易速傳真 (EFX) 2012 Q4 法說會逐字稿

Good day, everyone, and welcome to the Q4 2012 Equifax earnings call.

Today's conference is being recorded.

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

Please go ahead.

Thank you.

Good morning, everyone.

Welcome to today's conference call.

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

Today's call is being recorded.

An archive of the recording will be available later today in the Investor Relations section of the About Equifax tab on 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 also refer to certain non-GAAP financial measures -- adjusted diluted EPS attributable to Equifax, and adjusted operating margin.

Adjusted diluted EPS attributable to Equifax excludes the CSC acquisition fees, a pension settlement which we announced during the quarter, certain unique tax items, the loss on the deconsolidation of our Brazilian business, and acquisition-related amortization expense.

Adjusted operating margin excludes the CSC acquisition fees and the pension settlement which was a non-cash charge.

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 which are posted in the Investor Relations section under the About Equifax tab on our website.

Now I would like to turn it over to Rick.

Thanks, Jeff, and good morning, everyone.

It is hard to believe it has already been two months since we were with many of you at New York Stock Exchange.

Hopefully you found that a great opportunity to see our management team firsthand and get a better understanding of our strategy and some of our key growth initiatives.

Based upon your feedback, it appears the insight and outlook we provided you was viewed positively.

We are excited about the growth opportunities that lie ahead.

We want to thank you again for your time and your interest in our company.

As you know, we have been intensely focused on the rapid deployment of innovation and the continued strive to improve our execution.

Our performance for this quarter and for the year reflects that effort.

For the fourth quarter 2012 total revenue was $558 million, up 9.5% from the fourth quarter 2011.

The adjusted operating margin was 24.9% compared to 24.7% in 2011, up 20 basis points.

Finally, the adjusted EPS was $0.78, up 14% from $0.68 a year ago.

Across many dimensions 2012 was a record year for Equifax.

For the first time in our history we surpassed $2 billion in revenue, we added over $1.8 billion in market value, and we closed the acquisition of our largest and last affiliate in the United States, CSC Credit Services.

We broaden our product offerings and we also expanded our global presence; all-in-all a good year.

Each of our business units had some very noteworthy accomplishments in 2012.

We expect their success last year to fuel the momentum in 2013.

For the year USCIS delivered 16% revenue growth and expanded operating margins by over 100 basis points.

A couple highlights for USCIS.

We formalized our enterprise-wide distribution process, leveraging the scale, skill, and scope of USCIS customer relationships (inaudible) services by Workforce Solutions, North American Commercial Solutions, and North American Personal Solutions.

I can tell you firsthand that the traction that has gained and the difference that has made in the marketplace is significant and of great value for our customers, too.

Secondly in USCIS, we expanded our key client program, something we introduced a number of years ago.

We added two new clients under Tom Madison's leadership and we strengthened the management team with both outside hires and internal promotions.

We also took this model, this KCP service model, into new verticals, specifically the telco market, to better address the needs of a very large and important market segment to us.

Also in USCIS, we expanded our Decision 360 strategy and it is delivering significant wins in the marketplace.

As we have demonstrated, it differentiated the value of the unique insights we bring to our customers' critical decisioning needs.

That will continue to be a great focus for us in 2013 and beyond as well.

International.

Excluding the results of Brazil in 2011, International delivered solid constant dollar organic growth of 9% while maintaining 30% operating margins and further penetrating our key markets with new products and services.

Here is a handful of highlights.

We continue to leverage our strong franchise in key geographies with new product innovation, growth of our analytics and enabling technology services, broadening our served markets, and increasing the scale of operations through better IT and organizational discipline.

Despite really weak economies, our UK and Spanish management teams relentlessly executed on their strategic initiatives, enabling us to gain market share and deliver a 10% local currency growth in revenue for the year.

In Latin America, our high-value offerings in technology and analytical services grew over 25% in 2012.

That has been a key area of focus for us now for a number of years across International and specifically in Latin America.

In Russia, overall volume growth in new product offerings contributed to a very strong double-digit revenue growth.

And in India we continue to exceed our targets for new contributing members and records in the database, which significantly enhances our value of our strategic investments in new products and analytical capabilities.

In fact, in India now we have over 200 million records and over 200 different data contributors.

So gaining some great momentum in India.

