易速傳真 (EFX) 2015 Q3 法說會逐字稿

Good day, and welcome to the Equifax third quarter 2015 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, everyone.

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 in the About Equifax tab of our website at www.equifax.com.

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

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

Certain risk factors inherent in our core business are set forth in the filings with the SEC including our 2014 Form 10-K and subsequent filings.

During this call, 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 the comparability of the underlying operational performance.

For the third quarter of 2015, adjusted EPS attributable to Equifax excludes acquisition related amortization expense, income from the settlement of certain escrow amounts and an accrual for certain legal claims.

Adjusted operating margin excludes the accrual for certain legal claims.

And fourth quarter of 2015 and 2016 adjusted EPS attributable to Equifax will also exclude due diligence, transaction and integration costs related to the proposed acquisition of Veda Group.

These non-GAAP measures are detailed in the 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 for further details.

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

Thanks, Jeff.

Good morning, everyone.

As always, thank you for joining us this morning.

Our strong first half momentum continued throughout the third quarter with very solid broad-based growth across most of our key market segments and countries.

The momentum combined with solid execution from the team and one of the deepest MVI pipelines we have had over the past 10 years positions us well as we move into the fourth quarter and in 2016.

And in my comments later on this morning, I will give you a further look at both the fourth quarter, as we always do, and then 2016, as well.

The Equifax strategy is clearly resonating well with our customers, our core disciplines and new product innovation, Green, IT simplification, regulatory compliance, and talent assessment enabling stronger, more consistent execution across all of our initiatives.

For the quarter, total revenue was $667 million, up 9% on a reported basis, and up 12% on local currency basis from the third quarter of 2014.

It is at the high end of our guidance.

In the quarter, FX created a $22 million year-over-year headwind, up from the second quarter headwind which was $19 million.

Adjusted operating margin was 27.2%, up nicely from 26.4% in the third quarter of 2014.

Adjusted EPS was $1.14, up 13% from $1.01 last year, and above the upper end of our guidance range that we provided back a few months ago.

As always, before John gives you the financial details, I would like to briefly cover the key highlights for the third quarter.

USIS has continued to power forward with 12% revenue growth and had a robust pipeline of opportunities.

[Savant] continued unique insights incorporating our multiple data assets.

USIS delivered very solid broad-based growth in fraud and identity management solutions and commercial information.

Both those business units were up double-digit versus 2014.

Mortgage, direct-to-consumer and automotive were also very strong growth drivers for the quarter.

And like the rest of the Company, USIS is also benefiting from broad-based growth from NPI and our enterprise growth initiatives.

A little more on NPI, there are four strategic levers to USIS efforts around new product innovation.

They are, one, accelerating growth by linking the most relevant data with expanded analytic capabilities.

Two, investing in [vertical necessities] to drive unparalleled insights.

Three, focusing on customer experience through optimized enterprise distribution; and, four, diversifying portfolio growth across the value chain.

An interesting point is that almost 60% of the anticipated three-year NPI revenue is focused on opportunities beyond the more traditional credit risk solutions that you know us for.

Finally, this week we announced a very exciting opportunity to Fannie Mae, that you may have read that.

Fannie Mae will begin incorporating Equifax trended data in addition to our verified employment and income from the work number database.

The trended data provides new insights to lenders by expanding the credit information to aid their assessment of risk using updated analytical tools.

Integrating the work number into Fannie Mae's numbering system will make the process simpler for consumers and reduce the potential for fraud.

We believe this will be a win-win for the consumers as well as the mortgage industry.

There's some more that can be done on our side and as a result the revenue opportunity is expected to start sometime in the second or third quarter of next year.

It will be a nice impact for both USIS and UWS.

USIS is having an outstanding year in 2015.

For the full year, we expect them to deliver double-digit organic revenue growth and operating margins comfortably exceeding 40%.

Onto International, they delivered 14% local currency revenue growth leveraging the diversity in its core customer verticals, new product innovation, and unique platforms in decisioning, fraud and debt management.

As you know, we are now the midst of starting up the UK government project that we've talked to you now for a few quarters.

We have provided Equifax consumer data to one government agency and have now received approximately GBP265 million of past due receivables that we are now loading and analyzing and will soon move on to the collection agencies.

As we've mentioned before, we expect nominal revenue growth in the fourth quarter this year, but we expect that to ramp up nicely in 2016.

In summary, as it relates to that project, it is on track, on pace and meeting our expectations.

In addition, we are currently exceeding our expectations for the TDX business in places like Australia, and we are launching that platform across many other countries throughout the remainder of 2015 and into 2016.

In fact, it's poorly making a point here, as you think about the TDX platform, the debt management platform of 2016, it will then be dispersed through multiple countries as opposed to one central P&L that you are used to seeing, or can see, and we talk about in the UK.

Also, in International, new product innovation continues to be a very important contributor to International's long-term growth.

Their focus is in the areas of analytical insights, enhanced decision solutions, new verticals and distribution channels and broadening their data assets.

(Inaudible) International's three largest verticals, financial institutions, telcos, and SMEs, grew 17% in the third quarter versus a healthy 13% in the second quarter of 2015.

