易速傳真 (EFX) 2014 Q3 法說會逐字稿

Good day and welcome to the Third-Quarter 2014 Equifax Earnings Release Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Jeff Dodge.

Please go ahead, sir.

Thanks, and good morning.

Welcome to today's conference call.

I'm Jeff Dodge, Investor Relations and with me 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 in the About Equifax tab of our web site at www.equifax.com.

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

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

Certain risk factors inherent in our 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 and adjusted operating margin that will be adjusted for certain items which affect comparability of the underlying operational performance.

Adjusted EPS attributable to Equifax excludes acquisition-related amortization expense and the associated tax effects, in addition to the impact of a settlement of a legal dispute over certain software license agreements.

Adjusted operating margin excludes the legal settlement regarding the dispute over software license agreements.

These measures are 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 would like to turn it over to Rick.

Thanks Jeff, and good morning, everyone.

Thanks for joining us again this morning for the third-quarter earnings call.

The team delivered a solid performance again in the third quarter as they continue to execute on our growth strategy and our operational excellence priorities.

We continue to improve our NPI process, sharpening our focus and delivering solutions that leverage our multiple data assets and sophisticated analytics expertise.

Customer demand for our Decision 360 offerings continues to be high and I'll go through examples of those when I jump into the USIS highlights in a few moments.

We invest in making important contributions to our initiatives, both revenue and expense.

This year we have 10 enterprise growth initiatives that are being managed using our process improvement and measurement tools that we've developed and we've talked to you about those in the past.

High-level financial overview for the quarter, total revenue was $613 million, up 7% on a reported basis and up 8% on a local currency basis from the third quarter of 2013, and in line with our expectations when you take into consideration a much stronger dollar.

In the quarter, FX created a $6 million year-over-year headwind, something we had not anticipated, nor had much of the country anticipated when we gave guidance last quarter.

When you exclude the mortgage market head winds and include acquisitions, revenue grew 10% in local currency and 9% in US dollars.

Adjusted operating margin was 26.4%, up from 26.2% a year ago.

Adjusted EPS was $1.01, up 12% from $0.90 last year and up versus our guidance of $0.96 to $0.99 for the quarter.

The US mortgage market is really unfolding much as we anticipated earlier this year as we enter fourth quarter and 2015.

Those headwinds do abate.

Even with the many global uncertainties we face, I remain optimistic about our growth prospects, not just for 2014 but also for 2015, I'll give you some texture around that before we go to questions and answers.

Here's a few highlights by business unit that I typically give you.

I'll go through some of those and then John will take over and give you some of the financial details.

USIS continues to drive growth through its enterprise-wide sales channels as well as capitalizing on several strategic initiatives.

During the quarter, we signed a multi-year, multi-million dollar agreement to provide online ID proofing services for the Social Security Administration.

This is a great win as it further establishes Equifax as an important service provider, enabling the Social Security Administration to provide consumers with access to their information in a secure online environment.

Our initiatives in auto, retail, banking, insurance, and telco, in addition to new initiatives in mortgage are driving solid mid single-digit organic growth for USIS, year-to-date core non-mortgage market growth is performing as we have expected and talked to you about in the past.

We continue to find strong market demand for superscores, we've talked about superscores before with you.

That's where we take combined -- we combine different data assets, including our data assets, third-party data assets, to create a unique decisioning solution for our customers.

This is a great example of leveraging D 360 to fuel new areas of growth.

As you know, in this area, our customers need to grow but also need to control their risks.

Many times, their best opportunities for growth are typically with younger consumers who have limited credit history.

With the credit database only, hit rates and risk assessment (technical difficulties) information with these additional data assets and sophisticated analytics, we can improve their risk assessment with a single scoring solution for both financial and non-financial customers.

And this has been very well-received by the auto [vertical] in the past few months.

Our identity fraud solutions continue to add strong organic growth within USIS, leveraging our strong partnership with the centers for Medicaid and Medicare services.

We have secured another multi-million dollar opportunity for monitoring Medicare and Medicaid providers.

Really, that whole opportunity was opened up with the relationship that EWS has created in the last 18 months with CMS.

And with major credit card companies within USIS, we won a cloud-based ID authentication solution.

During the quarter, we also signed a two-year, multi-million dollar agreement with an indirect reseller in the direct-to-consumer market.

This is one of the largest deals we have signed of this type with annual revenues exceeding $20 million.

