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Equifax Inc. (NYSE:EFX)

December 06, 2012 8:30 am ET

Executives

Jeffrey L. Dodge - Senior Vice President of Investor Relations

Richard F. Smith - Chairman and Chief Executive Officer

Rodolfo M. Ploder - President of U.S. Consumer Information Solutions

Lee Adrean - Chief Financial Officer and Corporate Vice President

Alejandro Gonzalez - President of North America Commercial Solutions

Dann Adams

Joseph M. Loughran - President of North America Personal Solutions

Paulino R. Barros - President of International Unit

Robert Kamerschen

Analysts

David Togut - Evercore Partners Inc., Research Division

Manav Patnaik - Barclays Capital, Research Division

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

William A. Warmington - Raymond James & Associates, Inc., Research Division

Paul Ginocchio - Deutsche Bank AG, Research Division

David M. Lewis - JP Morgan Chase & Co, Research Division

Jeffrey L. Dodge

Okay. I want to welcome everybody to Equifax's 2012 Investor Day. We've got a pretty packed schedule. A lot of exciting things to share with you, but before we start, we want to remind you that we're going to make a bunch of forward-looking statements, and there are risks associated with those statements but you can read about our descriptions and everything in the SEC filings, the 10-Qs and the 10-Ks in particular.

Before we get through the agenda, I'd like to introduce the senior leadership team and then some of our high performing individuals who are also in the room.

So I'm going to start with Rick Smith, Chairman and CEO; Lee Adrean, Chief Financial Officer; Rudy Ploder of USCIS; Alex Gonzalez of Commercial; Dann Adams, runs our Workforce Solutions Business; Trey Loughran for Personal Solutions; Paulino Barros for International. And then in addition to that, we have Andy Bodea, who's Global Operations; Paul Springman, our Chief Marketing Officer; Rajib Roy, who runs Technology and Analytical Services; Dave Webb, who runs our Technology Center, and then for those of you who read the news this week, our grand poobah of Corporate Development, John Hartman. A round of applause please. And we have Coretha Rushing, Human Resources; and then Kent Mast, our Chief Legal Counsel, there in the back, who's retiring at the end of this year; and then J Kelley, who's joining us in January, Corporate Counsel.

Let me real quickly go through the agenda. Rick Smith is going to come up and start off and give you an overview of the corporate strategy. And then following that, we're going to have each of the business unit leaders come up and talk to you about some of the initiatives that they've been focused on for the past few months or few years, and then also the initiatives that they're going to be focused on over the coming years. We'll take a break somewhere in the middle there, and then finish up with the business unit leaders.

At the end of each of the business unit leader's presentations, we'll have about 5 minutes for Q&A, and then we'll -- and what I'll ask is we've got some mics around the room, so if you'd wait for the mic to get to you so the folks that are joining us on the web can hear the question, I'd appreciate it. We'll -- as I said, we'll take a break, and then we'll finish up with the business unit leaders, and then Lee Adrean will come up and sort of give you the financial representation of the strategy. Rick will come up with some closing comments, and then we'll have a Q&A with Rick and Lee on the back end the -- of all the presentations as well, okay?

Those of you that are on the web can also submit questions via email, and we'll monitor those and try to get those up to the speakers as appropriate.

At the end of the day, we're going to have box lunches for you to grab on the way out. If you want to take them with you, that's fine. If you want to eat here, you can do that as well. That's your option. The management team will be here as well during lunch so we'll leave that up to you.

So let's get started with the program, and I'd like to introduce our Chairman and CEO, Rick Smith.

Richard F. Smith

Thanks, Jeff. Thanks and good morning, everyone. We've got a great day in store for you, and I thought what I would do is start off and take a look back at where the company has come over the past few years.

Those of you who followed us for a few years, you'll be very familiar with the strategic focus that we've been focused on for the last few years. I'll show you the progress we've made around those initiatives, most importantly, then the financial representation of those initiatives. And then we'll look forward, and we'll look first of all at the kind of the macroeconomic forces that we think we'll face into in the coming years. Those would be regulatory issues, competitive issues, economic issues, and then social trends that we think have the ability to impact our business both as a challenge, as well as an opportunity. And then in that environment, we'll lay out for you the tenants of our growth strategy for the next 3 or 4 years, and we'll end with the financial representation of that.

If you look back, I think you know the story. This team has been very focused on these 6 tenants the past few years.

First and foremost is the expansion of our unique data assets, and by the way, I'll come back and go through each one of these in detail in a moment.

Second is the creation of an innovative process we call NPI. We are now on our sixth year of NPI. It truly is changing our culture, more importantly, it's changing the growth profile of Equifax.

Next is through the support of our marketing team, continue to find new ways to expand the markets in which we serve, so it's new markets with existing products and new markets with new products, and I'll show you how that's driving growth for us as well.

I think you all know the grand poobah, we built a great process over here in M&A years ago, actually, with the leadership of Trey Loughran and now we have John Hartman. Very disciplined, very thoughtful, as we think about M&A. I'll give you some insight as to how far we've come in M&A and where that might go in the future.

Next is to ingrain world-class operating disciplines. Those of you who worked with Jeff and Lee and I over the past couple of years, you've heard me say this, one of the reasons we're growing like we're growing today's is we're executing at a level I've never seen before in Equifax. And that's very intentional. I'll give you some different examples of how we built world-class execution processes on the operations side but also on the growth side, and none of this would be possible without the last point, which is continuing to bring in great new talent into the company, as well as building leadership capabilities to train and develop and enhance our current workforce.

So a quick look at each one of them. This is a chart you've seen from us before, I'm very proud of this chart. If you look at the chart, the yellow diagrams show you the core credit-based data we had back in 2005.

Again, we have intentionally tried to expand that database beyond just core credit into 2 different areas. The red circles show you data assets that we think are valuable but not necessarily unique just to Equifax. Property data is a great example.

The green are unique data assets that no one else has access to. Things like wealth data, $14 trillion of wealth data, income data, employment data. And you heard us talk last year about the creation of our NCTUE+ database, our telco exchange positive -- telco exchange database.

This is the core to our strategy over the last few years, really been a huge enabler for us to facilitate this.

It's one thing to build the NPI process, which we have done, and it is a great process. It's a toll gated process. It's a disciplined and thoughtful process. It is truly ingrained in every facet of our business.

You can go to any country in the world which we operate, you can go to any BU in which we operate, and they all understand and are engaged in NPI.

If you look at NPI, we're launching 65 to 75 products every single year. And early on, we talked about NPI, we talked about it kind of in the future perspective. And it was uncertain for you how important that really was and how much income it would actually generate. I think you now know after following us for a number of years, this is real, it's tangible, and we get 3 points of our growth now coming from new products.

I think that's fabulous for any company and very successful for us.

The other area I mentioned is how do we continue to innovate in thinking about new markets. This is a typical diagram you've seen in companies that are focused on market expansion. Again, it's taking current products, and I'll give you some examples, into new markets. It's taking new products into existing markets, and in some cases, it's new products to new markets.

So for example, on the right-hand side, mortgage as you know has always been a core part of our business especially in the U.S. Well, to help offset some of the cyclicality of the mortgage market, we are developing new products to solve problems for our existing customer base. One great example is undisclosed debt monitoring, you're familiar with that. From the time you go into mortgage underwriting, you apply for a loan, they approve that loan, to the time you actually get the money, they now want to know have you accumulated additional debt. And hence, has that additional debt going to impede your ability to pay off your mortgage obligation, we have the product to solve that problem. Core customer, new product, market expansion.

Another example, insurance. We were a big player in insurance through 1998 when we spun off ChoicePoint. We've done very little insurance since then. We have unique data assets, you've heard Rudy talk about them, DATA360. Our ability to take the DATA360 assets to a market we have not served since 1998 has fueled significant growth in insurance for Rudy.

HR solutions is a great example, or HR Analytics, of taking new products to new markets. And Dann will talk about how he's transforming our business, EWS, with HR Analytics.

So great growth on 3 different vectors there for us. M&A is -- will always be an important part of our business. We talked about the financial model you saw back in 2006 and 2007. Lee and Jeff and I talk about it every time we meet. It will add about 1 to 2 points of growth per year over long periods of time.

If you can see this chart here, it's an important chart, a couple of things to note. Number one, if you look at the size of the circles, that denotes the size -- relative size of the acquisition itself. And if you look on the one axis, which is level familiarity, on the top, top left-hand side, what you'll see is the majority of the acquisitions we spent time on are high level of familiarity, hence low-risk. Very few do we spend time on the long-term payback, which is low right-hand side, and unfamiliar. We'll make a few of those bets, but they're going to be small bets.

The right-hand side tells you what we're focused on, very consistent now for the past 5 years. Unique data assets, geographical expansion, analytics, a decisioning [ph] technology and continue to find ways to add scale, drive scale across our current footprint.

Growth is important. There's no doubt about it. And I think you'll agree that the team with no real economic help over the past few years has done a nice job growing. Becoming a more efficient organization is also critical. If you want to get the kind of leverage we always talk about on operating margins, it's one thing to grow the top line, it's another to be more efficient in how you run your company. And I don't use this term lightly, I think we have world-class operating performance now across the company.

To start, I'll give you a few highlights here. Upper right-hand side, cost optimization. Under Kent Mast's leadership years ago, we created a very, very sophisticated, talented, centralized sourcing organization that now drives standardization of our sourcing operations around the world to drive cost down.

Bottom right-hand side, labor optimization. We've done a great job in not just operations, but also in all COEs and IT, finding low cost countries that makes sense for us to move resources to. And we now have almost 3,000 resources in low-cost countries, either with third-party partners or with captive, but offshore, low-cost to drive our overall cost down.

Lower left-hand side, Andy Bodea has done a marvelous job in creating a LEAN operations, improve processes across the globe. We started off in just the operations role itself, it now touches every single function we have in every country in the world. And in our talking early -- earlier, we have about 100 LEAN initiatives per year around the world. And we are now in our fifth year of LEAN.

100 programs a year to drive efficiency cost out and improve customer service. If you think about LEAN, the core to LEAN is what we call PMO. It's being able to manage complex projects effectively. It's a competency that you have to have in LEAN. Well that competency helps elsewhere as well. So we'd asked the BUs and Andy to deploy PMO capabilities across the organization to drive efficiency in their projects. If you go to the very top, the most exciting thing is we have large complex growth initiatives, we call them enterprise growth initiatives, that might transcend multiple businesses. We now have -- Andy, I think it's 10 -- 14 major enterprise growth initiatives that we run through a PMO office. You put that all together, it is making a significant difference just -- on the bottom we say, just on the process improvement alone. So not only growth side, on the process improvement, we're delivering $25 million to $30 million of incremental profit every year by becoming a better operating machine. Real money.

None of these would be possible without investing in talent, and we have done a fabulous job here, and I always put in the context on the talent side. Many of you know I spent 22 years at GE, and I have stated many times that the level of talent we have in this company is better than any team I had in my 22 years at GE. At GE, many of the businesses were multiples of the size of this business, is a fantastic team.

Two dimensions that are important to understand. One is bringing new talent in. We have some great new talent, just look across my staff and some of the high potentials we have with you here today, who we didn't introduce earlier but I hope you have the chance to meet.

Secondly, Coretha Rushing, our head of HR, who is head of HR for Coca-Cola before she came to us some 6 years ago, has developed very effective leadership development capabilities to take our current talent we have to a new level.

The last is culture. Those of you who study cultural transformations understand it takes about 8 years to truly transform a culture. Well, we together are now in our eighth year of transforming the culture of Equifax. And I'd say it's gone from a culture of maybe entitlement, a lack of innovation and tenure-based to one of innovation meritocracy and one that's hugely accountable to for their goals and objectives.

So when you put it all together, I think it's a pretty powerful story. And this is an environment with no real economic help.

