易速傳真 (EFX) 2013 Q1 法說會逐字稿

Good day and welcome to the quarter one 2013 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.

Thanks and good morning.

Welcome to today's conference call.

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

Today's call is being recorded.

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

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

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

Certain risk factors inherent in our businesses are set forth in the filings with the SEC including our 2012 Form 10-K and subsequent filings.

We will also refer to a non-GAAP financial measure, adjusted diluted EPS attributable to Equifax.

Adjusted diluted EPS attributable to Equifax excludes acquisition-related amortization expense.

This measure is detailed in our non-GAAP reconciliation table which is included with our earnings release and also posted on our website.

Also, please refer to our various investor presentations which are 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; thanks for joining us again this morning.

Our performance for the first quarter 2013 was in my opinion strong, it was broad-based, it was for -- over five operating segments delivered strong double-digit growth for the quarter.

This performance (technical difficulty) performance was primarily driven by the continued broad focus in each of our business units as one of the most important strategic initiatives.

They all continue to execute well and have energized their organizations to innovate and identify new and expanded opportunities for growth.

Take a quick look at the high level of the quarter.

Revenue was $567 million, up 12% from the first quarter a year ago; margin was 26.3%, up from 25.4% last year and EPS was $0.87, up 26% from $0.69 a year ago.

It's always important to put things into context; those results compare favorably to the annual outlook we provided in December, then again in January of 10% to 12% revenue growth and operating margins in the range of 26% to 27%.

We also guided in February adjusted EPS growth of 21% to 24%.

So a solid financial quarter and broad-based.

In addition to the financial performances the business continues to improve their market position by delivering high levels of innovation, analytics and customer service.

As I always do, I will kind of go through some highlights for each of the business units and I'll also give you a sense for each business unit what the outlook looks like for the second quarter of 2013.

The focus for USCIS for the quarter obviously was integrating our new central region which was the acquisition of CSC and preparing that organization to deliver accelerated core non-mortgage growth in 2013 and beyond.

We've organized the CSC acquisition into what we now call again our central region.

A number of activities are underway to train the sales force, integrate them into our joint account planning and right size the organization to eliminate unnecessary redundancies.

(inaudible) and his team are off to a very good start.

During the first -- during the quarter USCIS also launched the first phase of our Analytical Sandbox approach for our second top full bank.

We have talked about this concept with Sandbox a few times in the past; the second one is now going live, a lot of great excitement there.

There's a lot to be done in the weeks and months ahead, but this is a clear example of how we are leading and innovating for our customers.

The database will be extraordinarily broad-based, including our data, the client's data, scores, attributes and potentially third-party data where needed.

With our modeling and analytical platform this customer can brainstorm, test, validate and produce models to significantly improve their decision-making with consumers and small businesses.

With our unique data -- Decision 360 data assets intimate knowledge of the bank's modeling challenges, dedicated relationship team and understanding of the client's complex data consumption requirements we are uniquely qualified to [control] this type of opportunity.

It is really exciting to see us take our relationship with these big banks to a whole new level strategically.

Finally, we continue to make good progress on the verticalization of our sales organization in USCIS, growth is beginning to accelerate in some of our focus areas.

For example, we created late last year a vertical around the automotive segment in the US and in the first quarter the automotive vertical exceeded 10% growth while the market grew at approximately 6%.

While organic growth was below our long-term target in the first quarter it was largely in line with what we had expected for USCIS.

The slower growth is really due to a particularly strong performance in 2012, a relatively slow January in the US -- I can't explain why.

It was weather, it was sequestration, uncertainty regulatorily, but the market overall we felt was slow in January.

Good thing is it picked up nicely in February.

That pickup continued in March, that trend continues into April and as we look at USCIS we look forward into the second quarter we see USCIS clearly coming in line with our long-term growth projections we gave you which is back in the range of 5% to 7% organic growth and total growth when you include the acquisition of CSC stepping up to 18% to 20%.

So a good solid second-quarter outlook for USCIS.

And we'll answer any questions you may have regarding that during Q&A.

In International, we continue to make good progress on the strategic initiatives.

Here are some specific highlights.

They continue to increase their penetration in target verticals like insurance in UK, telco in Canada and the financial institutions in Latin America.

We continue to accelerate our growth of unique products such as fraud in Spain and Canada and eID in Latin America.

Expanding the geographical footprint of our unique decisioning tools such as InterConnect is now (inaudible) across Europe and in Latin America.

We're delivering strong double-digit growth in our analytic services offerings throughout Europe, Latin America and Canada and continue to grow UK's Personal Solutions business at strong double-digit rates, that's been a transformed business for us in the UK.

Russia, Russia continues to deliver strong operating margins and double-digit revenue growth.

And during the quarter we increased our ownership of the Russian enterprise from 43% to 50%.

Finally, India is progressing well and we continue to add new customers and add new data contributors, launch new products and improve our hit rates.

