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Operator
Good day, everyone, and welcome to the Q3 2013 Equifax earnings release conference call.
Just a reminder, today's conference is being recorded.
For opening remarks and introductions, I will now turn the conference over to Mr. Jeff Dodge.
Please go ahead, sir.
- IR
Thank you and good morning.
Welcome to today's conference call.
I am Jeff Dodge with Investor Relations, and with me today are Rick Smith, Chairman and Chief Executive Officer; and Lee Adrean, Chief Financial Officer.
Today's call is being recorded.
And archive of the recording will be available later today in the Investor Relations section in the About Equifax tab of our website at www.equifax.com.
During this call, we will be making certain forward-looking statements to help you understand Equifax and its business environment.
These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations.
Certain risk factors inherent in our business are set forth in 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 and associated tax effects.
This measure is detailed in our non-GAAP reconciliation table 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.
- Chairman & CEO
Thank you, Jeff, and thank you, everyone, for joining us this morning.
Third quarter was a really strong, broad-based performance and largely came in as we had guided, not only early in the year, but then reconfirmed in our last call for the second quarter.
The third-quarter performance was driven by continued accelerated growth in our core non-mortgage products, along with solid execution on our strategic initiatives around the Company.
That offset a mortgage market decline of over almost 34% for the quarter.
Total revenue for the quarter was $572 million, up 10% from the third quarter 2012.
Operating margin was an impressive 27.6%, up significantly from 25.1% a year ago.
And adjusted EPS was $0.90, up 21% from 74% last year.
Year to date, total revenue was $1.7 billion, up 12%, and adjusted EPS $2.69, up 25%.
An important metric that we talk to you about routinely, something we focus on intensely here, is the organic growth rate of our core, non-mortgage market activities and the continued execution of strategic initiatives in our mortgage business across the Company.
The progress we are making on broadening and diversifying our revenue growth is critical to successfully delivering our long-term business model.
In the third quarter, the organic revenue growth in core non-mortgage market activities accelerated beyond the long-term range we have of 6% to 8%, to 9%.
So a good execution across the business there.
As I always do, let me briefly cover a few key highlights from each of our business units.
Starting with USCIS, they continue to leverage the Equifax's extensive data assets, analytical resources, and technology capabilities to broaden and deepen our customer relationships and to deliver solid double-digit growth for the quarter.
USCIS has made great progress with its enterprise selling initiatives, which we've talked about routinely.
This has generated incremental core revenue growth for not only USCIS, but also for Workforce Solutions and our North American commercial business.
For example, in the quarter we increased our revenue potential with a large bank, by leveraging the full range of Workforce Solutions' verifications offerings.
This new contract represents a 15% increase in revenue over the life of the contract.
You heard us talk about our KCP program, key client program, which started off with four of the largest banks in the US.
That team, they have great leaders.
They've executed extremely well.
They have great talent across that organization, and they've done a great job with our KCP clients.
As a result of this success, we continue to add accounts to their responsibility.
We've recently added two large telco customers to this integrated go-to-market strategy, along with two large credit card companies, added earlier this year.
We now have a total of eight critical customers under the leadership of KCP.
That model continues to bode well for us in the US.
A couple more points on USCIS, they have worked very hard throughout the year to drive strong, organic growth in its core, non-mortgage activities.
The rate of growth for these products and services increased each quarter this year, and we expect that rate to increase again in the fourth quarter, exiting 2013 at the highest level for the year.
Total mortgage market originations in the fourth quarter are expected to be down somewhere between 40% and 50%, when compared to the fourth quarter of 2012.
This is consistent with our original expectations for the second half of the year.
So mortgage market is performing largely as we expected when we gave guidance back in December.
As a result, we expect USCIS, the reported revenue for the fourth quarter to be between 11% and 13% growth, which is consistent with the second-half guidance we gave in our second-quarter release.
Let me move on to international.
International delivered a solid double-digit constant currency growth rate and expanded its operating margin by focusing their energy on those initiatives where they're best positioned to win in all geographies around the world.
Year to date, international's new product revenue from products launched in the prior three years reached a 14% level of total revenues, and they are on a path to exceed that target -- their target for the full-year.
So great execution by Paulino and his team around NPI.
Also in international, our Personal Solutions product lines are delivering strong double-digit growth in the UK through market penetration and new products.
That's a theme that you've heard us talk about for the last year; that continues.
And our high-value solutions in technology and analytical services continued to deliver solid double-digit growth rates across the international footprint.
For the quarter, we expect international's constant currency revenue growth to be between 9% and 11%.
Again, very consistent with the guidance we gave during our second-quarter release.
On the Workforce Solutions, they have successfully broadened its reach for both employment and income verification services to new end-user segments.
As a result, their core organic growth in the non-mortgage market has accelerated in 2013, and they expect to exit the year with double-digit growth in their non-mortgage market initiatives.
Great execution there by Dan and his team as well.
A couple of key points, through the development of unique solutions for some of our traditional served markets, the average revenue per active record in 2013 is expected to be almost double the amount it was back in 2007 when we completed the acquisition.
That is a series of better segmentation, bundling of projects, strategic pricing initiatives, and NPI.
