易速傳真 (EFX) 2012 Q3 法說會逐字稿

Good day and welcome to the Q3 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.

Thank you and good morning, everybody.

Welcome to today's conference call.

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

Today's call is being recorded.

An archive of the recording will be available later today in the Investor Relations section in the About Equifax tab of our website at www.equifax.com.

During this call, we will be making certain forward-looking statements to help you understand Equifax and its business environment.

These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations.

Certain risk factors inherent in our business are set forth in the filings with the SEC, including our 2011 Form 10-K and subsequent filings.

We will refer to a non-GAAP financial measure, adjusted diluted EPS attributable to Equifax, which excludes acquisition-related amortization expense.

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 in our various investor presentations posted in the Investor Relations section under the About Equifax tab on our website for further details.

Now I would like to turn it over to Rick.

Thanks, Jeff and good morning, everyone.

Our team posted yet another really strong performance in the third quarter.

Our strong performance again reflects the breadth and the balance of our business model.

Our customers increasingly value the unique products and services we offer and our team is always focused on driving sustainable organic revenue growth in what is challenging economic times.

Strength in our mortgage refinancing activity aided our results as well, but we are also seeing, for the first time, strength across the new home sales in the US, which is encouraging and I think bodes well going forward.

But even in our mortgage offerings, just as in the rest of the Company, we are also gaining marketshare through introduction of new products and increased share of wallet from enhanced service delivery.

For the quarter, our core organic growth, including growth initiatives, was 7.2%, which is in the middle of our long-term organic growth range that we have communicated for quite some time now being between 6% and 8%, so solid on the organic growth.

For the quarter, revenue was $544 million, up 11% from the third quarter of 2011.

On a constant currency basis, revenue was up 12%, which is above the range that we gave during our second-quarter call.

Operating margin was 24.3% compared to 24.8% in 2011.

When you exclude severance expenses in our International business, which was not anticipated at the time we gave our guidance for the third quarter, the operating margin was 25%.

Finally, adjusted EPS was $0.75 a share, up 16% from the $0.65 we delivered last year.

We let me transition quickly to each of the business units.

Each of the business units continued to successfully address the needs of the markets with high-value solutions.

We have adopted our new product innovation, strengthened our strategic initiatives, streamlined our operations and strengthened our management teams to ensure we meet our commitments to both our customers and our shareholders.

And the team continues to execute at very high levels across the board.

It has been a constant theme now for the last couple years.

Strong double-digit growth in USCIS was broad-based.

In addition to new relationships we developed in leveraging our unique data assets and our proprietary technology, we continue to compete based upon our track record of product innovation to secure long-term relationships and greater penetration into customers' business activities.

As an example, continuing our success in the insurance arena, we won a new multiyear deal with over $5 million.

We have become more and more bullish in the US around the insurance sector for our long-term growth.

In our traditional financial institution sector, we have been selected by a top bank, one of the top four banks in the country, for a multiyear agreement to provide data for an enterprisewide data-based platform to support their analytic and modeling development activities.

This project will leverage many of our unique data assets, our proprietary data linking technology and many of our Decision 360 product offerings.

This is really exciting.

This will allow us to get in there and codevelop with our customers new products to solve new problems for them in the future and financially very, very lucrative for us.

Sticking with USCIS, we continue to have great success with our proprietary ID and fraud management solutions, including Anakam's two factor authentication solution.

We signed three different contracts with the US government in the quarter and these three contracts represent over $5.5 million in first-year revenue.

Moving onto International, in spite of a challenging economy in Europe, which I think you all are very well aware of, and a modestly declining or slowing economy in Latin America, the International delivered solid growth, 7% organic growth in Europe and 9% organic growth in Latin America.

So really troubled economies, as you know in Europe and to post those kind of growth rates is very encouraging.

Operating margins remained very strong as they continue to systematically leverage the consistent set of operating principles across all of our geographies, introduce new products and enter new markets.

International routinely develops and introduces new high-value solutions into the markets as reflected in their NPI vitality index, which was 11% of total revenue over the third quarter.

In the UK, we leveraged our InterConnect platform in a head-to-head competition to win a new large telco customer.

Finally, revenue continues to be driven by the growth of over 20% in our high-value Technology and Analytical Services offerings.

Our Technology and Analytical Services growth rate in International has been fantastic for the last couple years and leads the way globally at 20%.

Workforce Solutions continues to make great progress in growing its actively employed Work Number database while broadening its served verification markets and further enhancing relationships with the HR departments who report into the Work Number database.

Active records in the Work Number database are up 6% year-over-year as a result of adding a record 161 new companies and increased hiring from our existing contributors.

Great traction there.

Earlier this year, we launched an enterprisewide go-to-market initiative leveraging our USCIS salesforce to increase the penetration of all Equifax products with their client base, including the Work Number.

To date, this initiative has generated almost three times the revenue growth target we set for Verification Services.

So already this team is gaining great traction and leveraging all of our products with a very aggressive focus on the Work Number.

We were recently awarded two multiyear contracts to provide social services verifications.

The first contract includes Verification Services for a state's foodstamp welfare and child support enforcement and Medicaid eligibility services.

The other contract provides Verification Services to an agency of the federal government for disaster loan eligibility.

These are both excellent examples of how we enter new markets with new services leveraging our existing data assets and operational infrastructure; in this case, the Work Number.

Finally, the IRS has selected Workforce Solutions as its first pilot vendor to deliver e-Transcripts.

