易速傳真 (EFX) 2014 Q2 法說會逐字稿

Good day, and welcome to the Q2 2014 Equifax earnings 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 to everybody.

Welcome to today's conference call.

I'm Jeff Dodge, Investor Relations; and with me today are Rick Smith, Chairman and Chief Executive Officer, and John Gamble, Chief Financial Officer.

Today's call is being recorded.

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

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

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

Certain risk factors inherent in our Business are set forth in the filings with the SEC, including our 2013 Form 10-K and subsequent filings.

We will be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax.

It will be adjusted for certain items which affect the comparability of the underlying operational performance.

Adjusted EPS attributable to Equifax excludes the acquisition-related amortization expense and the associated tax effects.

This measure is detailed in our non-GAAP reconciliation tables 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 of our website at www.investor.equifax.com for further details.

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

Thanks, Jeff.

Good morning, everyone.

Thanks, as always, for making time to join us on this call today.

Before I jump into my typical overview of the strategic accomplishments for the second quarter, let me, at least by phone, introduce John Gamble.

I think everyone knows John is our new CFO.

John has been with us for about two months now, and off to a great start.

As you would expect, the transition between Lee Adrean and John Gamble has been a very thoughtful one, a well thought out one, smooth, and is going extremely well.

John has inherited a really good team, good processes, and is off to a great start.

So, John, welcome, and, as always, after I go through my strategic update, John will jump in and give you the financials.

We will both be here, on John's first call, to answer any questions you may have of either one of us.

Performance in the second quarter was very strong.

It was above our guidance.

It's really driven by continued, strong execution of our core strategic initiatives.

Those initiatives, again, offset the mortgage headwinds that we saw in the first half of the year, and that continued in the second quarter.

The execution that we continue to deliver positions us very well for stronger performance in the second half of 2014 and into 2015.

For the quarter, revenue was $614 million, up 5% on a reported basis and 6% on local-currency basis versus the second quarter of 2013.

When we exclude the mortgage market headwinds, and include our acquisitions that we made last year and some early part of this year, revenue grew 9% in US dollars and 11% in local currency.

Our operating margin was up to a strong 27.3%, up from 26.9% a year ago.

Our adjusted EPS was $0.96, up from $0.92 last year, and up from our guidance of $0.92 to $0.95.

I think anyway you look at it, a really strong financial performance for us in the second quarter.

As I always do, I'll go through each of the [BUs] with some detail there.

First with USCIS, and that team continues to innovate; continues to have rigorous execution against its initiatives.

As a result, they're broadening and deepening their customer relationships.

For the first half, their core, non-mortgage market organic growth rate was a solid 6%, and I will give you some details around that 6% -- that good performance.

With one of the top-four banks in the United States, we have leveraged our successful implementation of the Analytical Sandbox, which we've talked to you about a number of times on this call.

We've now taken that Analytical Sandbox to the next level.

It is allowing us to develop tools to help them forecast.

A longer-term focus with this institution is to develop an inside space, enterprise-wide, analytics ecosystem that will support multiple decisioning applications, including modeling, forecasting, market analysis, account management and prospecting.

Think of it this way: When we talked to you, about a year ago I think it was, about launching these very unique Analytical Sandboxes, we said there's multiple ways to make money.

One was the excellent implementation of Sandbox, which that was at the time that was launched.

The second phase we talked about was the ability to develop new products and capabilities.

That's what this is all about, and that's what the pain was for, not the Sandbox but for the products and capabilities that come out of the Sandbox.

The third potential bite of the apple we talked about was the potential of FC, having them outsource their analytics to us; that's still to come.

A great step is one of the most important things in the United States.

Secondly, our enterprise-wide focus on key invested verticals broadens our reach, and strengthens our competitive position.

We recently signed a multi-year agreement with our largest insurance customer to build a prospecting database that will be their primary source for marketing campaigns.

This particular opportunity was a competitive takeaway, and further solidifies our exclusive relationship with a very large customer in one of the targeted growth sectors we've talked to you about.

We are also deepening our relationship with customers by helping them drive synergies within their organization, create better standards and governance processes, reduce waste within the organization, and improve the quality and effectiveness of their marketing efforts.

For another top-four bank, we are undertaking a one-year professional service engagement to help them deploy Lean in their customer credit and marketing organization.

Think about this: We deploy Lean, which is a strength we've had in our Company now for a number of years.

When we deploy that into our customers' operations, especially like this, into one of the top-four banks, it positions us as a thought leader and different than our competition, which opens doors for revenue down the road.