The decisioning platforms, our analytical services and our debt management revenue grew 19% in the quarter, accelerating from 17% in the second quarter of the year.

In 2015, International successfully executed on its strategic initiatives and captured some very important business opportunities that will transform and further broaden its growth profile in the coming years.

For the full year we expect International revenue growth to be above their long-term range that we have talked about of 7% to 10% growth.

Workforce Solutions, which has a stalwart performance, I think you will agree, through the year and grew 13% in revenue from its continued traction in its compliance solution products driving market penetration for verification and employment and income and some very sophisticated analytical insights.

Employer interest in our workforce analytic solutions for the Affordable Care Act remains extremely strong.

Out subscription based ACA platform solution, which enables companies to better understand their level of compliance with the requirements of ACA, is one of our most successful NPI initiatives in my 10 years here.

We're now expecting to have over 700 clients by the end of this year.

And we're still getting a large number of invalid requests which bodes well for EWS and the employer services business within EWS for 2016 and beyond.

In addition to our core product offering folks on compliance we're also exploring other opportunities that will enable us to address evolving market needs including fines and penalties under the Act and any related appeals that follow.

We believe this will further enhance our position in the marketplace and make us an even more valuable partner to our good customers.

New product innovation continues to make a meaningful contribution to our revenue growth for EWS.

We now expect to end the year with a vitality index of over 11% versus our target of 10% at the beginning of the year.

Earlier this week, EWS was honored for the second year in a row with a Product of the Year award by the editors of Human Resource magazine.

Our I-9 Anywhere product is a cutting-edge service that enables organizations to streamline their Form I-9 integration form completion process using remote entry for applicants.

We are also exceeding our year-to-date targets for both active and historical records in the work number database and expect to end the year over our full-year targets.

Verification Services growth was in excess of 20% and continues to be driven by adding records to the work number database and strong growth in key market verticals including auto, mortgage, consumer finance, government and pre-employment.

Workforce Solutions has had an outstanding year in 2015 by almost any measure, driving very healthy double-digit revenue growth across multiple product offerings and for the full year, we expect revenue growth to be in the upper teens and operating margins to settle in the upper 30s.

Against the backdrop of a changing operating environment [peace] always consistently delivered growth at the upper end of the multi-year target range of 4% to 6%.

We continue to make good progress in key metrics for our direct-to-consumer product offerings.

In indirect, we have a broad and diverse set of opportunities in the pipeline, much of which is outside of the banking sector.

We expect indirect to make meaningful contributions to revenue growth again in 2016, and we continue to generate good growth in our International segments, as you know, that includes Canada and the UK.

Revenue growth for direct-to-consumer activities in the US is largely driven by higher average revenue per subscriber in the quarter.

For the full year, we expect Personal Solutions organic revenue growth to be within their long-term range of 4% to 6%, with healthy operating margins in the upper 20s.

Let me transition back just for a second for a few highlights that we talked about to you in the past at the corporate level (inaudible) level and is our NPI and EGI.

They continue to make very important contributions to our long-term growth model, provide strong discipline around the allocation of both financial gain and capital, resources enabling us to execute with precision.

Year-to-date our new product pipeline is expected to deliver three-year revenue that is 50% deliver than the 2014 pipeline.

As I mentioned earlier in my comments, that is probably the strongest I've seen since I've been here in 10 years, and that bodes well, obviously, for 2016 and beyond.

All of our enterprise growth initiatives will leverage our operating and project management disciplines.

These disciplines ensure that we will develop effective plans for execution and deliver on the goals we've set for ourselves.

Our current view for our 2015 portfolio of EGI projects suggest that we will exceed our full-year target by almost 20%.

And much like NPI, EGI is becoming a big part of our DNA in every geography and vertical in which we operate.

Our inside driven strategy, the global strategy, is heavily dependent upon having contemporary IT platforms that can bee implemented globally.

In the past, you've heard us talk about interconnect platform that was first developed in the US and is now used in Canada, the UK and Latin America.

We are now the process of taking a fraud platform exchange that was originally deployed in the UK and successfully deployed in Canada a few years ago and expanding it now into the US and across Latin America.

This solution provides advanced analytics in [north pro] as well as a known product exchange focused primarily on account opening process.

The skills and project management expertise in our global operations COE is widely regarded and respected internally and by our customers.

This organization was heavily involved in standing up to UK government opportunity for TDX and showing that we successfully met all of our contractual obligations while positioning us to deliver performance above the portfolio of thresholds for collection effectiveness.

More recently, we had conducted a number of customer journeys where we work directly with customers on the end-to-end process with the objective of improving both the cost effectiveness of our interactions and as importantly their overall experience with us.

I'm sure you're all interested in an update on our offer to acquire the Veda Group in Australia.

I'll share a few thoughts with you there.

We believe this opportunity is a nice strategic fit for Equifax.

It expands our geographic footprint in a core segment that we know very well.

Veda has a strong market position, great products and data assets, they are very profitable, and give us a strong management team in Asia.

