York Stock Exchange as we did when we hosted a few years ago back in 2006 and 2007.

A lot more details forthcoming, but a heads up so you can get this date on your calendar.

With that, Operator, we would like to open up for questions for Lee and I.

(Operator Instructions).

Our first question will come from George Mihalos with Credit Suisse.

Hey, guys.

Nice job again on a good quarter.

Thanks, George.

I was hoping that you guys could break out for us what the overall contribution revenue was from mortgage, and how much of the 14% growth specifically came from that

Yes.

The long term goal range we've had for mortgage has been somewhere between say 14% and 20%.

We're in that range.

It's somewhere over 19% for the quarter.

And of the total growth, a little over 6% of it comes from mortgage.

Okay.

Great.

Thanks.

And then can you guys talk a little bit about the operating leverage that we saw in USCIS.

I think sequentially, your operating margins there were up something like 180 basis points, and you had a big contribution from mortgage, which should be, you know --

George let me address that, make it back to one point.

I think it's important for those on the phone to really understand.

There is no doubt that the mortgage refinancing market is a benefit to us.

It's important to understand, though, it's not just the market environment, itself.

And you've seen this story from us for a number of years.

We're out there developing a lot of new products in the mortgage marketplace we never had before.

Dan Adams over at the TALX team at Workforce Solutions is taking his team and penetrating new mortgage customers that we've never sold to before, gaining more share in new customers where he had the lower penetration in the past.

So it's not just the market itself.

If things we're doing to become a bigger, better player in the mortgage market so it's a combination of market for us.

I hope everyone understand that.

Lee, may want to address the USCIS.

Yes, George.

In USCIS mortgage products, there's really two classes of products.

One is we do sell credit reports through resellers to other providers who provide tri-merge reports.

So when we get mortgage activity in that part of (inaudible), we also have tri-merge reporting in our settlement services, where we have third party expenses in our cost structure.

Those are relative to our average lower margin.

The average of those two runs about 50% incremental margins on mortgage.

So hard -- one of reasons you're seeing good leverage although a portion of our growth is mortgage driven, is we do get a slight pickup relative to our average margin when we're growing in mortgage.

Obviously, the pickup is stronger when it comes in some of our other pure information offerings

Okay.

Got you.

Just a last question for me.

Lee, maybe you can talk a little bit.

The corporate expense line was higher than what I was looking for, at least.

How should we think about that expense line over the back of half of the year.

Yeah.

I think what you've seen is that our corporate expenses are up, or actually up quite a bit, in the first quarter, and some of that was a timing consideration.

We're up about $7 mlllion year-over-year in the second quarter.

Some of the same factors are going to play through the rest of the year.

I think if you think of it as being up $5 million to $7 million a quarter over prior year, you're going to be in the right range.

Okay.

Great.

Thanks.

Thank you.

Thank you.

Our next question will come from Dan Perlin with RBC Capital Markets.

Thanks.

So I was just trying to back in.

You said mortgage was 6%.

I think acquisitions were around 2% contributors, and then we had a constant ex-Brazil revenue of 15%.

That would imply you back all that out, you're running around 7% nonmortgage constant organic number.

First of all, is that right?

Dan, if I refined it just slightly it's probably about equally 6.5% mortgage, 6.5%core and 2% acquisition.

But yes, you're in the ballpark.

Okay.

So if I look at that 6.5%, I think last quarter you were running at 9%, prior to that at 8%, prior to that was 7%, prior to that was 6%, prior to that was 4%.

So, this is going to be the first quarter we've seen this broken up trend that you guys have had, and I'm wondering what you would call out as the cause for that.

Well, one thing we've talked about in prior quarters is one of the drivers of our year-over-year growth were some pricing and operating steps we took in the second quarter last year, and that were greater than the typical.

We're always pursuing those kinds of opportunities, but these were a couple things that were greater than the usual scale, and that we would be anniversarying those largely in the second quarter.

And that is probably the biggest single impact.

But Dan, I think it's also important to put into context that would be (inaudible).

We've given, which is long term models at the core, nonmortgage organic growth between 6% and 8%.