In our auto vertical, we've built a unique solution leveraging our customer services database, we call CSD, and our patent-pending fusion modeling technology.

With this solution, one of the largest direct auto lenders will be able to approve more applications in real time, improving its overall close rate, and enhancing its competitive position with the auto dealers.

Remember: The consumer services database, CSD as we call it -- we used to call it NC Plus, so that's our positive telco database, a combination of fusion modeling, and that unique database is allowing us to gain share in the automotive vertical in the US.

Again, another very important vertical for us for growth.

Our Decision 360 strategy to provide unique, high-value insights for customers' decision needs continues to be an important growth driver for us -- where a very large credit card issuer were combined with verification of income with credit data for their credit-line increase program.

This solution will enable them to be in compliance with Reg Z requirements, while at the same time providing additional insights to improve their overall decisioning on these opportunities.

Another example how D 360 is really making a difference in the marketplace.

For 2014, we continue to expect USCIS to deliver core, non-mortgage market organic growth in their long-term growth range of 5% to 7%.

On international, they're making very good progress integrating the recent acquisitions, particularly TDX.

If you recall, that was domiciled in the UK, and Inffinix, which is domiciled in Mexico, and developing our global collection strategy.

The second-quarter performance was in line with our expectations, demonstrating the ability to deliver performance on both their critical, strategic priorities and operational initiatives.

Strong organic growth in the FI and SME segments were the principal drivers of growth for international.

PSOL, in Europe, continues to deliver strong double-digit growth, up 32% from the second-quarter 2013.

I think you'll recall we had deployed the efforts of Trey Loughran and the US PSOL team to the international footprint, and that's really paying dividends in places like Europe and now Latin America.

Our international telco vertical had two major wins in the quarter for a large UK telecommunications company, which we were selected to deliver customized decisioning solutions for their mobile operations with our InterConnect platform.

You might recall that deploying InterConnect globally has been a top priority for us over the last four or five years; another example that's gaining traction for us.

In Chile, we're delivering an ID management solution for a customer acquisition, which will lower the cost of acquisition, in addition to some of their back-office expenses.

Quickly on TDX: TDX continues to make really good progress.

It is early days, only six months or so, but they're making very good progress.

And strategically we are very optimistic on the long-term fit for this company, not just in the current footprint, but in additional footprints as well.

We've added a second large customer in Australia in the last couple months.

We are building a very robust pipeline of opportunities in Australia.

In UK, we continue to have significant contract wins.

The pipeline we currently have should enable TDX to deliver very strong double-digit growth in 2015.

Workforce Solutions is making significant progress in diversifying its revenue.

Through the suite of employment and income verification solutions, they are enabling deeper transparency for risk decisioning.

In the employer community, they have become an industry leader in providing employers with insights and capabilities to support their compliance activities.

You've heard us talk about that, how Dann Adams and his team have brought data and analytics mindset and capabilities to not only the verifier side, but also the employer side.

You've heard us talk about the CMA analytics in the past.

Total records for the Work Number database are now up to just shy of 245 million records, and we now have over 3,700 companies contributing their employment and income information to that database.

As you recall, our goal is not just to add the number of records, but also add more and more employers who contribute that data to us.

Dann's done a heck of a job on both fronts.

We are lessening our dependence on mortgage activity in EWS.

During the quarter, our non-mortgage product revenue grew a very strong 10%.

Through new product innovation and diversification into new markets, our verifier revenue is now over 60% of Workforce Solutions revenue, up significantly from the 35% level in 2007, which is the time we acquired the company.

The value of an active record in the Work Number database now is up 94% since the acquisition of TALX in 2007.

That comes through a lot of strong effort in our pricing team.

That comes through mix.

That comes through vertical market expansion and diversification.

It is not just adding records to the database, but it's also the value of the record.

The combination of both those is a pretty powerful financial model.

Our focus on the government sector is progressing well, due largely to our strong working relationship with the Center for Medicare and Medicaid Services, in support of the Affordable Care Act.

We've identified a number of strong opportunities to assist them and other government agencies with employment and income verification, ID management and fraud solutions.

I'm sure everyone, or many of you, read the Wall Street Journal articles over this week; we'll, during the Q&A, answer any questions you might have regarding the recent appellate court decisions.

We are also uniquely positioned to help financial institutions meet their regulatory compliance obligations.

Recently, a top-four bank signed a contract to use our employment and income verification solution to meet CFPB requirements for the credit line increase offers.

Workforce Solutions core, non-mortgage market organic growth rates continue to be above their long-term range of 7% to 10%, so it's strong execution out at EWS.