We believe Equifax's strength in advanced analytics, enterprise growth initiative, new product innovation, and others can act to make Veda even stronger.

We are currently early in the process with Veda and at this point our agreements with Veda include a purchase price of AUD2.825, they are non-binding.

As you can appreciate, a transaction of this size will take considerable time to negotiate and finalize, and we plan to conduct our usual thorough and disciplined due diligence.

Simultaneously, we will negotiate the terms and conditions of the purchase agreement.

Subject to a successful completion of these steps, we would anticipate signing a binding agreement later this year.

The final transaction is subject to the approval of our respective Boards of Directors, regulatory approval in Australia, as well as Veda shareholders' approval.

If the transaction ultimately goes forward, we would anticipate completion sometime between late February and early April of 2016.

At this point, I am very confident in our ability to effectively integrate Veda should we have the opportunity to do so.

2015 is turning out to be the strongest performance in my time with the Company.

As many of you know, we started the journey of transforming Equifax into a global leader in information solutions back in 2005.

I believe we can say we have successfully transformed the culture, profitably invested our capital to support that vision, strengthened our talent base, while continuously honoring our commitments to our shareholders, customers, employees, and consumers.

I remain optimistic about the opportunities we have for growth for 2016 and beyond.

And with that, let me turn it over to John.

John?

Thanks, Rick, and good morning, everyone.

As before, I will generally be referring to the financial results from continuing operations represented on a GAAP basis.

During the quarter, we recorded income of $12 million from the settlement of certain escrow amounts related to an acquisition outside of the measurement period.

We also recorded an expense of $8 million related to the settlement of certain specific legal claims.

Consistent with our past practice for treating unusual or infrequent items, we have excluded these items from our adjusted EPS in order to provide investors with a more consistent period-to-period operating comparison.

The after-tax effect of these two unusual items was positive $0.05 a share.

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

US Information Solutions revenue was $312 million, up 12% when compared to the third quarter of 2014, another very strong quarter for USIS.

Online Information Solutions revenue was $233 million, up 13% when compared to the year-ago period.

Mortgage Solutions revenue was $32 million, up 12% compared to Q3 2014.

Total mortgage-related revenue in USIS was up 20% in the quarter, and mortgage-related revenue for the total Company was up 24%.

This compares favorably to the mortgage bankers application index which was up 17% in the second quarter.

We currently expect total mortgage originations in the fourth quarter to be down year-over-year.

For 2016, our current outlook is for mortgage originations to be about flat when compared to the full year of 2015.

On to financial marketing services where revenue was $47 million, up 6% when compared to the year-ago quarter.

The adjusted operating margin for US Information Solutions was 41.9%, up from 40.3% in the third quarter of 2014.

International's revenue was $149 million, flat on a reported we basis, but up 14% on a local currency basis.

By region, Europe's revenue was $64 million, up 5% in US dollars, but up 16% in local currency.

Latin America's revenue was $52 million, up 5% in US dollars and up 20% in local currency.

Canada revenue was $33 million, down 13% in US dollars, but up 5% in local currency.

For the third quarter, International's operating margin was about 20%, which is flat when compared to the second quarter of 2015.

As we mentioned last quarter, we expect International operating margins to remain at about 20% throughout 2015.

We expect margins to increase throughout 2016 reflecting continued strong local currency revenue growth including TV access the UK government contract begins to contribute, as well as the benefits of regionalization and other cost actions.

Workforce Solutions revenue was $139 million for the quarter, up 13% when compared to the third quarter of 2014.

Growth for Workforce Solutions at 13% was very strong and continues to be above our long-term model of 7% to 10%.

This reflects continued very strong growth in Verification Services, up 22% year-to-year.

The solid growth also reflects the following, employer services revenue, principally from unemployment claims, compensation claims, work opportunity tax credit, and other related employer services declined slightly year-to-year.

This reflects the continued very low over levels of US unemployment, as well as the timing of federal [Lot C] authorizations in 1Q 2015.

Our workforce analytics solution for ACA compliance, which is part of our employer services business, continues to perform well ahead of our expectations, as Rick mentioned earlier, and now has 700-plus clients in various stages of boarding, preparing for 2016 ACA reporting.

However, as this is a subscription based service in which the boarding services are offered as part of the service, all of the revenue associated with boarding and subscription service fees prior to customer production go-live is deferred and amortized over the remaining life of the agreement.

As such, despite tremendous growth in customers and activity in the second half of 2015, revenue realization will not begin until very late in 2015 and principally 2016.

Long term, we believe the subscription-based model will be greatly beneficial both in terms of customer attention and revenue predictability.

It is also additive to our expectations that Workforce Solutions will continue to grow faster than our long-term 7% to 10% model.

In the remainder of 2015, it will put pressure on employer services growth rates.

In 3Q, overall employer services activity was more heavily skewed to ACA compliance and that revenue was deferred, and as we indicated, deferred until very late 2015 and predominately 2016.

The Workforce Solutions operating margin was 35.9%, up almost 350 basis points from 3Q 2014.