For 2014, we expect USIS to deliver core non-mortgage market organic growth rate, consistent with their long-term growth rates that we've talked to you about in the past.

Moving on to international, they continue to leverage MPI and market the key strategic initiatives to drive growth and to drive deeper market penetration.

Total revenue in international was a bit lighter than we expect this quarter, driven primarily by a stronger dollar that I mentioned early on, and the fact that the revenue ramp in TDX is now moving into early 2015.

Let me just pause there for a moment and talk about TDX; TDX is a great strategic asset for us, it's performing very well.

I'm as bullish today as I was when we bought the asset back in the early part of this year.

We're just getting used to the forecasting model for TDX and we missed that by about a quarter or so, so we will accelerate its growth in 2015.

We've also identified a number of attractive opportunities which are expected to contribute to strong organic growth in 2015, not just in TDX's current footprint, but also our ability to take that asset to the US, Canada and other geographies.

And I would be more than happy to talk about that in the Q&A, any questions you might have.

In Canada, our recent innovation for data breach services has become a great success.

During the quarter, we signed two one-year contracts that are expected to contribute over $4 million in revenue.

Based on the initial success we've had with this new product in Canada, we're developing a strategy to expand the service to other geographic markets.

We're also making great progress in penetrating the telecommunications market in Latin America.

In Peru, we recently signed a two-year, multi-million dollar contract for a wide range of services, including our InterConnect decisioning platform, fraud screen platform, analytical and marketing services, ID verification, new account application support, and collection services, so a broad array of products to customers we know very well in the telecommunications arena.

Through partnerships at NPI, Workforce Solutions continues to find opportunities to grow the available records in The Work Number database.

We're well on our way to achieving our short-term target of 250 million records, and have already identified additional opportunities for records, which will enable us to exceed this goal.

Total records for The Work Number database are now at 248.6 million records.

We now have over 4,000 companies contributing their employment and income information into our database.

Dann and his team continue to do a very good job there.

Our analytical dashboard that supports companies' compliance management requirements under the Affordable Care Act has been very successful and we have talked about that in the past with you.

We are significantly ahead of our targets for revenue and for record contribution to The Work Number database in 2014 with over 215 clients signing up for this service.

And again, in many cases they're not only buying the analytics but they're giving us The Work Number database as well, so it's a double win.

We continue to deliver solid double-digit growth in our targeted non-mortgage verticals, particularly auto, card, and home equity lending within EWS.

As our higher-margin verify revenue growth out paces the Employer Services growth, operating margins in Workforce Solutions continue to expand nicely.

During the quarter, in EWS, we have signed another contract with a major credit card company for verification of income to be incorporated into their credit line increase program.

You've heard us talk about that in the past, that solution for credit line increases continues, again, great traction for EWS.

We have been experiencing increasing interest in our verification of income services as lenders continue to seek better solutions to further strengthen underwriting policies.

Workforce Solutions core non-mortgage market organic growth continues to be well above their long-term targeted growth range of 7% to 9%.

PSOL is executing well on its core business initiatives, while making good progress on its strategic transformation.

In the core business, they're ahead of their targets for churn and customer lifetime value, in addition to a year-over-year increase in ARPU, which has enabled them to deliver strong organic growth and operating margins.

In the indirect market, we've signed a number of new contracts and have launched few beta tests for some very large prospects.

The pipeline is robust on the indirect side, and we believe that the team's efforts will successfully reposition PSOL for good growth in 2015.

In the [business unit leaders] have accomplished a lot this year, offsetting mortgage market headwinds, tackling changing market dynamics, integrating acquisitions, and positioning their businesses for continued growth in margin expansion.

We're now through the toughest part of the mortgage headwinds.

Looking forward to the fourth quarter and beyond, we fully expect our non-mortgage products and services to continue delivering top-line growth consistent with our long-term business model of 7% to 10%.

And with that, John, the financials, please.

Thanks Rick, and good morning, everyone.

As Rick mentioned our performance this quarter was strong, a lot of hard work had to be accomplished, but everyone contributed to the effort.

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

It is important to highlight that FX became a greater headwind during the quarter than we'd originally expected for the quarter.

Our financial performance was adversely impacted by the acceleration and depreciation of currencies versus the US dollar.

For the quarter, compared to the third quarter of 2013, revenues were negatively impacted by approximately $6 million, and adjusted EPS was negatively impacted by about $0.02 a share.