Growth for International is expected to be in the upper single-digit range for the second quarter as these strategic initiatives continue to build momentum.

[It's] important to sales so that they think about International, it was -- and the performance in the first quarter, very much in line with our expectations and the guidance we gave you in December for International as well as reaffirm that guidance for International in February of this year.

So second quarter is expected to be very strong for International is well.

On to Workforce Solutions -- Workforce Solutions delivered another outstanding performance in the quarter, and also positioned itself for some attractive growth in the coming years.

Total records in the database now exceed 224 million.

Dan and his team have done a really good job of continuing to find new and creative ways to add new records to that database which, as you know, enables us to solve more problems for verifiers and to (inaudible) accelerated growth rates.

At the Investor Day last December, we told you that the government sector was going to be a big focus for Equifax.

And the recent announcement by centers for Medicaid -- Medicare and Medicaid services on CMS is a great example of a big win for us in this space.

This project is uniquely tied to the Affordable Care Act which mandates that all states set up a Web exchange so consumers can quickly qualify (inaudible) and enroll in healthcare benefits based on a variety of factors including income.

Our solution will reduce the need for manual verification in many cases, benefiting both the consumer and the state governments.

By the way, this is a great example of taking our fraud and ID services business, which used to reside in the USCIS business, who had relationships into CMS and bringing EWS in.

Those teams partnered great together to win this very, very unique contract for us.

As you may have seen, the contract is for five years and is estimated by CMS to be worth up to $329 million over the life of the contract.

And just for clarification, this is the instant verification product, so it is a work number product that we are selling to CMS.

This year is all about building out the capabilities to prepare ourselves and prepare CMS to go live; the intent is to go live in the fourth quarter this year.

We expect there to be some revenue obviously this year, but to be relatively small in 2013 building in 2014 and beyond.

So as we get towards the end of this year we will have much greater insight into the revenue outlook for 2014.

But it is an exciting win for us -- first because we were selected over -- because of our unique employment and income data assets and technology capabilities; but secondly, it establishes us at a very important and value contract with the US government on a very significant initiative, opens doors for the government that we have never had opened before.

In addition, there -- obviously there are some enormous benefits for the consumer in streamlining the qualification process.

And finally, although there is development effort necessary to meet CMS' requirement, we anticipate fulfilling these transactions beginning in the fourth quarter of this year.

And not a significant CapEx expenditure at all to be ready.

Contending with Workforce Solutions, they continue to make good progress penetrating some of our more traditional end markets which we've talked about for a number of years now.

For example, revenues in the auto and card sectors grew by over 50% in the quarter and both segments continue to hold long-term growth potential for EWS.

Finally, we have had some early wins with our new central region, used to be known as CSC, and Workforce Solutions selling products into many of the larger financial institutions and customers and we continue to make good progress penetrating our KCP accounts with EWS products.

I'm sure you saw from the press release the operating margins expanded by over 600 basis points for EWS for the quarter.

In addition to the benefit of recording [WATSI] revenue, every business segment in Workforce Solutions expanded their operating margins in the quarter as they continue to benefit from investments in technology and improved operating efficiency.

We can talk as much as you want to about WATSI later on.

But a great performance across the board for Workforce Solutions.

We expect Workforce Solutions to continue to deliver high-single-digit revenue growth in the second quarter.

On to PSOL, they delivered their ninth consecutive quarter of double-digit growth with strong operating margin.

During the quarter they signed four [breach] deals by delivering strong double-digit growth in subscription revenue, primarily improving overall revenue per subscriber.

They also continue to penetrate the Canadian market while providing technical and marketing support to enhance growth of our UK Personal Solutions product offering.

Revenue growth for PSOL in the second quarter is expected to continue in the low-double-digit range.

Now after a difficult 2012 North American Commercial Solutions is making good progress with its customers and accelerating its growth to 10% for the first quarter.

Further penetration of non-FI and telco verticals, share of wallet growth with existing customers and strong execution on NPI are contributing to the accelerated growth we saw in the first quarter.

We expect revenue growth in the high-single-digit range as these trends continue into the second quarter.

And I'm confident that Commercial is back on the range of good growth going forward.

Now in conclusion, I feel good about where we're positioned.

As many of you know, we've set high expectations for our management team and they have consistently delivered.

Every business segment is healthy with an attractive set of short-term and long-term growth opportunities in front of them.

I will turn it over to Lee now for the details.

Thanks, Rick, and good morning, everyone.

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

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

With mortgage market activity generally holding in the first quarter at the elevated levels of last year's second-half, as we expected, and with good operating execution on our growth initiatives, this quarter's performance was solid and at the upper end of the guidance range we gave last quarter.

During the quarter we completed the divestitures of two smaller nonstrategic businesses, Equifax Settlement Services and Talent Management, as we previously announced.