Workforce Solutions continues to make great progress toward achieving margins consistently near 40%.

Personal Solutions revenue was $67 million, up 5% on a reported basis, and up 6% on a local currency basis.

For the third quarter, operating margin was 26.9%, consistent with our long-term expectation for operating margins to be in the upper 20s.

The year-over-year decline in operating margins is primarily driven by marketing spend at levels more consistent with our long-term expectations.

In the third quarter, general corporate expense at $47 million was slightly over the guidance we gave last quarter.

For the fourth quarter, we expect general corporate expense to be up slightly from the $47 million in 3Q 2015.

The adjusted operating margin at 27.2% was up from 26.4% in 2014 and in line with our expectations for the quarter.

Our GAAP effective tax rate for the third quarter was 30.8%.

This was benefited by 1.8 percentage points by the very low tax rate on the income from the settlement of the escrow we discussed earlier.

Both the income from the settlement of the escrow and the related tax expense was excluded from our adjusted EPS.

Excluding this 1.8-percentage-point benefit, our 3Q effective tax rate was slightly higher than our effective tax rate of 32.5% in 3Q 2014, and approximately consistent with the guidance we gave for the third quarter.

It was also consistent with the historical pattern of our third quarter effective tax rate being below the effective tax rate for the year.

Our current expectation for the effective tax rate for the full year is to be slightly less than 34%.

Operating cash flow was very strong in the quarter at $247 million.

With pending M&A activity, we reduced our level of stock repurchases in the quarter.

Past capital expenditures for the quarter were $38 million and year-to-date were $94 million.

For the full year, we expect capital spending to be approximately $120 million to $125 million.

This is above the approximately $100 million we discussed at the beginning of 2015.

To support our continued acceleration in enterprise growth and new product innovation initiatives, we have accelerated our investments in global analytics, decisioning, fraud and exchange platforms, and supporting network and data center infrastructure, as well as internal systems.

We are confident these investments will support both revenue growth and margin enhancement.

At this level of investment, our capital spending continues to be at a modest 5% of revenue.

Earlier, Rick gave you an update on our proposal to acquire the Veda Group.

This would be Equifax's largest acquisition in its history, and given the size of the acquisition and the up front costs associated with the transaction and its integration, we will be excluding all acquisition-specific transaction and due diligence expense, as well as integration expenses incurred in the first 12 months following the closure of the acquisition from our adjusted EPS.

Now let me turn it back to Rick.

Thanks, John.

For the fourth quarter, we expect organic revenue to be between $655 million and $665 million reflecting constant currency organic revenue growth of 7% to 9%.

That's partially offset by 2% of FX headwind.

This is consistent with our comments in July that the fourth quarter organic growth would be at the high end of our long-term range, which we've talked about being at 6% to 8% growth.

Adjusted EPS is expected to be between $1.10 and $1.12, which is up 8% to 10% for the quarter excluding $0.02 per share of negative impact in FX which reflects constant currency organic EPS growth of 10% to 12% for the quarter.

Our strong year-to-date performance resulted in an increase of our full-year guidance.

Combined with our outlook for the fourth quarter 2015 represents an outstanding year for our shareholders, our customers, employees and consumers.

And for the full year we expect 2015 revenue to be somewhere between $2.652 billion and $2.662 billion, consistent with our guidance in July and up nicely from our guidance of $2.55 billion to $2.6 billion at the beginning of the year.

And reflects constant currency organic revenue growth of a healthy 12% to 2015.

This strong revenue growth is partially offset by 3% negative impact from FX.

As before, and this is only organic revenue growth, and we'll talk more about next year we're getting back into the M&A game.

As we expect the operating margin to be somewhere in the range of 27% to 27.5% for the full year which is up a nice 80 basis points over 2014.

2015 adjusted EPS is now expected to be in the range of $4.46 to $4.48 per share, up from the $4.38 to $4.42 per share we guided in July, and up significantly from the $4.20 to $4.30 per share guidance we gave at the beginning of the year.

That reflects a 15% growth in EPS for the year.

On a constant currency basis, excluding $0.11 per share of negative impact from FX, at current rates this reflects a very strong 17% to 18% growth for the year compared to 11% growth in 2014.

Now it's early but I thought I would give you some color on how we're thinking about 2016, and as we always do, we will come back and give you a lot more clarity and depth on the February earnings call.

As we sit here today and look at 2016 we fully expect to be towards the upper end of our organic growth target range, which is 6% to 8%, with additional growth coming from successful completion of our current M&A activities.

We've communicated and committed to you is add over time 1 to 2 points of growth coming from inorganic growth.

If you exclude Veda because of the size of that, our pipeline is strong.

We clearly see contributed to our organic growth rate of 6% to 8% an incremental 1 to 2 points coming from M&A, Veda will be incremental that 1 or 2 points.

We also expect operating margins in 2016 when we exclude the impact of acquisitions to expand nicely given the higher growth expectations we have.

And this is against a backdrop of an outstanding organic growth rate in 2015.

And we also expect [the talent of] the mortgage market be relatively flat in 2016.