Due to a number of discreet items, our lower tax rate benefited adjusted EPS by approximately $0.03 a share, netting the tax benefit with a negative impact of FX results in a $0.01 contribution to our reported adjusted EPS of $1.01.

Earlier this year, we indicated that our stock buyback should accelerate over the course of the year and we expected to exit 2014 with a lower share count.

During the quarter, we repurchased 1.5 million shares for $113 million and share repurchases will continue into the fourth quarter.

Now, let me turn to the business units' financial performance.

US Information Solutions revenue was $279 million, up 3% when compared to the third quarter of 2013.

Online Information Solutions revenue was $206 million, up 4% when compared to the year-ago period.

Mortgage Solutions revenue of $28 million was flat compared to Q3 2013.

This compares favorably to the Mortgage Bankers Application Index, which was down 26% in the third quarter.

Financial Marketing Services revenue was $45 million, up 2% when compared to the year-ago quarter.

The adjusted operating margin for US Information Solutions was 40.3%, up from 36.2% in the third quarter of 2013.

This reflects positive product mix, as well as good expense control.

International's revenue was $158 million, up 18% on a reported basis, and up 22% on a local currency basis.

Acquisitions contributed approximately 16 points of the local currency growth.

By region, Europe's revenue was $70 million, up 51% 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 $49 million, flat in US dollars but up 18% in local currency, driven by double-digit organic growth in Decision Solutions, Analytical Services, and Personal Solutions.

Canada revenue was $39 million, flat in US dollars, but up 5% local currency.

For the third quarter, international's operating margin was 23.5%, up from 22.5% in the second quarter of 2014.

Workforce Solutions revenue was $122 million for the quarter, up 6% when compared to the third quarter of 2013.

Verification Services, with revenue of $76 million, was up 10% 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 32.5%, compared to 29.9% in Q3 of 2013.

North America Personal Solutions revenue was $54 million, up 3%.

Growth was driven primarily by Canadian subscription and indirect revenue primarily through Trusted ID.

Operating margin was 31.6%, compared to 26.3% in Q3 2013, largely driven by reduced marketing expense in the quarter.

Finally, our general corporate expense was up this quarter from the year-ago period due to increased incentive compensation and timing of some investments.

2014 year-to-date general corporate expense is up only less than 1%.

Now, let me turn it back to Rick.

Thanks, John.

As we end the fourth quarter, we're ending this year pretty much as we anticipated at the start of the year.

The mortgage headwinds are largely behind us, early abating in mid-third quarter.

We have got a number of opportunities on the horizon that will continue to drive both top- and bottom-line growth.

For the fourth quarter, assuming current exchange rates, we expect reported revenue to be between $615 million and $620 million, and adjusted EPS to be between $0.99 and $1.03.

This assumes an FX head wind of approximately $11 million on revenue and $0.02 to $0.03 on adjusted EPS.

Also, as I mentioned earlier, the anticipated revenue contribution from TDX accelerates as we go into 2015 versus the year end 2014 that we originally thought when we gave guidance in the second quarter.

So for the full year of 2014, we expect EPS to finish in the range of $3.86 to $3.90 versus our prior guidance on the last call of $3.83 to $3.91.

At this time, our optimistic outlook for 2015 has not changed.

We expect the mortgage market to return to a more normal mix of home purchases, refinancing activity, and the increase in home equity lending.

We also believe that our strategic initiatives outside of the mortgage market will continue delivering revenue and earnings growth consistent with our long-term business model.

Our confidence is supported first and foremost by broad-based execution across all of our businesses throughout 2013 and 2014 where the swings of the mortgage market were their greatest.

In addition, our core non-mortgage market organic growth rate continues to be in the targeted range of 6% to 8%.

Finally, the integration of our strategic acquisitions made in 2014 will contribute to organic growth in 2015.

All these -- while we are not without challenges, this team has demonstrated their ability to continue to deliver on our commitments to our shareholders.

So with that we would love to -- operator, turn it over to questions, if you would please open up for our callers.

Certainly.

(Operator Instructions)

George Mihalos, Credit Suisse.

Wanted to start off on TDX, just maybe, John, specifically, can you call out the revenue contribution from TDX in the quarter, how you're thinking about that for 2014 and then as we -- or for fourth quarter, I should say?

And then, you know, if I'm not mistaken, the growth profile of that business was somewhere around, I think you guys were talking about it being somewhere around 20%.

Has anything changed there as you look out over the long term?

George, this is Rick.

I'm not sure if you asked the question of myself or of John but let me see if I can tackle that.