Good job there.
We also continue to add new records to the premier database of employment and income information, known as The Work Number.
By the end of this year, we expect to have over 230 million records, an all-time high, in The Work Number database, which is well on our way to reaching our current target of 250 million records that we have talked a few quarters ago.
We now have over 3,000 companies reporting their information into The Work Number database, also a new record.
For the fourth quarter, we expect Workforce Solutions' revenue growth to be flat or slightly down, reflecting the continuation of a strong growth in the non-mortgage market, offset by the impact of the lower mortgage market activity, which we discussed earlier under USCIS.
A good performance in the fourth quarter as well.
A quick update on the employment income verification project with the Center for Medicare and Medicaid Services.
You've read about this; you've seen it.
We have stood up our income verification platform on time.
We've successfully performed and automated verification processes without any problems, but unfortunately, there are a number of glitches within the system itself.
You may have read the article even this morning in the Wall Street Journal.
They're going to continue -- we should continue to expect hiccups in the launch of the Affordable Care Act for quite some time.
The good news is we have told each of you we have expected very little income of revenue from that this year.
We stand ready to perform as soon as they get this resolved, and we are convinced they will get it resolved.
Just a matter of time.
On to Personal Solutions, they delivered double-digit revenue growth in the quarter, and they are working on successful integration of its acquisition of TrustedID earlier this year.
We expect Personal Solutions growth in the fourth quarter to be between 8% and 11%, and again, very consistent with the guidance we gave you during the second-quarter earnings conference call.
Last business unit, North American Commercial Solutions, they continue to perform well.
Year to date, they have delivered double-digit growth rates through high-value services and market-share gains and are on a path to deliver fourth-quarter growth between 5% and 8%.
As we look forward, we continue to expect North American Commercial Solutions to deliver growth in the long-term range of 6% to 10%.
Let me go back through a few corporate themes that I think are important to you before I turn it over to Lee to give you some details on the financials.
The investments we've made in our new product initiatives and strategic acquisitions continue to provide solid returns as we further diversify across our served markets and broaden our solution offerings.
From double-digit growth in Workforce Solutions, new end-user markets, to double-digit growth in our analytics and [decision] technology offerings in international, to the strength of our enterprise selling initiatives across USCIS, to the steady above-market growth in Personal Solutions and commercial solutions, we continue to identify opportunities for investments across each of our core operating units.
We're also finding great opportunities for strategic acquisitions.
As I mentioned earlier this quarter, we close on our acquisition of TrustedID for [PSol].
We currently have a robust pipeline of opportunities which have the potential to strengthen our competitive position and broaden our product offerings.
The leadership team has done an outstanding job of executing on those strategic growth initiatives and operating objectives this year, enabling us to successfully mitigate the impact of the mortgage headwinds that we expected.
And they began in the third quarter of this year.
We expect those headwinds to continue, by the way, through the first half of 2014 and improve in the second half of 2014.
The acceleration of our core organic non-mortgage market growth rates throughout 2013 positions us well for the fourth quarter and for 2014.
I will talk more about that after Lee goes through his numbers.
As we look forward, the path that we are on to be the global leader in information solutions by creating unparalleled insights with data that requires we continuously improve our critical strategic capabilities.
New product innovation analytics are two very important competencies where we are making ongoing investments to improve our processes and enhance our domain expertise.
To [main] our competitive edge requires that we continually adapt and transform these capabilities.
These will continue to be areas of focus and investment for us going forward.
In the new product innovation area, we continually focus on driving bigger and better ideas, as well as improving our speed to market, so time to revenue.
We have made great progress so far, but the world doesn't stand still.
So we still have to continue to invest and improve those processes.
You'll hear more about that for 2014.
The quality of our data and analytics expertise will enable us to support key solutions for our core business initiatives, but will also serve to diversify our served markets and broaden our decision opportunities, where any and all information can be used.
Because of our vast array of data assets, the skill in drawing out relevant insights for our customers increasingly look for us for thought leadership and how to improve their [decision] activities and operating effectiveness.
The journey we are on continues to provide great opportunities for growth and for us to leverage our data assets, our capabilities, and expertise to solve problems for our customers in the future that we could not solve in the past.
I will now turn it over to Lee for details on the financials.
- Corporate VP & CFO
Thank you, Rick, and good morning, everyone.
This morning, I will be referring to the financial results from continuing operations, 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.
Our third-quarter performance is solid and broad-based.
Results are very consistent with what we anticipated when we gave our full-year guidance in July.
Let me turn to the quarterly results.
Compared to the same quarter in 2012, in the third quarter of 2013, consolidated revenue of $572 million was up 10% on a reported basis and up 11% on a constant-currency basis.
Operating margin was 27.6%, up 250 basis points from last year, driven primarily by operating margin expansion in USCIS, Workforce Solutions, and our international business.
Diluted earnings per share attributable to Equifax was $0.71, up 14% from the same quarter [next] year.
And excluding acquisition-related amortization and associated tax effects, adjusted EPS was $0.90 a share, up $0.16, or 21% when compared to the third quarter of 2012.
Moving to the individual business units, our US Consumer Information Solutions revenue was $253 million, up 15%.