This service is designed to streamline the process of delivering 4506-T information to verifiers in real time at the request of a taxpayer enhancing the time lists and the value of our services.

Moving onto North American PSOL.

They continue to drive strong revenue growth and above expected operating margins.

PSOL has developed a very good operating rhythm with metrics that are reported and evaluated real time every day.

They focus intently on growing the subscription in the subscriber base, increasing ARPU, managing churn and reducing our cost per account acquired.

As a result, our subscription-based revenue has now reached 68% of our total revenue and margins continue to be very strong.

North America Commercial Solutions continues to be challenged by weak demand for many of its project-oriented services, particularly in the marketing area.

As we indicated last quarter, this trend is likely to continue in the near term as banks and other financial institutions pull back on their small-business lending activity.

However, the risk side of the business continues to be very strong, which Lee will get into in a few minutes.

For many years now, we have been executing consistently on our strategic plan, accumulating a diverse portfolio of data assets, mining the mass of data and extracting relevant insights through sophisticated analytics and delivering our solutions to proprietary decisioning platforms.

Increasingly, our customers are recognizing the true value we can bring to their daily business operations.

In short, we are winning marketshare and growing revenue nicely as a result.

As you have seen over the course of the year, our solid year-to-date performance demonstrates the effectiveness of our business model and our strategy in a more volatile competitive environment and how rigorous operating principles underpin the consistency of our business performance.

So in short, another really solid quarter by the team in the third quarter.

Lee, if you can go through the financials now, that would be great.

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 reconciliations attached to our earnings release for additional financial information.

As our customers' environments evolve, we continue to drive revenue growth by addressing their needs with a unique combination of data, analytics and decisioning technology.

Our performance this quarter was broad-based and ahead of the expectations we set as we entered the quarter.

Compared to the same quarter in 2011, for the third quarter of 2012, consolidated revenue of $544 million was up 11% on a reported basis.

Excluding the impact of changes in foreign exchange rates, revenue was up 12%.

Operating margin was 24.3% compared to 24.8% in the third quarter of 2011.

In the quarter, our International business unit recorded a severance charge, which we had not previously planned, to better align its resources with our future business needs.

When you exclude the severance expense, the operating margin was 25.0%.

Diluted earnings per share attributable to Equifax was $0.64 a share.

Excluding the impact of acquisition-related intangible amortization, adjusted EPS attributable to Equifax was $0.75, up 16% from $0.65 in the third quarter of 2011.

As I noted, the quarter included $3.7 million before tax, or $2.4 million after tax, of severance expense in our International business unit.

We also benefited by $3.3 million from income tax benefits.

Neither of these two items was anticipated at the beginning of the quarter.

The net impact of these two items added just under $0.01 to earnings per share.

Moving to the individual business units, US Consumer Information Solutions revenue was $233 million, up 15% year-over-year.

Online Consumer Information Solutions revenue was $157 million, up 16%.

Third-quarter online volume was up 5%, driven primarily by continued growth in credit card, auto and mortgage lending.

Average revenue per transaction was up 4% in the quarter driven by a shift in mix of volume.

Our remaining growth came from services beyond traditional credit reports, including direct-to-consumer monitoring services and new product offerings priced on a subscription basis.

Mortgage Solutions revenue of $43 million was up 35% compared to Q3 2011.

Both mortgage reporting and settlement services delivered strong double-digit growth for the quarter.

Consumer Financial Marketing Services revenue was $33 million, down 4%.

Credit Marketing Services revenue was up approximately 7% while IXI declined as financial institutions reduced their use of wealth-based data in select applications due to regulatory uncertainty that we are currently addressing.

The operating margin for US Consumer Information Solutions was 36.9%, up from 36.6% in the third quarter a year ago.

Our International business units revenue was $121 million, up 2% on a reported basis and 6% on a constant dollar basis.

By region, Latin America's revenue was $47 million, up 4% in US dollars and 9% in local currency.

The strong double-digit growth in Technology and Analytical Services is offset by softness in marketing services and personal solutions.

Chile recently passed legislation that changed the permissible use of consumer information having a negative short-term impact on our revenue in that country.

We are implementing some mitigating initiatives, but the near-term pressure on revenue growth in Chile will continue.

Europe's revenue was $42 million, up 3% in US dollars and up 7% in local currency.

Strong double-digit growth in Analytical Services and Personal Solutions helped to offset a decline in our Consumer and Commercial Information segments, which were impacted by the generally weaker economic conditions.

Canada Consumer Information revenue was $33 million, flat in US dollars and up 1% in local currency.

Strength in Technology and Analytical Services, particularly in fraud services, offset weakness in Consumer and Commercial Information Solutions.

International's operating margin was 27.4%, down from 29.3% in 2011.

Excluding the severance charge mentioned earlier, the operating margin would have been 30.4%, in line with past quarters' performance.

For the quarter, Workforce Solutions revenue was $117 million for the quarter, up 14%.

Verification Services with revenue of $69 million was up 33% for the quarter.

Approximately 80% of our growth was organic and broad-based with strong double-digit growth in mortgage, consumer finance, pre-employment and government uses of Verification Services.

The remaining inorganic growth resulted from the acquisition of DataVision in August of 2011.

Employer Services revenue was $48 million, down 5% compared to last year, reflecting weakness in both tax management, [talent and essential] services.

The Workforce Solutions operating margin was 24.4%, up from 23.0% in the third quarter of 2011.

Once again, due to the strong performance in Verification Services.