We did break out that it's 16% of the local currency international growth.

TDX is a great asset and I said that earlier; I'm as convinced it's a great asset today as I was then.

What we've learned is the forecasting model from the time you actually engage a client to the time you sign a contract and then get the revenue is a little longer than we anticipated, so revenue we had originally forecast when we bought the business, I think it was in January of this year, and finally got our heads around it and built the forecast model in late first quarter, has turned out to be a little slower than we anticipated.

But in the current footprint, it is going to be a great asset for us and in new footprint, Canada, US, and Latin America.

And more important, the combination of Inffinix, which we bought in Mexico City, with, now, TDX is already starting to generate some strong interest in the geographies, so hopefully that helps.

Okay, so just a timing issue and nothing else?

Correct.

Okay, and just shifting gears a little bit to USIS, again, the contribution margin, or I should say, sort of the incremental EBIT year over year, continues to be growing at a rate that's higher than revenue growth.

You know, can you maybe talk about that a little bit, what's driving that and how we should think about that going forward?

John alluded to that a little bit in his commentary there.

It has to do with mix of products within OSCIS and it's just that our core online credit product is, which has huge margins, as you know, and a very large incremental margin, is growing at a faster rate than overall USIS.

Okay, great, and maybe I'll sneak a last one in, just in terms of PSOL you're talking about the business changing a little bit there, are you comfortable with PSOL being able to grow in 2015?

Just given some of the changes you're making there?

Absolutely, George.

I mentioned that in our last call, that Trey and his team have done a great job of identifying there's a new world out there in this free market and there's three pillars to his growth.

One is to maximize the growth potential and margin potential in his core business.

Two is to take this asset we bought, I think it was a year ago, called Trusted ID, which is the indirect market, and grow that at significant rates and he's doing that; the pipeline, as I mentioned in my comments, is really strong, pipeline of -- and we've closed some of those deals as well, and the pipeline for revenue in fourth quarter and next year remains very strong.

The third lever is he's got to figure out a way to not -- to play in the free market, and he's doing that as well.

So I mentioned, I think it was in the second-quarter call, George, that those guys have done a great job over the last, maybe two years, have grown beyond our long-term growth model.

We talked about them being upper single-digits growth model and they've been growing at double digits, and I mentioned on the second-quarter call that, yes, I'm convinced that these guy will go back to the long-term growth model next year.

Okay, great, thank you.

Sure.

Manav Patnaik, Barclay's.

Hi, this is actually Greg stepping in for Manav.

Just following up on PSOL.

You know, you talked about Trusted ID as the way to go after the indirect space.

Could you also provide some color on the strategy and that remaining direct-to-consumer space and what you're doing there?

Again, as I tried to answer for George, three pillars of growth.

One is to continue to maximize your growth by minimizing churn, maximizing ARPU, continue to launch new products in the core business.

Things we've done very well now for, whatever it's been, four or five years, just continue that and that will yield growth for us.

That's going to be, as I talked about before, in the lower single-digit growth rates.

You're going to couple that with Trusted ID growing at strong double-digit growth rates and then finding a way to play in the free market, you aggregate those three together and you get a strong upper single-digit growth rate.

Okay, thanks.

I know commercial is now wrapped back into USIS and international, but can you talk about how those offerings have been performing and if that's still a market segment or you think you can get that high single-digit growth.

We gave you, in the press release, historical figures for commercial and you can kind of work with those to build some models.

We're not going to break that out going forward, it's a very small part of our business, as you know, but it still remains important for us.

Yes, I'm convinced it's a growth business as a part of USIS.

And then the main reason I put it back into USCIS was that most of the business comes from what we call KCP or large clients, and USCIS had those relationships so I'm convinced taking the product offerings we have with the pipes that we have in USCIS will yield good growth going forward, yes.

And consolidating that commercial business into international, just to check, doesn't have any impact on the 25% margin that you expect for international ending the year?

And from my calculation, no.

The answer is no.

I'm being told no.

Okay, thank you.

It's very small in the scheme of things.

Okay.

Thanks.

David Togut, Evercore.

Could you dig into the underlying unit growth and unit pricing trends year over year that you saw in OLCIS?

You're looking for volume or for price or both?

Both volume and price, if you have it.

Okay, I don't -- do you have that, Jeff?

Give us a second, David.

I don't have that at my fingertips.

Okay, let me shift to the next question, then.

Mortgage has been a headwind for the past year or so, but rates on the 10-year treasury have been dropping very sharply over the last few months.