The acquisition of CSC, which we refer to as our central region, contributed 14% growth.
And our core non-mortgage market organic growth, including strategic initiatives, contributed approximately 6% to growth, while the decline in mortgage market volumes subtracted 5% from growth.
Online consumer information solutions revenue was $184 million, up 14%.
Excluding the central region, revenue was flat, as a decline due to lower mortgage market activity was offset by new products, market penetration, and pricing initiatives.
Mortgage Solutions revenue of $28 million was up 15% compared to the third quarter of 2012, driven entirely by the acquisition of our central region.
This compares favorably to the mortgage bankers application index, which was down 34% in the third quarter.
Consumer Financial Marketing Services revenue was $41 million, up 23%.
Organic growth was approximately 11%.
The operating margin for US Consumer Information Solutions was 40.9%, which is up from 40.1% in the third quarter of 2012.
Our international business unit's revenue was $129 million, up 6% on a reported basis and up 11% on a constant-currency bases.
By region, Latin America's revenue was $49 million, up 5% in US dollars and up 16% in local currency, led by strong growth in Marketing Services and continued good growth in Analytical and Technology Services.
Europe's revenue was $47 million, up 12% in US dollars and up 11% in local currency.
Good growth in financial institutions and the insurance sectors, in addition to continuing strong double-digit growth in Personal Solutions, more than offset softness in Marketing Services and Technology Services.
Canada consumer information revenue was $33 million, up 1% in US dollars and up 5% in local currency, driven primarily by Consumer Information Solutions and Fraud Solutions.
Our international operating margin was 30%, compared to 27.4% in 2012, as all three geographic regions contributed to expanding margins.
Workforce Solutions revenue was $115 million for the quarter, up 3 %. Verification Services, with revenue of $69 million, was flat when compared to the same quarter of 2012.
Double-digit growth in auto, pre-employment and government sectors offset a 12% decline in mortgage-related revenues.
Employer services revenue was $46 million, up 8% compared to last year.
Workforce Solutions overall operating margin was 29.9% compared to 25.4% in Q3 of 2012, driven by reduced acquisition amortization and improved operating efficiencies.
Our North America Personal Solutions revenue was $52 million, up 14% from a year ago.
Double-digit growth in our US-based subscription revenue in Canada and the acquisition of TrustedID were the key drivers of this performance.
Operating margin was 26.3%, compared to 28.4% in the third quarter of 2012, impacted particularly by the acquisition-related amortization and investment from our acquisition of TrustedID.
North America Commercial Solutions revenue was $23 million, up 9% on a reported basis and up 10% on local currency basis, driven largely by strong double-digit growth in our US Risk and Marketing Data Services Business segments.
The operating margin was 17.5%, compared to 18.8% in the year-ago quarter, as we continue our investments in North America commercial strategic growth initiatives.
One other miscellaneous issue I will comment on is we normally file our 10-Q within a day or so of our earnings release.
We have received a comment letter from the SEC regarding our accounting for goodwill and intangibles in the CSC acquisition.
We don't believe any changes will be material to our GAAP financials, and any changes would be non-cash and not affect our adjusted EPS.
But we are seeking to complete this issue before filing our 10-Q, and that may modestly delay our 10-Q filing.
With that, I will turn this back over to Rick.
- Chairman & CEO
Thank you, Lee.
Again, the third-quarter performance I think is a great example of how our preparation for the ultimate mortgage headwinds enabled us to continue to deliver on our commitments we made to our shareholders.
The team is very focused on execution; they have energy and discipline to meet commitments for both customers and shareholders.
The total mortgage market activity in the third quarter was what we had anticipated in the fourth quarter.
Mortgage market is shaping up almost exactly as we had expected.
I'll give you some framework for the full year in the second.
In spite of the mortgage headwinds, we expect total Equifax organic growth in the core non-mortgage market activities in the fourth quarter to again, exceed the top end of our long and organic growth range, which was 6% to 8%.
As a result and assuming current exchange rates and the anticipated decline in mortgage, we anticipate revenue in the fourth quarter to be the range of 7% to 8%, which is right in line with the full-year growth around the middle of the 10% to 12% annual range that we gave you during our second-quarter conference call.
Adjusted EPS from continuing operations is expected to between $0.89 and $0.92, which is again, consistent with the full-year adjusted EPS guidance we gave during our last release.
The full-year operating margin is expected to be at the top end of the 26%, 27% range, as incremental margins from our core non-mortgage initiatives effectively offset any impact in the decline in the mortgage-related revenue.
Here's how it shape up the year, and I want to give you a framework for some points on how I think about 2014 the year.
I'd say the first half of the year, the mortgage market was slightly stronger than anticipated.
The second half of the year, the mortgage market was slightly weaker than expected.
The good news is our core organic non-growth initiatives accelerated throughout the year, enabling us to finish the year almost right on the original expectation.
I would like to provide a very high-level framework for how I think about 2014.
I'm going to do that through five individual points.
It may help you as you think about Equifax next year.
Point number one, we exited 2013 with a broad-based execution from all business units.
It's as broad-based, as strong and consistent a performance as we have seen in quite some time from all of [BUs].