These are being treated as discontinued operations for accounting purposes, so the operating comparisons I will be sharing exclude these units from prior periods.

Now let me return to the quarterly results.

Compared to the same quarter in 2012, for the first quarter of 2013, consolidated revenue of $567 million was up 12% on a reported basis and also up 12% on a constant currency basis.

Operating margin was 26.3%, up 90 basis points from last year, largely due to operating margin expansion in Workforce Solutions, Personal Solutions and Commercial Solutions.

Diluted earnings per share attributable to Equifax was $0.67, up 15% from the same quarter last year.

Excluding acquisition-related amortization, adjusted EPS was $0.87, up $0.18 or 26% when compared to the first quarter of 2012.

Moving to the individual business units, US Consumer Information Solutions revenue was $245 million, up 17%.

Excluding the acquisition of the CSC Credit Services business, organic growth in USCIS was 3%.

Online Consumer Information Solutions revenue was $176 million, up 14%.

Most of the growth resulted from the CSC acquisition.

Excluding the CSC acquisition, revenue grew slightly.

Transaction volume was down 10%, driven by lower activity levels in telco and select lower-priced financial institutions, offset by an increase in average revenue per unit due to improved customer mix and some pricing initiatives.

Mortgage Solutions revenue of $30 million was up 33% compared to the first quarter a year ago driven largely by the acquisition of CSC Credit Services.

Organic growth was approximately 12%.

Consumer Financial Marketing Services revenue was $40 million, up 17%; organic growth was approximately 4%.

The operating margin for US Consumer Information Solutions was 37.5% compared to 38.7% in the first quarter of 2012.

USCIS operating margin decreased in the first quarter of 2013 as compared to 2012 due particularly to increased depreciation amortization expense which negatively impacted margin of 240 basis points.

Increased depreciation and amortization expense was primarily a result of the additional $9 million of acquisition-related amortization expense related to CSC Credit Services acquisition.

In addition, transition expenses resulting from CSE acquisition negatively impacted the operating margin by over 100 basis points in the quarter.

We anticipate operating margins to move up in Q2, consistent with the long-term range we guided to during the Investor Day in December.

Our International business unit's revenue was $124 million, up 2% on a reported basis and up 4% on a constant dollar basis.

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

Double-digit growth in analytical services and marketing services offset weakness in Chile driven by the regulatory change that took effect in the first quarter of 2012.

For the remainder of the year we expect growth in Latin America to accrue.

Europe's revenue was $45 million, up 3% in US dollars and up 4% in local currency.

Good growth in government and insurance sectors combined with strong double-digit growth in Personal Solutions helped offset weakness in our Commercial Information and Marketing Services offerings given economic conditions.

Canada Consumer Information revenue was $33 million in the quarter, up 4% in US dollars and 5% in local currency.

Strength in analytical services, particularly in fraud services and marketing services, helped to offset mortgage weakness in Consumer Information Solutions.

International's operating margin was 28.1% compared to 31.8% in 2012.

Last year's first-quarter margin is by far the highest of the year, so this is a difficult comparative base.

Margins in the year's first quarter and for the rest of the year are likely to be more similar to margins from last year's second through fourth quarters, high 20% range.

Workforce Solutions' revenue was $124 million for the quarter, up 14%.

Verification Services, with revenue of $69 million, was up 21% for the quarter driven by strong double-digit growth across all market segments including mortgage, auto, government and pre-employment.

Total records on file ended the quarter at 224 million, up 7% over the year-ago period.

Employer services revenue was $55 million, up 6% compared to last year as the catch up on the Work Opportunity Tax Credit employment credit services followed its reauthorization by Congress in January and offset weakness and other tax management services.

The Workforce Solutions operating margin was 30.3% compared to 24.1% in the first quarter of 2012.

With the renewal of the Work Opportunity Tax Credit Program we were able to record revenue for work that was performed in 2012.

The resulting benefit to the operating margin in the quarter was approximately 160 basis points.

Additionally, each line of business in Workforce Solutions improved their operating margins when compared to the first quarter of 2012 driven by strong revenue growth.

North America Personal Solutions revenue was $51 million, up 14% from a year ago.

Strong growth in subscription revenue, breach projects and additional penetration in Canada were the key drivers of this performance.

Operating margin was 28.4% compared to 25.1% in the first quarter of 2012 driven by lower credit files and monitoring expenses resulting from the CSC acquisition.

North America Commercial Solutions revenue was $23 million, up 10% on a reported and local currency basis.

Strong growth in our US risk and marketing segments was partially offset by slowness in Canada.

Operating margin was 21.3%, up from 16.8% in the year-ago quarter as all business units delivered year-over-year improvement in their operating margins.

Now let me turn it back to Rick.

Great.

Thanks, Lee.

For the second quarter assuming current exchange rates and continuation of the mortgage activity we experienced in the past three months, our outlook for revenue growth from continuing operations is between 12% and 14%.