On to Workforce Solutions; they had a great year, growing 15% and extending their operating margins by almost 100 basis points.

This was driven primarily by a 34% increase in Verification Services.

At year-end, total records in The Work Number database were over 222 million, up 6% from year-end 2011, on a clear path to reach 70 million active records and 250 million total records.

This expansion of records will fuel growth for a number of years ahead.

We will further penetrate our served markets by using new product innovation to add new value to those records and through our enterprise selling initiative.

Workforce Solutions is gaining traction within the financial services, specifically the credit card and automotive verticals, addressing their needs of the ability to pay underwriting requirements.

And we have talked about that for quite some time; really taking The Work Number database beyond just mortgage into new markets.

So the credit card and automotive verticals are paying great dividends already.

Additionally, Workforce Solutions continues to broaden its focus in the government sector with public agencies in all 50 states and the District of Columbia to support their efforts to reduce improper payments and improve agency services and staff efficiency.

Personal Solutions had an outstanding year with 13% revenue growth, a strong 30% operating margin, and significant market share gains.

Through new product launches, such as Equifax Complete, subscription-based revenue grew 16% and the average revenue per subscriber was increased by 12% since 2011.

We also (technical difficulty) our US-based platform and marketing expertise and brought it to Canada and European operations to accelerate their opportunities with consumers.

As a result, UK's Personal Solutions product delivered strong double-digit growth and significant market share gains in 2012.

The success that Trey and his team have had by taking these capabilities and bringing them in a stronger fashion to Canada and a new fashion to UK has given us great hope that we are going to, in fact, take this same approach to other countries around the world and build a Personal Solutions business.

North American Commercial Solutions, as we have talked throughout last year, faced a challenging 2012 with weak market conditions and constrained growth and pressured operating margins.

For the year revenue grew 1% and the operating margin was 22%.

High single-digit growth in our US risk segment offset weaknesses in our US marketing and also Canada.

However, they turned the corner in the fourth quarter and delivered 4% growth with continued strength in US risk and improved performance from the US in marketing.

Commercial strategy to penetrate new markets is starting to build momentum with the pipeline for new business up 45% at the end of 2012 versus 2011.

One of the processes we go through on a routine basis is to review our portfolio.

When we determine that a business no longer fits our long-term strategy we, obviously, want to take a divestment strategy, so over the past week we have divested two small, non-strategic business units.

One is Settlement Services which was a product we started and built a number of years ago in USCIS and the other Talent Management in Workforce Solutions.

It is a win for us, it is a win for the buyers, and it is going to be a win for the customers and our employees as well.

Combined, these units generated $87 million in revenue last year at margins that were below the Equifax average.

Beginning this quarter, first quarter 2013, these units will be treated as discontinued operations.

I should point out that the financial impact of these divestitures to total company earnings per share is nominal and was fully anticipated when we presented the 2013 guidance during our investor day at the New York Stock Exchange in December.

I am proud of the performance the team delivered in 2012.

Some additional highlights -- our new product innovation process launched over 60 new products, including some insurance scores in the UK, family plan and personal solutions, and many others.

We have now launched over 60 products per year, taught for five consecutive years.

We expanded our served markets in Workforce Solutions, as I mentioned, by introducing products that target the auto and the card markets.

We continue to leverage Lean and other world-class processes to better control our cost, improve operating margin, and strengthen our market position.

In fact, our reputation and expertise in the area of Lean and process improvement is being recognized by our customers.

Increasingly, customers are asking for our help in deploying Lean in their operations to improve productivity within and across our respective organizations.

A quick look forward.

Our focus in 2013 will build on the momentum we created in 2012 and a few points for you.

Although it has only been six weeks, we are off to a really good start with the integration of CSC Credit Services.

It will be known, by the way, in the future as our Central region within our FSB organization.

We have had no problems to date and we fully anticipate a smooth, quick, and successful integration.

We will continue to leverage Decision 360 expanding and broadening our products, services to gain market share.

We will step up our investment analytics and look at capabilities to further increase the value of our insights to our customers.

We intend to accelerate growth in our fast growing fraud and ID management business.

We will continue to pursue opportunities to acquire or leverage new and unique data resources, including unstructured data.

We will do this through internal development, acquisitions, and partnerships.

And to ensure that we can support these growth initiatives we will continue to invest in critical infrastructure initiatives such as billing platforms, human resources, and a standardized international systems platform.