So in summary, I think you'll agree 2015 is shaping up to be another outstanding year for the team and 2016 where we sit today we expect another outstanding year in 2016.

So, operator, with that we'd like to open up any questions to our -- audience may have.

Thank you.

(Operator Instructions)

David Togut from Evercore ISI.

Thank you, good morning, Rick, John, and Jeff.

Hi, David.

Rick, if I've heard you correctly, you've made a pretty compelling case for higher growth than you've laid out in your mid-term targets.

For example, NPI record pipeline, gaining a lot of traction with EGI, Workforce Solutions performing above plan, great traction internationally importing products from US, turned around the PSOL business, and it looks like you're on the verge of what looks to be a very accretive acquisition of Veda, at least by our calculations.

So am I hearing you correctly?

And if so, how do you think about sort of the mid- to long-term organic growth prospects of the business based on the hand of cards you are looking at now?

One, thank you for -- we'll take as a compliment to the team you can catch that effectively.

The performance you're seeing in 2013, 2014, and 2015 [and before we] look of 2016 is a result of the last 10 years of effort laying a foundation of culture and talent and processes like EGI, NPI and others we are now the benefactors of that.

The performance continues to be very, very broad-based, across many verticals, many countries, many products.

And I feel very good, very good as I sit here today looking out to 2016 that the growth in 2016 will also be good, as I mentioned.

And we're assuming, David, in that 2016 early look economies, GDP growth in the economies we participate in will be relatively in line with what we're seeing this year, which is modest.

There are some struggling economies in South America, a lot of growth in GDP in the UK, Canada, and US in the 2% to 2.5% range.

So we're not expecting significant GDP or market-based improvement.

If you look longer term, to the heart of your question, in 2017, 2018, yes, I hope eventually we do see some rebounding and some help from the economies we operate in which would be further wind at our back.

Got it.

And then perhaps just expand a little bit, if you would, on PSOL's growth prospects?

You have sort of pivoted in the premium channel, you picked up some nice growth there, turned that business around.

What do you see longer term in the premium channel for Equifax?

How can you capitalize on this high-growth channel long term?

Yes, I think Trey and [Al Assad] as you saw the announcements a few weeks ago (inaudible) take that business over.

And they have done a hell of a job, especially when you compare it to the market as a whole.

It has changed at such a rapid pace, I think we all agree the free market is here to stay.

But we also view, after a lot of work, David, with outside consultants coming in there will always be a place with a paid products that we offer.

And we've done a number of interviews through third-party consultants to talk to consumers and a big cross-section of that consumer base wants to and will buy the free products over the paid for products.

Having said that, free is here to stay, it's carved out a nice piece.

We are winning, as you know, in the free channel right now through our USIS business that Trey in his old job had a heavy hand working with Rudy on devising strategy for the Credit Karma's and others in that arena.

So simply said, I see the free business is here to stay.

I'm convinced the core business can grow in the mid-single-digits with upper 20% margin.

I'm convinced our indirect business has got good growth prospects for the next couple of years.

And lastly, I'm convinced that our International presence will continue to grow strong.

Understood.

Congratulations.

Thank you, David.

Manav Patnaik from Barclays.

Yes, hi, good morning, gentlemen.

Congratulations on the quarter and, obviously, it seems like a lot of your initiatives are working.

The first question I had, Rick, was -- and I think I've asked you this many times before is -- you've talked about your NPI and now I guess EGI doing a lot better than last year and probably above your expectations.

I guess, how -- can you give us some color -- like how do you keep delivering these sort of impressive results?

And does that 10% sort of NPI number you had before need to go up now to maintain this level of excellence?

Thank you, Manav.

It's truly, it's -- we've got a great team.

They believe in the culture of growth.

They believe in the culture of helping our customers and consumers by building new solutions we couldn't build yesterday.

We've got the great data assets, we've invested in the foundation, things that [can't any further] when we talk about that.

[Before I go], when you talk about people you see it, everyone understands the importance of innovation.

Our industry is by itself not a high-growth industry, and our team wants to be a part of a high-growth Company.

And a way for us to get there is -- organically to get there is through innovation, and NPI and EGI are such a vital part of who we are and how we think.

It's here to stay.

We will continue to always take a step back and refresh our thinking, re-energize ourselves, modify the approach, expand the approach.

We are now 10 years into NPI and probably three years into EGI and those initiatives have got to be refreshed periodically to make sure they are contemporary and thoughtful, and the team has been getting -- as long as I'm going to be here, Manav, we're going to continue to strive for 10%-plus vitality index because it's helping.

Okay.

And then just one follow-up on Veda, clearly, it sounds like a good deal.

It's a public company.

I guess what I was trying to get is in your diligence are there a couple of key things that you guys really need to get at or is this just making sure you are checking the boxes?

Yes, there are, obviously, and by no means would I ever go into a diligence process spending any amount of money, let alone $1.7 billion to $1.8 billion with the mindset that it is check the box.

We take acquisitions extremely seriously, profitably, and I would prefer not to disclose the exact list of diligence items that we've highlighted.

Trust me, it will thorough diligence.