Adjusted EPS from continuing operations is expected to be between $0.88 to $0.91 per share for the quarter, that is up 23% to 27% for the second quarter.

Our second-quarter guidance for revenue and adjusted EPS continues to reflect the strong first-half performance which was incorporated in our full-year guidance.

Given the anticipated moderation in mortgage activity for the second half of 2013 we continue to be very comfortable with our full-year guidance of 10% to 12% for revenue and 21% to 24% for adjusted EPS growth.

We're going to have a much better look (technical difficulty) as we release our second-quarter results in July as to what exactly mortgage might be doing in the second half.

So obviously we will give you those views when we are together in July.

Any way you look at it, the results we have in the first quarter combined with the outlook we're expecting for the second quarter positions Equifax for yet another record year.

So with that, operator, I would open up for any questions that our audience might have.

(Operator Instructions).

Molly McGarrett, JPMorgan.

I was wondering if you could just talk a little bit about the trajectory for [OCIS] through the year.

Growth flattened in the first quarter, where do you see re-acceleration and what will be driving that?

Thanks.

Yes, Molly, I can give you some insight there.

If you take a look at the entire USCIS, it saw our first quarter then anticipate really driven by July -- or by January's results.

And I gave guidance for the entire business unit to be in the 5% to 7% range.

To get there obviously OCIS has got to carry their weight.

So I expect improvement in the second quarter and that improvement continuing throughout the year.

Okay, thanks.

And on mortgage, do you still have the same expectations as far as the market declines that you had at Investor Day or have your expectations changed at all?

No, as I tried to allude to at the end of my comments there, we are seeing continued, albeit slower growth than 2012 saw over 2011, the mortgage market is performing as we expected during guidance in December then reaffirmed in February for the first quarter; we expect that to continue in the second quarter.

And when we are together in July we will have a much better view of the expectations for the third and fourth quarter.

And right now it is behaving as we anticipated.

Okay, thank you.

Manav Patnaik, Barclays.

Can you maybe just help break out the contribution from CSC in terms of revenue and incremental EBITDA like you -- just to try and compare the run rate to the full-year incremental guidance you had given at the time of the acquisition?

I will let Lee give you the specific numbers, but CSC is performing almost identically to the guidance we gave earlier this year financially, strategically, tactically.

So all the guidance we gave you on EBITDA, margin impact and revenue impact is largely in line, just nominal adjustments to the guidance we gave you before.

Lee, anything you'd add to that?

Yes, revenues for CSC are running ballpark about $30 million a quarter and we expect that to hold through the year.

We really can't directly measure EBITDA because we are consolidating it; it is hard to track expense [size].

But consistent with Rick's comments, we are hitting our budgeted numbers which were based on the case that we presented to you in December.

So we are right on track with our incremental profit and EPS objectives.

Got it.

And then Rick, you mentioned obviously that you should continue to see improvement for the rest of the year in OCIS.

Can you maybe elaborate just a little bit more on this mix shift of the declining, I guess, as you refer to the lower paying customers and your move into the higher end?

Can you just maybe give us a little more color on what the dynamics there are and what is going on internally?

Are you specifically looking at what drove the performance in the first quarter and why am I confident in the second quarter?

Well, just on the OCIS side you talked about the mix shift between the declines on the lower end paying customers, but then you're I guess targeting the higher paying.

So I just wanted to know if you could provide a little more color on what that means basically.

Great question, Manav.

Traditionally, as you know, when you look at a portfolio of assets you have -- and assets can be businesses like the customers that you have, the products that you have -- we continually look for a way to optimize that mix of portfolio you have and OCIS is no different.

We had some clients that were higher volume but extremely low price and that correlates to low profitability.

And we continually look at those and say what makes sense short-term and long-term and modify that portfolio accordingly.

So what we did in OCIS, to be very specific, is we non-renewed at our request a number of clients, offset that with some very high margin lower volume, so the mix was a good step forward from a profitability perspective for us.

So don't think of that as being something that is a sea change move or a continuation you're going to see significantly going forward.

But every so often we sit back and take that look and kind of prune the portfolio.

The portfolio that we want long-term, that is what happened here.

And maybe just lastly on this, can you give us an example of the two different types of clients, like the high volume and the low volume but higher price one?

Examples meaning verticals or examples of (multiple speakers)?

Yes, correct.

Yes, I won't give you the client's name, but largely in the [FI] space.

Okay.

Fair enough.

All right, thanks a lot, guys.

Andrew Jeffrey with SunTrust.

Rick, can you talk a little bit about or elaborate a little on the CSC cross-sell efforts and where you see the greatest potential?

Are we talking about selling some of your NPI solutions into that central region?

And also could you talk about the trajectory of the benefits you see from those cross-sell efforts as we go through the year here?

Yes.

One, as I said before, just a little higher level than that, the overall integration of the acquisition of CSC is right on target.