I can tell you this, and hopefully you saw it in December, the energy our team has around these opportunities of growth in front of us are exciting and their desire to win is extremely encouraging.

So with that I will turn it over to Lee for a deeper financial look at 2012.

Lee?

Thanks, Rick.

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 Rick mentioned, after year-end we divested two business units, Settlement Services in USCIS and Talent Management in Workforce Solutions.

The financial results of these two businesses are included in our reported fourth-quarter results as we had not made firm decisions to proceed with these divestitures until after quarter end.

However, these two businesses will be reported as discontinued operations beginning with the first quarter of 2013.

To facilitate your modeling for 2013, we have included the impact of these divestitures on their respective segments and total company for the full year 2011 and 2012 and quarterly for 2012 in a table included with our earnings release.

Now let me return to the quarterly results.

Compared to the same quarter in 2011 for the fourth quarter of 2012 consolidated revenue of $558 million was up 9.5% on a reported and constant currency basis.

Operating margin was 17%, which was negatively impacted by a non-cash pension settlement and fees associated with the CSC acquisition.

Excluding these one-time items, the adjusted operating margin was 24.9%, up from 24.7% in 2011.

Diluted earnings per share attributable to Equifax was $0.38.

During the quarter we reported several one-time items which are detailed in our non-GAAP reconciliation.

The cumulative impact of these one-time items negatively impacted GAAP EPS by approximately $0.27.

Adjusting for the one-time items and excluding acquisition-related amortization, adjusted earnings per share was $0.78, up $0.10, or 14%, compared to the fourth quarter of 2011.

This includes approximately $0.02 per share of tax benefits and three days' results of operations from the CSC Credit Services acquisition which closed on December 28.

Moving to the individual business units, US Consumer Information Solutions revenue was $236 million, up 9%.

Online Consumer Information Solutions revenue was $148 million, up 8%.

A majority of the growth came from a combination of increased volume and improved pricing in mortgage and auto end-use markets, while the remainder came from pricing and new product initiatives in other end-use markets, partially offset by declines in transaction volume from select high volume but lower unit priced accounts in the financial services market.

Average revenue per transaction was up 17% in the quarter due to the shift in transaction mix toward higher price units and away from lower unit price accounts, and to increase revenue from subscription billed products.

Transaction volume was down 9% due to the shift away from high volume but lower priced accounts.

Mortgage solutions revenue of $43 million was up 28% compared to the fourth quarter of 2011.

Both mortgage reporting and Settlement Services delivered strong double-digit growth in the quarter.

Our undisclosed debt monitoring services continued to deliver strong double-digit growth as we had several new customers and broadened our distribution channels.

Consumer Financial Marketing Services revenue was $45 million, down 1%.

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 which we are now addressing.

The operating margin for US consumer information solutions was 37.4% compared to 37.5% in the fourth quarter 2011.

Our International business unit's revenue was $125 million, up 7% on a reported and constant dollar basis.

By region, Latin America's revenue was $48 million, up 8% in US dollars and 9% in local currency driven by strong double-digit growth in analytical services and marketing services.

Europe's revenue was $44 million, up 4% in US dollars and up 3% in local currency.

Strong double-digit growth in analytical services and personal solutions helped to offset a decline in our consumer and commercial online information offerings, which continued to be impacted by weak economic conditions.

Canada Consumer Information revenue was $33 million, up 10% in US dollars and up 7% in local currency.

Strength in Analytical Services, particularly in Fraud Services, helped to offset weaknesses in Consumer Information Solutions.

International's operating margin was 29.8%, up from 28.7% in 2011.

Equifax Workforce Solutions revenue was $117 million for the quarter, up 11%.

Verification Services with revenue of $70 million was up 27% for the quarter driven by strong double-digit growth in mortgage, pre-employment, government, and auto markets.

Active employment records increased 6% over the prior-year period and combined with product innovation and end-user market penetration to drive strong continuing growth.

Employer Services revenue was $48 million, up 6% compared to last year resulting from continued softness in tax management services, reflecting lower unemployment compensation claims activity and a delay in renewing work opportunity tax credits by the federal government which were not renewed until January.

The Workforce Solutions operating margin was 22.4% compared to 23.2% in the fourth quarter of 2011.