Number two, core organic non-mortgage market growth accelerated throughout the year, and that positions us well for 2014.
I remain very comfortable in our ability to deliver that organic growth right in the range of the model we have committed to you of 6% to 8%.
Number three, our M&A pipeline were small to mid-sized acquisitions, is very strong and should add to both our top-line and bottom-line performance next year.
Number four, we are anticipating an improving global economy in 2014, and we have talked to a lot of economists, including our own.
And the assumption we're making is 2014 will in fact be modestly better than this year, and that should put some wind at our back for the first time in some time.
Number five, mortgage early reads from Fannie and Freddie are calling for the market to be stronger in the second half than in the first half, also calling for the market to be up somewhere in the mid-20s, 23% to 24% to 25%.
That early read is a decline that is less than we initially anticipated as we look at 2014.
Again, we will have greater clarity on those points and more when we get together for our earnings call for the fourth quarter.
With that, operator, I'd like to open up to any questions our callers might have.
Operator
Thank you.
(Operator Instructions)
We will go first today to David Togut with Evercore Partners.
- Analyst
Rick, did I hear you correctly in your key points for 2014 that you thought you would be in the 6% to 8% organic revenue growth range for next year?
- Chairman & CEO
Yes, David.
What I was trying to say there is that the team continues to accelerate their performance, execute at high levels.
We're ending this year on a high note with two quarters in a row beyond the high end of our 6% to 8% range, and that gives me confidence that we will be in that range for next year of 6% to 8%.
Yes.
- Analyst
Thank you, that's very helpful, particularly given the mortgage activity.
Lee, shifting gears, usually you provide some very good perspective on the underlying drivers of OLCIS and USCIS in terms of units and price.
Could you walk us through some of the units and pricing trends you saw in both segments?
And if you could drill down a little bit and give us a feel for unit growth in, let's say, credit card and auto in addition to mortgage, that would be very helpful.
- Corporate VP & CFO
I don't think we typically break our transaction growth down by the individual submarkets, but our total volume growth in online credit reporting was down 2% for the quarter.
And average revenue per transaction was up 1%.
What was the other -- was there another line of business besides online that you asked about?
- Analyst
Well for USCIS as a whole, can you give us some perspective on volumes versus price?
- Corporate VP & CFO
Well that's, yes, when we talk about USCIS, we are typically focused on our online business where we have a relatively homogeneous source of revenue, it being predominantly credit reporting.
The down 2%, by the way, compares is about the same as the last quarter, which was also down 2%.
The revenue performance, with mortgage volume falling off, which tends to be attractively priced.
The improvement in revenue per transaction was plus 1%.
It had been running at higher levels due to the mortgage mix in prior quarters.
- Chairman & CEO
David, you had asked a question too about a couple of the verticals.
One was auto and I think maybe credit card and something else.
The auto market in [US] has continued to perform well.
Part of it is the market itself.
Part of it is I think we discussed earlier this year, the creation of a new vertical focus on auto, with new team leader, new products, so on, so forth, new partners.
That continues to perform well in USCIS.
Number two, two other markets are performing well throughout the year, including third quarter, is the insurance vertical, which you know has been a focus for us for a couple years now.
And third is retail revenue.
- Analyst
Thank you.
Coming back to your comments on the margin expansion in Workforce Solutions, of the 450 basis points, how much was a decline in purchase price amortization versus an improvement in operating efficiencies?
Just trying to size the margin trends in that business going forward, as the benefit from lower amortization rolls off.
- Corporate VP & CFO
The majority came from the reduced acquisition amortization, and that's at the full rate that we're going to see for the next couple of years now.
You won't see any further change in the effective acquisition amortization.
On top of that, obviously, operating efficiencies were in addition to that.
Also, by the way, helped offset with mortgage volume declining total Workforce Solutions volume flat.
That naturally, if anything, would have created a little bit of drag on margins.
We were able to offset that.
- Analyst
Final question, you highlighted some acquisition opportunities, particularly small to midsize businesses.
Any particular vertical industries you want to highlight for your focus from an M&A perspective?
- Chairman & CEO
No, it's really tied back to our strategy.
It's not going to be anything that will catch anyone off guard.
It's adding some capabilities we need.
It's adding some additional footprint expansion that we need, some tuck-in and current capabilities.
It is pretty broad-based and consistent with our strategy.
In fact, as I look at it, David, every business unit has opportunities that we have identified.
As you know, we just finished our three-year strategic plan back in September, so the M&A pipeline feeds right off of that.
It looks good.
Operator
We will take our next question from Andrew Steinerman with JPMorgan.
- Analyst
It's Andrew.
It sounds like the mortgage revenues at Equifax have performed way better than the market.
You referred to the MBA index being down 34% in third quarter.
So Equifax's three practices has widened the gap from the market.
Do you anticipate that happening and why -- continuing to happen and why?
- Chairman & CEO
Yes, Andrew.
Something we've been focused on now across the Company in the mortgage vertical is one benefactor of that.
And that is finding ways to innovate at high rates, finding ways to bring new products to market at high rates.