It's going great.

No negative surprises, a few positive surprises.

So I'm really pleased at this juncture.

But as it relates to cross-sell and revenue synergies, if you go back to the time we announced this in December, what I said there holds true today.

And that is think about it this way -- it's not necessarily there will be new sources of revenue, but the time to revenue should be faster because we're not dealing with a third-party partner.

It is our business.

So what you're seeing now is our ability to bring products from NPI from across the suite of assets we already have into those customers in the middle part of the country.

We're doing it with faster traction than we could in the past.

So that's the way I think about it.

As far as trajectory, we're so early into it, four months into the integration, the effort right now has been on getting the culture together, the people together, the process together, and we have had some nice cross-sell wins at some financial institutions in CSC's territory.

But it's too early to declare what that number is going to be long-term.

Okay, and when I look at this quarter that we saw non-mortgage organic revenue or sort of below your long-term targets, and it sounds like January was the culprit.

If you look at the full year, even considering the slow start, do you still feel good about 6% to 8% core non-mortgage revenue growth, and then how much of that is going to be driven by NPI?

The answer to the first part of the question is absolutely.

We expect to be back in that 6% to 8% range in the second quarter and for the full-year.

And NPI -- I'm not sure we've broken that out specifically.

But the NPI in total should continue to perform at the same levels within range would have historical which is that 10% vitality index.

Okay, and one last one if I may just from a macro standpoint.

FICO made some comments last night generally about a little bit of a lift in the credit card environment.

Could you comment -- CMS I guess, Lee, you said was what?

Up 4% organic?

Are you seeing any movement in terms of issuers' willingness to either ramp-up marketing or come down the credit continuum at all?

Yes, pre-screen was up in the first quarter.

So when you look at CMS and whatever number Lee gave you, 4%, that is a combination of traditional CMS plus the wealth management business, the IXI business as we call it.

But the pre-screen business was up -- I can't remember exactly what the number was -- Jeff, maybe you do -- mid-double-digits for the first quarter.

So we too are seeing pre-screening lift in the first quarter.

Great, appreciate it.

Dan Perlin, RBC Capital Markets.

So I didn't hear the core non-mortgage statistic from you guys.

I know everyone is kind of alluding to it, but can you just give us that number specifically so we are all on the same page?

For total Company it was about 5%.

It was 5%, okay, so that is what we had.

And then, Lee, you talked about transition expenses being about 100 basis points of headwind on the USCIS margin.

Is it -- are you trying to say the second quarter you would expect that to be negligible and that is how we should step it up?

So 100 basis points sequentially or should we be thinking about this as you start to grow margins again on a year-over-year basis?

Actually a combination of two things.

One, yes, it should be -- transition expense is largely though not completely behind us.

The second is because we are expecting stronger revenue growth in the second quarter, we'll also get some margin leverage from (inaudible).

Dan, one of the things Lee I think said earlier was that you should expect that USCIS' margins move into the range we guided to back in December and again in February.

Got it.

And then at the time of the CSC deal you had talked about re-investing I don't know maybe $0.10 or so of the potential accretion.

I'm wondering how much have we seen kind of reinvestment so far.

And then how much should we expect throughout the year just given how this quarter played out a little bit lower?

Was there a little bit less investment and we should expect that to be heavier in the back half given that is where the acceleration is expected to occur?

Thanks.

Yes, to a modest degree.

We are ramping some of those programs, you will see some of that in the corporate line.

So you will see a bit more corporate line expense growth as we get later into the year.

Some of that will go into the business units.

But we were spending in the first quarter but it will ramp-up somewhat from here.

Okay and then one last question.

Can you just give us an update on what if anything is kind of transpiring around just the CFPB?

And I know last quarter you talked about some clients being a little standoffish given how one of the products with structured.

It sounds like you probably have rectified that.

But any update would be very helpful.

Thank you.

Yes, we continue to work very closely with CFPB and we are going to -- the focus I think as I mentioned last time was around getting a compliance governance structure in place and we are making good progress on that.

So they're going to come back some time in the late second quarter, early third quarter to review that with us.

So specific to the CFPB on a product position we talked about IXI and some of the attributes there being potentially a concern at CFPB maybe (inaudible) is discriminatory in some cases.

We are making great progress there building new models with different attributes that the customers are satisfied with and we are convinced CFPB will be satisfied with as well.

Great, okay.

Thank you.

Carter Malloy, Stephens Inc.

On the Workforce side of the business, it sounds like there is a couple million of margin benefit.

But even excluding that it's a pretty significant gain in there.

Is that -- should we think about that as permanent process improvements and margin that is going to stick or should we model that margin back down going forward?

No, Carter.

One, it was an outstanding performance, you are right, and (inaudible) was a help.

It was a drag last year as you know because we had all the expense and no revenue for EWS in the first quarter; you get the revenue with virtually no expense.