If you look at this graph here, over the past few years, growing at a compounded annual growth rate of 9% on the top line and 11% on the bottom line. That's partially operating leverage you get in the efficiency we just talked about. And it delivers margins that we're extremely proud of.

I know it's been a topic of conversation for our sell side guys and investors over the year, but you see now, a continual step up in operating margin, this is EBITDA margin, over the past few years. And those of you that we've talked to in the past, on the right-hand side, now we're very proud of this, that the current level of EBITDA margin, we're in the top quartile of the S&P 500. And we're not going to stop there. We think there's continued room for even more operating leverage performance going forward.

So that's something I'm very proud of, and I hope you are as well.

Now the road ahead. Here are 4 kind of lenses that we look through as I think about the next 3 or 4 years. The economic landscape, regulatory landscape, competition and what are some social and technological trends that may be an opportunity or threat for us economically.

A few years ago, I had hoped we'll be sitting here today saying 2012 might be a turning point. It has not been. It's sluggish, it's modestly better than 2011. We think 2013, '14 will be much like 2012 in the developed parts of the world.

For so for us, Canada, U.S., U.K., Spain and Portugal, modest growth in places like Latin America and Russia for us. And we're okay with that.

We're okay with that. We think we've built a proven model that can grow without the economy truly being our friend. There's a couple of you who said to me earlier, just think what happens when we actually get an economic tailwind for this business and credit starts to expand around the world, I look forward to those days.

Regulatory changes is not just the U.S. by the way. We all know, and I'll answer any questions you might have during the Q&A, CFPB is here, that's our new regulatory body. We've always been highly regulated. CFPB has a different level of regulation. I'll be very honest, it's going to require cost for us. We're going to invest some money to make sure we are compliant. We've got not only J Kelley here but we've got Robert Kamerschen, who runs our compliance office, here to talk to you afterwards if you have any questions. I looked at -- and by the way, again, it's not just the U.S., there's regulatory changes in Latin America, there's regulatory changes in Canada. It is what it is. I think there's an opportunity for regulation to be our friend, hence, an opportunity to grow. And it's going to cause a challenge as well. But in the scheme of things, I think it is balanced. That's my message to you. I don't think it's a significant issue or a significant opportunity, it's just something we're going to have to manage through.

Competition, we've got great competitors. The traditional competitors all over the world, you get TransUnion, who's a great competitor, Experian's a great competitor, and at different countries, we've got good competitors. The real thought here is as we delve into new growth vectors, I'll talk about that in a moment, new competitors potentially emerge.

So really, it's important that we understand, as we change our growth vectors, we understand why we're uniquely positioned to win against new entrants.

And then social and technology trends, again, I think are pretty interesting. We don't have all the answers yet, but this next page gives you some sense what we think lies ahead. You've heard the term big data, and I'll talk about big data. Analytics and big data are synonymous in my opinion. It's the concept of taking large amounts of unstructured data, making sense of it and developing solutions for our customers. I think we're uniquely positioned to play, and I'll tell you how we're going to approach it in a moment.

Cloud computing, I think, is fascinating for us. The ability to lower our cost of computing and accelerate the time to bring products to market is exciting and something we've got to jump into in a big way, mobility. It's here to stay. Think about the use of smartphones to conduct business, to buy -- conduct a transaction, what does that mean for Equifax and how do we position ourselves to make that a growth area for us.

And then the last is devices. If you think about the use of mobile as a purchasing instrument, it's becoming increasingly important from a fraud perspective that we can validate that, that device belongs to you. And we think we're uniquely positioned to take that demographic or that social trend and capitalize on that for growth.

This chart, the bottom part of it, you've seen before, these are the 4 pillars that we've been focused on, in white, and that is continue to drive unique data assets, continue to drive analytics and software solutions, broaden and deepen our customer relationship. A great example I always use there is the creation of this vertical expertise, KCP, you've heard us talk about in the past, the large banks in the U.S., telco around the world, mortgage and so on and so forth, really becoming much more in line with our customers' needs. And then last is finding new growth vectors that could be either non-FI or geographical expansion.

So what lies ahead? I'll go through each one of the 4 on top in detail. First is to build on our existing big data expertise. People talk about big data, there's new players and new entrants. We handle massive amounts of structured data today. We are in a position to also handle unstructured data. We'll tell you how we're going to do that in a low-risk fashion going forward.

All the innovation I talked about in NPI, largely driven around new products, unique data assets. We now have to innovate at new levels as it relates to analytics. And as far as new customer relationships, it's time we expand our value proposition beyond just risk. And I'll show you one area that really interest me, and that's an area of fraud and why I think we're uniquely positioned to be a very big player in fraud, but there are other areas as well. Paulino, I'm not sure if you can talk about that in your pitch, but telco marketing. We do a great job on the telco risk side, the spend on the telco marketing side is orders of magnitude larger than risk, so how do we play there.

And I'll give you some sense for how we are going to expand our geographical footprint. Each one, I'll go through all 4 one by one.

Big data, it's early. So it is early, I think it is here to stay. I think we're uniquely positioned. Two things you should think about when you think about Equifax the next few years. One is through Dave Webb, our head of IT, we will take time to thoughtfully build out the capabilities required to take our structured data capabilities into unstructured data. It is not going to be a massive investment, but there will be an investment made there that enables us to handle unstructured data. Secondly, think about it, we're going to partner and learn. There are guys out there today, who play -- you know many of them, who play successfully in the managing of large amounts of unstructured data. We're partnering with them today to validate the needs, and it really comes down to this, do we think we can take unstructured data and structured data, combine those in a way to add value to customers where we are uniquely positioned to win. I think the answer is yes. Early days, but more to come.

Number two, analytics. This will be one of the significant growth areas for us the next few years. It is one of the largest growth levers for international to date. You've heard of projects like eID and Citadel from Paulino. It is one of the industry's fastest-growing levers today, there's more for us to do.

Starting on the left-hand side, most of our energy today on analytics centers on mortgage and financial services and telco and largely on risk, and most importantly, largely, analyzing our data.

The future is going beyond just our data, finding ways also to add value to analyzing our customers' data, I'll give you an example, in third-party data. But then also taking our analytical capabilities into new markets where we are under penetrated today, things like insurance and government. We're just now getting into both of those, and I think we're uniquely positioned to expand that there. So as you think about Equifax, this will be a growth area for us the next few years.

This is an exciting -- it's a bit complicated, but it's a really exciting area for us. And I mentioned I think on the last earnings call, if it wasn't the last, it was the one before, it's called the analytical sandbox. No one else is doing this today.

Here's the concept. Left-hand side, start at the top. It is taking our data assets, core credit file, but also unique data assets, NCTUE+, income data, wealth data, employment data, putting it into repository, an R&D environment if you will, in the middle of the page, then combine that with customer data. And also add third-party data. And then allowing both parties, meaning our customers and ourselves, to get our PhD analytics teams to get into the sandbox and play, and start to build hypotheses about which solutions you can now build with this set of data assets.

Two things as you think about it monetarily. One, we get paid for that, and that's pretty cool. It means millions of dollars by customer. But more importantly if successful, getting these 2 teams, meaning multiple customers and ourselves, to play there, it is going to facilitate faster growth through NPI. We're going to get more ideas and our time to revenue will be shortened. So I think this is really pretty cool and is very, very exciting for our customers too. There's an enormous pool across the scope of our customer base that we deal with in doing more here. So that's one way to facilitate growth in NPI and growth in analytics.

Fraud. The spend our customers have today in fraud is only going to grow, it's a huge issue for them. And as you think about their need, as I talked about before, for device fraud, phone fraud, smartphone, that's here to stay. We're uniquely positioned for a couple of reasons. We've got a great set of unique data assets; and two, we spent significant money over the past few years in linking that different data -- data assets together. So we have a really good look at who an individual is in the database.

So this is exciting. We also, under Rajib Roy, we now have carved out a standalone focus for the first time on fraud. You probably know, fraud is a big part of our revenue stream today. It can be much, much bigger. So by having a single leader focused on fraud globally and our desire and willingness to invest in our customers' need for more fraud solutions, we think about fraud as being a huge area, significant area for growth in the coming years.

Geographical expansion, a couple of thoughts here for you. We're in 16 countries today. And almost every country we are in, we're a strong #1 or #2. As I think about the priority for growth internationally, it's this: Investing first and foremost in the countries in which we already operate.

We've got expertise, we've got knowledge, we've got know-how on how things are done in those countries, so we'll invest in inorganic and organic growth.

Number 2, Brazil. Brazil, as you know, is important for us. We combined our business with the #2 player in Brazil about 18 months ago. Things are going very well, getting the teams integrated, the systems integrated, and most importantly, bringing new products to market. I would like to think that in a couple of years, we now move from a minority position in Brazil to a majority position in Brazil and bring it from off balance sheet back on balance sheet.

Also Russia. Russia is a great story for us. It's off balance sheet today, we own 43%. I'd like to see a day where we are the majority controller of Russia as well.

Beyond those 16 countries in organic and inorganic investment, you should expect us to expand into 1 or 2 additional countries in the next few years.

M&A. M&A will always be an important part, but trust me, it will always be a very disciplined part of what we do. And we take that very, very seriously. Our pipeline is very strong today. We have got great distribution of opportunities around the world. This depicts, using the same dimensions we talked about before, where those opportunities reside.

Think about most of the ones will execute being in that upper left-hand corner as they have been in the past, probably no greater example of a home loan I think in acquisitions you've seen this, most of us have talked about it this morning. And that's the upcoming potential acquisition of CSC and our credit subsidiary in the 15 states in the middle of the U.S.

It is a win for CSC as they reposition their company. It's a win for our customers, enables Rudy and his team to innovate and bring more value to these customers than we could in the past. And obviously, it's a win for our shareholders.

You know we announced on Monday the signing of a definitive agreement. And if all goes as planned, we'll close it later on this month. It is significantly accretive as many have talked about, but I think it's also important to understand, it's very accretive and it's very low-risk.

We know this business inside and out. We know the customers, they operate in our platform. It's one thing to have an accretive deal with high risk, but to have a highly accretive deal with low-risk, we think, is unique.

And I think as importantly, it allows Rudy and his team to spend less time managing the relationship of a franchise or a partner and now spend all their energy on innovating.

Less time on negotiating what products you bring to market and how you price it, and more time just executing the growth initiatives. And CSC, I think, will tell you the same thing. They view this as a great cash cow. We view it as a core growth platform for us. We will invest in CSC territory, the CSC business, like we invest in the rest of USCIS. And as a result, we'll grow that asset at a faster rate than they would grow if they were part of CSC.

Someone had mentioned to me before that they thought they heard, I think it was Mike during the CSC earnings call, talking about this business growing 1% to 2%. That's not the case. When we talked about that in Q&A, they grew double-digit last year. And think about that asset under our ownership growing at a similar rate that you get core USCIS grown.

So when you put it all together, I thought I'll give you this look and I think most of you have already gone online because the 8-K came out this morning and we posted the presentation, this is a new multiyear look for the company. Along most dimensions we've talked about before, we're convinced we can grow this business 7% to 10% top line, generate 10% to 13% EPS growth, expand our margins 25 basis points or so a year, and have a return on invested capital of 15-plus percent. And you know we committed last year or the year before to return to our shareholders 25% to 35% of our net income each year in a form of a dividend. And we don't usually do this, but here is a framework to think about when you think about 2013. And as we get to our earnings call in February, as we wrap up 2012, Lee and I will tighten this down for you, but this is kind of the framework, I thought it was important to share this with you just because of the sheer size of the impact of CSC on our business. Revenue growth of 10% to 12%, adjusted EPS growth of 20% to 25% next year, obviously a nice step up driven by operating leverage, driven by some amortization runoff and obviously driven by the acquisition of CSC, but operating margin going from the 24-point-something this year to 26% to 27% next year, the acquisition of CSC, you got slight downtick in return on invested capital around 14% and solid dividends. As I told some interviewers -- newspapers I was doing an interview with yesterday, neither of these, in my opinion, are what you'd expect to see in a 113-year-old company, and this is something this company has delivered for our shareholders now for a number of years. So even though the economic landscape, regulatory landscape may not be our friend the next couple of years, I am enormously optimistic in this team's ability to continue to execute and continue to innovate and give our shareholders this kind of performance.