You will have fluctuations quarter-to-quarter.

I see no alarming trends, anywhere.

At between 6% and 8%, that's clearly in the range we had expected.

And I think you will continue to expect to see that range going forward, between 6% and 8%, the balance per share next.

Okay.

Yes, that's a good number.

I just want a little more clarity on the SG&A number.

I know you talked about, I guess sales commissions being up, but it was definitely a much higher number than I anticipated.

What else is driving that in the current quarter, and is that an elevated level we need to be thinking about for the remainder of the year?

Yes, we have stepped up our investment spending in a number of corporate initiatives, particularly infrastructure investments.

We have just recently done a worldwide conversion in our H.R. information system to one common system.

We are in the process of investing in upgraded billing and financial reporting systems, and are continuing to make some investments in reducing the overall risk profile through some I.T. investments to strengthen our overall infrastructure.

So --

Dan, these are consistent investments we've been making and talking about now for a few quarters.

It's always important to put this in the context too.

These are not massive enterprise-wide business kind of investments.

They are very targeted projects that will make us a better, more efficient business going forward.

Okay, and then just two quick ones.

The -- we had been hearing a little bit some of the auto finance guys were moving downstream into subprime.

I know that's very good, typically for kind of the velocity of applications that you guys get pulled.

Is that something that you're seeing?

Would you call that out, or is that kind of one-off on some of the people we're talking with.

No.

We're seeing it.

Auto is a strong force across the board, and going downmarket is a part of that contributor.

And then just lastly, Rick, could you just comment on the congressional letters that were in the New York Times.

They were all talking about it.

Your thoughts about what they're asking for.

Yes.

It was old news.

I love reading it so many times so many different periodicals (inaudible).

It emanated, I think, maybe a month ago out of the --it was called the Columbus Dispatch where it was first written, and what you what you see now is a number of different newspapers regurgitating the same story.

It's nothing new

So this wasn't incremental.

I got it

Yes.

Excellent.

Thank you, guys.

Good quarter.

Thank you.

Thank you.

We'll go to Carter Malloy with Stephens, next.

Congratulations again.

First off on the mortgage questions from earlier, how much of that mortgage growth is in your 3Q guidance?

I'm trying to get a sense of the delta between this quarter and next.

If you could maybe split out, one the mortgage growth, and two the deceleration headwind from inorganic from DataVision.

Yes.

Carter I'll deal with the first part of that.

We are expecting roughly similar mortgage activity in the third quarter.

But if you think back to last year, the third quarter was when mortgage activity really picked up.

So the first half last year was very soft.

The second half is very strong.

So the key comparison in the third quarter is relatively consistent mortgage activity but a much more challenging comparable.

That means the comp -- contribution of growth will drop by a third -- I would say a third to a half.

In other words, instead of contributing a little over 6%, it's -- of growth for the company in the second quarter, it will be probably 3% to 4%.

But that's one of the reasons, you know, when you think about the step down in revenue that we have led people to over the course of this year, some of it is because of the pattern of revenue growth last year.

Carter, repeat your question on DataVision.

I missed that.

Sure.

Just that rolls into organic growth this quarter, as well.

In August, I believe you said.

So what's the, you know, pointage headwind for that

Contribution of acquisitions in the third quarter, I think, is probably going to be closer to the 1% than the 2% we reported.

Okay.

Got it.

And then on the PSOL side of the house, continuing to see acceleration there, and really good performance in that business.

Can you give us more color as to why you guys are continuously outperforming in that market, and do you expect that to sustain.

Yes, we expect that to be continuous.

(inaudible) on the guidance on the balance of the year.

Trey and his team have done a marvelous job of understanding of understanding ARPU, positioning new products, building new products, understanding churn, reducing churn.

They have great operating metrics to run that business.

Subs are on the rise.

So it's been a great job.

We expect it to continue.

Okay.

And lastly on the commercial side, it looks like we're expecting some sort of pick up in the back half.

Are you guise anticipating improved small business lending on the transaction side, or are there just some projects that you're expecting to actually pull through.