But you should -- as you model EWS going forward you should think of EWS being in that 30% range.

Okay, and then going out into next year will the CMS contract structure change that at all?

Yes, obviously we'll know more, as I mentioned earlier on, at the end of this year.

Think of -- if it materializes at the level that the CMS disclosed, which we don't know if it will yet, it's work number, it's instant, so it is a very high margin business.

So let's hold that thought until we get closer to the end of the year, we will give you a look at it then.

Okay, and then going back to the question on CFMS, if you teased out IXI, which sounds like it is down again, I guess one is how much longer do we have to suffer through the comps on that one with that business being down?

But two, more importantly, on the pre-screen side of the business being up mid-double-digits, Lee, can you tell us -- that was negative last quarter or that was maybe slightly positive -- is that correct?

It seems like a pretty big turn.

And for you guys this has been a pretty good leading indicator going into 2Q and beyond?

Well, first, IXI was down marginally.

It is kind of flattened out now in the year over year.

So I don't expect that to be a factor as it was last year.

In fact, we obviously are expecting that to return to growth.

The last quarter CFMS comparison I don't recall; I thought we were up in last year's fourth quarter over the prior year.

Pre-screen up more than the rest of CFMS, but I think that had turned.

This is a fairly material acceleration in this quarter though?

Is that fair to say?

Jeff, what's that?

Jeff?

It turned up -- pre-screen turned up in the fourth quarter.

Okay.

And historically how good of a predictor has that been at least for the FI component of overall OCIS?

Yes, Carter, it used to be a very good indicator pre-recession and there would be about a 45 to 60 day lag.

We saw as we exited the recession that there was less of a correlation between pre-screened up-tick and on the core credit report up-tick in USCIS.

So we will keep a close eye on that over the next couple months to see if in fact there is a higher correlation returns to normal.

It would be very encouraging if it does.

Okay.

Thanks for the color there.

Paul Ginocchio, Deutsche Bank.

Rick, two questions about -- one about Sandbox and any way to talk about or even size what potential revenues would come out of some of these relationships, is that possible?

Then second, is the CMS contract a one-off or is there a pipeline of discussions you are having?

Is there any way you could talk about the size of that potentially?

Thanks.

Two great, great questions there, one on Sandbox.

I think I alluded to this last earnings call, there is -- whenever you stand up to Sandbox there is a revenue you get to load the data, to provide the services, to host the data and that is in the millions of dollars range.

But more than that it is -- I have always said from day one, anytime you can have this kind of strategic value to customers and get in there with smart people look at data, look at attributes, look at scores and try to build new products where real revenue comes downstream we get to build new products, secondly.

The third revenue stream is that some of our clients are looking at this as a potential champ challenger to say do I want to outsource pieces of if not all of my analytics to someone like Equifax and the Sandbox is a great venue to prove that concept out.

So I think of the revenue stream really coming downstream here with new products and potentially outsourcing and that is exciting to us.

As for CMS, yes, anytime you get into a government entity like CMS and win a contract like this, as this continues to validate and provide solutions to them it will open other doors.

For example, there is a potential that the government might look at pulling an employment record one year after the fact -- I'm sorry, VOI after the fact and (inaudible) I've given you this discount for the Affordable Care Act a year later how your income looks.

So a lot of opportunities potentially for us to think of different revenue streams with CMS.

Thank you.

Julio Quinteros, Goldman Sachs.

Just thinking about the offsets to the volume.

It sounded like you said that there was obviously some increase in revenue per transaction and some other price levers tossed at some lower volume overall at least in the first quarter.

If you kind of think about some of the offsets that you could see, if there were any volatility in volume from here forward on the OCIS section do you still have those levers as you kind of go forward or are those kind of one-time items for the first quarter?

Or would there be other levers that you could continue to pull to offset any weakness in volume as we move forward from here?

Well, one, I don't expect weakness in volume.

The forecast I gave you obviously contemplated certain volume levels.

Two, go back to what -- I can't remember who asked the question, but we intentionally lowered the volume with some accounts because the profitability didn't meet our thresholds.

So that was very, very intentional.

I don't expect that to be a continuation of new cleansing of accounts second, third and fourth quarter this year.

Does that answer your question, Julio?

Yes, no, that helps.

I guess I'm just thinking more on a macro basis.

Then if things were to get worse into the back half of the year would there be other levers?

I mean it sounds like mix shift would be a part of that, but you are comfortable at least relative to the second-quarter guidance right now that there would be some volume improvements from here?

Yes, I do.

And again, we had a lot of lifts.

And I don't expect, as I just -- I wouldn't have you even use the guidance I did for the second quarter and the full year unless I had confidence in our ability to deliver those results.

But (multiple speakers) softness in OCIS or elsewhere we have a lot of tools we could pull including rapid deployment of lean, looking at costs and so on and so forth.

But to be very clear, I am very bullish on the revenue outlook for the second quarter and for the full year.