Since the federal government had not renewed the Work Opportunity Tax Credit program we did not record revenue, even though we continued to perform the necessary work for our customers.

With the resolution of the fiscal cliff negotiations the Work Opportunity Tax Credit program has been extended and we can now record revenue associated work completed in the fourth quarter.

North America Personal Solutions revenue is $53 million for the quarter, up 16%.

Strong growth in our subscription revenue, additional penetration in Canada, and bridge activity were the major contributors to this performance.

Operating margin was 30.1% compared to 30.5% in the fourth quarter of 2011 reflecting increased marketing activity and driving new subscribers.

North America Commercial Solutions revenue was $28 million, up 4% on a reported and local currency basis.

Strong growth in our US Risk segment was partially offset by weakness in Canada and our US marketing activities.

The operating margin was 34.4%, flat when compared to the year-ago quarter.

In 2013 we will be making some adjustments to USCIS and Personal Solutions which do not impact the reported results of the total Company.

However, they will impact your modeling and our reported results for these two business segments in 2013.

First, we have outlined some of our wholesale accounts to be consistent with the current organizational accountability.

As a result, the revenue and expense from these accounts will be transferred from Personal Solutions to USCIS.

Since this changes the reported results for these two units, we have included the impact retroactively for the full year of 2011 and the quarterly and full-year impact for 2012 in the attachment to our earnings release.

Additionally, CSC acquisition; Personal Solutions will realize some expense synergies beginning in 2013.

As a result, we continue to expect the operating margin trend for Personal Solutions to be consistent with what we presented during the investor day at the New York Stock Exchange.

For the full year consolidated revenue of $2.2 billion in 2012 was up 10% on a reported basis and up 11% on a constant currency basis.

Excluding Brazil, a non-GAAP measure, full-year revenue was up 12%.

Operating margin was 22.6%, which was negatively impacted by the non-cash pension settlement and fees associated with the CSC acquisition.

Excluding these one-time items, adjusted operating margin was 24.7%, up from 24% in 2011.

Diluted earnings per share attributable to Equifax is $2.22.

On a non-GAAP basis our adjusted earnings per share was $2.97, up 18% from the prior year.

Now let me turn it back to Rick.

Great.

Thanks, Lee.

Some quick comments about the full year of 2013 and the quarter.

Then we will go to questions.

Back in December during our investor day we outlined 2013 and gave you an outlook.

We talked about 10% to 12% revenue growth, 20% to 25% growth of adjusted earnings per share, and operating margin in the range of 26% to 27%.

We also indicated that we expected the mortgage market to remain relatively strong through the first half of 2013, but then down 15% for the full year.

We also described an economic environment where we expect modest US GDP growth of around 2% and sluggish global GDP growth of approximately 2.4%.

We continue to be confident in our ability to deliver 2013 results within those ranges outlined in December.

For the full year, excluding the impact of the recent -- including the impact of the recent dispositions that we have talked about, our expectation for adjusted EPS from continuing operations is between $3.56 and $3.64 a share.

For the first quarter, assuming the current exchange rates and a continuation of the mortgage activity we experienced this past quarter, our outlook for revenue growth from continuing operations is between 10% and 12%.

Adjusted earnings per share from continuing operations is expected to be between $0.84 and $0.87 per share for the quarter, up 20% to 24% from the first quarter of 2012.

The negative impact in the first quarter from the two disposed businesses that we talked about, ESS and Talent Management, is approximately $0.01 for the quarter.

So with that, operator, I would like to open it up for any questions that our audience might have of Lee and I.

(Operator Instructions) David Togut, Evercore Partners.

Thank you.

Good morning, Rick and Lee.

In the fourth quarter the business segments with the strongest organic growth tended to show flat to down EBIT margins, whereas the slowest growing business, International, actually posted the best year-over-year margin gains.

Can you maybe shed some light on why?

And how should we think about business segment margins for 2013?

David, I think we have said for a while we certainly work to drive consistent margin performance on a total company basis, but it is very easy to see quarter-to-quarter fluctuations in individual businesses.

USCIS was down 10 basis points year over year.

We are making some investments in our fraud product lines there where we see great opportunity.

And given the size of the business, and it is our biggest, but you spend $0.5 million or $1 million of additional investment in the quarter and it's 20 to 40 basis points.

So that pretty readily can explain quarter-to-quarter fluctuations.