Our North America Personal Solutions revenue was $51 million for the quarter, up 13%.

Strong growth in our higher-value products and further penetration in Canada were the major contributors to this performance.

Operating margin was 32.1% compared to 32.8% in the third quarter of 2011.

North America Commercial Solutions revenue was $21 million, down 2% on a reported basis and down 1% on a local currency basis.

Double-digit growth in US risk activities was offset by a double-digit decline in our US marketing activities as lenders have continued to be cautious in the small-business segment.

The operating margin was 18.8%, down from 23.6% in the year-ago quarter reflecting continued investment in building our capabilities despite lack of near-term revenue growth.

Corporate expense was up 18% compared to the third quarter in 2011, largely driven by investment in enterprisewide infrastructure and capabilities, as well as additional incentive compensation resulting from better-than-expected operating results.

Our corporate tax rate in the quarter was 33.5%, down from 36.2% in the same quarter of 2011.

Excluding the unanticipated discrete tax benefit in the quarter, the corporate tax rate would have been 36.3% consistent with our recent past.

Now let me turn it back to Rick.

Thanks, Lee.

Let me just give you some closing comments and then we will jump to some Q&A.

I am proud of this team.

This team continues to execute at very high levels allowing us to deliver yet another solid quarter.

As you know and I think agree, we have the broadest story of powerful consumer data assets in our industry.

We have invested heavily over the years in linking this data together, as well as linking together second and third-party data.

We are also investing in our analytical expertise to ensure we develop an absolute best insight out of that data.

As I stated earlier, our strategy is really resonating well with the customers in every sector in which we serve.

We are now operating from a position of real strength to continue driving solid organic revenue growth for the foreseeable future.

You will hear more details about that when we have our Investor Day in December up at the New York Stock Exchange.

As we enter the fourth quarter, we see the same fundamentals continuing and now expect this momentum to continue into 2013.

And again, we will discuss in great detail the strategy and the outlook for 2013 at the Investor Day.

We now expect full-year 2012 revenue growth for the Company, excluding Brazil, to be at or above the top end of the 11% to 12% range we quoted during the second-quarter earnings call and for adjusted earnings per share to grow an additional 3 to 4 points as a result of operating and financial leverage.

This outlook assumes the mortgage market continues at its present rate for the remainder of the quarter and in fact, I expect the mortgage market to continue well into 2013 at this juncture, probably at least through the first two quarters of 2013.

For the fourth quarter, assuming current exchange rates and a continuation of the mortgage activity we have experienced, our outlook for revenue growth from continuing operations is expected to be between 8% and 10%.

Adjusted EPS from continuing operations is expected to be between $0.72 and $0.76 per share for the quarter.

Finally, we are looking forward to visiting with you at our Investor Day on December 6 at the Stock Exchange.

Given the strong positive response to date, I would encourage you to respond, RSVP at your earliest convenience so we can be sure to accommodate everyone's interests because we are limited in the number of people we can actually host in the facility.

For those of you who won't be able to attend in person, we will be webcasting it and taking questions from our Web-based audience during the Q&A session.

So again, we hope we can see you there on December 6. Operator, if you would, please, open it up for questions.

(Operator Instructions).

Andrew Jeffrey, SunTrust.

Thanks, good morning, guys.

I appreciate you taking the question.

Lee, there has been a little bit of volatility in the USCIS operating margin.

Could you elaborate a bit?

You were up above 38% last quarter and right around 37% this quarter.

Is there any seasonality or anything else we can kind of tease out of those results to discern a trend as we go forward here?

Andrew, I think a couple things.

The most important is actually the mix of business as we flow quarter-to-quarter.

For instance, our IXI business unit, because of the way they deliver their services, tends to have the strongest quarters in Q2 and Q4 and when they get -- but their expenses are relatively ratable through the year.

So IXI will contribute much more strongly to margin in Q2 and Q4.

As we move from Q2 to Q3, IXI revenue fell off as they always do and we made up some of that with mortgage, but as we increase mortgage revenue, that also drags along with it some direct costs.

So simple things like mix quarter-to-quarter, a little bit of seasonality Q2 and Q4 as a result of IXI.

There will be some fluctuations when mortgages surging versus moderating some.

Those are some of the factors that cause quarter-to-quarter fluctuation.

Now we really don't try to manage quarterly margin at a business unit level.

Too many things that can intervene.

Obviously, we do try to drive consistent performance at a total company level, but the business units will tend to fluctuate.

Andrew, Rick here.

Just to reinforce Lee's point, I think if you look at year-to-date trends, so three quarters year-to-date 2011 versus 2012, you'll see very positive momentum.

If you look at third quarter of 2011 versus third quarter of 2012, you'll see positive growth.

And to Lee's point with the IXI and mix changes, you would expect to see a nice moveup in the fourth quarter in the margin as well.

Okay.

Yes, strong volume cures a lot of ills, doesn't it?

It also sounds like perhaps there is a shifting mix that is benefiting your overall pricing.

Maybe it is a change in contract structure.

I know you sort of had a rationalization or reset of price last year.

Could you just talk directionally about how you see your pricing both specifically for Equifax, but also in the context of the overall competitive USCIS environment?

One thing, Andrew, we have talked about now for years is that we continue to invest heavily in our strategic pricing team and we get great results and increasing results out of the team each and every quarter.

The team is focusing on bundling of our unique data assets to maximize the value we can bring to our customers and the price we can bring to our shareholders and profit to our shareholders.