Finding ways to bundle products together that no one else has so we can get more spend in the marketplace and trying to find ways to take share.
So mortgage is a subset of that overall strategy.
They have performed well versus the banking index now for a number of years.
Yes, I completely expect our performance to be above the market.
So when the market is up, I expect it [will grow] at a faster rate than the mortgage market, and when it's down, I expect to decline at a slower rate.
So, yes.
- Analyst
Great.
And you agree that Equifax is -- outperformance in that segment increased in the third quarter, right?
- Chairman & CEO
Clearly.
Operator
Our next question from Andre Benjamin with Goldman Sachs.
- Analyst
Couple questions.
First, could you talk a little bit about the competitive landscape for some of your products that serve the B2B lending landscape, like commercial credit scores, business failure scores, etc.
Are you seeing any share gains?
Talk a little bit about pricing or any impact you're seeing from some new competition from Dun & Bradstreet and others.
- Chairman & CEO
Yes.
If you're referring predominantly to the US, which it sounds like you are, we've got great competitors in the US marketplace and good competitors around the world.
We respect what D&B is doing.
We respect what Experian is doing.
But what we focus on here is our strategy, our NPI, our share gains.
And in the US, we are such a small player, the team is doing a good job of growing through NPI and through share gains.
As I said before, multiple times, share gains long-term is a tough proposition.
What you're better off doing is finding ways to build products and solve problems that no one else can solve, so the spend goes up and you get that incremental spend.
That is definitely what our North American commercial solutions business is doing.
Yes, because they are small, they're also gaining share.
- Analyst
And I think you've also talked in the past about a push to sell some additional verification services to various verticals that provide consumer loans where your penetration is low.
Could you maybe talk a little bit about the penetration of employment versus income verification, let's say, the auto dealers versus credit card companies, student loans, mortgage, etc.
A little bit of color on the different vertical penetration.
- Chairman & CEO
Yes.
I usually give you some details on the different verticals.
I don't think I had that off my head today.
But that's been a huge part of -- if you think of the Work Number strategy, it centers on a couple things.
Number one is rapidly growing -- three things, rapidly growing the database, which that team has done a marvelous job of doing, going from something like 180 million records to 230 million records.
Number two is finding a way to get more value out of each record you have, which they've done.
I mentioned the value for records is almost double what it was back in 2007.
Number three then is to your point, is to deploy new resources and leverage -- [reported] resources that we call enterprise selling, to take the income and employment verifications to markets we have never thought about before like government, insurance, auto, and [card].
And as I mentioned in my opening comments, that has really been a driver of Dan's growth outside of the mortgage market.
So as the mortgage market declines, he's getting great performance there.
We are at the early days of that performance in my view too.
I clearly see a path to 250 million records.
I see more value in each record, and I see it selling more and more to non-mortgage markets.
The last thing that I'll talk about with EWS is they are getting great traction around an acquisition we had a couple of years ago called eThority, which is bringing analytics to [Dan's] customer base that we never could before.
That will be a stream of revenue growth going forward.
Operator
We'll go next to Manav Patnaik with Barclays.
- Analyst
First, a question around the M&A.
Correct me if I'm wrong, but it sounds like the pipeline, at least the way you sounded, was a lot better than maybe it has been.
Does that imply that the pace of acquisitions relative to what you guys have done, might speed up in 2014?
That's just the first part.
- Chairman & CEO
No.
- Analyst
Let me just, I will ask the next one.
In terms of -- you said small to medium sized.
Curious on what the thoughts, plans were around the larger acquisitions, because you guys have obviously done well with the two major ones you have done.
Thoughts around that.
- Chairman & CEO
Thank you.
No, I still think our long-term financial model is largely to be driven around organic growth initiatives.
That is, things we know how to do.
We do them very well.
We've been at then now for eight years, and it's lower risk.
Having said that, and we also have always talked about one, two points, some years higher than that, some years a little less, coming from M&A.
Over the long-term model, I think you should still think about us being in that range.
It doesn't mean, to your second point, that we will shy away from the large deals.
We have done very well, to your point, with the [Tox] acquisition, back almost seven years ago, and with CSC nine, 10 months ago.
Those are naturally, obviously, have higher risk and higher price tags.
So we always keep an eye on those.
From time to time I do, as I'm a firm believer that those have got to be paced at a very slow rate, so you can fully digest, integrate, and succeed with the large acquisitions where you have the ability to maybe have a little faster cadence with the smaller to midsize deals.
- Analyst
Got it.
And then with that in context, you guys did back into the buyback market, share buybacks this quarter.
You are down to that leverage range you guys have historically wanted to be.
So, going forward, obviously, unless you guys are not involved in some M&A that's using the cash, should we continue to expect the buyback to be implemented?
- Chairman & CEO
Yes, I'd say strategically, the philosophy that Lee and I have of using cash sources for organic growth initiatives remains.
We remain committed to our dividend policy that we implemented a couple years ago.
Third is, as I just mentioned too, Manav, M&A will be an important part of our long-term growth strategy.
And we remain committed to buying back shares.
And it will ebb and flow.
As you said, we have delevered from over two times EBITDA in the first quarter to around 1.6.