So we don't really focus on individual business unit quarterly margins so much as trends over a longer period.

We do focus at a total company level of ensuring that we are delivering consistent performance.

Our expectations on margins for next year across the business units continue to be consistent with what we said at the investor day in December.

David, just two other data points.

One, Lee mentioned it, on the second fast growth business in the quarter, Workforce Solutions, he mentioned the [WOTC], the fact that we had no revenue at that time but we still had the expenses to produce the WOTC products.

And then PSOL fluctuation obviously depends on level of advertising investment.

But again, look at the (technical difficulty) we gave you for this year, 26% to 27%.

Obviously, the big business units have got to step up to get there and we are confident they will.

And two, as Lee said, every business unit gave you [the framework for] multi-year, so go back and look at that.

We stand committed to those numbers.

Okay, thanks.

Just given the divestitures and some of the restatements, I have a couple of quick housekeeping questions if I could.

To what business segment within USCIS are you moving PSOL revenue to?

That would be the online business.

Okay.

And then did Equifax Settlement Services previously reside in Mortgage Solutions?

Yes.

Yes, it did.

Okay.

And then the Talent Management disposal was that within Employer Services?

Yes.

And just finally for 2013, do you have a read on interest expense, tax rate, and D&A?

Yes, interest expense -- I am going to do this one from memory.

Tax rate will be between 35% and 37% for the year.

Interest expense is between $60 million and $75 million for the year and D&A I don't have.

I think it's -- my recollection is it's roughly comparable, up slightly to this year.

Well, actually that is not true because I am not factoring in (technical difficulty) and then adding CSC on top of it, and I don't remember what that number is.

What is the amortization schedule on the goodwill for the acquisition?

Goodwill is not amortized.

The bulk of the amortizable intangibles, I believe, are over about 15 years.

Okay.

Thank you very much.

Manav Patnaik.

Good morning, gentlemen.

The 26% to 27% operating margin guidance it seems a little conservative to me.

Can you maybe just help us understand sort of the moving parts there and I guess the confidence in that range?

Well, the confidence is high or we wouldn't have given you the range.

We talked about the range in December; reiterate it now.

It is factoring in the benefits of CSC.

It's also factoring in the fact that we, as we mentioned in December, will take roughly $20 million of the upside from the CSC acquisition and reinvestment that back into the business for infrastructure needs as well as products to accelerate growth long term.

So you are going to get core organic non-CSC, if you will, expanded margins in line with the long-term range we gave you a year or so ago, 20 to 25 basis points.

You layer on top of that the CSC benefit and take out about $20 million for reinvestment.

Okay.

In terms the divested assets I guess you mentioned you had that planned.

What is the outlook in terms of are there many other units, a few other units out there that potentially fit in that non-core bucket?

It is an ongoing process.

I don't see any right now to be honest, but it is an ongoing process.

As you know over the seven-and-a-half years that I have been here we have disposed of DMS business, we disposed of a little [APRO] business, and now these two.

So all relatively small, non-strategic but, no, at this juncture I see nothing else at that non-core description that needs to be disposed of, no.

Got it, okay.

Then one final one.

Just on the -- I think it was on the fraud side where you guys had mentioned you guys are going to step up investment there, potentially look for acquisitions.

Maybe you could just dip a little more granular into what areas of the fraud that are seeming really attractive at this point in time.

We think we are uniquely positioned with our unique data assets to be a bigger player.

We are a good sized player today.

We are over $100 million in the traditional -- between $100 million and $150 million to be exact in the traditional fraud market.

A lot of what The Work Number does when you have the verification of employment and verification of income is to solve fraudulent problems.

We are announcing a new leader, a new focus, a new team internally to take this disparate products that we have in fraud, build a new strategy, invest.

I think what we are going to see initially is leveraging our current assets to be a bigger, faster grower in this marketplace.

We will look at acquisitions if they make sense, but again, as we discussed in December and have discussed in many different conferences, we think we are really uniquely positioned to be a player here in a much bigger way.

Got it.

Thanks, guys.

Paul Ginocchio, Deutsche Bank.

Thanks for taking my question.

Just looking back at 2012 I just wondered if you could give us a split between refi and purchase within mortgage.

And what was mortgage revenue or mortgage-related revenue for the entire 2012?

Thanks.

The total -- we have always talked about mortgage being somewhere in the range of 15% to 20%.