I don't expect any market based improvement.

I expect a little bit of execution, some more benefits from the products, some projects we didn't get in the first half of the year to come in the second half of the year.

So it's going to be a modest improvement with the expectation we get back the low single-digits -- mid-single-digits in the second half of the year

Okay.

Thanks for the color

Thank you.

Thank you.

We'll go next to Andrew Steinerman with JPMorgan.

Hi, gentlemen.

You like to speak about 25 basis points of margin expansion a year, eventually reaching a goal of 25 to 26, kind of in your long term plan.

Obviously, huge success in the quarter at 24 8. So we're essentially at 25.

Do we have to revisit this, or is that still the expectations that maybe we'll go from 25 to 26, 25 basis points a year or is that conservative now given where we are

No.

I think one thing to keep in mind is when we deconsolidated Brazil last year, we got a significant pop.

So I think our outlook for this year reflects the fact that very strong margin improvement in the first half the of the year as a result of those compares that still included the lower margin Brazil business, and then I think we're really on trend over the next few years for that roughly 25 basis points expansion.

One thing I point out, you can really see it, we've had a couple questions already this morning on the corporate line.

We are making the kind of investments to create a platform as a company to support the kind of growth we think we can drive.

Some of those investments are to drive that growth itself.

Some of those investments create the foundation to support that growth.

And to grow at the rate we think, we think the investment level we need is such that a margin expansion objective in the range of 25 basis points is the right objective

And Andrew, as we said a number of times, I think context is always important.

25% margin we're in the top quote file of the S&P 500, already, so it's a balance of being margin expansion in top line growth.

I think it's a good mix, good balance.

Sounds good.

Thank you so much.

Thank you.

We'll go to Julio Quinteros with Goldman Sachs.

Maybe just to pick up on that thought about margins and the ability to continue to drive the expansion there, I was kind of thinking a bit more from the other side.

If things were to get materially worse from here, what levers would you guys have left to continue to protect the earnings per share growth from here

I think we had a proven capability, as we experienced back in 2007, 2008 and 2009, to cut costs rapidly and leverage tools like LEAN.

We truly have a world class LEAN operation here, Julio.

And there's a lot more juice to be had in LEAN across business units and COEs across the world.

So God forbid, if we go into a significant meltdown like we did in 2008, this team has proven they know how to cut costs and employ LEAN across the company so we would do that again.

Okay.

And then maybe just sort of on that more entire thought process here, thinking about balancing some of the cyclical headwinds against the long-term targets you guys have set.

It sounds like there are definitely some drivers in your model that are sort of, I guess thinking of them more as counter cyclical, maybe even secular in the way they're contributing.

Can you sort of parse out maybe the issues that you think will allow you to kind of power through from a top line perspective, any cyclicality as we go forward from here, pricing and KPI for example

Yeah.

Great question.

I think the key in the thing has helped us thrive the last couple years and get through the recession.

Before that is innovation.

Our team is innovating -- I don't think I mentioned in my opening comments, innovating extremely high level now on the NPI, the 4G strategic pricing, bundling products.

That's at an all time high.

And the challenge I gave the team now is not just kind of the best in class special plus recalibrate.

If 10% of revenue is coming from products that didn't exist four years ago is today's result, which tomorrow's goal be, it has to be something higher than 10%.

So continuing that level of innovation and strategic pricing and bundling is key for us.

I think the other thing too is to think about is, we do have the benefit of having a diverse mix of customers,products, business units and geographies.

And there's no doubt that's an advantage to us today, and will be an advantage in the future, well.

And what specific Julio you may recall that our employer services, and in particular tax management component of our plural services business in work force solutions grew at double-digit rates in the last downturn.

It is very directly counter cyclical.

Obviously, the big drivers, the strategic things we would do, but it certainly helps to have a $200 million line of business that's going to actually report stronger growth in that environment.

Yeah.

We hate to see it moving up, but we understand

Yes.

Certainly not what I go home and hope for.

Exactly.

All right, guys.

Thank you so much.

Goodbye.

Thanks, Julio.

Thank you.