We will look at what comes up on the M&A side, balance that off with share repurchase.
Operator
We'll take our next question from Paul Ginocchio from Deutsche Bank.
- Analyst
Rick, I know it is probably difficult, but I think if you looked at the previous announcement on the CMS contract, it would've applied roughly $65 million a year with a maybe slower start of the healthcare exchanges.
Can you talk about what you're thinking about for 2014 from that contract?
- Chairman & CEO
Yes.
That's a great question.
We will plan for a very -- financially plan for a very modest amount of revenue at this time, because of all the issues they are having.
I remain very, very hopeful that this thing will in fact materialize at a level that makes a material impact to us, be it the $65-million range that you just calculated yourself, Paul, or something around that.
We will know a lot more, as I said, when we're on the call together back in the second quarter come February.
Hopefully, the bugs that the administration is working through now are largely ironed out.
The math is straightforward math.
Somehow we could all walk through that, but how you get that $65 million is pretty straightforward math.
It is just a matter of them getting the system up and running.
As I mentioned earlier, we have contemplated very little revenues this year.
At this juncture, I think it's prudent for us to assume modest revenues next year.
And if things are up and running and humming come February, we will have four or five months of experience under our belts.
And we will have much better transparency to what that might look like in 2014.
- Analyst
Thank you very much.
On the government shutdown, I know you do some work within Workforce Solutions around eVerify and I9.
Is that just delayed revenue within the quarter, or does that have an impact for the entire quarter for the fourth quarter?
Thank you.
- Chairman & CEO
Good question, Paul.
It was so small, it was just on eVerify and I9.
Obviously, the mortgage market, you pull a [45060] if you can't find a instant verification of the work number.
That slowed down.
It is hard to discern, specifically and quantify how much of that was a drag versus something that you're catch-up in the following weeks.
But there is no doubt we did feel some slowdown in EWS as a result of the government shutdown, but I would not categorize it as being dramatic.
Operator
We will go next to Jeff Meuler with Baird.
- Analyst
Before I get greedy and ask this question, I want to recognize two quarters ago, people were saying how are you going to get up to 6% to 8% when you're trending at 4.5% core growth.
So hats off to the team in terms of what you've done the last two quarters.
But now I'll get greedy with my question.
Why is 6% to 8% the right number?
And I ask that from the standpoint, you're clearly trending above that now in what I will call, for lack of better term, a blah economy.
So if the economy gets better, why is 6% to 8% the right number?
Is there anything that is going on right now that you view as unsustainable?
I'll leave it there.
- Chairman & CEO
It is awful greedy, Jeff.
Thank you.
Thank you for the back-handed compliment too.
I appreciate that.
I would say when Lee and I framed up the long-term financial model, it was contemplating multiple cycles.
Some cycles, when you have downturn in the economy, other cycles we have an upturn.
Obviously, when you have an upturn in the economy, you should expect it to be maybe upper end of that range.
When you have a downturn, maybe the lower end of that range.
The view is that as a sustainable model for you to think about Equifax long term.
Secondly, there is a lot of thought that went into the 6% to 8%.
It is not just a number we pull out of the hat.
It is taking a look at things we're doing around NPI, what's our success rate?
How many products do we launch every year?
What is the time to revenue from the launch with the success rate of the launch.
Bundling, segmentation, strategic pricing, this is a very systematic model that we build across multiple initiatives, across every BU in every country, that get us that 6% to 8% range.
And we feel that's a pretty good range.
- Analyst
Okay.
And then understand that you guys have been offsetting it with expansion in the core.
But how should we think about the incremental margins for all of your mortgage business across the three buckets?
- Corporate VP & CFO
The incremental margin, it's a mix of some very high margin business, additional credit reports, additional instant verifications, along with some services that have higher pass-through costs.
When you put those two together incrementally, we're probably looking at incremental margins that are in the 40% to 50% range.
So with mortgage dropping, we have got to work extra hard to try to offset that from a margin perspective.
- Analyst
And will you -- do you think you will continue to be able to offset that in the first half of 2014?
- Corporate VP & CFO
Yes.
I think we're looking for probably comparable margins in 2014 and 2013.
- Chairman & CEO
Yes, Jeff, here's how Lee and I think about margins.
We gave you a framework of trying to deliver 25 basis points of margin improvement every year.
And then this year, we gave you a range, I think it was 26% to 27%.
And we delivered -- are delivering at the very high end of that range.
I still think over -- think of 27%ish as being a good foundation for us, and then over multiple years getting back that 25 basis points improvement year in, year out.
- Analyst
Okay.
And then the follow-up question to Andrew's on mortgage, understand that you guys have a long-term track record of out-performing the broader market.
But is the magnitude of the out-performance at all sustainable?
Or why the big step up in Q3 to be flat organically and up 34% down market?
That is obviously a huge gap.
- Chairman & CEO
Again, I say it's nothing -- no one single silver bullet.
It comes down to multiple things.
It is new products.
It is bundling of existing products with new products to get more share wallet and share gain.
It is strategic pricing initiatives, and the combination of all three or four of those things has continued to pay dividends for us.
Operator
We will take our next question from Shlomo Rosenbaum with Stifel.