It was in the upper end of that range, in the upper teens for the year.

Refinancing makes up approximately 70% or more of that business.

And as we talked about as we looked at the guidance for 2013 the 15% down year-on-year for the year as we factored into our budget largely is driven by the assumption that rates do go up and refinancing drops in the second half of the year.

Can you split out that upper teens revenue exposure between refi and purchase?

Again, roughly 70% of the total.

Oh, sorry.

Thank you.

Sorry, sorry.

Thank you.

Sure.

One thing you should know, Paul, too, as you think about your model going forward is that the settlement services product that we launched and have just sold will reduce our exposure to the mortgage market, if you look back, by about 3%.

Great.

Lee, if I could just ask real quick, does the pension settlement help your costs going forward?

It had minimal impact on our expense.

Okay, thank you.

Andrew Jeffrey, SunTrust.

Thanks for taking the question.

Rick, you have talked to NPI for some time and you are obviously gaining some pretty nice traction.

Now it sounds like as an extension of those efforts perhaps strategically you are pivoting toward increasingly high value offering to your customers as evidenced in telco, but then you see it in USCIS this quarter.

Can you just talk about sustainability of pricing?

I think that is something incrementally that is a positive surprise, at least to our mind.

And also talk about that in the context of how CSC will affect the USCIS reported pricing results in 2013.

Yes, two great questions.

You know, Andrew, we have been at strategic pricing which is for about six-and-a-half, almost seven years we have built a, and I'll use this term loosely, a world-class pricing team.

There is a lot of opportunity left still.

It is not just a matter of picking the price from X, X plus something.

It is how you bundle products together.

It is how you segment your customers properly to fully understand your price elasticity.

It is new product introduction, so it is across many different facets.

We are early innings of the pricing game here at Equifax.

Specific to CSC, one of the values that we talked about a little bit about in December is the ability to deploy the things that we think are unique to Equifax on new assets, on this asset for CSC.

Things like process improvement and Lean, but also pricing.

So one of the first things that Rudy and his team are doing is taking the asset base that we have purchased and making sure the pricing team looks at all the opportunities across different customers, different verticals and segments, and so on and so forth.

And instilling the same level of discipline there that we have in the core of the business around the world, so I think there is opportunity for CSC.

Okay.

I mean it does sound like you are maybe a little more sanguine with regard to the sustainability of your pricing at this point?

Yes, if you think about our long-term objective of growing the operating margin 25 basis points, some of that comes from leverage or just growth scale and some of it comes from process improvement.

The other key driver is and will be --.

Okay.

Lee, just to clarify, did you say 100 basis points roughly of annual EBIT margin improvement in 2013?

No, I said we should be in the 26% to 27% range.

Up from -- what was last year's rates?

24.7% for the year.

24.7% last year, Andrew, going to 26% to 27%.

Okay, that is helpful, thanks.

Then, Rick, if I might sneak one more in, could you just talk about any regulatory expenses?

I assume they are baked into your guidance, but is there any maybe long tail kind of surprise risk out there?

Well, let me start with a broader answer than maybe what you are thinking.

We have regulatory expenses that we manage in every geography we operate and the regulatory landscape around the world is moving at a pace that is unlike any I have seen in my time here.

The contemplated expenses, yes, are in our budget.

Specific to the CFPB, which is our new regulator in the US, that landscape is still moving.

They were here with us for multiple weeks at the end of the year.

They are going across the industry gathering as much knowledge as they can about the industry.

We don't know yet when their mandate will be published and, hence, what we have got to do as a business, but right now we are doing and spending time building out what we call compliance management organization.

So the ability to actually be compliant once a mandate comes out.

So I always tell people, Andrew, we have been heavily regulated throughout our existence.

It is just the cost of doing business.

We are prepared for it.

We also look at it on the revenue side, by the way, as every bit as much of an opportunity as there is going to be a threat.

What I mean by that is you think about the ability to pay, which is a mandate coming out of the CFPB, if you look at the policies around mortgage we think we are very uniquely positioned to CFPB, help the underwriters, and help the consumers.

All right, thank you.

Carter Malloy, Stephens.

So first on the slight pickup there in the credit marketing piece, or the marketing piece specifically at CMS versus IXI, do you see that as a good predictive indicator?

Are you seeing card marketing budgets picking up?