So with that, Rudy Ploder, come on up and tell the story of USCIS. Thanks.

Rodolfo M. Ploder

Thank you, Rick. Good morning. My name is Rudy Ploder, I am President of United States Consumer Information Solutions. I am delighted to be here with you today, and I'm looking forward to the question-and-answer sessions that will come after my presentation.

I represent a team of highly talented professionals. And we go and visit with our customers and we sit down with them, and we uncover opportunities for them to go together to the marketplace. And they know that working with us, they have access to unique data assets truly differentiated along with insights and technology.

I would like to present to you and convince you that our growth in the future is based on 3 things. John and I were just having breakfast T. Rowe Price, and I said, "When I am done, I hope I can tell you and you will see tangible evidence that those 3 themes are the following: Innovation, execution and a passion for growth." A passion for growth also elicits an emotional behavior, but we have a very disciplined approach for growth. For us, growth is a process. Every year, we go through a growth playbook where we bring our best minds to the table, for example, in USCIS, and we analyze our own capabilities, those of our customers and our competitors, and we have a very systematic way to approach growth.

USCIS is a diversified and growing business. I am privileged to be the person responsible for running that unit. As you can see, our markets span from mortgage to credit cards, retail banking to telecommunications, insurance to automobile and those are the sectors and areas where we derive our revenues and they are highly recurring revenues with high margins. We enable opportunities for our customers when we sit down with them, we work with them so that they can target their own customers for cross sell and upsell. We're seeking new ones. They manage their own portfolio using our unique assets insights along with their knowledge internally. They use our business intelligence to make decisions with more certainty.

So we -- through what we call Decision 360 and represented to you our unique data assets, Decision 360 is that. It is a concept that Rick and Dann Adams developed when we put together our strategy, and I am privileged to be able to continue with that view. We have Equifax credit, collateral and capacity, by all of the BUs in the United States working together, we present a unique perspective, differentiated one to our customers.

I'd like to focus your attention and mine on alternative data. Rick mentioned that we have an exchange for telecommunications, utilities and video companies. Look at the statistics and the information there. 184 million consumers in that database where we have significant information on trade lines associated with that. And most importantly, more than 30 million consumers can not be found in the core credit data bureau. So if you are an operator that a financial institution and telecommunications companies, suddenly by working with Equifax, you have better view on 30-plus million American consumers. That's very powerful.

Another set of unique data that we have is the wealth, $11 trillion of assets at a micro neighborhood. We call it ZIP+4, and that's approximately 8 households where we understand the wealth of those individuals.

Working with Dann Adams in Workforce Solutions we also bring income and employment information at the front door of our customers and work with them on the insights, 52 million consumers in that database. When it comes the time for Dann, he will expand on that. Very exciting.

So we use the word protect the core obviously because we have the core credit data there. But by putting together the core credit data, which, by the way, we have the best one in the United States by far, we can deliver differentiated solutions both from a data perspective and analytics.

We are a unit that is driven, as I said earlier, by innovation and execution, and I think that, that translates very clearly in financial results. You see here that during the last 3 years, our revenues, almost all of them organically, have grown by 11% and our margins have expanded from 36% to 37.5%. And the story looks brighter going forward. We utilize innovation by leveraging the differentiated data that we have, and we develop capabilities in terms of insights for our customers. We can have a great strategy, but we will have execution by utilizing the rigor and discipline that Andy Bodea, for example, brings to the table, along with our technology partners that would fall apart when then we will and talk to our customers. We are very, very good at executing and bringing those solutions to the marketplace.

We utilize under Paul Springman, a world-class pricing team. We have 18, 1-8, pricing professionals from -- that have degrees in engineering, economics, working with us and with our customers so that we present return on investment and value proposition to them. We are in the business of expanding the pie for our industry and at the same time, presenting to our customer the value proposition and how we, together, create value in the marketplace, so that we optimize the economic equation for both parties.

We have key initiatives that are driving USCIS forward. I am very proud of these initiatives because they start from our unique data assets that I mentioned earlier, Equifax credit, collateral and capacity, with the different data sets that we have placed together. Then we are very keen at looking for voice of customer. They have told us that they need to have a unique point of contact, that they want that point of contact to be very well-versed in their business and their industry, and they would like for all of the BUs that we have in the United States to be represented by that unique point of contact. That is why we define USCIS as an enterprise distribution channel. It enables us to have deeper penetration in key markets.

Rick mentioned that we are constantly looking to be better and serve those expanding markets. And right now, I would like to bring to your attention that we have done that in mortgage. We hired Craig Crabtree, our mortgage practice leader, and he cuts across all business units within the United States and represents a unified vision to the mortgage marketplace, automobile and retail banking.

So I will, for example, provide an example for one key market focus that we have, and that would be in auto. We know the auto ecosystem very well. We understand the needs of the dealers and lenders. And those companies that breach the information that cuts across between dealers and lenders when I, as a consumer, go to a lender and try to buy a new car or a used car. This market is going to continue to grow approximately at 8% both new and used cars, and there are subprime opportunities there that are growing even faster. We are integrating our -- we are integrating vehicle data with our unique data sets with the core credit bureau. Therefore, we are solving problems and enhancing opportunities. Rick mentioned that he is focused on fraud, authentication, ID is a major item for both the dealers and lenders. By bringing all of our data sets together, we are solving for that. Additionally, lenders are looking more and more to have income and employment information at the time of underwriting loans in this particular industry. It's very exciting to be part of that and you will hear more as time goes by of our opportunities to expand revenues and margins in that particular market.

We have some key wins that I want to talk to you about in 2012. I will be addressing, too, in this particular instance, a top 5 financial institution is working with us the deployment of the analytical sandbox that Rick referred to you. You may remember those 5 elements on the left-hand side that he presented, and then on the right-hand side, the uses that financial institutions or our customers will have out of the analytical sandbox. It's a reality and we have deployed credit, collateral and capacity information along with these customers' internal information. That information is linked and is centered around Rudy as a consumer, then gets anonimized and placed in the analytical sandbox, and Equifax data becomes the foundation for consumer modeling and analytics developments. Our customer found so much value of the analytical sandbox that entered into an agreement with us for 5 years.

A top 5 credit card company is utilizing in addition to our core credit database and attributes, verification of income. That enables them to comply with the Credit CARD Act in terms of our ability to pay. When they make a decision around a consumer to modify the credit line, there is a lot more that is coming in the future.

So our strategic outlook is the following: We will continue to expand in key markets, where we see growth in the coming years. We will continue to have increase -- we will increase our penetration of Decision 360. Remember the Decision 360 is all of our unique data assets differentiated, organized around the consumer to provide unique differentiated insights to our consumer -- to our customers; and we will be recognized as the leader in ID authentication and fraud. As I stated earlier, I think our continued success will continue to be around 3 things: innovation, execution and our passion for growth, that will yield a multiyear organic revenue stream in terms of growth, of 5% to 7%, and you will see that our margins will expand beyond the 37.5% that you saw that we will land in 2012.

Now I'm ready to answer questions that you may have.

Question-and-Answer Session

David Togut - Evercore Partners Inc., Research Division

Thank you, Rudy. David Togut with Evercore Partners. Mortgage has been a big driver of growth in 2012 and certainly, a big driver of earnings performance. How are you bracketing growth expectations for mortgage next year? And perhaps, the second part of this is really more of a question for Lee, but how should we think about the impact on margins if mortgage turns down next year?

Rodolfo M. Ploder

In order to use economies of scale and to be better prepared, why don't I let Lee address that, and I will address things from a mortgage perspective from an operator side, so...

Lee Adrean

Our current outlook for mortgage next year is that we would expect originations to decline about 15% year-on-year. That applies to a portion of our business now. Consistent with this year, we expect to outperform the market because we've got a number of initiatives that we've been taking with new products in gaining penetration in the market. But we're looking into a market where we're likely to see about a 15% decline in mortgage origination. That will have some impact on both USCIS and total company growth. But continue to believe that over multiyear periods, we're very comfortable with kind of 7% to 10% revenue growth. But we've been above that this year in part due to mortgage. We could be slightly below that because of mortgage next year, but we will continue to report underlying, here's mortgage market perfect, here's the rest of the company, so you'll see us continue to perform the way we expect. In terms of margin impact, again, mortgage, we have some parts of our mortgage business that are extremely high-margin. We sell one extra credit report or one extra income verification because someone supplied for mortgage. Those are extremely high incremental margin. On the other hand, we also provide certain services, such as our settlement services or tri-merge reporting where we have significant pass-through costs because we're combining information from multiple sources. On the Workforce Solutions side, we provide IRS-based verifications, where we're paying the IRS for the information. So we have a blend in mortgage between extremely high incremental margin business and lower than company average incremental margin business because of past-through costs. The net effect of that is with -- if we're facing a little bit of headwind on balance, we don't really expect much effect. We expect to continue to be able to increase our margins by about 25 basis points annually, and that would not be affected by the mortgage market.

Rodolfo M. Ploder

We'll go with Rick first.

Richard F. Smith

David, the margin guidance I gave for next year of 26% to 27% did contemplate or does contemplate the mortgage business being down 15% -- the market being down 15%.

Rodolfo M. Ploder

And we are fully aware that there is that perspective in terms of the decline, but we are also via innovation, are taking mortgage initiatives. Rick mentioned one of them, for example, this Undisclosed Debt Monitoring. I fully agree with his description of the service. And additional value for that one is as the lenders can prove to the GSEs that, that paper went through a UDM, it's very hard for the government entities to then return the paper to the banks, therefore, reducing the significant risks that they may face on those underwriting that they had performed. So on top of that, we will continue to hire people that are very knowledgeable in the mortgage market because they are the engine of bringing new solutions to the marketplace regardless of what happens with the originations or refinancing.

Manav Patnaik - Barclays Capital, Research Division

Manav Patnaik with Barclays. The 5% to 7% growth outlook that you talked about, does that include the CSC piece that comes into your business? And also, can you just help elaborate a little more in terms of what the -- like are there or how -- what are the growth opportunities with bringing that piece now in-house finally? And also, from the margins side, it seems like, obviously, they are slightly better margins than expected. How -- I think you talked about process improvements, like how does that work on both sides?

Rodolfo M. Ploder

To show that I'm an operator, I will use my delegation skills and power to Lee again in terms of those things, I think so. So Lee, if you would like to take on the financial questions there, and then I will talk about the operation, would that be fair?

Lee Adrean

In terms of the growth rate, in 2013, we'd be looking in that 5% to 7% range plus the effect of adding the roughly $100 million of revenue. Then prospectively, we would expect to continue to be in that 5% to 7% range. Obviously, we'll see some improvement in the USCIS margins as we add in the CSC business at high incremental margins. And then going forward, again, expect some continuing margin improvement each year consistent with the corporate objectives.

Rodolfo M. Ploder

Very good. So for me now, just one sentence on the operating side, and I think he asked the question. So very quickly is that it is a well-run unit, the CSC unit. They have very good sales professionals and people supporting the operation. We will keep those sales professionals in place. We respect them, we trust them, we will work with them to organize ourselves behind the same concept that I mentioned earlier, and that is that part of the world will also be a conduit, a channel distribution for all of the data assets. So we will be able to work with them utilizing Andy's techniques for LEAN initiatives, achieve additional synergies from a cost perspective and at the same time, utilizing all of our unique data assets along with the existing salespeople that they have around this concept of the enterprise distribution channel. I think that the power of all those things combined, along with the existing people, will enhance the ability for that unit to grow and make a significant contribution for Equifax.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Shlomo Rosenbaum from Stifel, Nicolaus. Since everyone is asking Lee questions, I thought I'll throw one in here as well. Although this was brought in, in Rick's presentation, the revenue growth for 2013 is 10% to 12% on the guidance. CSC adds between 5% and 6% to that, so is it fair to assume that what we're -- you've got this kind of the regular 6% to 8%, plus a step back because of some of the mortgage headwinds, because excluding CSC, you would take the growth would look more like a 5% to 7%?