- Analyst
I wanted to ask a little bit, you're doing a great job.
I'm going to beat this horse one more time, by the way, on offsetting the mortgage headwinds.
One thing I was thinking about is the mortgage solutions business is probably the most levered to mortgage.
And you offset the mortgage headwinds the most in that area.
And verification has got relatively less compared to mortgage.
And you had -- the implication is that there was not the same kind of offset, because you kept them both flat.
Were there particular initiatives, specifically, in mortgage that were-- was more of a focus for you guys than there were in Verification Services?
I'm trying to get a little bit of color around that.
- Chairman & CEO
No.
I would say this, the USCIS Mortgage Solutions business has had a longer period of time to build new products to allow them to offset the decline in mortgage.
Dan has been at this diversification into, as someone else asked a second ago, auto, insurance, government, collections, card.
Dan has been out there maybe two-and-a-half years or so, and he is just building that momentum now.
He is doing a great job.
I don't ever want to underestimate that.
He is newer to the game of diversifying the revenue streams, building out the analytics capability, which is what gives me so much confidence that as time goes on, our ability to continue to grow, regardless of mortgage cycles, is enhanced.
The longer we get Dan's team at this diversification model, the better off we're going to be.
- Analyst
Okay.
That's good color on that.
One other thing just in the healthcare market, I know they've got that big CMS contract, which should hopefully be very nice for you guys in the coming years.
But there is a global trend that is going to force, and we are seeing this right now, more higher deductible healthcare plans.
That's going to force basically doctors, hospitals, everyone to try to collect from consumers or set up their bill with consumers and analyze it more up front.
I was wondering, do you have particular initiatives in that area in order to capitalize on this trend?
I know some of the other competitors out there are focusing on that right now.
- Chairman & CEO
We continue to look at that; we bring consultants in.
We looked at M&A opportunities.
There may be an opportunity, it's not glaring to me, Shlomo, right now on what those opportunities are.
I think our plate is so full.
If we can execute the CMS contract fully, and when I say fully, it is not just this first bite of the apple, which is the contract that's been alluded to now for a few quarters.
But it's the follow-on effects that CMS will be looking for.
It is then going to IRS and other arms of the government, who need verification, actual instant verification of income employment for many, many social services that are offered.
I think if we focus our efforts there on providing unique value, you, our investors, and our customers and ourselves will be nicely rewarded.
- Analyst
Okay.
One follow-up on that.
Right now, your contract is for the automatic verification services.
You guys also do the manual verification services.
Do you see that contract eventually being expanded to (inaudible) over time because there's the same need?
- Chairman & CEO
That was the multiple bite to the Apple I was referring to.
I think first and foremost, they're so -- they being CMS, is so overwhelmed in getting the system stood up, and the contractors ready, all of their energy is there.
But we have made the offer.
We could do multiple things, and they are very interested.
We're one of the few vendors who actually stood up our capabilities on time, on budget, so on and so forth.
So we have enormous credibility with them right now.
We stand ready to do more, as soon as they're ready.
Operator
We'll take our next question from Dan Perlin with RBC Capital Markets.
- Analyst
It's Matt Roswell in for Dan.
Two questions, first, on the margins for next year, could you talk about how, even how you get to flat, given the headwinds from the mortgage business and the loss of the incremental margin there, the grow over of the CSC accretion?
I'm trying to get a feel for how you get that margin growth, or flat margin, I should say.
- Chairman & CEO
Lee, why don't you take that one?
- Corporate VP & CFO
Yes.
Of course the accretion on margin from CSC will maintain itself.
It doesn't expand again, but that will maintain itself.
The mortgage pressures, we will be working to offset that through growing some of our other lines of business.
And then continuing -- we have a continuing lien effort across the Company to drive efficiencies year-in, year-out.
That also gives us some benefit.
As I said, next year's margins may more likely be flattish to this year's rather than typical.
But of course, that's following a year where we had great expansion.
We do think there are enough levers that we can likely offset the pressure we will see on mortgage.
Particularly in the first half the year, where we're going to be facing the most challenging comparables on mortgage in 2014.
- Analyst
Okay.
And then my second question is, are you seeing more activity down in the lower credit quality consumer, I don't want to say subprime yet, but are you starting to see that come back on?
- Chairman & CEO
Yes.
I think, Matt, you've seen the banks get a little more aggressive, especially in the auto market.
They're being aggressive.
It's not anywhere close to what the credit quality may have been back in 2005, 2006, 2007.
But yes, the banks are being a little more aggressive.
- Analyst
And is that part of the reason -- go ahead.
- Corporate VP & CFO
Matt, to your question of being a little cautious about what the bank behavior might be.
While we do see them getting the sub-prime, it's interesting because it is very careful, very structured.
It is the upper tiers of sub-prime.
We are not seeing the indiscriminate behavior of 2005, 2006 and 2007.
So we think it appears healthy from everything we can observe, both on the tiers they're getting into, as well as the early-stage delinquency remaining well under control.
So it is, from what we can see, it's being done prudently, but it is happening.
- Analyst
Okay.
And if I could sneak a third one in there.