Is there a case to be made that mortgage actually could, once again, become a growth driver in 2015?

Yes, I think there's a case.

It's a convergence of a couple different things.

I think, obviously, unemployment moving down, home prices going up -- 10-year which the mortgage rates are based upon, continues to stay at these historically low rates.

There's also, I think, David, you probably read a lot of discussion right now in DC about changing the regulation driven by Fannie and Freddie on the underwriting standards that the banks would have to adhere to and if they loosen those standards, it potentially opens up, obviously, a larger population of credit risk to the mortgage market, so keep your eye on that, too.

If that happens, that's obviously a potential good catalyst for us.

The other thing we're seeing already, I think it's, speak from memory, but it's an uptick in the home equity lending, which has been virtually nonexistent since the recession, and I think in the third quarter grew something like 21%.

So it's still at very low numbers compared to historical standards of total volume, but that should be an uptick for us going forward as well.

Just final question for me, can you give us a sense of consumer credit demand by major geography served; how you see that evolving over the next 12 to 18 months?

Yes, let's think about that, so in Latin America, if that's what you're referring to, if you're referring to international footprint versus just US, [I assume]?

Yes.

Is that correct?

Yes.

Latin America is so immature so in the use of credit products, so it's continuing to expand and continuing to grow even though we're reading about things like recessions and instability, some governments like Argentina, so I continue to see medium-term and long-term growth prospects in the Latin America region to be strong.

In the US, it really depends on the credit spectrum and the verticals you heard us talk about in the past.

Automotive continues to be strong in the use of credit and the growth in credit.

Just mentioned 21% growth in home equity lending in the third quarter.

I think that's going to be strong for us.

I think you're going to see a switch from headwinds in mortgage to growth next year.

The credit card lending business is starting to see some signs of growth in the US, which is encouraging as well.

Canada I would describe as stable, UK I'd describe as stable to some good growth.

And I would describe Spain, even though we continue to do a good job in Spain, as a troubled economy right now.

Hopefully that helps.

Got it.

Can I follow up with John on the unit numbers after the call?

Please do.

Thank you.

David, I've got them here now.

Okay, perfect.

Yes.

The volume was up 14% in the quarter, and the unit price was down approximately 5%.

And that was just mix shift?

Correct.

Thank you very much.

Thank you.

Dan Perlin, RBC Capital Markets.

Hey, guys, I was wondering if you could just help me, you threw out a lot of numbers there, can you help me reconcile the Europe number?

Because if I pick out the currency benefit and I take out what you said for TDX, it looks like that market's down close to 9%, and I didn't -- that's not kind of what I heard so I just want to make sure I'm doing the right math, for one.

So you're looking for the core organic non -- core organic growth rate in Europe?

Yes, core organic FX adjusted.

The core business seems like it's down 9% based on that math.

That's not right.

And it didn't sound -- because you had about -- almost a $5 million benefit on FX, I think, in Europe?

And then it sounded like it's 16 points or $21 million for TDX.

That puts you at $44 million.

Is that right?

22% local (multiple speakers).

I'm trying to pinpoint how Europe's kind of shaking out for everybody.

We've got that.

And I can follow up with that.

It's not going to be down 9%.

Okay.

I'll follow up with the details.

I felt like something wasn't right there, but the numbers spoke to that based on what I heard.

Let's continue through our last (multiple speakers).

We'll come back to --

Single digit organic growth --

In Europe.

-- in Europe taking out TDX.

How about FX?

And if you take out FX, then it's another $5 million.

My recollection was it's about 5% or 6% local currency growth rate organically in Europe.

We'll confirm that -- is that right, Jeff?

That is right.

That is right.

Dan, it's 5% or 6% growth.

Okay, thank you for that.

And then, I wanted to kind of circle back, it sounds like the good news is mortgage is, I should say headwinds abating, things are turning, we've got a HELOC market that's kind of new and different from last time around.

But what I'm wondering is, can you remind us, to the extent those both new refi and HELOC start to actually turn into something that's positive?

I don't want to get caught off guard on the mix in the margins.

I feel like that would be negative to margins in aggregate, is that a true statement or not?

No, it's not.

I'm fairly agnostic.

The lower-margin business tends to be the tri-merge business because we've got expense associated with that, but refinancing versus HELOC, they're a good solid margin business for EWS as well as USCIS.

Right, okay.

And then in terms of refi versus new origination, the refi is lower because you're just pulling the bridge tax return.