So I am pleased with what they have been doing.

I would say we are still at the early stages, but even though we have been at it now for six years, I think there is a lot of runway left for us on pricing.

Yes, and Andrew, I would add a couple things.

First, certainly pricing has been important and we have talked in the last couple of quarters about the pricing initiatives from last year that you are seeing flowing in in our results this year.

Second, there is a mix issue.

When mortgage is particularly strong, our pricing into the mortgage sector tends to be more attractive than, for instance, into the credit card sector.

So you can get some mix effects.

The third thing, again, a different element of our strategy, is we introduced additional products and services.

Some of those are add-ons to the credit report revenue we already have and that causes our combined average price to rise and whether that is, again, what I described as some of the services outside of pure traditional credit reports, but flow through USCIS, you see that addition to revenue growth on top of just pure unit price.

We are actually working to come up with a little better way of measuring our average revenue per transaction.

But you are seeing the effects of all three -- pricing, the mortgage mix tends to help us when it is strong, but also product initiatives that we have been driving for several years.

Great, that is terrific color.

I appreciate it.

Dan Perlin, RBC Capital Markets.

Thanks.

Rick, you called out strength across new home sales as opposed to refinancings and there is a lot of obviously questions around mix in mortgage.

Can you just -- can you help us understand a little bit what the dynamics might look like if we saw that trend in new home sales versus refinancings accelerate both in terms of absolute dollars or revenues per those types of transactions and then the margin implications?

Thanks.

Yes, Dan, one of the things that's important to note, the new home sales are, in fact, strengthening.

It is uneven.

It depends on where you are in the country, but overall it is strengthening, but it's strengthening from a very low base.

We still have a long way to go, which I think is an encouraging thing if you think about mortgages.

We have a long way to go before we get back to the historical levels of 2004, '05, '06 and even '07.

And then we expect that to continue to improve at a modest rate in 2013.

We expect refinancings, as I mentioned before, to continue to improve or continue at good levels for the first -- at least first two quarters of 2013.

The other point I will make there is I said in my opening comments that we are innovating at very, very high levels across the Company, including mortgage.

We have a team in the mortgage business that has got great domain expertise and their ability to build new products, new solutions in the mortgage market, it is helping us grow.

Regardless what the mortgage market itself does, it is encouraging.

As I think about margins, I don't see a significant difference in margins for refinancing versus that of original home sales.

Those tend to be about the same.

There are some nuances there, but generically about the same and margins for the new products obviously tend to be a little low when you start off and then grow over time.

Okay.

And then as we think about kind of setting the business up from when we look at your incremental margins you guys have been producing and we adjust them this quarter, they have been pretty consistent, a little bit below 30%, a couple points.

Is that, do you think, a sustainable level?

And I guess what I am trying to get at is you have had a lot of moving parts in this year when we kind of compared margins and tried to adjust them as investments -- there is Brazil, there is mortgage, hyperactivity and I am just trying to make sure I understand the trajectory as you think about the business going forward.

Not to steal any thunder out of the Analyst Day, but is the incremental margin at call it 25% to 30%, is that a sustainable level?

Let me see if I can answer your question this way.

We made a commitment that we see a path that is continuing to grow year-on-year on margins about 25 basis points a year while continuing to grow or invest in organic growth.

If that is the heart of your question, yes, I see the trajectory continuing at that 25 basis points for 2013 and beyond.

Okay.

And let me just ask two other quick ones.

You called out insurance becoming more important.

I would be interested to hear a little more detail around that.

And then also you called out kind of these codevelopment deals, which sounds pretty interesting and pretty good for margins.

So I would be interested to hear a little more about that if you could, please.

Thanks.

Sure.

On insurance, I think we mentioned that (inaudible).

You are testing my memory now.

I think it has been a few years ago, we had a large win then.

We've really pulled back from the insurance sector post the divestiture of ChoicePoint.

With our unique 360 data assets, we relooked at that marketplace a couple years ago, became intrigued, won a couple nice pieces of business.

So it was a continuation of what we announced then.

Dan, it is just literally leveraging the data 360 assets to add value, solve problems that others in the industry cannot solve.

We are hiring some very good people and the learning here is you get people to really understand the verticals, in this case insurance.

They bring great value and immediate value to us there.

So the combination of good expertise and unique data assets is proving valuable in insurance.

As it relates to the codevelopment, yes, that is encouraging.

I would mention to you there it is allowing banks to codevelop with us, develop insights from their data and our data to build new solutions.

That alone is manifesting itself in immediate revenue, but the most exciting thing is, as our customers get into our data assets and co-work with us, we are convinced that's going to lead to future new products down the road.

So the incremental revenue, as we look forward 2013 and '14 with these large banks, I think is very, very encouraging and we are leading the way there with these large banks, which is neat.

Excellent.

Thank you.

Julio Quinteros, Goldman Sachs.

Great, can you just touch on two things?

One, on the government opportunities.

I think this is the first time I think I have heard you guys talk a little bit more directly about Anakam and some of the multifactor authentication capabilities there.

So I was hoping to get a little bit more color on that front and then let me just stop there and then I can follow up with the second one.

Sure, Julio.

You are right.

We really ramped up our efforts in the government sector when we bought Anakam maybe two years ago.

They brought not only product capabilities that could help us solve identity and fraud issues with different arms of the government -- and I am not going to go into a lot of detail as to which arms they are -- but number two, it brought the context and the ability for us to actually open the right doors.