The strength in the consumer financial marketing, the old credit marketing business, can you talk about what the driver to that was?
- Corporate VP & CFO
The biggest driver in that is we have talked some in the past about our IXI business having some downdraft, as certain uses of the product were cut back on.
We're now seeing IXI return to growth by comparison.
That's where the acceleration is.
The underlying traditional credit marketing is running comparable to the last couple quarters, and it's really the acceleration back to the growth of IXI.
- Chairman & CEO
In fact IXI, Matt, that was the strongest quarterly growth we've had in a long time.
- Analyst
Since you mentioned IXI, and I'm surprised no one's asked about the regulatory environment.
Any thoughts, chances, et cetera?
- Chairman & CEO
I think there's a correlation, which Lee just said, the fact that we are growing.
We have worked very closely with our customers who -- and it wasn't regulatory.
It was uncertainty around regulation that drove some concern.
And we are working very closely with the customers, understanding their interpretation of the concern, and then modifying our product offering accordingly while still adding value, has enabled us to return to growth.
- Analyst
What about in terms of the broader business, the CFPB, all that fun stuff?
- Chairman & CEO
Yes.
That is fun.
CFPB, we continue to stay very close to them.
There's no real changes since the last time we discussed.
They continue to visit.
But as far as impact to the business, expense to the business, impact on product offerings, it remains as we have discussed before.
It is very manageable at this point in time.
- Analyst
Congratulations on the good quarter.
- Chairman & CEO
Thank you, Matt.
Operator
(Operator Instructions)
We'll go next to Andrew Jeffrey with SunTrust.
- Analyst
I had to jump on late, so I apologize if I'm repetitive, Rick and Lee.
With regard to -- just want to clarify a little bit on the margin discussion.
With regard to margin, I know historically, Equifax has referred to EBIT, but now some of the intangibles and amortization is rolling off.
Is it more appropriate to be looking at your EBITDA margin going forward as the right measure of profitability?
- Chairman & CEO
That is a great question, Andrew.
We've always talked about operating margin.
Lee and I do, obviously routinely look at cash margin, EBITDA margin, how that performs versus operating margins.
So you don't become complacent with operating margin growth, because of amortization.
We do look at it.
We thought about do we start using that metric as a means of communicating to our investors and the sell-side guys.
And we will kick that around.; we may in fact do that.
- Analyst
When you're thinking about flat margin for 2014, that's EBIT?
- Corporate VP & CFO
Yes.
- Analyst
Which implies probably a down EBITDA margin.
- Corporate VP & CFO
I'm not sure that's right.
I'm not sure, at least at the moment, I don't think there's a lot of difference in the acquisition amortization this year to next year.
Maybe just a slight amount just because revenue is growing.
- Chairman & CEO
Yes.
- Corporate VP & CFO
I don't see a big difference in those two trends in 2014.
- Chairman & CEO
Andrew here's what we could do.
Let Lee and I kick this around.
If we think there's merit in discussing, we can come back at the February earnings call.
- Corporate VP & CFO
Our D&A is very public.
It's in our release.
- Analyst
Right.
Okay.
And then, Rick, with regard to the 9% non-mortgage, core organic revenue growth, can you opine a little bit or expand on new end markets?
And maybe you did that, so I apologize if I'm asking you to repeat yourself.
But where there some particular call outs in terms of end markets or customers that drove that above-trend performance?
- Chairman & CEO
That's all right, Andrew.
No, it was, as I mentioned in my earlier comments, which you unfortunately couldn't hear, it was really broad-based.
It was all five BUs, six BUs.
It was all countries.
And it's driven by the same things that you have seen us talk about, which is new products, bundling of products, segmentation pricing, all of the things we've been doing now for eight years really starting to gel.
- Analyst
Okay.
Lastly, could you give us an update on Russia and whether or not that is a business that potentially becomes wholly- owned by Equifax at some point?
- Chairman & CEO
Yes.
From a market perspective, and you and I were together recently, it continues to perform extremely well.
We are in a very good number-one position in the marketplace.
We are adding contributors to data at record pace as we are adding users of data at record paces.
We are growing top-line, bottom-line.
We're innovating.
We're leveraging now more fully.
We'll do so even more next year.
All of the capabilities we have in our international arena of (inaudible) bringing more products and platforms to Russia.
We diligently are working with our partners there to see if there's a path for us to take a bigger role and consolidate Russia.
We like the business.
And the team has done a heck of a job over the last five or six years in running it.
- Analyst
And would that be hypothetically an accretive acquisition?
- Chairman & CEO
I don't think of it as accretive.
We already own 49%.
- Corporate VP & CFO
50%.
- Chairman & CEO
50%.
- Analyst
So are you consolidating now?
- Chairman & CEO
We don't consolidate.
- Corporate VP & CFO
Andrew, by law in Russia, we're limited to 50% ownership.
- Chairman & CEO
It would be us, it's just government's rights (inaudible) is all we're talking about here, Andrew.
I want to thank everybody for participating in the call today.
We will be available this afternoon if you have any additional questions.
That's again.
That concludes the call.
Operator
Ladies and gentlemen, thank you for your participation.
This does conclude today's conference.
Have a great rest of your day.