Is that right?

Correct.

Okay.

And then just one last one, when you look at the type of credit decisioning that your bank partners have in the United States, like the insight that you're seeing there, can you just give us a sense of where you think their lending appetite is?

Just more broadly in the States?

Like I've said, with the uncertainty in mortgage I tend to be, continue to be very cautious in the mortgage market, and I don't blame them.

So we get regulatory clarity coming out Washington.

Did I mention before I think they're jumping back in in a very aggressive way on the automotive lending?

And I'd say on credit card, they're starting to go down subprime, Dan, but they're going down subprime with very small lines of credit versus going downmarket with higher -- lower credit scores and higher lines.

So when you're seeing lines, $500, $600, $750 for the subprime market, they're getting back into subprime credit card money now.

Okay.

Thank you very much.

Sure.

Paul Ginocchio, Deutsche Bank.

Thank you.

Just looking at Consumer Financial Marketing or Financial Marketing Services, it looks like it decelerated from the second quarter of high-single digits to the third quarter of low-single digits, just wondering what drove that, particularly in light of your comments?

It seems like banks are somewhat trying to find new customers.

I just would have thought that number would have done a little bit better in this improving job market.

Paul, think about it this way.

In the marketing services there's really three lines of business that are not going to kind of combine so there's a little bit of noise in there.

There is the core, which you're familiar with, the CMS business, Credit Marketing Services, there's the IXI business, which you're familiar with, and now there's the Marketing Services Business we have in commercial, which we call internally [MVS].

So we've got three things going on there, MVS is down year on year and you got good strong growth in IXI and overall strong growth in traditional USIS -- or USCIS marketing business.

So the takeaway is that it's just the commercial business that's weak and we're still seeing banks reaching out and trying to find new customers.

That's not changed.

Yes, correct.

Great, thank you.

Andrew Jeffrey, Suntrust.

Rick, I appreciate the color on some of the USIS wins, especially in Social Security and CMS.

When you combine the tailwind and the momentum you've got there with the anniversary of some of these faster-growing acquisitions, it strikes me that at least maybe the high end of the 6% to 8% core non-mortgage organic is a reasonable expectation for 2015?

Could you just kind of comment on that?

Yes, as I mentioned in my closing comments, the team continues to execute at a very high level, we've, for a number of quarters and years now, been in that range.

I expect us to clearly be in that range in fourth quarter and clearly be in that range in 2015.

Fine tuning where in that range is a little too early at this time but, as we get into 2015, I'll give you more color at that time.

But just know I remain committed that we're going to be in that range of 7% to 10%.

Okay.

Are there any intrinsic or cyclical headwinds because it seems like not only winning new business but the nature of the business is becoming more diversified from an end market and customer perspective.

Are there offsets, at least qualitatively, you can think about to the new business you're winning or are you just kind of, you know, being cautious because it's not even November yet?

No, I don't think it's being cautious.

It's that the business model we're committed to and -- it's early.

I'm going to sit here and give you any additional color on 2015 and beyond that we've not only given you before, which is organic of 6% to 8%, 7% to 10% total and 25 basis points margin, it's just a little too early.

Okay.

And could you just comment a little bit on the pipeline?

It seems like you're winning, again, more government agency business.

Is that -- if you look at the pipeline and prospective deals that's out there, is the nature of the business or the characteristics of the customers materially different today than it might have been a couple years ago?

No, I think the one thing you hit on there is, when we won the CMS business in EWS, that opened up contacts within the federal government, which we had not had before.

And, as a result of that, we took advantage of that and built a vertical focus to capitalize on that.

I don't think it will materially change the revenue mix of who we are going forward three, four, five years, but it's nice significant wins in an arena two or three years ago we didn't do business with.

Okay.

And I guess, last, from a capital allocation standpoint, good to see you buying back the stock.

Still in the market, sort of hunting for acquisitions or would you characterize that as being opportunistic?

Yes, absolutely, and the model hasn't changed, most of our focus is on core organic growth and when we get the right strategic acquisitions, we'll do so.

John talked about in his comments buying back $113 million of shares in the third quarter.

And you should expect us short term, in the fourth quarter, to continue to be in the market buying shares, but we'll also, because of our model and how much cash we throw off, also be looking for the right deals and our model is one, two points of acquisition growth per year, so that hasn't changed.

Okay, thanks, guys.

Thanks.

Shlomo Rosenbaum, Stifel.