We're in the data room now, teams will be in the country in a week, and we have a very thoughtful, exhaustive list of questions that the Board and I along with the business unit leaders and COE leaders have thoroughly vetted.

So we have thorough diligence, nowhere close to a perfunctory check the box.

All right.

Fair enough.

Good luck with that.

Thanks, guys.

Thank you.

Andre Benjamin from Goldman Sachs.

Thank you, good morning.

Good morning.

I first wanted to ask, could you maybe provide a little more insight into how, one, we should be thinking about the magnitude of the contribution from the partnership with Fannie Mae as we do think about our 2016 models for next year?

And, two, we've heard a lot of companies looking more at trended data generally.

And so maybe you could talk a bit about how you've seen demand for that product evolve and we should think about it over the medium term to contribute to growth?

The Fannie Mae [wants], I think it's a great one.

It's a great one for consumers, it is a great one for the underwriters, and it's going to be a great one for our business units of USIS and EWS.

As I mentioned, I think, in my comments early on, we expect that to ramp up probably late second quarter, early third quarter.

There's some work we've got to do, some building we've got to fine tune to bring that to market for Fannie Mae.

And it's going to be meaningful, it'll be meaningful impactful for the business units next year.

I'm not going to give you the exact number, but trust that it will be meaningful for us at the [beginning] level.

Two, if you think of trended data in general terms, I think maybe two years ago we started talking to you about trended data, and there was an interest in getting a historical look versus a snapshot look.

And the first thing we did was built the capabilities for our batch offline, we call it internally CMS, that ramped up nicely.

We then through a technology investment we made in USIS and the recently brought that capability to online and that's now ramping up nicely.

And I'm also very, very intrigued with the concept on trended data of bringing that, we're looking at right now, is the technology requirement.

Well, to bring into EWS, the concept of taking one of many different attributes we have in the work number database, that attribute being income and showing an underwriter, a marketer, whoever, a historical look, a trended look at their income intellectually excites myself and the team.

So as I think in trended data that will be a next evolution that we will invest in is bringing trended data towards verification of income.

And one follow-up.

I wanted to make sure I heard something right in the prepared remarks.

I thought I heard you say that new product pipeline over the next three years would contribute 50% of 2014 levels, I wanted to make sure I heard that right.

And if so, how should we actually interpret that in terms of the revenue and growth in 2017 versus 2014?

I believe the comments I made -- I could check my notes here -- the USIS NPI pipeline is running at a rate of 50% greater than the pipeline we had in 2014, so that revenue will earn out in USIS over the next three years up 50% over pipeline in 2014.

Got it.

Thank you for clarifying.

Sure, thanks.

Paul Ginocchio from Deutsche Bank.

Thanks for taking my question.

Rick, the 700 clients you have signed for the ACA compliance platform, I know the revenue hasn't started, but can -- any way to help us size that for 2016 as you roll it in?

And then, second, International margins, I know you said they will be up in 2016.

They were as high as almost 29% a few years ago.

Is there anything different with International business today that would keep you from getting back to those numbers?

And how many years do you think it takes to get back to that?

Thanks.

Thank you, Paul.

I think gave some fairly good color and texture around ATA on past earnings calls.

One, the caveat I'll give you we've always said it will be very meaningful for EWS, very meaningful.

And it's exceeding our expectations, I think it is so far beyond the expectations we had a year ago.

John mentioned and I mentioned over 700-plus accounts, strong interest level already brewing for 2016.

If you follow the ACA dynamics too, and the level of fines and how those increase over the years, and the appeal process, and eventually have a tail that's for many years, as we sit here today and look out.

Secondly, and I alluded to it, is getting into this ACA we can open up other doors and avenues of opportunity and [we've thought about that] IRS appeals process, so on and so forth.

So I'm not going to give you a number, Paul, but it is meaningful, and very, very, very important to us long term.

And, again, I said the same thing in my comments, probably most impactful, largest, meaningful NPI we've had in my 10 years here.

As far as margins on International, yes, I clearly see 2015 as being the trough, if you will, and that was intentional integrating a big acquisition for that BU, investing heavily in the UK business unit, the UK government opportunity we talked about.

We're also, as John and I alluded to in our comments, investing heavily in technology, analytics and platforms around the International operations to fuel growth short, medium, and long term.

So we clearly expect 2015 to be a trough [and models] start to ramp up nicely in 2016 again.

Will they get back to 29%?

There's one caveat to that.

I think they can over time, what period of time, is the team is working diligently now to regionalize big pockets of costs within International.

And that requires technology investments to take things from countries to regions and so on and so forth, that will be a big benefactor.

If we are fortunate enough to close the acquisition of Veda we would totally expect our own EBITDA margin basis, that's also would be a nice lift to the EBITDA margins of International.

Excluding Veda, right, Jeff?

I think Jeff has taken you through the model for International long term, and midterm what we said is mid-20s is where we are expecting margins to end up.

Thank you.

Andrew Steinerman from JPMorgan.

Hi.

Rick, I wanted to ask you about peer-to-peer lenders.