Is that something that we should see as a positive for growth in 2013 in that piece of the business?

We have seen card activity steadily ramp up towards the end of the year.

Prescreen business within that was up double digit for the quarter which is good.

Okay.

Then on the Latin America business can you give us an update on both as to how that business is trending, and if and when you guys expect to maybe consolidate that?

Yes, Carter, we were just down there last week and on the integration side it is going extremely well across all fronts.

Being very well received.

We have met with some of the largest banks in Brazil, current customers and customers who want to do more with us, reiterating the point to them that we are, we being Equifax, are keenly interested in being a long-term player in Brazil.

So across all fronts it is going well.

The timeline is undefined at this point in time, but states it is an asset I want to control if we can get the asset at the right price.

So stay tuned.

And it is growing at a decent clip and has a good margin on it?

Yes.

Okay.

Then, lastly, just a quick housekeeping one for Lee here.

On the mortgage revenue exposure, call it 19% for 2012, I assume that is with Settlement Services.

So ex-Settlement Services your mortgage exposure on a run rate basis is more like 15%, 16%, something like that right now?

Yes, around 16%, 17%.

19% to 20% this year; 16% to 17% next year, excluding ESS.

Okay.

Thanks so much, guys.

Georgios Mihalos, Credit Suisse.

Thank you.

This is Allison in for George.

I had a question on mortgage volumes for 2013.

You had previously mentioned an expectation of a 1- to 2-point hit on revenue growth due to lower mortgage volumes.

Has your outlook there changed?

Not at this juncture.

We follow that, Allison, on a regular basis, as you might guess.

We have got an internal economist; we have external economists we deal with.

There is some benchmarks that you see.

And at this juncture it still looks as if we should expect a reasonable market in the first half of the year and then slowing in the second half of the year for a total mortgage market now being down 15%.

Again, if you have followed us in the past, we expect that our business will decrease at a lesser rate than that as we drive penetration and we drive new products.

But the market expectation still ranges 15% down for the year.

Okay, great, thanks.

Then just one more question about commercial solutions.

It is good to see it is growing again.

What are your thoughts on the sustainability of that growth for 2013 and what do you think a reasonable long-term target is?

I remain optimistic that they have turned the corner.

I mention that the pipeline was up over 40% because they exited the year versus a year prior.

They are executing at a higher level now, which is important.

It is critical for them to improve their execution in a tough market environment.

We gave a framework in December at the New York Stock Exchange for Commercial, which was a multi-year growth of mid to upper (technical difficulty).

So I think growing that business in the mid to upper single digits is reasonable long term.

Thank you.

Andrew Steinerman, JPMorgan.

Good morning.

Lee, I wanted to ask you a little bit about seasonality.

When I look through the Equifax longer history it looks like first quarter might have negative seasonality and fourth quarter might be seasonally favored.

Over the last few years we haven't seen that and I'm just kind of assuming it is the Great Recession and the mortgage pick up.

So my question to you is when you look at first-quarter guidance here for 2013 does this reflect kind of a return to more normal seasonality, or has seasonal patterns changed since last week could review trends, kind of before the Great Recession?

Andrew, I think you are on the right issue.

I think we have returned to something more like normal seasonality.

Historically, the first quarter was the -- and our quarters are not that different, but the first quarter has typically been slightly weaker than the others and I think that is what we are anticipating for this year.

I would expect the second and third quarters would be the strongest quarters in 2013 and the fourth quarter could be again a little bit softer if mortgage market is slipping over the course of the latter half of the year.

So kind of Q1 and Q4 likely a little softer than Q2 and Q3 in terms of dollar amount of revenue and dollar amount of earnings.

All right.

And when you say dollar amount you mean sequential, right?

Yes.

Okay, perfect.

Then if I could just ask one more question.

On margins, do you feel like margins also have that type of seasonality, Lee?

Yes, yes.

The middle two quarters would probably be the strongest margin quarters for the year.

Which one, second and third?

Yes.

Okay, perfect.

Bill Warmington, Raymond James.

Good morning, everyone.

So first question, just wanted to confirm -- you talked about 1% to 2% drag for mortgage into 10% to 12% guidance.

Just wanted to confirm we were still looking at 5% to 6% from CSC and 6% to 8% organic to get to the 10% to 12%.

Yes, if you are breaking out mortgage separate from organic that would be right.