The current environment for our Personal Solutions segments continues to be challenging, as we've talked in the past, through the free market that has emerged.

Growth in our transaction and partner revenue has slowed, but the acquisition of TrustedID last year enables us to pursue a whole new set of indirect opportunities.

The pipeline there for the indirect opportunities is as strong as we have seen in quite some time, and gives us great hope that PSOL will, in fact, return to their long-term growth model.

We are currently developing new strategies to optimize the returns on our marketing spend, and plan to test and launch these campaigns during the second half of 2014, early part of 2015.

Assuming no significant changes to the regulatory environment, I am confident that the strategic path that Trey Loughran and PSOL are on, that PSOL will turn to their upper single-digit growth rates in 2015.

And really leveraging the TrustedID indirect market opportunity, as well as our new strategic plan for the core business.

Finally, North American Commercial Solutions: A few years ago, we shifted to a customer-centric model.

We embarked upon what we call an enterprise-wide distribution marketing strategy to maximize our penetration of products and services into targeted market segments.

USCIS was designated as the business unit responsible for executing on this strategic initiative.

They were the biggest; they had the most pipes into our customers.

We first established our key client program with four of our largest customers.

We now have eight customers in KCP.

We quickly followed that by organizing our enterprise-wide marketing teams.

We targeted verticals like mortgage, auto, telco, utilities and insurance.

This strategic initiative has contributed greatly to North American Commercial Solutions' historical growth and market share gains.

The environment is changing, and our customer relationships are now much broader and deeper.

At the same time, our success with enterprise selling gives us tremendous opportunity to continue driving growth and market share gains for our commercial business.

The next logical step in the evolution of our enterprise distribution strategy is to simplify the way our commercial customers interact with us, will obviously accelerate growth and penetration.

To accomplish this, we are going to consolidate the US portion of the commercial business into USCIS.

The combined entity will be renamed USIS versus USCIS.

The Canadian piece of commercial will go into international, and leverage their strong relationships in Canada.

As you will recall, it wasn't that many years ago, that was the structure for commercial.

To allow us to have a little bit more focus to get some more scale, which we have done; I broke it out as a direct report to me, so it is not going back to the old structure we used to have in the USCIS in Canada.

We are as committed today as we have ever been to growing commercial.

I'm convinced, now that we've incubated for a few years, combining with international and the USCIS will do just that.

In summary, all the business units are performing at a high level.

Best practices, regardless of where they originate, are being leveraged across the Organization.

With depth and experience, our management team has enabled us to easily move people and ideas across businesses.

While the individual business units will have difficult challenges from time to time, our portfolio of businesses could not be stronger or better positioned than we are today.

We are now halfway through 2014, with two strong quarterly performance behind us.

I'm proud of our team and how they've executed against their strategic initiatives enabling us to overcome the mortgage headwinds in a much better shape than we'd anticipated when we entered the year.

We built a good foundation to continue growth in 2014 and beyond.

With that, John, official welcome to your first earnings call with Equifax.

I'd like you to walk them through the financials and we'll come back and do some Q&A.

Great, thanks, Rick.

I'm very excited to be joining the team, and looking forward to a long and successful career.

As Rick already mentioned, we have some exciting opportunities in front of us.

We're successfully maneuvering the headwinds, and feel very good about our positioning in our various markets, and the growth we should be able to deliver for ourselves, our customers and our shareholders.

I'll be referring to the financial results from continuing operations, generally presented on a GAAP basis.

Now, let me turn to the quarterly results.

Rick already covered the total Company financials, so I'll focus on the individual business units.

Overall, US consumer information solutions came in a bit better than we expected.

Revenue was $264 million, up 2% when compared to the second quarter of 2013.

Online consumer information solutions revenue was $191 million, up 4% when compared to the year-ago period and up 7% from the first quarter of 2014.

Mortgage solutions revenue of $28 million was down 15% compared to Q2 2013.

This compares favorably to the Mortgage Bankers Application Index, which was down 52% in the second quarter.

Consumer financial marketing services revenue was $45 million, up 7% when compared to the year-ago quarter.

The operating margin for US consumer information solutions was 41.5%, up from 40.2% in the second quarter of 2013.

International revenue was $153 million, up 18% on a reported basis and up 23% on a local-currency basis.

Acquisitions contributed approximately 17 points to the local-currency growth.

By region, Europe's revenue was $72 million, up 53% in US dollars and up 40% in local currency, driven by the acquisition of TDX and mid single-digit organic growth in our core business.