We'll go with Bill Warmington with Raymond James

Everyone, and let me add my congratulations on the strong quarter.

Thanks, Bill

I want to ask a couple of questions about the online CIS.

You mentioned that the revenue per unit, I think was 4%.

I just want to ask for color there in terms of unit volume and mix.

Yes.

In the unit volume and mix, well, volumes up 9%, and our revenue per transaction on the specifically measured volume was up 4%.

We also had some benefits that get us up to the total 20% growth due to some of the subscription revenue, some newer products that are priced on subscription basis, which are showing nice growth, as well as some of our pricing shows up below the measured volume level

Got you.

Okay.

Then I want to ask also if you could talk a little bit about the dynamic you're seeing in the consumer financial products market, in terms of what's happening on the demand side that you referenced, on the consumer side and then also from the bank's point of view, the supply side in terms of wanting to put out those products in this environment.

Yes, good question.

I'll take that one.

If you look at the core credit marketing services suite of products that we have, and you exclude one particular customer,we'll come back to that in second.

They actually displayed good core growth in the upper single-digits for the quarter.

We had one customer who's been a good customer of ours for a number of years, who is taken a step back financially and trying to reassess their financial capabilities, and where they want to deploy capital and it's slowed down dramatically, their purchase of products.

I think that's going to probably last for the balance of this year as they get their financial house in order, Bill, and then they will come back in 2013.

So a core CMS business is actually doing quite well.

We're seeing an uptick in card, as an example, we think of acquisitions.

So it's really focused on this one particular client who stepped back.

Got you, and then I just wanted to do ask how the NCTUE positive database was doing, how those sales were going.

Great.

Very well.

Alright.

Well, thank you very much

Thank you, Bill.

Thank you.

We'll go next to Eric Boyer with Wells Fargo.

Thank you.

You talked about the pricing efforts anniversarying this quarter, putting some pressure on the growth rate.

When you think of the long term revenue framework of 6% to 8% nonmortgage growth, how many points of that are you expecting to come from future pricing initiatives on an annual basis?

We don't break that out, but it's important that it makes you understand.

We talked about --we're very proud what the team has done in pricing.

And we always -- we talk about it being in millions of dollars, significant of a year.

What we had this last year was a series of efforts, was very unique.

And that unique, large chunks of revenue that came through, I don't see that repeating.

But we're always going to be out there thinking of bundling products, segmenting, and ROI for our clients to make sure to maximize the price.

We will always get some.

But just not what you saw in the first half of this year and second half of last year.

So we don't break that out specifically, Eric.

Okay.

And then it looks like the constant currency growth rate's moderated a bit across geographies in your international segment.

Is that being impacted by the pricing initiative anniversarying as well, or is that mostly due to the macro conditions.

No.

The pricing initiatives that were referred to, that were kind of unique if you will,the anniversary or U.S. What you just think is a slight moderation in the macro environment around the world, but still very healthy

Could you just remind us again about the appending unique work number trend that you're seeing?

Yeah.

What we're doing with the work number is working with the large banks and taking attributes off of the work number file or records, and appending those to the credit file or the card issuers.

And it's helping them make better decisions, so it's not the entire work number that's appended.

It's attributes off of the work number file appended to the credit file, and then the card issuers are using that to make better decisions.

It's really exciting.

Thanks a lot.

Thanks.

Thank you.

We'll go to David with Togut Evercore Partners.

Thank you.

Good morning Rick and Lee.

Good morning.

Good morning, David.

Can you give us an update, Rick, on the progress with the Boa Vista merger, I guess specifically where does the joint business stands financially, and when do you expect to reach profitability in Brazil?

We spend a lot of time with that group with our partner TMG with Boa Vista, with ACSP, down there, up here.

We're doing best practices sharing, trying to now build a product capability that we've built here NPI.

Integrating systems, getting out in the marketplace, make sure the marketplace understands the value of the two, getting new data assets.

So across the board, it's going well.

Culturally, as you know, it's a long process to get a new culture up and running.

I would say at this juncture it's at our expectation from an integration perspective.

As far as profitability -- let me back up.