Great.

Then on PSOL, what percentage of revenue in 2012 was breach related?

I don't think I have it off the top of my head.

Do you guys have that?

There were a few breaches -- let me just back up as we think about it.

Historically, we have had a down drag on breach.

It was high a number of years ago; basically it was -- it has been a number of years.

2012 did have a bit of an uptick with the two main breaches.

So the breach --

So are we looking at like less than 10%?

Yes, way less.

Okay, no problem.

Then I wanted to ask a favor, Lee, if you don't mind walking me through again within online CIS, the pricing volume mix equation there.

We talked about the volume being down 9%; I just wanted to make sure I followed that.

Yes.

Revenue per -- we break it into revenue per transaction and then volume.

It can be a little misleading because we have some non-transaction price revenue that affects revenue per transaction the way we do the simple calculation.

But what happened in the fourth quarter is we shift -- our transaction mix shifted towards higher priced segments.

Mortgage has a tendency to accentuate that.

Mortgage tends to be in higher-priced segments and away from some high volume but lower unit price accounts.

And then, second, we did have increased revenue from subscription billed products that we have been having success with and that affects our simple calculation of revenue per transaction.

Then transaction volume was down 9% due to that shift away from high volume but lower priced accounts.

So just to be clear, so the revenue per transaction was up how much?

17%.

17%, got you.

And would you throw in something there for mix or is that just dumped into that?

That reflects the shift in mix towards higher priced segments.

So the high volume unit priced accounts what business line was that where you were seeing that shift?

They were -- back-end OCI online and that is in Financial Services customers.

Okay.

What -- is it credit card or some other vertical?

Bill, it is broad-based.

Okay, all right.

Then the final question just wanted to ask you your thoughts around -- post the CSC acquisition your thoughts on your timing for going and doing M&A again, share repurchases.

General capital allocation question.

M&A will be dictated strategy of what is available.

We continue to be in the market looking for good tuck-in acquisitions around the world.

I think initially what you are going to see us do -- and Lee, jump in here -- is use the cash flow to pay down debt.

We have talked about a range of 1.75 to 2.0-ish.

We are at the upper end of that and we would like to get that down some.

Doesn't mean we won't do acquisitions, but initially I would think of it as paying down debt to get us back in the comfortable range.

Anything you want to add there?

No, I think that is accurate.

Thank you very much.

Appreciate the insight.

Dan Leben, Robert W. Baird.

Good morning.

Thanks for squeezing me in.

First, you mentioned some regulatory uncertainty by clients around IXI.

Could you just expand on that a little bit and talk about what the issue was and then how it is being addressed?

Dan, there are attributes that we use when we build various models across the business, including IXI.

There were a few of our customers that were concerned about the use of some of them.

I'm not going to go into exactly what those are, but they were concerned about using those attributes in the future.

Would the government frown upon those and see those as maybe being discriminatory or misleading attributes?

So what we had to do -- by the way, there was no mandate from any one regulatory body that said you can't use these attributes.

We are just uncertain and that uncertainty caused our customers to take pause.

What we have been spending our time doing is, one, educating ourselves, educating our customers, but most importantly building models that did not use those attributes.

We have done so and those models proved to be largely as predictable as the old models, so we are taking those models now back to our customers.

Fantastic.

Then just on the Settlement Services disposition.

Great example of a win for NPI.

Could you just talk about what changed behind that business and why you don't view it as strategic versus a couple years ago?

Then just secondarily, any commentary around the multiples you received on the two dispositions would be great.

ESS was a great new product, as you mentioned, I think it must have been six, seven years ago we built that product.

It was a way to add more value to our current customer base.

We had hoped to get a different balance.

If you look at the product offerings within ESS you've got appraisal and you have title and close.

We had built a long-term model with a different balance of mix between those two offerings, title and close versus appraisal.

We could never quite get to the level we wanted on title and close.

As a result, the margin was not at the level we felt long term made sense and there is better uses of our capital than that.

So we sold it.

As far as multiple, Dan, it is a tiny business so it's -- I'm not going to disclose the multiple itself but it is very small.

Great.

Thanks, Rick.

Thanks.

Okay.

With that, operator, we will conclude the call.

Thanks, everybody, for your participation and have a good day.

Thank you.

Once again that will conclude our call for today.

Thank you all for your participation.

You may now disconnect.