Latin America's revenue was $48 million, down 1% in US dollars, but up 19% in local currency, driven broadly by double-digit organic growth in consumer and commercial information solutions, decision solutions, analytical services, and personal solutions.

Canada consumer revenue was $33 million, down 3% in US dollars, but up 3% in local currency.

As you know, our international margins have been impacted by the recent acquisitions.

For the second quarter, international's operating margin was 21.8%, up from 20.4% in the first quarter of 2014.

As we indicated in our first-quarter call, we expect to exit the year with an operating margin of over 25%.

Workforce Solutions revenue was $119 million for the quarter, down 3% when compared to the second quarter of 2013.

Verification services, with revenue of $72 million, was down 6% when compared to the same quarter of 2013.

Employer services revenue was $47 million, up 1% compared to last year.

The Workforce Solutions operating margin was 33.9%, compared to 31.1% in Q2 of 2013.

North America personal solutions revenue was $54 million, up 5%.

Growth was driven primarily by acquisition of TrustedID.

Operating margin was 30.5% compared to 27.6% in Q2 2013, largely driven by reduced marketing expense in the quarter.

North America commercial solutions revenue was $23 million, up 1% on a reported basis and up 3% on a local-currency basis.

Operating margin was 17.3% compared to 16.8% in the year-ago quarter.

Now I'll turn it back to Rick.

Thanks, John.

As we enter the third quarter, we are very encouraged by the various market opportunities we have for growth in each of the business units, and continue to be very pleased with the execution of each of the BUs and COEs.

We still have a bit of a mortgage headwind for the balance of the year.

It isn't improved dramatically versus what we saw in the first half of the year.

As I said before, the mortgage market is really unwinding very much like we anticipated back when we gave guidance early part of 2014.

For the third quarter, assuming the current exchange rates, we expect the reported revenue to be between $620 million and $625 million, and adjusted EPS is expected to be between $0.96 and $0.99.

For the full year, we're still on path to deliver our core, organic non-mortgage market growth rate of between 6% and 8%.

Because of the team's high level of execution and the opportunities we see before us, we are now in a position to increase our full-year guidance.

Assuming the current exchange rates, we should end the year with revenue between $2.440 billion and $2.465 billion, and adjusted EPS between $3.83 and $3.91.

Obviously, that's versus our previous guidance of $3.75 to $3.89, and the current consensus of $3.83.

With this full-year guidance, our revenue growth accelerates from about 4% in the first half of 2014 to a level of about 9% to 12% in the second half of the year.

Most importantly, that gives us really good momentum and confidence as we go into 2015.

With that, operator, if you would, please, open it up for any questions that they may have.

(Operator Instructions)

George Mihalos, Credit Suisse.

Congrats on the quarter and, John, welcome aboard.

Wanted to start off, the USCIS again had another really strong quarter, revenues and margin certainly better than what we were looking for.

Just curious, outside of auto, which has been hot for a while now, can you call out another two or three end markets that you think are really picking up steam recently?

Yes, it is markets and it's share gains, and I mentioned a few of them in the call, George.

We have insurance sector, some nice wins there.

In our online business, especially with our KCP accounts.

If you recall, KCP has gone from four large banks to eight very strategic accounts, including those four large banks.

The online business area continues to accelerate.

We're gaining share there.

We talked about an analytical win we had with the Sandbox in one of the top-four banks.

Auto continues to be fantastic for us.

It is really, really broad based that's giving us great growth there.

Obviously, with that kind of growth in a high fixed-cost business all that margin falls to the bottom line.

You're just seeing a great acceleration of margin as well.

That's great color.

Thank you.

Just wanted to dig in a little bit on the guidance for the full year.

You tightened the range around your revenue with a higher mid point.

Just curious, relative to your expectations, what is outperforming from a revenue perspective versus what might be coming in a little bit lighter now that you've updated that range?

PSOL will take another quarter or two to implement their new strategy and execute, as I said on the call, the TrustedID indirect wins, so that softened a little bit.

We saw a little bit of headwind.

A few countries in Central and South America softened a bit.

Then, you are seeing stuff like the core, organic non-mortgage market growth rate in EWS, I mentioned that, going over 10% for the second quarter in a row.

That's things like collections, government, credit card, auto for them.

We just walked through an array of different areas that are going very strongly in USCIS.

Europe is growing stronger than expected.

Our core organic growth rate in places like Spain and UK, which still tend to be troubled economies, are delivering very, very solid organic growth rates.

I think we mentioned, if we didn't, the organic growth rates outside the US are going at 6% to 7% growth rate, and that's inclusive of some pretty tough economies.