I just want to work through the currency to make sure that I understand it properly.

Was the $5.6 million of currency headwinds a year-over-year headwind or is that a difference from what you guys were expecting at the time you gave guidance in July?

It was year over year, but the bulk of that happened since the forecast was given in July.

Okay.

So when you're looking at your margin profile internally versus what you were expecting, are you look at kind of an OPM of 26.8%, adding back the $4.3 million in terms of your operational look at the business?

You're saying if you adjust for FX what would the operational -- ?

Yes, right, I'm getting a 26.8% if I adjust for that.

Is that kind of the way you guys were looking at it as you were entering the year, or excuse me, entering the quarter?

That's kind of the target and that's where you guys kind of feel like you were absent the headwinds.

It sounds like you have done the math.

(Inaudible) where you adjust operating margin based on FX but I trust your math is right and we could do that math.

But the margin profile, we have committed to be up 25 basis points a year, you're going to have some noise, Shlomo, quarter to quarter.

I think that, weren't we up -- what was the margin this quarter versus last year?

20 basis points.

So largely in line with what we guided to.

Okay, and then what was the non-mortgage under-lying growth?

So continent currency non-mortgage growth, so you said it was between the 6% to 8%, can you give us (multiple speakers) number?

Yes, it was 6.4%.

Okay.

And then what was in that other income line?

It was around $3.5 million, what was that comprised of?

It's just basically, generally, net of interest income and interest expense in general, and it was up this year basically because last year we had losses due to some activities in Latin America around repatriation of funds that didn't occur this year.

So I'm not really following what that was.

There was some kind of gain that came -- there was a gain in other income, I'm excluding the interest expense.

Was that interest income you're talking about?

Interest income net of expense, and then there's some other FX gains that occur in there but the reason it's up year on year is because we had losses last year related to some repatriation of funds and that's why it's lower last year than normal.

Okay.

And if you don't mind, I was going to sneak in some housekeeping.

What tax rate are you assuming for the fourth quarter?

I couldn't hear what you said, Shlomo.

Tax rate?

About 35%.

35%, okay, so consistent.

And then just anything else from the legal settlement, in other words, do you still have the right to use whatever software that you guys want and things like that?

Or is there anything lingering or this just settles it and that's it?

I'll jump in on the legal settlement.

[Starting to go back] on tax rate, we've always guided our tax rate over an annual basis, between 35% and 37%.

We look back at second quarter and we were actually over 37%, 37.2%.

A little under that number this quarter, back in the range next quarter.

So for the full year, John, we expect tax rate to be in that range of 35% to 37%.

Back to the legal settlement -- ask your question one more time, Shlomo, specifically?

Just there was a legal settlement and it seemed to circle around the rights to use the software.

So is there anything that's lingering that kind of hampers you, or did that settlement entitle you to use whatever you software you need right now?

None whatsoever.

This is a contract that dates back to 2002 with changes to work through.

We have the right to use the software for a period of time and going forward it will have no impact on our business operations.

Okay, very good.

Thank you very much.

Thank you.

(Operator Instructions)

Jeff Mueler, Baird.

I guess, Rick, you talked about two things in terms of moving to new geos, TDX and I think data breach business.

I know that's always a big driver for you guys.

Can you just provide a more comprehensive recap on what the key initiatives are right now in terms of taking other products beyond those two to new geos?

Thank you.

Let me see if I can clarify that, Jeff.

On TDX, it's clearly taking the TDX and the Inffinix and combining those as one platform, bringing them to the US and Rudy and his team are well on the way to doing that.

We have resources on the ground in the US.

We expect to launch some offerings in 2015.

Canada has a similar need, it's nothing served today so those are two -- and we talked about Australia.

There was a small business in Australia for TDX and we bought it, and I think I mentioned in the last earnings call they won some really nice contracts in Australia, expanding our presence in Australia and the benefit there is we get to know the market in Australia and I look for things like analytics, decision platforms, and other opportunities in places like Australia.

The data breach is really taking a skinny down offering that works very well in Canada; the team up there has now closed multiple data breach deals in the last year or so and taking that to other current places where we operate in the international footprint, not new places.

The third area for geographical expansion will be, the next area will be just looking at expanding through acquisition on operations outside of the 19 countries or so we operate in today.

Okay.

And then on the PSOL, the third point to your growth strategy in terms of playing in a free or freemium market; is the model going to be an ad-supported one or are you thinking more about allegiance source?