The combination of the Anakam two factor authentication with our data assets and a product we call EID, kind of bundling of those three products together is really gaining great traction across a multitude of government entities, which is really encouraging.

Is there any way to take that to the commercial marketplace or is there a sense there that it can be ported over to commercial enterprises as well?

Yes, great question.

Yes, the answer is yes.

If I think about the traction we are getting with the combination of those three efforts -- again, two factor authentication, knowledge-based decisioning off of our database and then EID -- we are going to take it to government, healthcare and EFIs.

There is a clear need in all three.

Got it.

Switching gears over to the International front, at least relative to our numbers, a little bit lighter in terms of the revenue performance, some puts and takes.

As you think about the rest of this year and maybe even next year, where would you sort of highlight any key risks?

Obviously Europe, but is there anything in particular that you would point to where there could still be some risks on the International revenue growth front?

Let me see if I can answer that by putting some color on what is occurring in International.

Again, I think it is important that you base line the fact that, in Latin America, we are still growing 9% I think is very, very encouraging.

Number two, growing 7% on a local currency basis in a very troubled European market is encouraging.

I didn't mention Russia.

Russia, we have just great, great success in Russia and great success in India as well as you think about International.

Go to specifically maybe some themes that are occurring in the International footprint.

There was some regulatory uncertainty in a couple of places in Latin America and in Canada that the team is now working through, but that regulatory uncertainty caused a slowdown, a temporary slowdown in a couple of markets.

So while the underlying market might have been a little stronger, the regulatory uncertainty caused the slowdown for a few quarters.

We are going to work through that and the team has done a great job of that and we hope to get through that uncertainty as we exit 2012, moving into 2013.

Got it.

Presumably, the severance charges and some of the things you've tried to do to realign the business will help protect the margins as we go forward through that?

Yes.

Great, thanks, guys.

Georgios Mihalos, Credit Suisse.

Hey, guys.

Just wanted to start off with sort of a housekeeping item.

Of the 12% constant currency growth, is it about 500 or 600 basis points that came from mortgage?

Is the math right there?

That is about -- I'll look at Jeff here.

Is that about right, Jeff?

About 1% acquisition, about 4% mortgage.

Actually a little less than 4% and a little over 7% core and initiative growth.

Okay, okay, got you.

And then, Lee, you were talking about some of the regulatory issues in Chile.

Is there a way to think about how much that impacted growth in the LatAm region?

Was it significant?

I don't have the exact calculation, but, for Chile, it is obviously important.

For LatAm or for the Company as a whole, it is relatively de minimis and we haven't broken that out.

And, again, I think the most important thing to think about there is we have got a great team working with the different branches of the government in Chile -- in fact, all parts of the world -- to get through these regulatory uncertainties.

I am confident we will do so.

Okay.

And then you mentioned the subscription portion of PSOL going up to 68%.

How much higher do you think you can really go from this level?

It's a pretty good level there.

I think 68% to 75% seems to be a reasonable target for us and a target we are comfortable with.

Okay, great.

Thanks, guys.

Eric Boyer, Wells Fargo.

Hi, thanks a lot.

Hey, Rick, you talked about the revenue growth within mortgage not just being about volume increases, but the product innovation that you guys have been doing over the last couple years.

Do you have a rough sense of the revenue growth from those new products versus the mortgage market strength you are seeing?

I don't think we break that out.

Do you have those numbers by chance or directional?

If I look at the total of USCIS growing at about 15%, about 7% or so is mortgage market, about 2 points are some of the major pricing initiatives from a year ago, but we are looking at 5% or 6% just pure organic initiative growth.

He's looking specifically I think at mortgage growth just from new products.

Oh, out of mortage, I'm sorry.

We don't break that out.

I don't have it off the top of my head, but here is what you should know.

I said it a little earlier that we have a really solid team in mortgage.

We have got deep domain expertise and they are churning out new products at an unbelievable rate, leveraging all the different unique data assets we have.

And I can tell you this.

For the mortgage business in the US, it is a nice piece of growth.

I just don't remember the exact numbers.

And then just on the regulatory issues, they are different than the IXI regulatory issues that you have been talking about, is that correct?

When we talk International, correct.

The stuff going on in Chile or Canada is much different than the IXI issue.

The IXI issue is worth just spending a second on.

It is being driven around uncertainty, not a regulatory decision at this juncture.

It is uncertainty around where regulation might go specific to a couple of attributes within the database, specifically age and location.

So we are working with our customers to modify models that are as predictive, but take some of the areas where they are concerned on where regulation might go out of the equation.

So we are very hopeful that we get that resolved very soon.

Okay, so I mean you really don't have to reposition IXI in any type of major way?

No, we have already proven statistically that if we modify the model to exclude the activities that they are concerned about, it is as predictable as the old model.

Okay, great.

And then just finally, can you give us a little more detail around the severance charge you took in the quarter?

Yes, it is nothing significant.

It's nits and nats as a number of people across Latin America just trying to reposition the Company for the future needs a little bit in the UK.

No one thing is significant and no one thing is really strategic.

It is a small number relative to our sized business, $3.7 million.

Okay, great.

Thanks a lot.

Andrew Steinerman, JPMorgan.

I have two quick questions.

One, 8% to 10% for the fourth quarter, what would be the constant currency number?

And the second, you talk about regulatory uncertainty in Latin America, you called out Chile.

Wasn't there a very recent positive data change in the law in Brazil?