That's a long answer to a very simple question.

Okay, thank you.

Last question, from modeling perspective.

John, the corporate expense line has been down pretty considerably over the first half of 2014, your general corporate expenses.

What's driving that, and then how should we think about modeling that over the back half of year?

Thank you.

I believe the guidance we gave for the year was that corporate expenses would be up slightly.

We still expect that to be the case, and I think what you're seeing, really, in the first half versus the second half is really just timing, mostly around investments.

Okay, thank you.

Paul Ginocchio, Deutsche Bank.

I don't know if I missed it, but did you discuss online volumes in the consumer information systems?

I'm sorry, Paul, what's your question?

What were online volumes in the online consumer information services?

The online CIS line was up 12% for the quarter.

Great.

Is the reason, the differential between the volume growth and the revenue growth, was that still that higher-value mortgage is down and that should reverse in the third quarter?

It is mixed, largely mortgage is one piece of that.

Customer mix could be another piece.

Sometimes when you have large growth, as I mentioned, I think it was a second ago, in a very large strategic account, the pricing thresholds are different there than they would be for other customers.

Just think of it generically as mix.

Okay.

In a second half, does that mix improve from where it is today?

I would not expect it to change dramatically.

Okay.

Thank you.

David Togut, Evercore.

If you could dig into the international margin outlook a little bit?

If you would address this initially, I apologize.

I was joining from another call.

What should we expect from international now that TDX is fully integrated?

One, I'm not sure when you joined, but TDX, as I mentioned on the call, if you missed it, is coming along very nicely.

We continue to get integrated successfully.

We are getting great wins in our current footprint with Australia, the UK.

We are very encouraged with the ability to bring it to other markets like US, Canada and into South America.

As far as margin goes, we had mentioned at the time of the acquisition there would be a drag as we get TDX up and running on the margin for the first half of the year.

As we exit the year, we expect to fully be back to the historical range around 25% or so for international.

We're very much on track with that.

John had reiterated that in his comments as well.

From a strategic perspective, financial perspective and margin perspective TDX and international are on the direction we had guided back in the first quarter.

Got it.

Just as a follow up, can you give us your updated thoughts on capital allocation and in particular any thoughts about a potential 2015 dividend increase?

Yes, I will take a crack at it.

John, if you want to jump in, you can add to it as well.

Our dividend policy, David, was established a few years ago.

We remain committed to that, and that's to give back 25% to 35% of our net income in the form of a dividend.

Obviously, as net income rises the dividend will increase.

I don't anticipate changing that financial model, 25% to 35%, as I think it, overall, that capital structure outside of dividend.

We've been fairly light in our share repurchase in the first half of the year.

You should expect us to increase at a pretty significant rate, the share repurchase, in the back half of this year.

Plus, our leverage at this point in time is fairly low.

Good point.

Our leverage is 1.8, 1.9.

Thank you very much

Dan Perlin, RBC Capital Markets.

I want to come back to the international margin, again, a little bit.

What are the trigger points that are going to get you guys back to the 25%?

I think originally, I had always assumed that you were going to do some fairly reasonable amounts of investments to take TDX into those other markets.

I'm wondering, has that changed at all or is the TDX running ahead of budget on the revenue side?

It is a pretty big jump to get to the 25% run rate as we exit the year.

Thanks.

It is pretty straightforward, just the leverage you get as the business continues to grow.

They've got the revenue stream, it tends to be more backend loaded, I think TDX backend loaded than front-end loaded, so you get some leverage there.

We're getting the operational synergies we expect.

Let me clarify a point, Dan.

The cost to take the suite of solutions that we have with TDX into additional countries is very, very cost efficient.

You can do it -- because the data, the solutions are housed in the UK.

When you go to Spain, when you go to Columbia, when you go to Australia, you can literally do that with a salesperson or two or maybe even outsource it to a value-added reseller.

So that the cost of implementation is very, very low.

Okay.

It sounds like the Analytical Sandbox has moved past this beta testing idea, and you are even calling it out as one of the growth drivers that you saw in USCIS.

I wanted to spend a second on a little bit of the revenue model.

You talk about the first stage is setting up this enterprise-wide decisioning, but then you talk about selling the new products and capabilities.

I'm trying to get a sense of how that revenue model builds out?

One sounds like you've got greater visibility than the other and the other one sounds like you might have an upfront piece of revenue.

So, if you could just parse that?

That would be great.

There's two things you need to think about.

One, is we continue to add different players, stand up the Analytical Sandbox for them, so we get paid for that just like we have for the other banks in the past.