This was a subject that came up recently when I hosted a industry research conference call with the [Outsell].

And I just wanted to know, when you look at these peer-to-peer lenders, I know that they are using Equifax products today, but I wanted to look further out.

Do you think these peer-to-peer lending systems will lead to an increase of demand of Equifax products or decrease when it comes to peer-to-peer lenders?

Yes, thank you, Andrew, that's a good question.

I spent a lot of time thinking about that strategically, and many do refer to that ecosystem that is evolving, as you have, as peer-to-peer.

I like to think of it as more a remote lending, unsecured remote lending, rather than peer-to-peer because it tends to be a bank involved (inaudible) at looking (inaudible) GreenSky, [VisiWave] or others.

One, point one, I think that that is a marketplace that will exist.

I think it's a (inaudible) marketplace for the traditional banking sector.

The banks may not choose to participate themselves in it but I think it's here to stay.

I think it's got good momentum, good legs.

As you mentioned before, they are a user of our data today.

They use both the verification employment and income database many times, as well as core credit file and credit scores, we expect that to continue going forward.

So right now I view that as being yet another -- if that sector can allow maybe other people to get access to credit who couldn't get credit, the normal system it's incremental to us.

If it's just a displacement, a bank would underwrite today, I see it as a non-event for us.

The bigger question we're thinking about strategically is, how else can we play in that ecosystem?

If that in truly in five to 10 years is a big robust part of the market how we participate in that market we're kicking around that now.

Okay.

Thank you.

Thank you.

Gary Bisbee with RBC Capital Markets.

Hey, guys, good morning.

On the Workforce Solutions business, I guess I wonder if you could give us some color on how much of a drag on margins, the ACA compliance offering revenues being deferred, but yet you are footing the bill for sales and on-boarding customers, et cetera.

Is this a big drag, and would you expect that investment sort of flattens out at the same time revenue comes and that really helps margins starting [January 1]?

Yes, Gary, let me see if I can jump in.

One, it is important to put that in the context with the profile that the path Workforce Solutions has been on, it has been a remarkable in terms of all dimensions [for special margins.] I think John mentioned mortgages were up 350 basis points in the quarter in spite of, we were talking about kind of investing in ACA standing up a subscription model which is subscription models over a period of time.

Secondly, and more importantly, is John alluded to in his prepared comments that this business is on a path to 40%-plus margins.

And so I think you could put it in context with where it has come from and where it's going the incremental impact drag otherwise of ACA is a non-event.

It is very small, right, because, as you know, you defer expense with revenue, right.

So just very small negative impact on margin.

But, again, it should be accretive to both revenue and margins in 2016.

Okay, great.

And then just to help us frame your commentary on 2016, I know you have not -- have declined to break out the total revenue impact from, or your estimate from the mortgage market activity.

But is it safe to say that in 2015 year-to-date the core, as you used to call it, the core revenue ex- mortgage market changes would be growing in excess at a high end of the 8% organic growth?

And, I guess, if that's right, are there any headwinds we should think about as to why that might slow somewhat next year outside of mortgage?

Or should we just think that the initial commentary is early and possibly somewhat conservative?

Thanks.

I'll take a crack at that, and, John, jump in.

As you think about 2015, and we will jump to 2016, there are a lot of numbers out there on the index growing, Jeff, roughly 17% in 2015 and as has been in the past for us you should expect and we are delivering performance that is greater than the index.

John Gamble mentioned that the expectations, as we sit here today with October looking at 2016 as the market will be relatively flat and that might mean 2 or 3 or 4 or 5 points down, couple points up, in that flattish range for 2016.

So as we gave an early look at the revenue of 6% to 8% organic over the next year it is with the expectation of mortgage being in that range.

And once again, our team, the EWS and USIS performing at levels greater than that, and as you know, by market penetration and new product introduction in the mortgage market.

So that's how we think about 2016.

John, anything you want to add to that?

No, just as Rick indicated, right, we just guided fourth quarter as well as next year at the very high end of our long-term growth rate, so up towards the 8%, right.

So in both of those cases, we've indicated we expect mortgage to be flat or down to market.

So I think that covers most -- that should cover most of the question right there.

Thank you.

Shlomo Rosenbaum from Stifel Nicolaus.

Hi, good morning, thank you for taking my questions.

Hey, Rick, I just wanted to know if you wanted to comment a little bit more on Veda?

That company is doing very well and actually looks a little like a mini Equifax.

And you touched on a little bit in your comments, I want to know if you could maybe expand a little bit on this.

What is it that you bring to them and what is it that they bring to you beyond kind of the geographic diversification?

Great, thank you, Shlomo.

One, know this, we have -- Shlomo, we have known each other now for a number of years and you know our thoughts on acquisitions so this won't surprise maybe the rest of you or you.

We have been talking with Veda now for we expect maybe four years, so it's not like this thing just dropped out of the sky one day and we said this would be an interesting acquisition.

It's been an organization that we've tried to get to know each other for quite some time.

Two, philosophically, it's important to know that when we think about acquisitions in Equifax we are driven by a view of what we can bring to that company that makes that Company even better, rather than what does that company bring to us that makes Equifax better.