As far as being received in the marketplace, David, the marketplace loves the idea of having a bigger, better stronger more viable competitor than we were separately.

As far as financials and profitability, obviously we don't consolidate that so it's not fair for me to talk about their financials at this juncture.

Well, just in terms of understanding the financial impact of the business on Equifax, do you have a sense of when that business might start contributing to the profitability of your company?

Well, there's obviously an opportunity, at some juncture, to dividend back, and we own as you know 15% of the company.

So I think in any case, and Lee can jump in, it's de minimus impact over the next -- we will get the real impact is when we have the opportunity to increase our ownership in 15% to something far larger, but at 15% of dividend back to us would be de minimus.

Yeah.

The comment on dividend, of course, with the 15% ownership we're accounting for that using the cost method.

The only revenue or profit we would recognize is our share of dividends, and we don't anticipate material dividends in the near term.

They have some continuing investment opportunities in the business.

So we would expect -- likely until we buy up in our position that the contribution to P&L is de minimus.

When can you buy up from 15%, into what level?

Well, there's -- remember, there's no magical structure to it.

It's our desire, it's their desire, they being TMG, to exit and our desire to enter, so there's no mathematical formula, there's no predetermined time line.

But we think it's the right time and integration is fully complete, and they think it's the right time from value as negotiations will begin.

Just a final question.

How much of the operating margin expansion in the quarter year-over-year was driven by the Brazilian deconsolidation?

We talked last year.

That would be about a hundred basis points.

A little less because it was just (inaudible) in the quarter

Yes, you're right

So 70 or 80 basis points probably.

Okay.

Great.

Thank you very much

Thank you.

Thank you.

We'll go next to Jaime Brandwood with UBS.

Good morning.

I wanted to start by going back to an earlier question, relating to your use of work number data to enhance credit files in USCIS.

Just so I understand it, when you were enhancing credit files in that way and then selling them to credit card lenders, are you booking all of that revenue in USCIS, or does some of that revenue get booked in the work force solutions division?

No.

When we append a work number series of attributes to the credit file, that revenue is recognized back at work force solutions and (inaudible) not USCIS

Okay.

So that forms part of the kind of cross-selling benefits that the work force solutions division is seeing, I guess.

Yes.

Okay.

And then just looking again at the underlying drivers to the online consumer information solutions division, looking more at the kind of change from Q1 to Q2, so I think in Q1 you said your OCIS volume was up 16%, and now it's up 9% in Q2.

And likewise, I think your average revenue per transaction was basically flat in Q1 and now it's up 4% in Q2.

Can you help us understand the changes from Q1 to Q2 that drove those changes?

I'm not sure there was any particular factor.

I think we did see a little bit of a moderation in lending activity in the quarter, that is still obviously, still positive last year.

But not quite as strong as the momentum we had coming into the year.

But any -- any credit reports that you would be selling to resellers that would then be selling those credit reports onto mortgage lenders, you would be booking that volume growth within that 9%.

is that correct?

Yes.

Okay.

All right.

And then just turning to your balance sheet, I mean your B levering pretty rapidly.

I certainly wouldn't expect you to comment on anything specific.

But I'm just wondering , generally, as you think about your M&A pipeline, is there anything on the kind of 6 to 12 month horizon that might require a slightly greater level of investment that could see you relever that balance sheet up or is the M&A pipeline pretty empty at the moment?

No.

We always talk about trying to deliver one to two points of revenue growth coming from M&A strategic acquisitions.

That's currently our look as well, so I -- no need to deviate from that.

Our pipeline is strong around the world.

Okay, thanks so much.

Thank you.

Thank you.

We'll go next to Schlomo Rosenbaum with Stifel Nicolaus.

Hi this is Steven Shui for Schlomo.

Schlomo, we lost you there.

Hello, can you hear me.

You're cutting -- okay.

Is this better?

There you go.

Hi.

This is Steven Shui for Schlomo.

Thank you for taking my questions.

Just to get back to OCIS, can you break out how much of that growth was from mortgage, and maybe how much it have was from MTI and a cyclical tailwind?