We're starting to do this, not just in the US, but outside the US as well.

Secondly, as I mentioned, one of the top-four banks, when you stand that up, we get their teams and our teams in and they are looking at the combined data assets and start hypothesizing about products and solutions.

What's resulted in, now, is a series of batch projects in analytics that we've done for these banks and they pay us for that.

Financially, to think about it, is off-line batch revenue, and it's really analytics and solutions that we're providing within the UK to assets.

Okay.

Then, just the last question I have.

Across the demand environment for the consumer spectrum, primarily in the United States, are you seeing any change, I should broadening of the spectrum relative to the affluent consumer relative to the non-affluent consumer?

Thanks.

Thanks, Dan.

I'd say overall, I think you're question was specifically the US, we are not seeing a lot of change in the US dynamics for the consumer, with the exception of two areas.

One we've highlighted in the past, and that is the automotive market.

Banks are aggressive now in the automotive market, consumers, the age of the cars have aged.

I think they are some of the oldest levels in the history of our country, so that's obviously a high demand area for us.

The other thing we're seeing, I'm not sure where it ties to affluent versus not affluent, but is with inventory of homes coming down, prices going up, the demand for loans against their homes, so home equity loans, is starting to rise for the first time in quite some time.

Our forecast anticipates that will continue to accelerate for the back end of this year and clearly through 2015.

Hopefully that helps.

Yes, that super.

Thank you.

Andre Benjamin, Goldman Sachs.

One question to follow up on the last one, with some of the conversation around potential banks getting more aggressive in the quote-unquote sub-prime market.

I was wondering, do you see any outsize contribution to growth from customers that are evaluating, say sub-prime product customers versus a more affluent customer?

Do they buy more reports?

Do they spend more money on monitoring, or is the revenue opportunity there pretty similar?

I think we are fairly agnostic to the segment.

As they go down sub-prime, I'm thinking of automotive and we talked about last time.

We talked about a thing called super score.

As they go down to sub-prime, they're more inclined to ask a few more questions.

They're more likely to pull a verification of employment, a verification of income.

If someone is walking in and has a score of 780, 800, this is excluding mortgage, they may or may not pull a VOE/VOI.

Clearly, as the markets go down market, their appetite for verification of income and employment goes up.

They may also leverage things like our CSD, what we used to call NC Plus, which helps them with skin file, so if not really credit active, they pull the file to see how they paid off their utilities and telco obligations in the past.

If there's upside, Andre, it's really in those areas of VOE/VOI and CSD.

Thanks.

I know you don't control the pace here and you see a lot of the same headlines we do.

I was just wondering if you can give some color on how the verification services used for the onboarding process for public exchange is going?

How much that's currently contributing to verification revenue to date?

Sure.

We frame up in the past, it is above the minimum annual obligated threshold that we have with CMS, while with trials the government had worn out, was an issue that we obviously felt as well.

There are really exciting things going on with that right now.

One we talked about on the last earnings call is to help our employers ensure they are compliant with the Affordable Care Act.

We are deploying analytics to those customers, and we are charging for that.

We closed over 100 deals and a very strong pipeline on top of that.

Secondly, as we deploy those analytics, we're getting Work Number records added.

That's adding significantly to Work Number database.

Third, as you know, in November, I think it's the 15th, is the next period for enrollment, so we expect to see some uptick then.

You are seeing, I alluded to in my opening comments, is to the appellate court rulings a week or so ago, maybe it was even this week, a lot of noise there.

Who knows where that goes.

We are no smarter there then you guys are at this point in time.

Our instinct is that they probably solve this in a proper way between now and then, and there's little impact.

Time will tell there.

Thank you.

Andrew Steinerman, JPMorgan.

This is a Louis Pavia stepping in for Andrew Steinerman this morning.

We heard Rick mentioned a couple times that Equifax is helping clients more with prospecting, We recall that Alliance Data bought the direct marketing Services division in 2010.

Is there a return to that type of business, and maybe with a little different approach this time?

No.

That was a great transaction for us, and it's in the right hands of the right owner.

That team is doing a great job with that platform we used to call DMS.

That was not a core competency of ours.

Our whole focus is to leverage our analytics, leverage our unique data assets to help our customers, like ADS and banks, be smarter in prospecting and growing their business.

That's win for us.

Don't expect us to get back in that business.

Okay, great.

Thank you.

One more question.

It is obvious that Equifax is very excited about the TDX acquisition, and that's doing great.

Can you talk a little bit more about the broader strategy in the collection space?

That's a great one.