Lee Adrean

Yes, I'm actually -- in the interest of keeping things focused on the BUs, I'm going to defer that. Rick and I are going to have a Q&A session at the end and we'll position it. I don't want to turn this into having everyone raising their broader questions. Rick and I are positioned to do that at the end. So let's stay in the business Q&As, let's stay focused on the BUs. I knew that question was coming. We'll address it.

Rodolfo M. Ploder

I was becoming jealous, Lee.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Rudy, it's Andy Steinerman, JPMorgan. I wanted to talk about USCIS' margins. Could they get back to the 40-plus range that they were in before the great recession, and what would it take?

Rodolfo M. Ploder

Before CSC, and this is a Lee answer again. But before CSC, we see a path to get beyond 40%. And after CSC, he will address that as well. Did I answer your question?

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

But what would it take?

Rodolfo M. Ploder

What will it take? The answer, yes. With the growth that we've shown and the leverage that we have in terms of addition of business that we see coming from an incremental margin perspective and all the activities that we do with Andy and others, with the existing items that I mentioned to you today, that is what it will take to expand margins beyond 40%.

Lee Adrean

Just clearly, the path he was on prior to the acquisition of CSC was a path of 40% plus. CSC will accelerate the path to plus-40%, okay? One more question. Andrew?

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Andrew Jeffrey of SunTrust. Rudy, you guys have done a great job in the absence of any material consumer credit demand. I think the banks have been -- issuers have been pretty constrained in terms of new credit cards in particular, that's a big part of your business. Can you just give us your outlook for '13, and what you think it's going to take from a macro perspective for there to be a credit continuum again in this country?

Rodolfo M. Ploder

Thank you for mentioning what you just said. Every single business faces risks. And in our instance, there are 3 major items that I would outline for you. They are not new, but they are the forefront at least for me. They do not prevent me for sleeping, but I pay attention to them very closely. Number one is the health of the consumer, and it's mainly related with the unemployment rate. Number two is, we were all sitting on a depreciating asset, which is our own homes. It's like money when there is inflation, nobody wants to have it, nobody acts a lot on housing when the asset is going down in value. And number three, Rick mentioned that to us, the regulatory environment with the Consumer Financial Protection Bureau and other items that is not just impacting Equifax, it's impacting our customers. And so with all those items that you saw in 2011 and 2012, we achieved, in my view, remarkable growth rates in margin expansion. So we expect, as Rick outlined, modest changes in the economic environment. But you know we have such a powerful engine behind innovation and execution that, to me, the future really looks bright for my unit.

Please welcome Alex Gonzalez, our Head of Commercial.

Alejandro Gonzalez

Well, good morning. It is a great pleasure to be up here to talk to you about North America Commercial Solutions. We have a great franchise, delivering great value in the commercial marketplace, and we have a great couple of years ahead as well.

Let me talk to you a little bit first about what is North America Commercial Solutions. We are a premier provider of a small and medium business insights to our clients, and we do that through our deep data and small medium businesses, our expertise and our analytics. Kind of center to that is we have information on over 30 million businesses across North America where we have deep perma [ph] graphics and identity information on those businesses. We have both financial and nonfinancial trade information on those businesses. And as well, we have the, with our proprietary technology, the ability to link the relationships of a business, and also the relationship of a business to a consumer in many cases.

What's key to that though is, as Rick described earlier, with our NPI innovation is using those processes to create value, create new products and solutions to help our clients do things that are fundamental in their value stream, which is what are the businesses we want to target and market to, what is the risk of those businesses and ultimately, how do we manage a life cycle of our relationship with those small and medium businesses.

We have a tremendous and a very deep footprint in financial services as many of you know, and we continue to grow with our great relationships in the banking segment. We will also have a great footprint in the communications sector, and then I'm very excited about our expansion into new verticals, in fact, and I'll discuss that here momentarily.

Over the last few years, we've been able to grow this business roughly almost 6% in a market that really has not been growing much, so I'm very proud of what our team has been doing with those accomplishments. Centered in doing that and delivering that growth and continuing to drive growth of the North America Commercial Solutions is really a fundamental strategy, starting with protecting and growing our core markets.

Our core markets are, first of all, banking, which I've discussed before, which we're significant in, and combined with our great relationship with the Small Business Financial Exchange, our proprietary data that we have and most importantly, the solutions that we provide to the banks and the great relationship of Equifax as we continue to grow share of being a leader in particular in the small business segment.

We have our core -- another core market is telecommunications, where, again, leveraging the great relationships and broad relationships Equifax has in that sector, and the increased need that sector has to understand the behavior of small and medium businesses to grow their -- their businesses, we continue to grow there as well. And then Canada is another core market for us, where that is a market we're leveraging the infrastructure Paulino has with his consumer business, we continue to invest in our capabilities and our innovation to continue to grow within Canada.

What I'm also very excited about is how we expand the core, and I kind of alluded to this earlier as we go into new verticals. As you very well know, there's a large market outside our core to go after. And I'll mention here and I'll talk in a moment here how we're going to be very disciplined in terms of how we target certain verticals, and expand outside of our core and deliver value to the marketplace.

And the way we continue to win and have been winning, first of all, it starts with what I mentioned before, our unique assets around small and medium businesses, and that's really where all our focus is as we investment within our data. And also, not just that but the innovation around that, delivering unique products, such as whether it's around enabling technologies, such as QTC Advantage, where we help our customers around decisioning, or whether it's new scores, and really taking the great analytical -- analytic organization that Rick discussed earlier, provide analytical solutions to our clients to help understand and solve their needs.

Taking that, we will be laser-focused around our key markets. So there is definitely growth in those core markets I described before in banking, telecommunications and in Canada. And we will continue to innovate and expand share. In fact, here in 2012, in banking, for instance, we've had several significant share wins as we continue growing the banking segment. But at the same time, using the capabilities under Paul Springman's organization around segmentation, we continue to be laser-focused in verticals that need to solve to understand small and medium businesses in particular, and so we can innovate and deliver value to them. And some examples are such as in business services, transportation and manufacturing. We'll stay laser-focused on as we address these verticals, innovating on them and continue to evolve our strategy around which verticals we want to serve.

With all that, really, what we're able to do is then is build upon what Rudy described earlier around our enterprise channels, particularly in our core markets, we've been able to significantly drive success by using the great distribution that Rudy has and the great relationships he has, particularly in banking and communications, to deliver our products and services, we'll continue to do that. At the same time, we will invest heavily, as a result of being able to do that within the distribution and the sales force to go after these other verticals in a very targeted fashion. With all this, I'm happy about the future for commercial, as we deliver 6% to 10% growth over the coming years while expanding our margins and delivering value in the commercial marketplace.

So with that, I would love to spend a few minutes talking -- taking any questions. Yes?

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

It's Shlomo Rosenbaum again. I'll avoid Lee for this discussion. I want to ask you how much of your revenue is directly a result of the relationship you have at the Small Business Financial Exchange and the exclusivity that you have with that data?

Alejandro Gonzalez

A couple of things, we don't disclose the breakdown from that. And let me talk a little bit though about -- you mentioned about exclusivity, kind of take that head on. The reality of that is, when we started relationship with the SBFE 10 years ago, a lot of that data was somewhat unique to us. The reality is over the last 3 to 5 years, our financial institutions for whatever reasons started contributing much of that data to our competitors. So the fact is, over the last few years, we have been competing in an environment where the data has been available to our competition. And we've been winning. We've been able to win share because of the innovation we're able to provide and the value we can bring to them.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then can you just give us a just the story behind what had been going on the last 3 years. You had 2010 and '11. This business was growing like a weed. And then if you look at the last 4 quarters, it's just the trend has come down to where you've got some shrinkage in the last 2 quarters. Can you just give us what's going on in operating environment?

Alejandro Gonzalez

Absolutely. Fundamentally, the one consistent thing from 2010 through now is that we continue to gain share, particularly from a risk perspective and continue to grow there. Really what happened over the last few quarters is we saw within our client base a significant pullback in discretionary spending for marketing solutions, which really affected our project revenue. But outside of that, our strategy is still intact, we continue to grow share and we'll continue to do so.

Unknown Analyst

Alex, could you address the competitive environment a little bit? I know you have 2 big public company competitors, so we know what they say and how they do. I was wondering if you could focus -- I mean, if you have thoughts on them, obviously, but on some of the smaller guys that pop up and seem to talk a little bit more about how they have the next big technology in the market, if there is any fear from that aspect?

Alejandro Gonzalez

Yes, I mean, like anything, I mean, clear day to day, the competition that we see are the ones that you expect. And then we do from time to time see some of the other competitors come out, but at the end of the day for me, I'm very focused around build into verticals. The small and medium business is extremely important in terms of their ability to make decisions around them, to continue to focus and innovate on that, and that's how I win. So we do see different competitors and different elements. But for me, it's really continuing to focus in having our core competency to really drive success.

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Dan Leben from Baird. Just talk a little bit about the linkage between the business and the consumer and how important that is in the sales cycle for you. Do you have the consumer database behind the sales pitch?

Alejandro Gonzalez

Yes, really there is -- we've launched a product just recently called EFX Link. In fact, we just had a big win with a client with that solution. And essentially, what we're doing there is helping our clients. I understand the relationships for whether it's marketing or to understand their portfolio, we've had -- it's our linkage technology that Equifax has invested in over the years, not just in commercial, but in general. It was really critical to the success of that. So as we look into our verticals, we keep hearing that, that is something that's very important for them, so we will continue working with our clients to help solve those problems. One more.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Shlomo Rosenbaum one more time. What is your edge in this business? In other words, if you look at Dun & Bradstreet, look at Experian, there's other guys out there. Some are strong in transportation, some in other areas. What's your edge?

Alejandro Gonzalez

Yes, at the end of the day, to me, it's very simple. The verticals, we're making decisions or understanding small and medium businesses is critical for them. That's where we win. And so as we look at not just in banking, so if you're going to talk about banking, our real niche is in the small business banking segment. Telecommunications, small and medium business, understanding them is extremely important for them right now. And the verticals we identify, whether it's transportation, whether it's business services, small and medium decisions is our client base, is really what our focus is and that as our niche, it's helping folks understanding those relationships.

Unknown Analyst

Do you have unique trade line data over here...

Alejandro Gonzalez

Yes, we have trade line. In addition to financial services, we also have nonfinancial services and not just that, but it's -- let's step back. It's also understanding even if a business exists, so through our -- the way we aggregate our data, we have a pretty deep file on this 30 million businesses that I feel and what our customers tell us, gives us an advantage in understanding small and medium businesses. And so we do have nonfinancial and also financial information on them. Okay?

So with that, I'm going to turn it over to the President of Equifax Workforce Solutions, Dann Adams.

Dann Adams

Great. Thank you, Alex. So I'll give you just 60 seconds backdrop of the business. More importantly, give you perspective of the unique businesses that I operate, that enable our growth. And more importantly, how we're going to accelerate this strategic growth. When we acquired the company, it was under a fairly simple concept that credit scores alone may not be enough. And increasingly, lenders were asking and now requiring, not only to understand the willingness of a consumer to pay, which is what a credit score does, but their ability to pay. And when you think about ability to pay, the primary driver for most of us, is your employment and your income. And we felt that if we could acquire and build on this asset, that we could fundamentally shift and retool the credit business, which is the bureaus are primarily a liability statement view of consumers, and we can move to an income and balance sheet view. And I have 2 unique business units, along with working with Rudy Ploder, that enable us to continue that vision and that strategy.