Or just how are you thinking about monetizing the free market?

Great question.

Let me go back to the question -- I can't remember who asked it earlier.

But if you think about PSOL going forward, the goal is to get it back to that upper single-digit growth business starting next year.

We'll do that by just optimizing the core churn, ARPU, new products and so forth, and the indirect.

We have yet to develop the full strategy for the freemium market.

So when that is fleshed out we'll let you know.

But I don't need that to get to the upper single-digit growth late next year.

Okay.

And then just finally, corporate expense -- I know that you guys had previously been signalling for it to be somewhat variable quarter to quarter, but with Q3 roughly in line with your internal expectations and then directionally, what should we be thinking about for Q4?

The answer for the third quarter is, yes, definitely in line with our expectations.

And year to date, as we said, it's pretty much flat year over year, right?

Yes, but, so what should we think about for Q4?

Because I think it was up $8 million sequentially.

Should we be thinking about a similar absolute dollar level for Q4 or should it come down somewhat?

Or just any direction you could help give us.

It should come down in Q4.

Okay, thank you.

Sure.

Jeff Volshteyn, JPMorgan.

I only have a couple of housekeeping questions.

In regards to the fourth-quarter guidance, could we get into the details, the components of revenue growth, what's implied for core non-mortgage, constant currency growth, M&A contribution, mortgage impact, and the share counts?

I couldn't write those down fast enough.

Let me just pick off a few.

We're not going to get into the growth rates at the business unit level at this juncture for the fourth quarter.

But in total, we would expect the core organic non-mortgage growth rate to, again, continue to be in the range we have committed to of 6% to 8%.

On the share count, you should expect us, again, to be buying back shares of a similar pace to what we did in the third quarter.

So with that, you can do the calculation on the share count as we exit the year.

What was your third and fourth questions?

M&A contribution and the mortgage impact.

Okay, on the M&A, I don't expect any additional M&A impact beyond the acquisitions we've already closed earlier this year.

And on the mortgage impact, I think the mortgage market expectation for this year, for the fourth quarter, Jeff, has moved closer to flat, [mark yourself], so we should be moving closer, I think it was down to, the bankers index was down 26% in the third quarter and that's going to move closer to flat as you exit the year.

Perfect, thank you so much.

Sure.

(Operator Instructions)

George Gregory, Exane.

I had three questions, if I may.

I'll take them each in turn.

Firstly, in terms of OCIS, could I check -- you saw a modest acceleration from Q2 to Q3, against that you saw an abatement in the mortgage headwind.

In underlying terms, was there any change in trend there?

Versus second quarter?

Is that your question, Greg?

Correct.

No.

I would say -- we talked about earlier, someone asked a question about margin.

In USCIS and I talked about the fact there are core credit product online credit price, within OCIS grew nicely and that had a high margin so if it was -- anything was unusual, an equitable, faster rate, that was really driven by the fact that we call, you're familiar with this, Greg, I know you're from the UK, KCP, key client program, which is some of our larger, more strategic customers, both FI, private level credit card issuers and telco, grew at a nice rate in the quarter.

So those are two trends that have been occurring now for a few quarters.

Okay, thanks.

Second, in terms of Latin America in particular and Brazil, is it fair to say that you're now a bit off a small base taking some share from your larger competitor?

And on that subject, is there -- is that in particular on the consumer side or the business side, any color you could add to that, please?

Greg, since we don't consolidate that asset at this juncture I can't go into this level of detail.

But I'll tell you this, we spent a lot of time down there, as you might guess, with the team and it continue to like the asset; medium term, short term, and long term.

So I'll leave it at that.

Very good.

And a final question, we've talked quite a bit about PSOL already, but any particular comments on the competitive environment there, in particular in the freemium space?

I think it's here to stay, and I applaud the team.

They faced into reality that the market shifted pretty quickly a few quarters ago and, rather than ignoring it, they've stood up and created a modified business plan that will get us to that upper single-digit growth rate.

So freemium's here to stay, I don't see it going away.

And maybe just to finish, when do you expect to have decided upon a strategy to play in the freemium market?

Well I think as we get on the phone with you guys in the first quarter, we'll lay that out for you.

Great, thank you very much.

Great, thank you.

As we have no further questions, I would like to turn it back over to our speakers for any additional or closing remarks.

Okay, with that, I'd like to thank everybody for their time and their interest in Equifax and with that, we'll terminate the call.

Have a good day.

And that does conclude our conference.

We thank you for your participation.