We're equally as excited about this platform we bought in Mexico called Inffinix.

In fact, we get smarter every day.

Our initial thought when we bought but those companies was, one, it gave us capabilities we had to have for our current customers.

It was a need they had; it was being unfulfilled.

We also thought about TDX as being a platform that was for the larger, more sophisticated customers and countries, and Inffinix would be a stronger fit for the developing countries like Central and South America.

As we get smarter about both assets, we see some combining of the two platforms, broadening the entire continuum capabilities in collections as opposed to bifurcating them by sophistication of market.

We're very hopeful that not only will these businesses grow in the current footprint that they operate in, but we'll be able to bring them to our broader footprint that Equifax operates in and eventually into new countries where we don't operate at all.

It's a very cost effective way, as I mentioned earlier, to get into new geographies, solve problems for customers, learn about the marketplace and then expand our analytics capability beyond collections.

Thank you very much.

Manav Patnaik, Barclays.

This is actually Greg calling on for Manav.

The margins for us were the biggest surprise.

I was wondering if could help us bridge the gap to the second half of the year?

You've got the TDX benefit, so you should see higher margins in international.

I was wondering if there are any unique, seasonal factors that we should consider for the second half of the year?

The only thing, I wouldn't say it's really seasonal, but John alluded to it and it impacts margins, is that on the corporate expense line we do have some investments we'll be making the second half of the year.

Remember, investments tend to be largely around capital for new products and technology to grow.

So, you should see a step up there, as John alluded to, that, obviously, impacts margin.

In general terms, what you should expect is we are committed to our long-term margin model that we've talked to you guys about.

That is, every year going 25 basis points or so on the margin.

We've done that for quite some time and we plan to continue to do so going forward.

Okay, thanks.

The commercial and bringing it into the consumer businesses.

I was wondering if there's any change in strategy there?

Are you looking for additional cross-sell opportunities between the business lines and what the thought process was there?

Yes, good question, Greg.

If you go back, I can't recall exactly what year it was, but when I broke out commercial into a North American unit reporting to me, it was to get me closer to the business, understand the business, take a very small business, incubate it and grow it.

I was convinced that at that time it needed more direct attention, and we did that.

We grew it and were successful.

Then, in a couple years days ago maybe two years ago, we launched this thing called enterprise selling, which is maximizing our interaction with our big customers in the US.

And using the pipes and the resources of, at the time, actually it was Rudy Ploder, Rudy Ploder's leadership and his team in the US, and sell all of our products.

They would sell verification employment, income, the USCIS products and the commercial products.

That has gained great traction in the last couple years, and it became very obvious that the next step is just to make that organizationally a direct report into Rudy's team.

It will get all the attention it requires.

It has been incubated.

It is gained traction, so it was just a natural thing to do to help minimize the confusion for customers, minimize the inefficiencies we may have organizationally as well.

That's great.

Appreciate it.

(Operator Instructions)

Jeff Meuler, Baird.

Did you guys say plus 9% core, organic ex-mortgage constant currency?

No, I think I said in my very opening comment, it was 9% growth including acquisitions, constant currency.

Is that right, Jeff?

The core, organic non-mortgage market growth rate for the quarter was much like the first quarter mid 6% range.

Okay.

Rick, if I'm hearing you correctly it sounds like your naming more wins, larger wins and a relatively good pipeline versus how I remember you describing get in the past.

Am I hearing you correctly, and if so, what's driving it?

Is there something in the end market, whether it be competitor disruption or improvement in some of the end markets?

Or, is this really all about Equifax execution?

I think it is a continuous story, some that we've been talking about for quite some time.

You're hearing me talk about some larger wins, but we've been doing this for quite some time.

It is really leveraging the unique data assets we've tried to build out since 2007.

It is about the analytics capability drives off of those unique data assets.

It is about NPI.

It's all things we've been doing.

What you are seeing is the team is executing at extremely high levels.

I've said this a few times, it's probably the highest levels I've seen since I've been here.

When you put that all together, it's making a difference in the marketplace.

Okay.

Finally, on PSOL, it seems like the free options are here to stay, but you sound some pretty confident about getting some re-acceleration next year.

So, maybe a little bit more on the PSOL strategy?

One, Trey is a solid leader and has done a very good job of understanding the current environment with free, adapting to the current environment for free.

I think short term he's done a really good job of maximizing the profit coming out of PSOL, while he takes the ship and redirects it.

When he redirects it, he'll go back to higher levels of growth, that's number one.

I've been through his strategy.

I agree with his strategy.