Studies will show, and there's been many studies with many consultants, when you take the path of how do they help you as a core business you often times fail.

So with, having said that, other than the geographical footprint, I think what we can bring there is some of the processes and capabilities that have made Equifax successful the last 10 years in the countries that we operate now things like our lean process.

Things that lean at the customer, things like MPI, things like EGI and price growth initiatives.

Our Cambrian and technology platform, which is fabulous, and as you know, and the investment in that for a number of years bringing that platform to the countries in which they operate to link together unstructured Internet data, if you will, third-party customer data and our data and build more products we could build in the past, I think, that's a great capability.

So it's really deploying some of the things you know so well, Shlomo, that we have employed here into their footprint.

I do think that over time one of the things that we will have to determine is, clearly, not baked into any performance assumptions that we have now.

Over time if we have a really good business in that part of the world and we get really good people, which they do, our ability to think about expanding into other geographies, now that the two businesses are a much bigger business there's a lot more EBITDA, it makes investments organically, inorganically.

I think when you are closer to those geographies, I'm willing to make those bets.

Sitting here in Atlanta, Georgia trying to think about making investments in mid-sized countries around Southeast Asia, as the hub is a risk I'm not willing to take.

But if we have got a good footprint in Australia, New Zealand and a few other countries that's a risk we are willing to take as a Company, and that would evolve over the next few years.

Okay, great, thank you for that color.

And could you also talk about how much, either qualitatively, quantitatively, how much of the growth in OCIS was due to the fact that you have significant reseller revenue that is helpful to you this year with some of your initiatives?

Yes, I tried to allude to that in my comments, but I talked about NPI being very versatile and core credit business there.

I talked about auto being strong, financial services being strong, resellers being strong, mortgage being strong, so I said power forward with 12% growth.

And USIS is delivering good strong broad-based growth.

There's no doubt improvement, the mortgage market has helped USIS, and they have helped themselves, by the way, by outperforming in mortgage as has the indirect reseller channel for DTC.

But their performance, there's no other way to categorize it as other than being broad-based.

Okay.

And then lastly, John, this one is for you.

How should I think about the tax rate as I model out the next several years?

As you go more International, should I expect the general trend downward, and if so, how should I think about it?

Yes, I think in general, we would expect the tax -- we have seen a nice trend in the tax rate in the last few years down.

And we would expect to see the tax rate to probably continue to move positively in the future in terms of positive to us.

Maybe not at the pace that you have seen over the past several years, but our expectation is you should see some continued improvement over time.

We'll talk specifically about 2016, as Rick said, in February.

And, Shlomo, John, and Lee before him, have got caught kind of building a foundation on tax dispositional looks at tax over the last x-number of years and that's starting to pay some dividends.

It paid dividends last year, again, this year.

Last thought I'd said, maybe add to John's comment is, and I'd go back, if we are fortunate enough to get Veda, the Australian corporate tax rate is a lower tax rate than US tax rate and many other countries that we operate in.

It's about 30%, John, 30% tax rate, so that would benefit lowering the tax rate, as well.

Great, thank you so much.

Sure.

Bill Warmington with Wells Fargo Securities.

Good morning, everyone.

Good morning, Bill.

So one follow-up question for you on Veda.

You mentioned you have been talking with Veda for four years.

So my question is, why now?

Why Australia, why now?

I think that's a great question.

I think, as we've got to know the company more in depth over the past two years we get more comfortable.

Two, I think it's an opportunistic time, as well, and, Bill, there has been some articles written, I think you maybe probably read them.

By the way, I think Manav had a very good write-up that's worth reading, as well, but the Austrian stock market has, obviously, taken a beating.

Foreign exchange has gone from roughly 1.11, 1-point something, to 1 to 0.68 to 0.72, 0.73 to 1.

There is the legislation has passed into law to move from just using negative data to positive data.

And I think you understand there has been studies done all over the world by the IMF and others that talk about how that catalyzes risk-based pricing, risk-based pricing catalyzes growth of lending and maybe a multi-year look that's going to happen eventually.

So -- and the last point is we bought TDX roughly two years ago, we delevered from TDX, we've integrated TDX successfully to the balance sheet.

Our human capital comparedness is in a position to capitalize on a big acquisition, so all of those things kind of came together at the right time.

Perfect.

And then a follow-up for John on employer services.

I was just trying to understand the timeline of the contracts in terms of the ACA compliance analytics work.

How many months are you looking at typically for implementation during which you are deferring, and then typically the length of the contract over which you are going to recognize the revenue?

Yes, so the implementation can happen over one to two quarters generally speaking.

And then you're looking at contracts that are often times a year, but can be longer than a year, right.

So generally -- probably -- rarely shorter than a year and rarely probably longer than three years, but predominantly closer to a year.

Great.

Thank you very much.

Thank you, Bill.

Okay, with that, I think we will conclude the call.

We appreciate everybody's time and support.

Have a good day.

Thanks.

This does conclude today's conference.

We thank you for your participation.