Do you consider this a very monumental change for the consumer credit reporting industry in Brazil and when do you think the kind of uptake will occur?

Andrew, this is Rick.

I will let Lee get to constant currency growth rate for the fourth quarter in a second.

As it relates to Brazil on the positive data ruling, it is important you look back in time and you go back five years ago.

We and others were very bullish at the time that positive data would be forthcoming and be a catalyst to revenue.

And here we are five, six years later and we are still muddling around and trying to determine what that really means and when the revenue might be forthcoming.

Strategically, there is no doubt about it.

When a country moves to positive data, it is a good thing.

It helps them with risk-based pricing and that has proven to be a catalyst for growth in our industry.

At this juncture, I am still on the sidelines and my view is it is probably two years or so, maybe three years away before you actually start to see revenue traction from positive data in Brazil and it is a number of years beyond that before you see significant revenue.

Lee, do you have (multiple speakers) ?

And is that because it takes the consumer credit reporting companies time to use that data?

Is that the two to three-year lag?

No, it is more than that.

It is also getting the government to determine if it is opt in versus opt out, what are the policies and rules behind it.

Just declaring you're going to have positive data doesn't mean much.

It is getting underneath that and understanding what that really is.

And right now, they are leaning towards an opt in.

So in other words, the consumer has to prove you are using the positive data.

That is number one.

Number two, it does take time for us and others to build the database, so you can actually use the database on positive data.

Lee, do you have any (multiple speakers)?

Andrew, based on our current view on FX rates, we think that constant currency growth is probably going to be at about 0.5 point lower than the nominal.

So if we are saying 8% to 10% reported revenue growth in the fourth quarter, constant currency would be 7.5% to 9.5%.

Right.

And we anniversaried all the acquisitions, so that is also the organic number, right?

That is correct.

Correct.

Okay, thank you.

David Togut, Evercore Partners.

Thank you.

Good morning, Rick and Lee.

Could you give us an update on the status of your discussions with Computer Sciences with respect to the possible exercise of their right to put the credit services joint venture back to you?

David, as you know, we don't talk about acquisitions.

But I mentioned I think it was last -- a number of times with you and others that their CEO, Michael Lowry, has made a statement a number of times in the public domain that he is interested in disposing of non-core assets and we hope that he would see this franchise in the middle part of the country as non-core and if he does, we stand prepared to work with him and hope we can negotiate a deal.

Nothing more than that.

Then just as a follow-up, Rick, can you bring us up to date with respect to the financial performance at Boa Vista?

And in particular, a related question, will there be any impact in your view of an Experian buyout of the remaining 30% of Serasa in Brazil?

Good question.

Our team was just down in Brazil this week.

In fact, they are still there; they come back tonight.

We had a Board meeting down there this week and we continue to make really good strides on all fronts as far as operational integration, product development, systems platforms, pricing, strategy so on and so forth, building the NPI process down there.

All those things are working well, get a really good working relationship with ACSP, TMG and Boa Vista, along with Equifax.

We still remain very interested in making that platform a success going forward.

As it relates to Experian buying out now up to 99.6% of Serasa, no, that has no bearing on our strategy or our optimism for the market going forward.

Can you give us a sense of what Boa Vista's revenue growth was in the quarter?

No, we don't consolidate it, so I can't, but it is growing nicely.

I will leave it at that.

Thank you very much.

Carter Malloy, Stephens.

Hey, guys, congratulations.

So on the CMS business, you've talked about IXI, but can you strip out the core credit marketing business and tell us about trends within that and then what sort of a leading indicator that is or that provides you guys for OCIS?

And maybe you could even tease out how important cards is to OCIS as well.

Yes, I think we mentioned somewhere in either mine (inaudible) Lee's, the core credit marketing business, what we used to call CMS, so excluding IXI, had good growth in the quarter.

It was a solid 7% for the quarter.

Carter, I missed the last part of your question.

So first of all, sorry to repeat that, you said that the core CMS -- so IXI declined and the core CMS actually grew fairly nicely?

Correct.

And is that a change from last quarter and if so, does that provide you a good leading indicator on the card piece of OCIS?

Again, answer that two ways.

One is that you have got fluctuations, seasonality in IXI throughout the year.

You have a very strong fourth quarter, relatively strong second quarter and modest performance in first and second.

So yes, there was a change in marketing in IXI in the third quarter versus second quarter that will be driven by the natural fluctuations we see in IXI.

As far as card, card is okay.

Our prescreen is up solidly, portfolio management is up solidly, but the overall card market still remains a little sluggish.

Okay.

And can you tease out how important cards is to the overall OCIS segment?

Not off the top of my head.

Okay.

Is it safe to say it is a majority of revenues there or approaching 50% maybe?

No, I think it is less than 50%.

I don't know; I don't have a number.

Okay.

And then also on the mortgage business, to go back to that again, you guys are very much outperforming the rest of the market there.

As we step into next year, even with a strong first half, we are looking at all the forecasts calling for down 20%, 25% year-over-year next year.

How much do you expect to outperform that market?

So if you use existing forecasts today of down 20%, does that imply for you guys a 2 or 3-point headwind next year overall?

Well, one, I think you're going to see a changing perspective on the mortgage market as time passes.

The old data -- you are correct -- talked about a 20%-ish decline, 21% decline.

I think as you exit this year, you are going to see the economists, MBA and most importantly, the top underwriters of mortgages take a different and more optimistic stance.

You have already heard a few of them in their earnings call talk about that.