It is thoughtful and it'll be effective and I think you'll start to see that as we exit this year and get into 2015.

Secondly, and we bought a really good franchise in the marketplace, a market setting that we had largely ignored in my time here, the indirect market.

We bought this company called TrustedID.

Scott Mitic, who runs that, founded that business, he and his team out there, Blain and others, have built a remarkable pipeline on the indirect side and that just takes time.

It takes time once you get a pipeline bill to close you can get the revenue, but that is coming.

It is coming strongly.

So, the combination of taking the old, what we call PSOL East, getting its new strategy up and running and are leveraging the indirect model, the combination of those two things gives me new confidence they'll be back up to their upper single-digit growth rate next year and beyond.

There's a big unknown out there.

I used that in my comments, as it relates to PSOL, and that is where does the regulatory landscape, how does that evolve over the coming years?

Assuming it evolves as we are hopeful that it will, I think PSOL's upper single-digit growth strategy, we talked about for long term, is very realistic.

Thanks, Rick.

Welcome, John.

Bill Warmington, Wells Fargo.

Good morning, everyone and congratulations to John in joining the team.

Thanks again.

On the commercial side of the business, the growth there has been below average compared to the corporate average.

Can you talk a little bit out what's driving that in terms of how much of it's macro, how much of its competition and how the new structure actually addresses that?

It's always a combination of both.

I think it's the small business lending is starting to heal, but it is not real strong yet.

If you look at the transcripts from any of the banks, they would reiterate that.

There's always some element of execution that we've got to look at ourselves a minute and say are rescuing at the highest level possible.

I think it is combination of both those there.

I do think by taking down an organizational wall and making it more fluid by having Rudy and the USCIS directly own that product capability for the customers in the US will help.

Same thing, I think, when you get Carol Grey and Paul Anoveros in Canada, you take that artificial wall down of reporting and they have unadulterated access to that, that should help in Canada as well.

Okay.

On the M&A side, if you could comment on the volume and the attractiveness of potential targets you're looking at these days?

Yes, I would say we just concluded our three-year strategic plan, Bill, and M&A is tied to strategy, obviously.

The pipeline continues to center around fraud and ID, analytics and tuck ins, geographical expansion.

I don't see, at this juncture, any need to do any large transformational deals by any means.

We are still committed to our model of 1 point to 2 points of revenue growth coming from acquisitions over an extended period of time, so I think that still holds true today.

Excellent, thank you very much.

Brett Huff, Stephens.

Somebody had a couple questions around the USCIS and what was driving that and you outlined some of that.

I'm going to ask again that question and just see if you'll comment on any uptick you all are seeing in card mailings, specifically?

Because I don't think I heard you mention that.

We've heard from a couple of people, one of your competitors, and then one of the issuing processors saying that they are seeing an improvement in mailings, maybe not to prime folks, not to sub-prime but somewhere in the middle.

Are you seeing any of that at all, or any comments on that?

Yes, I would say and it shows up in our marketing numbers.

I would not describe it as overly robust, now.

It is definitely picking up sequentially.

It is picking up year-over-year.

But I would describe it, and as I talk to CEOs or banks and card issuers and talk to our team, it's still very early days.

They're still very, very cautious in getting back into a more aggressive broad-based, lower credit-score card issuance strategy at this juncture.

Yes, it is picking up a, bit but it still a bit sluggish.

Okay, the second question is a little bit bigger picture.

It seems like you've got a lot of leverage you can pull as usual for rev growth.

It sounds like enterprise sales effort has been very effective, but you're always investing in new products.

Which of those two levers, the cross-sell if you will or the new products, do you see the most upside here in the next year or so?

As I think about levers for organic growth, I think about NPI continue to be -- it is huge part of our DNA.

It is been a big part of our success for the past seven years.

That will continue to be.

Secondly, is verticalization.

We've been at that now for a couple years around the world.

We've identified the key verticals that are important for us, and we are actively and aggressively going after those in every geography of the world.

That's enable us to gain share and win.

It is not just share gain, but it is because of our unique data assets that we, Brett, which are enabling us to get customers to spend more money on solutions that they wouldn't have otherwise spent.

And our competitors at this juncture don't have the ability to offer those same solutions.

It's a combination of all three of those.

Great, thank you.

We have no questions left in queue.

I'll turn the call back over to our speakers for any additional or closing remarks.

Thanks, operator.

Appreciate everybody's time and interest in support of Equifax.

With that, we will be able to conclude the call.

Thanks, everybody.

Ladies and gentlemen, that does conclude today's conference.

Thank you for your participation.