Can we maybe take that thought to more of a -- I'm thinking more of a 2014 look at this point I guess in some ways?

What could derail the momentum that you guys have in 2013 as we literally begin to zero in on the next year's growth trajectory just thinking about kind of a lower growth prospect in our model?

But it sounds like there is a lot of opportunity still ahead of you.

You have the CMS contract, you have some other pieces that are kind of really ramping up here.

What would be the puts and takes to really kind of consider in terms of sort of second half of 2013 and then being able to sustain the momentum into 2014?

Well, it is the typical suspects.

Obviously what does mortgage do, would be one.

Right.

We've given you our outlook on mortgage.

Two is the economic environment and we're anticipating the economic environment in 2014 the much like 2013, maybe a slight improvement.

So the good news is if we get some economic step up around the world in 2014 that is wind at our back we've not seen since probably 2006.

So right now, as I look at 2014, if I look at our initiatives that we have here, if the economic environment remains like it is today I think we are in doggone good shape.

If the economic environment improves again that is a nice lift for us.

Got it, okay.

Great, thanks, guys.

Jeff Mueler, Baird.

On the Analytical Sandbox, it sounds like you brought another large FI in recently, it is obviously a unique offering.

What is the selling process there and what does the pipeline look like?

If we look out 18 or 24 months is this something where you have 20 different Analytical Sandboxes with different clients?

Or should we more think that it will be kind of limited to large FIs?

A good question, Jeff.

I think long-term the pipeline is strong.

In the time to close it takes a few months, it's a complicated sell.

Intellectually it is an easy sell, but then there's work required to actually get the sandbox environment set up and then voted and analytics starting to come out of it.

If you think about it for a second, you take a step back; one, I'm hopeful we get a couple more large clients.

But if you go to midmarket and you go down market, oftentimes those FIs don't have the analytical resources that we have or the large banks have, and it's an even greater need to kind of partner with us.

So I don't think this is only a very large bank or FI play, I think it is a play across the enterprise.

Okay.

And then on EWS if I hear you right, it sounds like you are expecting a little bit of revenue growth deceleration in Q2.

On the verification services side, it sounds like good broad-based growth and the records growth remains strong.

Should we think about the Q2 expected deceleration just being the WATSI impact in terms of not having that outsized benefit from Q1 repeat, or is there something else going on there?

Yes, one, it's much in line with the contemplated forecast we had back in February.

Two, WATSI yes, WATSI was a little higher in the first quarter than it will be in the second quarter.

And third, remember we talked about mortgage across the enterprise, so including USCIS and EWS starting to slow in the middle part of the second quarter, and then continued to slow in the third and fourth quarter.

So it is a combination of both those.

Okay.

And then just one last one for me.

Should we think about there being a permanent step-up, I guess, in terms of North America PSOL margins following the CSC acquisition as you take out what otherwise was passed through revenue?

Yes, and again that will ebb and flow depending on the marketing investment we want to make to drive revenue growth.

We guided I think back in December, Jeff, in the high 20s.

I think you should continue to think of PSOL in that range, but it will ebb and flow quarter to quarter.

Okay, thanks, guys.

Shlomo Rosenbaum, Stifel.

Rick, can you just give us an idea of some of the upside potential from the CSC acquisition; maybe some examples of things that CSC or you could not do individually in those geographies that you can do now?

Yes.

Again, there is obviously some expense synergy.

We talked about that when we were together in December, and again on the earnings call in February, and those are on track.

Two, is time to revenue, I mentioned that earlier and bringing new products to those geographies faster.

Three, is I think there's some opportunity for pricing and folding their organization into our pricing process which is some segmentation, understanding price elasticity, bundling and so one and so forth.

Three, we have been very sophisticated in our functional thinking about resellers, how you manage resellers and optimize profit and growth and strategic value.

And we will do that here with CSC.

CSC has used over the years a number of resellers across their geography.

Okay.

And then just the turnaround in commercial, could you talk a little bit more about what was weighing on it last year and just the contrast of what we are seeing kind of this starting to turn last quarter and now it looks like a real turn this quarter?

Yes, Shlomo, I will be very direct here.

As I told my team, this is execution -- lack of execution last year.

We weren't paying as much attention to the pipeline as we should have.

We are now.

We weren't innovating it quite the way that I wanted to.

We are now.

So the team has done a remarkable job of getting their hands around this, not feeling like they are a victim of the environment just because our competitors weren't growing and the market wasn't growing that they shouldn't grow.

They have done a much better job on (technical difficulty) execution of the pipeline, getting closer to the customers and better innovation.

Okay.

And then just lastly on the Workforce Solutions margin, excluding that Workforce tax credit.

It is still a pretty significant step up just on a sequential basis on the margins.

I was just wondering what else happened over here that made the margins just step up that dramatically?

Was there a piece of technology that went in or something else that is different that you are expecting the margins to be like that permanently?