So there are 2 businesses at Workforce Solutions. One you've very familiar with, the verifier side. The verifiers enable access to income and employment. It's fast growth, multiple markets, multiple industries, multiple applications, and it's growing. And we'll talk about our growth strategy to accelerate that.

The employer side are the team that acquires the data that enables the verifier team to work with Rudy, to sell this to lenders and others. So the employer side, big shift occurring. It is, Lee will tell you, it's been counter cyclical, heavy dominance on unemployment claims. But we are absolutely -- what we've been able to do is TALX previously, now Workforce Solutions had a great transaction engine. They didn't have a lot of analytics, and they had technology, but not the technology you need to drive analytics. So we're pivoting that business. And what's funny is the work, the database and the common denominator between both businesses is The Work Number database, so it enables the verifier. So now we're pivoting in the employer side to leverage the analytics, to go into clients and talk about the insights. No longer do I want to talk about being a BPO and unemployment claims. We're talking about what's driving the unemployment claims? What's your turnover? What's the benchmark on your turnover by industry? Voluntary? Involuntary?

So we're changing in the model to really leverage the data on another side of the business that's frankly never seen it. We have the best assets of employment and income in the United States, and now we're deploying them in our other business unit. So although it's been kind of slow growth, cyclical, we, Rick and the team, we work -- we get a lot of coaching on this, how do you take a cyclical business and take the highs and lows out of it and have a consistent growth. So you probably don't know a lot about that employer side, but we're bullish on that area. We're in the early stages. Our acquisition of eThority provides some unique asset to that employer side, so we have 2 unique business units.

The other key is that enables, and Alex talked about it as well, Rudy's team, we have deep links to all the community, all of the banks, mortgage companies, which allows me to spend my money and time on marketing, analytics, value props and I leverage Rudy's team as an enterprise model. He has generalist that are embedded in all of the major banks. I become a specialist, which allows us to really leverage what we're doing

So let's talk about our vision for the next few years, and this is what we fundamentally believe that credit drives sales, sales drives profit, profit drives employment. We enable access to credit. We bring transparency to a lending environment, which is, frankly, credit has been curtailed in America. There's nothing more important than provide that new view of consumers, not only on their credit score, but they're employed and their income. And to be able to calculate debt-to-income ratios to allow lenders to lend with confidence.

From my employees and my employers, that resonates very well because we're now providing an access to consumers who couldn't get access to credit before. And we do that with our employer community in a very safe and secure environment. So our strategies are commensurate of our vision. Our #1 goal is to grow The Work Number database. We'll talk about that, I'll spend a couple of slides on it.

Number two, protect that database. It is a differentiated and unique asset. When Rudy and I go into clients, the combination of income, employment and wealth and NCTUE, the largest unbanked database in the United States, is a significant, competitive advantage. It's a differentiator. So we want to protect that asset. We're going to penetrate not only our mortgage market, which we'll talk about in how we address the cyclicality out of mortgage, but also into other financial service product lines. And primarily, and I'll show you the slides on that, Work Number has been driven mortgage. We see huge opportunities in automotive, in credit card, in student loans and other products.

Leverage The Work Number for new industries for finding new applications all the time is a unique data asset and we will, on the employer side, change the go to market. From a transaction, BPO, unemployment claims into more of consulting, HR benchmarks, HR metrics. It will take some time, but with our eThority acquisition, we are confident we can do so. And we will continue to leverage what I think is one of the best teams in the U.S. in terms of managing strategic accounts at the financial institutions.

So growing The Work Number. So here is our path. So we were at 220 million records today, historical and active. And although everyone likes to talk about the active file because that's the transaction engine, we are seeing a huge lift on the historical records. So you ask, well, why would that be? A couple of key applications. A number of the GSEs, a number of the banks are increasingly focused on -- Dann, I have an application here. I have a loan here from 2007. On the loan, it says that this was -- this consumer had $150,000 of income, and they were employed at the time. Can you go back to your historical file and verify that for us? Because it enables repurchase type of discussions when you have that.

Pre-employment. Hey, Dann, it shows that you worked for Dun & Bradstreet for 17 years. Can I verify that? Sure, you can. It's on The Work Number file. So we're finding avenues to really drive that.

Now the active records are very important. I know we were at 52 million. We're actually going to be a 55 million records active on the file, income, employment details on 55 million consumers. So what we really think as a tipping point is we get to 70 million records. And we're confident we can get there by the end of 2015, and we have strategies to deploy to get there.

Why 70 million for a tipping point? Because there's roughly 140 million consumers accounting government, military, 140 million active consumers in the credit file, you get to 70 million, you're at 50% coverage for this data asset. It fundamentally shifts from being an innovator using the data to mainstream. So we have paths to grow that.

The other thing, there's really 3 things that happened when we grow the database. Number one, hit rates go up. So when we acquired the business, hit rates were in the 13% to 15% going to a lender. Hey, Dann, I love the concept. Your hit rates are low. Our hit rates are now in the teens. And for those deploying our DataVision platform, up into the mid-20s, and we are seeing significant -- so you get a lift by just growing the database and the hit rate goes up.

Two is customer adoption. So it's no longer, "Huh, let me try that." It's "Need to have that." Ability to pay is critical, and now we're getting the critical mass to deploy it. And third, new applications and new NPI as you build out the database. The far right corner just gives you an idea how you measure that and how you value that. As you're getting more hits and you're getting more customers coming on, the value of the records go up. So you can see that clearly from the acquisition to where we are today. So it's a nice growth story. How we're going to do that? So we've mapped out the U.S. marketplace, 140 million consumers. We have 80% of the companies that have over 10,000 employees in our file currently.

So as we mentioned the growth playbook, we looked at our growth playbook in 2010. We said, "Hey, in order to grow this file, we're going to have to go down market." So we're going to have to develop services that drive or enable through to mid-market, that enable us to grow. And we are increasingly taking that, eThority as another example where it can bring analytics into mid-market in order to drive this growth. And we're also doing it with partners and by white labeling some of our services such as I-9, unemployment claims where I can take those down market. All of the employer services, by the way, for the most part are services that are enabled through or because of The Work Number.

So our strategy on the employer side is, take those down market, work through partners to go down -- to build that file out. We also work very closely with Andy Bodea to improve our -- what's the signal there, the sort of prong to improve our operating margin in terms of getting clients on-boarded. We built out a factory over the last 12 to 24 months to enable us to take not only big files, but many files. So we're very confident we can get to that tipping point on 70 million records.

Next slide, what I was going to show you is our penetration strategy. And the penetration rates are really fascinating. So you guys know and say, "Dann, you're picking up 60%, 63% mortgage penetration." So I can actually track every loan in America in every portfolio. So I know every origination through the credit system. I can also look at how many of those records did I have an income and employment report on that I could provide.

So keep going one more slide. No, keep going back, I'm sorry, penetration, back, back, back. There you go. So what this clearly shows is your penetration and mortgage. And so we're really confident we'll continue to drive out our mortgage. GSEs, so you know, Fannie, Freddie require 10 days before close that you verify before funding that the person is employed. Critical. Your first step is with The Work Number.

The exciting point is that we really and we're just scratching the surface, we're getting traction and much bigger markets when we see the number of transactions that are on mortgage, 7.4; student lending, 22.5; 38 million records in the card space; automotive space, 22, our penetration there is less than 5%. So here's a great fact. Anybody buy a car lately? Come on, somebody had to buy a car. Car rates or the loans were up to 2007, so it didn't affect anybody in this room. All right, okay, I get that.

So here's what our data shows. So we map all of our data and oddly enough, when you look at application data, with either the captives or with the banks, roughly 30% of consumers overstate their income by over 15%. And when they overstate their income by 15%, their delinquency rates are 4x those who have verified income. And you guys are on the opposite track. You guys are the ones that understate your income. 21% of U.S. citizens go in and they understate. So you don't tell the card dealer, "Yes, I make $250,000, stick it to me." You guys don't do that, right? You go in and you say, "Here's what I make."

So our analytics are showing lenders how to lend differently, price differently and lend with confidence. It's a tremendous story. We're seeing the same in card. Credit card is funny. You can get a credit card on an 800 score. But what's that 800 mean? Do I give you $5,000 line? A $10,000 line? A $20,000 line? How would you know that? The only way to know that is to verify income and employment. And by the way, everything we do is under consumer consent. So we've built applications and systems that a consumer, who's sitting at the show room says, "Yes, you can verify my income and employment." And on the applications of the card which we've changed over the past 3 years, when you sign that application, you're saying, "Yes, you can verify my income and employment." That's how the model works. So we see huge opportunities there and in student lending.

So quickly, on the mortgage side. Let me give you a quick -- next slide, kind of a quick -- we always get the question, "Hey Dann, you guys got great results. What happens when mortgage slides, when refinancing begins to diminish?" So again, we work hard on this as a team. How do we decouple that? How do we not be tied to the market? So the first a-ha is, don't look at the process like a transaction, look at it as a value stream. So we went to the banks and said, "Okay, what are you doing on your loans?" "Well, we go to The Work Number, first step." "Terrific. What do you do next?" "Well, we have to call." "Who's calling?" "Well, we have hundreds of processors. We have underwriters." "How does that work?" "Not well. They're trying to get everything together before the loan closes. This has to happen in a 10-day period". What do you do with the documentation? Where is it stored? What is the quality? Do you want your people trying to call an employer to get that information?"

So we found a wonderful acquisition called -- a company called DataVision, who was already doing this for a large bank. And not only were they doing the manual calls, they had a workflow technology engine, which was tied into the loan originators. So for us, it's a natural byproduct to say, "Let us just handle all of that for you. We will give you 100% solution. When you need an income and employment, we provide it, off the instant and off the manual." And by the way, it's also a lead for us. We track the number of manual calls we make to an employer, we're immediately calling back, "Hey, we called you 200 times in the last 3 months, how would you like to automate this and get some safety and security around your data?" So it's a natural fit. We've signed 35 clients in the last 12 months. It's a great engine. We think there's applications across the industry as well.

So one other market, which probably we're not -- probably isn't intuitive. Social services are a big deal in America, TANF, SNAP, Medicaid, child custody, all of these are income eligibility guidelines by state. So early on in the old days of talks, we've provided this service free to many agencies. And over the past 3 to 5 years and the free was manual, paper, 5, 7-day turnaround and with the states is trying to automate and provide better instant access into these verification tools, we have taken new technology into those states, and we now have 30 states who are using our Work Number as a fee-based system versus a free-based system. And there is 4 to 5 application within each state.

So the government agencies have been a huge -- we enable quicker access to those services for consumers who deserve it, but there's also this issue of improper payments, which is significant in the United States. So even in unemployment claims when somebody is getting payments for unemployment claims, it's a voluntary system to call the state and say, "By the way, I just got a job last week, don't send me a check anymore."

Obviously, there's 20 states that are technically broke in unemployment claims right now. The state funds are depleted. We are addressing that with our Work Number tool. We are able to do cross matching, and we're piloting that with some of the states. We say, "Hey, by the way, we show this individual, they're getting claims, we show that they've shown up on The Work Number database. You might want to send them a letter to confirm if they're working or they're not working." So we're excited about our government agencies. We work really closely with Rudy and his team on that and it continues to be growth engine for us.

So to summarize. What we really see, it is a differentiated data asset. It's a privileged assets. It's a unique combination of working with our employers. We don't work in the gray here. This is an asset that is consumer consent, and we treat it as such as that, with a great deal of security and respect, but we also fundamentally feel that we're getting access to employees, to credit that they don't -- that they could not get. We're bringing transparency to the lending community at a level they've never seen before, and we feel very confident in our growth trajectory.

And on our employer side, it's exciting, although unemployment claims 4 years ago, I'm going to go, "Rick, how exciting is employment claims? I'm telling you, we're doing some things over there that is unique and different, and we're providing benchmarks to companies in a consulting manner versus a transaction manner

So with that, let me go ahead and open it up. Yes, sir, David?