Break that out.

Mortgage is about 9% online growth.

Online was 20%, nine points were mortgage.

We, as I said, some of the pricing and operational improvements that contributed were in the low single-digit.

What I would describe as kind of core growth was around 7% and that's kind of a combination.

Roughly half and half between some new products and new customers versus just market growth

Thanks, Steven, as I mentioned maybe you heard, it's -- when you think of mortgage, you can't just think of mortgage as the market dynamics, itself.

USCIS is a great example.

We will be launching new products routinely in the mortgage space that didn't exist a couple years ago, and that's showing a lot of growth as well, so it's not just the market itself.

Okay.

And then also to the commercial credit business, that didn't improve as expected, and it sounds like macro was a huge factor there.

But were there any signs of intensifying competitive pressure or additional pricing pressure, at all?

No, not at all.

As you might guess, we routinely look at market share one, business loss, price compression, price acceleration.

No.

It's just an overall more sluggish segment of our business than we had anticipated.

But again, as I mentioned earlier, we expect that business for the total year to end up in the low single-digit growth.

so we expect a better second half than we see in the first half.

Okay.

Great.

Thank you, guys.

And our last question will be from Andrew Jeffrey with SunTrust.

Good morning, guys.

Thanks for taking the question.

Rick, you talk about this year EPS growing 2 to 3 points faster than revenue.

When we look at all the puts and takes for the long term, tax rate, share repurchase, et cetera., do you think that relationship is sustainable?

I mean if you're putting up the 6% to 8% revenue growth, do you talk about core, better earnings should be growing two to three points faster than that?

Absolutely.

That's the financial model that we've thought through and built here and communicated to our investors, and to the sell-side guys.

That's a combination of capital leverage and operating leverage that we go to as a business.

We should expect that 2% to 3% to continue for as far as I can see.

Andrew, one thing I would point out, you phrased the question in terms of 6% to 8% core growth or organic growth, and 2 to 3 points of leverage on top of it.

Of course, our model is 6% to 8% organic.

On average, one to two of acquisition, plus two to three points on top of it.

If we didn't do any acquisition, we'd get a greater, you know, we'd add that same growth through share repurchase instead of acquisition.

Okay.

Yeah.

I'm just thinking about all the factors that can affect EPS in aggregate, just trying to triangulate to the sustainability of that.

And tax rate was bit of a tailwind in the second quarter.

Should we think about the full year as still being around that 37% rate, and then the guidance maybe implies that the tax rate bumps back up in the second half.

I would say the tax rate for the year is between 36% to 37%, but not the 35% of the second quarter.

Sure.

So that's -- and that's probably the go forward tax rate, somewhere between 36% and 37% as we look out into future periods, as well.

Right now I would say that.

Would I tell you, if anything, the pressure on tax rate is probably slightly upward.

States are looking for ways to add revenue.

And many times it's not major legislation and changes in tax rate, but things they allow and disallow.

And frankly, we're seeing the same from our friends in Washington.

There's not been any major tax legislation, but boy are they trying to disallow certain things that have done in the past.

Okay.

And, Rick, how would you characterize the contribution from NPI, rest of world, I guess Europe in particular.

Is the momentum that you refer to do in the first quarter continuing, and what are some of the things you can do that could potentially maintain double-digit constant currency revenue growth, especially if the economic environment continues to deteriorates over there.

Yes.

I meant what I said -- I said a few quarters in a row now that the contributions of NPI are extremely broad based.

It is not just every business unit.

But specific to your question on international, it's every country.

And international is running above 10%.

Remember our goal was to get 10% of revenue coming from products that didn't exist over the last three.

They're above that so they're at the higher end and doing agreat job.

And that's why you're seeing growth in really tough economies like Iberia, and the UK.

It's because of NPI and the expectations that contains.

Great.

Thank you.

Thank you.

Thank you, and we have no --

Appreciate everybody's time on the call.

We'll be available throughout the day if you've got any other questions.

Thanks again.

Thank you.

Ladies and gentlemen, this does conclude today's presentation.

We appreciate your participation, and you may now disconnect.