So I think what you're going to see is far less than a 20% to 25% decline next year.

I think you'll see a strong first half of the year in mortgage and you will see a weaker second half of the year.

And whatever that number is, and as we get maybe to Investor Day, we will have some very transparency for you.

Whatever the number is, yes, we would expect our team to perform at a significantly better rate than that market decline.

And that is because of our innovation.

So if you bear with me and wait until we get to the December Investor Day, we will frame up for you the stake in the ground that we are putting for mortgage market and then what we expect from our mortgage business.

Okay, great.

Well, I'll look forward to seeing all you guys in December then.

Thanks.

Manav Patnaik, Barclays.

Hey, good morning, gentlemen.

Some quick questions.

Firstly, could you elaborate a little bit more about what the regulatory uncertainty is in Canada?

And also I guess the CFPB has been in the press quite a bit.

Just wondering what your latest discussions with them have led you to believe was going on there.

Sure.

Let me start with the latter and then come back to Canada.

CFPB, obviously, we are in very close contact and communication with them.

Their whole focus now as it relates to us and our industry is that of governance and ensuring that we have a proper governance structure in place to comply with any potential new regulations that would be forthcoming.

So we are spending some time and energy just making sure that our governance process, governance structure, governance communication, governance cadence is proper and the team is making really, really good strides there.

So that is where a lot of our energy is right now with CFPB.

There has been no clear mandate or new regulations imposed at this juncture.

Stay tuned.

As we learn, obviously, we will use this vehicle and others to communicate to you.

But I think the team has done a great job and will continue to do a good job of responding to and reacting to CFPB.

As it relates to Canada, it is always important to put it in perspective too because the regulatory impact there, when you look at the entire Company, was de minimis.

It focused on the mortgage market and regulatory change in the mortgage market, which did impact their mortgage business in Canada.

The mortgage business in Canada is small relative to the total business.

I think, Lee, it's 15%-ish, 20%, in that range and the specific regulation that came out in Canada, I don't remember exactly what it was.

Lee, you might.

The issue in Canada actually had nothing to do with our services to the mortgage market.

The Canadian financial authorities are trying to reduce the bubble or any risk of a mortgage bubble and they have increased required down payments and made some other changes to deflate the real estate market a bit.

Amortization schedules on mortgages have now been brought in from 30 years to 25 years, so payments are up a little and they are just trying to make sure that they don't get a mortgage bubble.

But what that has done very short term is slow the demand in mortgages.

So it really is actions by the government to avoid a bubble, but it has weakened mortgage demand.

Got it.

And I guess in terms of the free cash flow guidance I guess you had given earlier and CapEx as well, can you maybe update us?

Is there some seasonality you expect in the fourth quarter or would those initial -- I think you had said $240 million to $260 million and CapEx, $75 million to $95 million, will those end up being below what you guys come up with?

I think the CapEx is probably heading to a lower number than $95 million.

I don't actually remember the number, but it's probably pretty linear through the year.

CapEx to date is about $50 million.

That would project out to about $70 million for the year.

I'll be honest, free cash flow I haven't focused on it as much.

Our cash flow has been strong this year and --.

I guess is there any seasonality in fourth quarter that would maybe have a drop from the last two quarters, which have been pretty strong?

No, the seasonality of our cash flow is the first quarter is low because of the timing of certain payments and the other three quarters tend to be roughly equivalent.

We have had actually very good working capital management the last couple quarters.

You probably can't keep doing that and making gains every quarter, but I would expect fourth-quarter cash flow to be good.

All right, thanks a lot, guys.

Bill Warmington, Raymond James.

Good morning, everyone.

So a couple questions for you.

First, just wanted to ask what NPI was running in the quarter.

And then the second was to ask about the commercial solutions business, just whether there is anything going on in the competitive dynamics there with D&B that is either helping or hurting the situation.

Yes, NPI continues to run strong.

We have a targeted number of 10% for vitality and you always have swings quarter-to-quarter, but the trajectory continues to be on that same pace.

So it is doing well.

So I was going to say how is it swinging this quarter?

It was a good quarter, yes, and broad-based too.

Again, it is every business unit; it is every geography.

We are still in that 10% range as far as vitality goes.

As far as the market dynamics for commercial, there is no real change there.

It is less about what Experian or D&B are doing in the marketplace; it is more about the marketing side of our commercial business being slow.

Our core US risk business in the US continues to operate well.

So it is -- and I am hopeful.

We gave the guidance that was last quarter, but it was total year commercial would grow in the low single digits.

I am still committed to that low single digits number, which by default means you have good growth in the fourth quarter.

And then I also wanted to ask if I could on NCTUE Plus.

Just ask about how customers are using that data and what kind of growth you are seeing there.

And then also to ask about the M&A pipeline.

You have anniversaried DataVision now.

What are your thoughts there?

As far as NCTUE Plus, it is growing extremely well.

It is over twice the size of what the business was last year and we expect it to continue to grow in the future.

Most of the growth initially starts with those -- building solutions for those companies that provide the data, so in the telco utility arena.

We are now taking that database working with our board of [NC Plus] and taking it into other verticals such as FI and insurance.

So if you look long term, I think there are two things that happen.

We continue to grow the database, which adds value.

We continue to diversify away from just the contributors of data to new verticals and that will propel growth, I am convinced, for a number of years to come.

So it is doing extremely well, Bill, to answer your question.

As far as M&A pipeline, the M&A pipeline continues to be very, very strong.