David Togut - Evercore Partners Inc., Research Division

David Togut with Evercore Partners. How long will it take you to grow your database of active consumer records, unemployment and income from 55 million to 70 million? And how much will it cost you? That seems like a lot more expensive than going after big customers.

Dann Adams

Yes -- no, great question David. And again, through our growth playbook, we've mapped out -- by the end of 2015, give or take a quarter or so, we feel pretty good, this was our strongest growth year ever in growing The Work Number. And by the way, I'm not growing The Work Number through employment. You also have a growth trajectory that's not factored in that I've got over 2,000 companies that are on the database that if employment does come up, my files come up automatically. It's a market condition, but I don't count on market condition. So David, I feel really strong that through our -- on white labeling, I-9 services, tax credits, unemployment claims, I'm using the alternative distribution channels and partners, so it was very clear for us, we're not going to be able to go knock on doors and get those -- and bust tapes like we used to do on the credit side or SBFE. We are going to use our partner strategy go down market. And so I feel confident we'll get to that tipping point by the end of 2015, give or take a few quarters.

Richard F. Smith

David, one point, just to make sure you understand. This is not a hope and a dream. This is a very thoughtful process. We've been embarking upon that for 18 months. He's on that path today. The reason he had a record year this year in adds is because the strategy of going down market, partnering, white-labeling, changing the value proposition i.e., using analytics to get to data is already been deployed. So I think it's very reasonable that if he executes properly, you're at that 70-plus million in 2015 with low risk. There is some incremental cost, as you might guess. That's a very astute question, but he can do it in a way where he's still, I think, on his last chart, showed he's still doing well continuing to expand his operating margin.

Dann Adams

A lot of it. To be honest, we're taking -- now to summarize one of our high potentials in the back, working with Andy. It used to take us 180 days to load a file. We have to cut that down to less than 30 days, and we're deploying an Equifax technology to enable those file transfers over faster and more efficiently, just like we do on the credit side. So we've taken the technology off of Equifax and our operations team, exported that into St. Louis. So we're more efficient. So I'm also getting some pretty significant efficiency gains on leveraging the core credit operational capabilities.

Unknown Analyst

Lauren [indiscernible] with Stephens. You've spoken about different uses for Work Number. Could you speak a little bit about the different -- the traction you're getting with card issuers and the different applications there?

Dann Adams

Yes, thank you. So on the credit card side, couple of key areas: number one, in 2010, laws passed requires the card industry to understand ability to pay. As I tell my employment community, ability to pay is no longer a nice to have, it's the law. So card issuers need to be able to have certainty on your ability to pay and the only way you'll know that is if you have a liability statement view of the credit file, what you owe. If you can then calculate, then you know your income. You can calculate a debt to income, and you can back in to the credit lines that they deserve. So almost all of our major credit cards are in process, are using us or starting to use us in credit line increases. The other key application is in monitoring. Is we have the capacity that Dann Adams is on The Work Number, Dann Adams is on The Work Number, Dann Adams is not on The Work Number. One of the untold stories of America is there's 4 million hires a year and 4 million hires a month and 4 million separations a month. The difference is your gain on the AAP or Department of Labor payroll, there is tremendous churn in the U.S. marketplace. We see when somebody rolls off The Work Number, 33% higher increase in delinquency rates when that occurs. So our -- you have to have consumer consent. The consumer have said, "Hey, it's okay to use my income and employment upfront. And while I have a loan with you, you can verify my employment." One more question. Yes sir?

Unknown Analyst

Just on the employer services side. You're really changing the way that business is operating up 'til now. I was just wondering how long do you think it will take to get it to more of a regular growth business as opposed to a cyclical business, but also the investments that are required over there. Should we expect that the whole unit can still expand between adding the records like David was talking about in this as well?

Dann Adams

Yes, I don't want to get ahead of myself on overselling my expectation on employer side, but here's what's happening in the U.S. system. I mean, unemployment insurance is fascinating. And 20 states have depleted their funds, which means their payroll taxes or the -- to pickup those reserves. It's increasing the payroll tax across employers. It's an employer burden. And what we're doing is we've worked with the states, it's very -- it has been inefficient, so we've deployed what's called SIDES, which is a state industry data exchange, electronic transfer of information on claims. We're one of the few providers who stepped up and said, "We'll spend the money." And 30 states have adopted that platform, which we now are working with each state on. 15 more will adopt it in the first quarter and the other tool that we've built is what's called case builder, which is a Gooey-based web tool to simplify the unemployment claims process. We're seeing efficiencies in our operation center by deploying it, but more importantly, 70% of America doesn't outsource unemployment claims. And my business primarily grew through acquisitions. We are now going after new business with our SIDES and our case builder. But the big play is the analytics that we're walking in to say, "Hey, I'm sure I can handle your unemployment claims." But what's driving your unemployment claims and be able to benchmark for any industry, here is how you benchmark against your peers all the way down to a location level within your industry to say where we can help and assist them to improve that tax liability. So that's really -- and that's going to take a few years, but we're really excited about what we see in the benchmarking area.

Richard F. Smith

Simply stated, most of the investment's been made, not all of it, but a big chunk on the 2 things he just talked about, SIDES and the other one was...

Dann Adams

Case builder.

Richard F. Smith

Case builder have already been invested in. The business starts to turn in to a growth business starting next year.

Dann Adams

We just launched case builder, and we're getting great reviews. But again, a high percentage of that business is based on unemployment claims. That will take a while. We don't want to oversell expectations, but I'm telling you, we're going to move it from a cyclical business into a growth business.

Okay. Without further ado. Let's go ahead and take a break, and then we'll be rejoined by Trey Loughran.

Richard F. Smith

10:30.

Dann Adams

10:30 or 10:20?

Richard F. Smith

10, 20 minutes?

Unknown Executive

10 minutes.

Richard F. Smith

10 minutes

Dann Adams

10 minutes. 10:20 we get started. Thank you.

[Break]

Jeffrey L. Dodge

If you could all take your seats, we'll get started here with Trey Loughran talking about Personal Solutions. Thank you.

Joseph M. Loughran

Good morning. I'm Trey Loughran, President of North American Personal Solutions. Equifax will empower people with the confidence and control to be their financial best, empowering people with the confidence and control to be their financial best. So what does that mean for the average person? That means we need to give the -- we need to give our customers information, which tells them about their financial situation. We need to add insight to that information. We need to not just give them the information, we need to tell them what it means. We need to engage the customer. We need to have them participate in what we're doing and engage them and have them want to come back and participate. And finally, in order to do that, we need to give them the best customer experience we can. It needs to be pleasurable, it needs to be something they enjoy, it needs to be something they can understand and work with. So from information to insight, engaging the customers with a great experience. That's what we've been doing, and that's what we're going to do going forward. Over the last couple of years, we've enjoyed significant growth, 13% CAGR. So what I'm going to talk to you today is about a couple of things. First of all, I'm going to tell you a little bit about the market, because I know a lot of people are interested in this market. And then I'm going to talk to you about what we've done, about our business model and our advantages in our business model, and then looking at our business model, what we've done and what we're going to do to continue to deliver double-digit growth with strong margins.

So let's talk for a minute about the market for the Personal Solutions services. The market really bifurcates almost 50-50 into 2 categories: you've got the direct market and the indirect market. The direct market is when customer -- when businesses market directly to consumers using targeted marketing mostly over the Internet. This is the markets you're all familiar with, there's been a lot of advertising. It's a -- a couple of dynamics about that market. The credit side still does dominate. You still see a lot of advertising for credit, a lot of people coming to solutions because of credit. It's still a highly competitive market. It's still one of the top categories in Google in terms of media spend. It's very direct response-oriented, people are looking at highly -- trying to deploy their advertising dollars highly efficiently, and there are some emerging trends. There's an emerging trend around identity, they're merging 3 providers for credit scores, credit monitoring. The other half of market, roughly 55% of the market, it's what we call the indirect market. And that's when companies sell via third-party companies to their customers, so via banks, associations, et cetera. That market has also been growing -- it is a market that has seen some regulatory scrutiny over the last several months. And then another component of that market is breach. Breach incidents do continue to grow, but breach revenues overall for most people in the industry have been down because companies are tending not to offer as many services in conjunction with breaches as they have in the past. So that gives you an idea of the market. Equifax Personal Solutions is traditionally played primarily in the direct side of the market. By the way, it's on the slide, but we estimate that total market to be worth somewhere between $2.5 billion and $3 billion in the U.S. So let's talk about the Equifax -- the Personal Solutions business model. And one of the great things about this business model is that it is a kind of a formulaic business model. It's highly measurable. If you have the right insight, if you have the right tools to measure, then it is a very, in some ways, scientific business model. As I like to tell my team, it's probably 75% science and 25% art. So if you're running the machine right and you understand the components of it, then you can measure and test and understand the impact of what you're doing. So at the end of the day, when we look at the market, it's all about customer lifetime value. How do we acquire customers and increase their customer lifetime value. And there are really 3 key components to that from a business model perspective. The first is volume and spend and cost per customer acquisition, the second is average revenue per user and the third is customer life. So let's talk about our strength as Equifax and what gives us, we believe, some competitive advantage in the market. The first on the volume and spend category is that we've been highly return-oriented on our media investment. We've gotten much better this last couple of years, and I'll talk more about this, about understanding our spend and having much better insight into those return we get on our spend. The second, and I don't want to underestimate this at all, is our brand strength. We have always advertised behind the Equifax brand. We stand behind our brand, we believe our brand has value, we believe our brand inspires trust and confidence in our consumers. We don't just believe that, customer research tells us that. And so we have -- our primary storefront is Equifax.com. We -- our primary product name is Equifax Complete, and we believe in our brand and we'll continue to stand behind our brand.

The second category is average revenue per user. We've traditionally been associated in this market with a higher value product orientation. We tend to give quite a bit of value in our products even for people who come in for a free trial, and we believe that's important because customers are expecting value when they come to the Equifax brand. The second point is that we've always had a strong mix of customers who come in day number [ph] one as a paid customer versus come in through a free trial. Now over the course of the last several years, we have added more free trials to the mix because that's where the market is and that's where we've moved to drive top line growth. But at the same time, we have a much better mix than most people in the industry around free versus paid. And then we obviously, utilize the unique Equifax assets that we have around data and information, some of which you've heard about earlier today. And finally, customer life. Again, I'll go back to the paid and free customer mix because paid customers, people come in day one, people who are shopping for these services tend to stay longer and so we have a longer customer life. And then the other thing I'm going to talk to you about is the mix of very product variations and how that influences customer life. Finally, and if you look on the other side of the chart, markets, we are in 3 core markets today: U.S., Canada and U.K. These are attractive, credit aware markets. These are not markets where we necessarily have to educate the customer about why this is important. And we have a common shared platform across all 3 markets.

So I'm going to take that business model that we just talked about, and I'm going to talk about 4 areas of strategic focus and talk about again, what we've been doing in those 4 areas of strategic focus and the things that we've been able to accomplish. But more importantly, what we're going to do going forward in those 4 areas, and how that's going to continue to drive double-digit growth and strong margins.

Number one, and maybe most importantly, in order to grow, we will continue to increase our investment in marketing. But in order to increase our investment in marketing, we have to believe that we're going to get incremental positive returns on each incremental marketing dollar we spend. So it is very important that we continue to come up with new ways to think about how do we make our marketing spend as efficient as possible. Number two, average revenue per user. We've had a lot of benefit from the way we reconfigured our product offerings to provide more value to our customers. Going forward, what we'll be doing is continuing to look at expanding the product offering and the value proposition to our customers to provide the most innovative products and services, utilizing these unique Equifax assets, so that people want to come to us, they see value in our products and they're willing to pay for the value of those products.