Yes, a couple things that you should think of.

One it's a nice business model when you have got a high fixed cost business and you start growing incremental margin closer to a very, very high rate, that is number one.

Number two, they continue to deploy green at a faster rate than they had before.

Three, they have staffed up significantly in the last year on pricing in the broadest sense of that segmentation, bundling and so on and so forth, understanding price elasticity and value add at different clients.

So a combination of a great business model with the rapid deployment of lean; and third, a more effective deployment of pricing strategies which we have benefited.

Yes, I couldn't tell if the last part of your question was a question or a statement.

But, yes, we have a couple in the 30% range.

Well, it all came together this quarter -- you guys were working on it and it just all came together this quarter?

Yes.

Okay.

All right, great, thank you very much.

(Operator Instructions).

David Togut, Evercore Partners.

Rick, could you shed some more light on the CMS contract, specifically what is the level of visibility you have into the funding of that project?

And then I guess what are the milestones we should look for around funding?

Is this at all at risk given some of the budget cuts in Washington?

We are told by CMS that they announced that $320-million-some-odd was in fact fully budgeted.

Is it at risk, could it be at risk?

The government always has some things at risk.

Right now they are saying this is our funded amount for the next five years, you are awarded, we have signed the contract.

So as far as milestones go, right now -- I was just down in St.

Louis two days ago and the team is full bore out with CMS and internally building the capabilities to service them and go live October 1. So the next milestone for us might be a check in July or to get on an earnings call to talk about how much progress we made in building out the capabilities.

And there are some capability requirements required to on their side as well; it's a huge priority for them, they are working full speed as well.

So a touch point will be July on how both sites are doing and technically preparing ourselves to go live in October.

And obviously the next touch point would be sometime in the fourth quarter (multiple speakers) third quarter earnings we should be in the midst of the CMS going live at that time.

We'll give you an update.

And the third milestone or fourth milestone would be as we are together in February of 2014, wrapping up 2013, and we will be three, four, five months into what we will get insight into what 2014 looks like at that time.

Good.

And then Boa Vista, could you give us some insight into the financial performance of that business and your updated thoughts on when you might increase your ownership in that JV?

Yes, since we don't consolidate nor control (inaudible) allow or should I divulge financial performance, that will be their call.

But as far as we are involved, obviously we had a Board meeting, I think it was yesterday or the day before, with BV, integration continues on pace.

It is approaching 18 to 19 months now, I believe it turns two years in July-ish.

So teams are working hard to integrate the two companies, build products, make sure we're out in the marketplace and so on and so forth.

So we remain actively involved.

And we will give you a better sense on the timing, David, of when there might be an opportunity to increase our stake in BV as we exit this year.

So third and fourth quarter this year we should have pretty good insight.

Good.

And then just a couple quick housekeeping questions.

The $25.5 million after-tax purchase price amortization to get to adjusted EPS, what would be the pre-tax impact of that?

Lee?

David, I'm not --

(inaudible).

Hold on, we are calculating, David.

David, do you have another question while we are calculating that?

Yes.

Other question was, what was the share count at the end of the first quarter?

120 million was it --.

123 million shares.

123 million shares, David.

Got it.

David, do you have another question?

David?

Yes, I mean perhaps just a question on capital allocation going forward for Lee, kind of post the CSC buyout, what would be your key capital allocation priorities?

I will answer for Lee, he is still trying to calculate the after-tax.

The capital allocation priorities remain consistent with our discussion in February and that is pay down our debt so we have some flexibility so we want to purchase some companies.

Number two, continue to invest in organic growth NPI for us.

Three is obviously dividend.

Four is share repurchase.

But right now -- which is no different than it has been.

The primary focus is going to be really paying down that debt as we did in the first quarter.

I think we paid down $107 million, $108 million in the first quarter.

So continue that process, give us some leverage on the -- some flexibility and leverage.

David on the -- if I can go back to the acquisition amortization add back -- the $25.5 million was up $11.6 million from a year ago and that is -- there was $9 million in CSC acquisition amortization, which we just simply tax affected that, that's about $6 million.

And then the cash tax benefit is another $6 million, it is about $12 million.

So basically that increase year over year is a function of CSC and those are the two components.

I see.

And then, Lee, can you remind me what the financing structure on the CSC buyout looks like in terms of floating versus fixed?

And if there is a lot of floating would you take it out more with fixed term over time?

There was not a lot of floating.

We -- on the $1 billion we had about $200 million in cash, we borrowed a little under $300 million on our commercial paper and we issued $500 million in 10 year 3.3% notes.

The $300 million of CP we will take out with cash flow, but we will not -- other than that don't expect to make any significant changes in our fixed and floating mix.

Got it, okay.

Thanks so much.

Thank you, David.

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

Thank you.

That does conclude today's conference.

We appreciate your participation.

You may now disconnect.