It centers on all the things we have traditionally looked at, which is data sources, tuck-in acquisitions around the world, geographical expansions, analytics.

So it is a strong pipeline, strategic pipeline and so it is going well, all linked back to our strategy.

Did I get all your questions or do you have one I missed there?

That is good.

Thank you very much for the insight.

Paul Ginocchio, Deutsche Bank.

Thanks for taking my questions.

Personal Solutions, you had accelerating growth on a tougher comp.

I am just wondering if you have seen any pickup in the competitive landscape.

Is there more marketing spend out there for potential subscribers and what is the outlook?

Thanks.

Yes, it's a very competitive marketplace and we are out spending.

If you just look at the marketing spend of our team versus the other very large competitors out there, we are outspent, multiples what we spend, which is remarkable when you look at the performance that Troy and his team have continued to deliver by becoming very sophisticated in how they measure churn, how they develop new products, the reposition of the pricing of the products, looking at ARPU, just a very good job.

As far as the future, yes, I continue to see that business, as I have always said, as a double-digit growth business with 25% plus margins and the team has delivered that.

We told you that was the goal for that business for a number of years and I see that same kind of performance going forward.

Thanks.

If I could sneak one more in on -- I know it is a small region -- Iberia relative to the UK, is there a wide divergence of the growth rate between those two European regions?

Yes, I don't remember -- the answer is yes.

You'd find UK growing at a slightly faster rate, but they are both in the single digits.

It is not like you have got Iberia at a flat or negative growth rate.

They are both growing at single digit rates.

Thank you.

Shlomo Rosenbaum, Stifel.

Hi, guys, thank you for squeezing me in at the end over here.

Just a number of questions, just tying up some loose ends from previous quarters.

Last quarter, you guys noted that there was a downward trend through the quarter on credit card openings.

Has that stabilized through the third quarter or what did you guys see over there?

Jeff, do you know what that -- Jeff, over to you.

Has it stabilized?

Yes, it's pretty stable.

It is up a little.

Jeff -- I'm just looking at Jeff for the exact number.

He says yes, it is stable versus second quarter and maybe a slight upward trend, but nothing dramatic.

So we saw kind of a downward trend through the second quarter and the third quarter, it stabilized, maybe up a little bit.

That's the way to think about it and that is what you are seeing now?

Correct.

Okay.

Then where are you guys in India in terms of investment versus profits?

And you guys have historically given out some metrics in terms of numbers of contributors.

How should we think of that business in general and vis-a-vis the competition over there?

Yes, I will profess I don't remember the exact numbers.

We just had a review on India recently.

Let me give you some color on it and Lee, if you remember the exact numbers, you can jump in.

If not, we will address it in detail on December 6 at the Investor Day.

Across every operational metric you can think of as far as adding new contributors of data, number of records to file, [companies] to file, hit rate against the file, number of customers testing products, all those things are going extremely well and giving us the foundation for which you are sort of building products and actually monetizing it.

As far as financially, at this juncture, we are still in the phase of investing and building and not yet at the point of breakeven.

Financial breakeven probably comes one or two years down the road.

Okay.

And then what percentage of -- this is a metric-based question.

What percentage of the total Company is mortgage, what percentage of USCIS is mortgage and what percentage of Verification Services is mortgage?

I will start with the first and look at my friend to the right, Lee, to get the others if we, in fact, break those out.

If we're not, just respond that way, Lee.

But as far as the Company, the Company has historically since I have been here been in a range of the teens up to as high as I think 22% of the total Company revenue as a percent of mortgage.

Obviously with refinancing being a little stronger now than it was in the past, we're around 20%, just under 20% -- just over 20% this particular quarter.

So over a multiyear period of time, clearly within the range you would expect versus maybe the last few years up a bit.

And then do you guys break it out for the other verticals, USCIS and verification?

We have not.

(inaudible) broad.

Broad numbers, I think it is between 25% and 30% for USCIS and it is about -- about 30% of Workforce Solutions.

And then for my last question, leverage has been going down, not because you guys are necessarily paying it off, but you guys are growing.

But still, Lee, I remember asking you what you were comfortable about in terms of your leverage ratio and you said 1.7 to 2.25 -- 1.75 to 2.25.

You are now about 1. Is that kind of you guys teeing up for a big acquisition or just can you talk about that a little bit because I mean you could take on more debt and buy back stock if you weren't looking for flexibility in a different way.

Yes, I will jump in and Lee can talk specifically about the capital structure we're thinking.

But you are right, I think we said 1.75 to 2.2 or 2.25 something like that.

We are at the low end of that range.

And you are always going to go up and down over periods of time, as you know.

Someone asked the question earlier, how do I feel about, I think it was Bill, feel about the M&A pipeline.

M&A pipeline is strong and we will continue to look at obviously paying a strong dividend, buying back shares where shares make sense, investing in organic growth and M&A.

And at this juncture, there is some strong M&A pipeline that we'd, as always, like to continue to execute against.

So you are going to see it drop from 1.9%, 2%, down to the 1%.

You will see it over time go back up, but we will continue to operate within that range and over short periods of time, you may have some anomalies like you see now.

Just two things.

I think what we've said over the last couple years has been 1.75 to 2 times and my calculation on our current position is about 1.4 times.

But that's where it will tend to float from time to time.

Okay, thank you.

Okay, I want to thank everybody for participating on the call today and operator, with that, we will conclude the call.

Thank you.

And again, that does conclude today's conference.

Thank you for your participation.