Number three, customer life. This is one of the more recent areas that we focused on. When we looked at our past history, we had some of the longest customer life in the industry, we believe. Going forward, as we've added more free trial mix into our business model, it's really important for us to think about how do we retain customers, how do we engage customers, how do we make them want to stick around, and looking at changes to increase customer loyalty. And I'm going to talk about that some more. And then finally, four, this year, we've been really focused on expanding our best practices and extending those best practices into other markets like Canada and the U.K. And we've really made some great strides there, so I'll talk about those as well.

So let's start with volume and cost per acquisition. Well, what have we done? So I talked earlier about moving from information to insight. If you think about a theme here from the customer perspective, moving from information to insight is very important. We don't want to just give the customer information, we want to give them the insight. So let's talk about internally at Equifax for a moment. Because I'd say several years ago, when we were managing this business, we had a lot of information but we didn't really have the necessary level of insight that we want. And internally, we've been able to move from information to insight by adding tools, people, capabilities to do a much better job of being able to understand our customer base, understand our marketing spend and to be able to deploy better testing tools, testing of media mix, et cetera. So now we have much better insight as to when we look at deploying different campaigns through different channels, be it paid search, be it display spend, et cetera, we have a much better understanding of what works and what doesn't work, and are able to move more quickly to adjust on those for those nuances. And we've added a -- we've virtually turned over the entire marketing team. Have a terrific head of marketing and she's done a great job of providing a lot more insight into our marketing spend. But that's honestly kind of the tip of the iceberg. When you look at where digital marketing is going and the advances in digital marketing, the real key in digital marketing is to understand your customer a lot better and then to be able to really think about much more targeted segmentation. But really being able to understand what offer should I present to which customer segment? What feature should I offer to that customer? How do I think about changing my product mix depending on what that customer's interest might be? And in the past, we've had a little bit of a peanut butter approach to that. But what we're doing now is leveraging some of exactly what Rudy talked to you about earlier around the analytical sandbox, leveraging some of that internally, so that we can understand our own customers better and then leverage some of the newer tools in the markets like demand-type platforms and Data Management platforms to be able to provide better information to our partners that they can then provide offers to our consumers that are more relevant to what those consumers need.

Let me move on to average revenue per user. This has been a great story. So 3 years ago, 4 years ago, we looked at where we were competing, and we're still competing on the Equifax brand, but we were trying to wage war on multiple fronts, and really, honestly, didn't have the ammunition to compete in that war. And we looked at it and said, look, we have a debt offering, we have a credit offering, we have an identity offering, and what we always ended up defaulting back to was what sold. Well, we had a hypothesis and confirmed this hypothesis in customer research that all of that really somewhat just confused the consumer. The consumer said, "I don't understand sometimes the difference between credit monitoring and identity theft protection. I mean shouldn't I really get both?" And we said, it really is all different sides of the same coin. So what we did is we consolidated those different product offerings into a single family of products that we call Equifax Complete, put a lot of value into those products, again, right behind the Equifax brand, and then over the last couple of years, we've added different flavors of those products, Advantage, Premier and Family plan, Family plan being the most -- the latest, which offers Premier for 2 adults and monitoring for up to 4 minor children. What we've seen is a significant increase in penetration of our customer base into those higher value products. And that, in turn, has driven ARPU. So it hasn't been about price increases per se, it's been about adding, putting more value into the products and customers excited and willing. And by the way, as we look at the higher value and somewhat higher priced products, we see better retention in those products because of the features. And I'm going to talk more about that in a minute. So where are we going to go? We're continuing to look at adding new capabilities, new features into these product offerings that will enhance their value, both internally developed at Equifax and working with partners. And also, we have enormous upside in terms of benefiting, improving our systems capabilities. So Dave Webb's team has been great in helping us think about how do we expand our platform to be more agile in our platform around being able to do things like cross sell and upsell and offer add-on packages, which we really haven't been able to do in the past. But there's a lot of opportunity to do that going forward.

Number three, extending the customer life. This is an area that's been a really renewed area of focus over the last 12 months. So what we've done is we've added a good number of features, and if you look at the list of our features, you'll see a lot of different features for our products. We've added a number of features to that product and what we see very clearly is that customers who activate more features stay longer. They see the value in the product, they engage more and we retain them longer. We've gotten, just as I talked about in marketing, we've gotten significantly more insight into churn and retention and diagnostics, both what we call passive and active churn, and have a much better ability to make changes very quickly to see what the impact of our changes will be. So where are we headed? We're continuing to add new features that we think will influence and expand retention. We're trying to do more from an internal marketing perspective to existing customers to get them to adopt those features. We are expanding -- we -- our theme, this year, internally at CX Innovation [ph], Customer Experience Innovation [ph], and the entire team is rallying no matter what their job is around how do we improve and how we can give our customers an exceptional customer experience, one that they want to come back in and one that they want to engage with. And then there's still a lot more we can do around data and analytics to understand churn better. And then last but not least, market expansion. So this year was the year that we completed migration of our existing platform in the U.S. to both Canada and the U.K., so all 3 markets are on the same platform. We've seen great growth in both Canada and the U.K. Just for clarity purposes, North American PSol solutions, North American Personal Solutions, the business unit you see as an externally reported business unit is U.S. and Canada, and then U.K. is booked under International. However, what we've done over the course of this year is unified all of International PSol under person, who is -- officially reports to me, but also sits on Paulino's team. We have an incredibly unified view as we look both at the U.K., Canada, the U.S. and any new markets that we want to go into, looking at leveraging best practices across all of those markets, looking at news and services, capabilities, pricing, tools, et cetera, so that we can be one unit working together regardless of where the revenue's booked. So where does that leave us? If you look -- if you think about your models and where your -- where the business go, a couple of things. If you look at volumes, spend and cost per acquisition, we do expect over time, as we spend more than our marketing CPA, cost per acquisition will go up. But the key thing is that it goes up at a significantly slower rate than our marketing spend, and we can continue to justify and get a good return on that CPA, and we expect that we will. Average revenue per user will continue to go up. It will be driven somewhat as we continue to see adoption of the Equifax Complete Family of products and the higher value products, but it will also be driven by some of the cross sell and upsell opportunities that we have and looking at kind of getting a higher share of wallet of our customers. It will probably moderate, and that puts pressure on us to make sure that we're delivering the subscriber growth efficiently. And then the last point on customer life and extending the customer life, I believe there's a lot of opportunity to extend the customer life through some of the initiatives that we're taking. So we're really excited about that, and then we see continued, just great opportunity in Canada and the U.K., and then looking at other International markets down the road. So I'm very optimistic that we'll continue to deliver double-digit growth and maintain attractive operating margins.

Questions?

William A. Warmington - Raymond James & Associates, Inc., Research Division

Bill Warmington, Raymond James. So 3 questions for you. First, if you could comment about how your customer acquisition cost is trending. And second, if you could talk about how the economic softness in the U.K. presents a headwind for this or not. And then the third was, I just wanted to ask about the term, peanut butter approach.

Joseph M. Loughran

I have to remember what I said. So cost per acquisition has trended upward, but at a -- much less, much less than our increasing spend rate. So if you think about getting leverage off your increasing spend, you want your cost per acquisition to trend at a lower rate than your increase. And then there's just an absolute question. I mean, you have to be efficient to begin with because it eventually can grow to a point where you say, well, it doesn't make sense to acquire those customers anymore. What we've been really doing over just the last several years is trying to think about optimizing the media mix. And so as you all are probably aware, we've done brand investment around TV and other things. We -- but the main area of focus, this past year, all of our spend has been in digital and on the digital -- through digital channels. And what we've seen is we continue to work on optimizing that mix, but we've made a lot of progress over the last year kind of getting that mix optimized. We're doing more display advertising than we had in the past because you can only do so much paid search, but we're seeing a lot better returns on that as well. So as we go into next year, we feel like we're in a position that we -- the media mix is pretty efficient and it's positioned well for growth into next year.

Your second question about the U.K., there's -- this is an emerging business in the U.K. It's probably where the U.S. was several years ago, and we see a lot of opportunities and economic headwinds are -- economic -- let me put it differently. If economic headwinds -- if there are economic headwinds, I can't wait to see what the business does when there are not because it's doing pretty well, if there are any economic headwinds. Peanut butter, I'm trying to -- I don't -- I think what I said -- we tend to put -- if we tend to put a display ad out there, we tend to -- or somebody comes to our site, they're going to -- pretty much anyone's going to see the same thing. And so what I want to do is if somebody comes in and we have a sense of -- have a better sense of a returning customer, or something I want to be able to say, I know you've been here before, this is something that might be more appropriate for you if I have a sense of who you are and what your demographics might be. If I know you've got kids, do I want to present you a family plan ad instead of an Equifax Advantage Plan ad.

Unknown Analyst

Trey, I was just wondering if you could give us a sense of what you feel are the optimal sort of -- or sustainable margin levels of the business. And then just looking at sort of the end of every business unit, [indiscernible] PSol seems to have the higher top line growth expectations. But maybe I'm reading too much, but most of the other guys had expanding operating margins as goals and you have just attractive. So I just want to get a sense of if this 30% that we have today optimal or what it is?

Joseph M. Loughran

Can we answer that question? So I think that was a good question. Look, it's -- there is a trade-off in this business. You can -- and you guys have seen it. You see other public companies in the space, right? You can spend a lot more on marketing and you can take margins down. You can spend less on marketing and you can drive margins up. So it's a balance. And we've done a really, I think, effective job of balancing that. So what I believe -- what -- my goal is to try to deliver results that are double-digit growth with strong operating margins. Strong to me in this business is high 20% operating margins.

Richard F. Smith

Yes, the one thing I'd add is we have talked now for quite some time since Trey has been running this business, that it is a double-digit growth business, and 25% to 30% margins is what you should expect over a long period of time. He has been delivering the top line growth, and I think in excess of 30% margin, don't expect that long term. Just think of it, double-digit growth, 25% to 30%. That's the right balance for that kind of business.

Joseph M. Loughran

Yes, as long as we can continue to efficiently deploy marketing spend, which is what we expect to do.

Unknown Executive

Right there and -- there's 2 right there. Okay, go ahead. And back there and then...

Paul Ginocchio - Deutsche Bank AG, Research Division

It's Paul Ginocchio, Deutsche Bank. One of your competitors has talked about being much much more proactive in dealing with their customers versus reactive. Do you think that's the right way to categorize maybe your business, your PSol versus competitors?

Joseph M. Loughran

So one of the competitors are saying what? I...

Paul Ginocchio - Deutsche Bank AG, Research Division

They're proactive. They're kind of reaching out to the customer as, maybe the initial conversation is happening with a retailer versus waiting till something happens and then contacting them 24 hours later.

Joseph M. Loughran

I think that this business has historically been pretty life-event driven. So somebody is getting a new car, somebody is buying a house, somebody's had their identity stolen. And I do think that what we expect to see is trying to explain to customers why more of that combination, what I told you earlier about, information and insight, is something that you should have regardless of life event, or so that you're prepared for that life event when it comes. And so we're talking about that quite a bit. I think the industry, you'll see that more in some places and less in some others. But that's a fair -- you'd like to move away from it having to be a life event driven approach.

Unknown Analyst

Yes, and just puzzled to -- a follow-up on the earlier question on margins. If your ARPU is expected to start going up and you are hoping to extend the life of customers, so therefore, [indiscernible] ratio is going up and Equifax is a pretty -- has a lot of brand equity, so I think you can become more efficient in how you acquire customers. So why wouldn't there -- and then Personal Solutions is a fairly small piece of the total portfolio and still kind of a growth -- I just don't understand why margins wouldn't have some possibility continuing to grow if it's the nature of the business.

Joseph M. Loughran

Well, there's a couple -- yes, the nature of the business -- there are a couple of things, as you -- number one, as you launch new products and services and expand products and services, you're going to increase your marketing investment. So for example, let's take last year. This year, we launched Family Plan. Our CPA on Family Plan is going to be a whole lot higher than our CPA is on our existing products. So [indiscernible] new products and new initiatives, you're going to increase your CPA around those. What's going to happen is over time, there's a mix between CPA increases, which naturally occur over time. I mean frankly, it's -- as you spend more, CPA typically goes up. So -- but the question is making sure that you're continuing to get efficiency out of those incremental dollars of CPA -- incremental dollars of spend, and that's offset by ARPU opportunities. Oh, another thing is there are some COGS elements, obviously. And some of those COGS elements might increase as well over time. They're not necessarily all that significant. That's offset somewhat -- that's offset in a positive way by ARPU, by extension of customer life, et cetera. Yes, that's -- Thank you. So it's my pleasure to introduce my friend, Paulino Barros, who's President of Equifax International.

Paulino R. Barros

Good morning, everyone. And I'm probably the only one between you and Lee, so just be patient with me. Again, I'm Paulino Barros, President of International, Equifax International, and my job, along with another 1,900 folks over 15 countries, spread over 15 countries, is about execution, innovation and growth. And this is what we're going to see in this presentation. So we are -- and we have been and we'll continue to be a strong growth engine for the corporation that brings revenue diversification for the portfolio. With a well-balanced portfolio of countries between the Americas, including Canada, all the way to South America, Europe, Russia and India, we've been able to demonstrate this capability of expanding our business. We are, as I said before, we are over -- we are in 15 countries outside of the United States, and where we occupy the presence of #1 or #2 in every market -- in most of the markets that we participate. We have mentioned Brazil. As Rick mentioned at the beginning of the presentation, we have joint efforts with the #2 player in the country and formed a very competitive second player in their market, which eventually, we want to bring to our balance sheet. In addition though to this strong portfolio of countries, we have focused -- our focus on execution and innovation can allow us to have a significant solid portfolio of products in Technology and Analytic Solutions that can allow us to actually penetrate new industries and new segments and new verticals. And with this combination of geographic diversification and industry segment diversification, we have been able to generate strong growth in revenues, and sustainable and gross margins -- and very solid margins. And this is the same plan -- this is the plan that we're executing for the next 3 years. We want to be #1 or #2 in the markets we operate and focus in the industry segments, which are FI, financial institutions; telco; SMEs; and now in the corporation, work with Trey in the Personal Solutions segment, based on differentiated data, Technology and Analytical products and geographic expansion internally in the countries that we are today and the countries that we have to participate as well. The strategic drivers, as we have mentioned before, include differentiated data, NPI innovation. We have the technology products, a lot of focus on fraud. Definitely penetrate in telco and geographic expansion, and as we continue to grow, we start having scale on the business that we have. This is where we start having our regional organizations and regional and common platforms, working with David Webb on that point.

Let me start here. This is the first strategic step, having a unique and differentiated data set that can allow and empower our tools and our customers, too, to make better solutions. Based on that, we'll start expanding to this portfolio that takes into a very unique set of product and solutions, going to fraud, going to wealth, and in the near future, going to transactional data and going to big data. So this is the first step that assemble and empower our tools and our customers. Number two, definitely spreading around -- this has been a significant, a significant growth in our portfolio is Technology and Analytical Services. We are executing this across the portfolio, across the countries, and we have in 2012, a very strong growth. Two key important elements of that are the decision platforms in the credit side and in the fraud side. In the fraud -- and I'm going to talk about fraud in a second, but the technology side, we have developed Experto, which now is the same product spread all over Latin America, and InterConnect, which is a more robust decision platform that now we have in Europe, we have in Canada and now for the first time, we are deploying a regional application of InterConnect with 4 countries in Latin America. In the fraud side, we also have in the portfolio, 2 major products: identity management and application fraud. And this has been a key product for us to penetrate the telco industry, which is a strategic vertical for us.

Another good example of execution across the portfolio is what exactly we're doing with fraud. We started the first application platform in U.K. Now we're going to the second generation of this product, and we move the same product over Canada. And we're today, actually, on the third generation. It's tremendous penetration in the telco system and now, developing application for the insurance segment. We're doing a proof of concept in U.K -- I'm sorry, in Spain and deploying identity management in Latin America as well. So fraud is in the first and forefront of what we're do in the technology side, along with the decision platforms.

An interesting example about U.K. and we have seen that, I have my General Manager from U.K. here, Shawn Holtzclaw, has done a fantastic job in executing a specific model in U.K. As you can see, the growth that we have had in the last -- [indiscernible] addressing the question about what we're doing with PSol, the same thing happened to our normal business, where we have grown significantly more than the local GDP and in a very competitive environment, again, focus of the management and deploying the new products, execution, innovation, getting to new markets, getting to next data sets, differentiating our tools and being more competitive in the marketplace. As a result of that, we will continue to focus in 3 -- these 3 major segments: Financial institutions, that are the [ph] base or the core of our business and gearing for more innovation on the data sets; telco, getting now to start getting to not just in the credit and risk side, but also getting to the marketing and the transactional data; and the small business enterprise, and aligned with Alex Gonzalez mentioned today about getting these products to have a global platform and penetration, and making sure that we have a leverage, our technology. This has been a unique position for us. Differentiated data, unique technology and analytic solutions have built us a very interesting and solid penetration for us in the marketplace, and continue to expand the model. We believe that the model we have, we have grown a lot through, acquisitions, and internally and externally, and we have very interesting countries to take this model and continue to grow. So this should generate for us between 7% and 10% in the revenue side, with strong and sustainable margins.

Questions?

David Togut - Evercore Partners Inc., Research Division

David Togut with Evercore Partners.

In which markets are you not #1 or #2 today? And two, and what do you need to do to get there?

Paulino R. Barros

Right. The only segment of the market that we are not #2 is in the Commercial in U.K. They're the only one. And we are doing some strategic alliances as we speak now to make sure that we can get to that position. This is the only market that we are not the #1 or #2.

David Togut - Evercore Partners Inc., Research Division

Does that mean you've already achieved your goals?

Paulino R. Barros

No, no, no. We have much -- I mean, as you look at the map and you look at my friend, John Hartman, and some -- there's a lot to do in Europe, a lot to do in Asia, we have a lot of things to do.

David Togut - Evercore Partners Inc., Research Division

So what are you doing to strengthen your #1 or #2 position, in other words, because you're already there?

Paulino R. Barros

Two good questions. Two things: data, differentiation. We are constantly, constantly looking for new data sets that can empower tools to make better solutions that will allow our customers to make better solutions and innovation. These have been the 2 key points of our growth organically in each country, in addition to geographic expansion when you go into a different country and buy a property there.

David Togut - Evercore Partners Inc., Research Division

Just final question on Brazil.

Paulino R. Barros

Sure.

David Togut - Evercore Partners Inc., Research Division

What are you doing to differentiate Boa Vista? Recognizing you're now a minority partner, but theoretically, if you're a majority owner, what would you do to differentiate that business particularly versus Serasa?

Paulino R. Barros

Boa Vista has a very interesting data set because they bring the data set from the retailers because they're different from the information from the banks, which the banks want that information for the non-bankable, which is a new middle class that is being formed, close to 40 million people. This is why the credit industry is growing so fast. And we believe that with our global perspective in terms of platforms and technology solutions, can bring a lot of -- there can be innovation for that process and scalability.

Unknown Analyst

Yes, and just back to the U.K. slide, so the 10%, 11% growth of the last 2 years, can you just maybe break it a little further, like has that been market share-driven? Is it just purely new product stuff? And then going forward, maybe if you can -- like how important is the partnership that you guys have teamed up with FICO in terms of always trying to go after Experian out there?

Paulino R. Barros

Thank you. U.K. is a very tough market, right? I hate to admit this in front of Shawn, the general management, but it is. We compete with a -- the house of Experian, right? And so it's not easy to get market share. We -- what we try to do every day is to compete in terms of innovation and both in the data sets that we have and in new products. And we recently have bought a company on the wealth side. This is probably the only wealth data information that we have outside the U.S., is in U.K. So this process of innovation and execution, I think that this is what Shawn has brought significantly to the table, is focus on execution and innovation. This is how we sit [ph]. We have been able to compete and establish our position in the marketplace. Yes?

Unknown Analyst

Going back to Boa Vista, could you give us any more detail in terms of size or growth or margin profile?

Paulino R. Barros

Unfortunately, we don't disclose this information. The market profile is, I mean, just as public -- what -- the market is growing in a double-digit perspective, the market in general. But unfortunately, we don't disclose information for Boa Vista because it's still not an open company -- a public company.

Unknown Executive

One thing I would add is we have talked about publicly in the past that the size of the database that we've assembled in Brazil when you combine ACSP with Equifax is largely a parity with that of Experian. That's number one. Number two, if you go back and historically look at the financials we have disclosed when we had an operating entity in Brazil, you can determine that size, and then obviously, the Boa Vista business or the ACSP business was significantly larger than us. So you can get a proxy for the size of the business. And as Paulino said, it's a nice, growing marketplace.

Paulino R. Barros

Okay. So with that, thank you. I'm going to transfer to Lee, Lee Adrean.

Lee Adrean

Thank you. You've had a chance through the morning to hear first from Rick, describing our overall business strategy and both current and future drivers of our business opportunities. And maybe more importantly, you had a chance to hear from each of our business leaders about our individual business strategies and some -- how we are executing against those strategies to deliver profitable growth. What I'd like to take a few minutes to do is describe how that is translated into our current financial performance and give you a little bit of an indication of our expectations for future performance.

The most important headline financially, in my opinion, is that we've been able to translate those strategies and strong execution against those strategies into strong, organic growth. If you look at this slide across the bottom, in the gray horizontal line there, you can see our total constant dollar growth over the last 3 quarters. And we've been growing at a rate of 11% to 12% in constant dollars in terms of total results. One of the things we try to do very carefully is be quite explicit about some of the nonrecurring or cyclical factors that drive that. So you get good insight into the underlying core repeatable rate of growth of the company. And the factors that we've broken out, one is the impact of having deconsolidated our Brazilian business as we merged it into another player in the market, which detracted from our year-over-year growth since we've reported that last year and are no longer reporting that revenue. Second, the impact of acquisition, which over the course of this year, has run between 1% and 2% contribution to growth, consistent with our longer-term growth objectives. And then third, the impact of mortgage market conditions. And as people know, with low interest rates, there's been a very strong mortgage refinancing activity over the course of the last year, and that's added between 3 and 5 points of growth to our reported results over the course of this year. But then in the kind of golden covered bar running horizontally across the middle of the slide, you can see that our underlying core growth, from our non-mortgage businesses plus our strategic initiatives in the mortgage market, growing between 7% and 9% year-over-year over the course of this year, very much in line -- actually, slightly better this year than our 6% to 8% objective over a longer cycle. So we're delivering very solidly against our objective of 6% to 8% organic growth, and as it happens this year, very consistent with the 1 to 2 percentage points of acquisition growth. And this is what we expect to deliver consistently over a course of the business cycle, 6% to 8% organic growth, 1 to 2 points of acquisition on top. We could be a little stronger in some years due to some of the nonrecurring types of factors, we could be a little bit weaker in some years for the same reasons, but we're always going to make that underlying trend line very visible to you.

In addition, we've been able to deliver margin expansion consistent with our objectives. You can see here over the last several years and the 9 months year-to-date, consistently driving a little bit of margin improvement each year, a lot of things going on under the surface, pluses and minuses, but the net we are driving to is positive margin expansion. I think some of the factors that's drive that are very evident to you. Maybe most important, when you're delivering revenue growth, fixed cost base, we're getting leverage from that. Second, the kind of proprietary high value offerings that we deliver allow us to price to the value that we deliver to our customers. Third, the breadth and depth of the relevant product offerings, allowing us to go to our customers with end-to-end solutions and taking a larger share of their value chain and becoming more embedded in their business. And finally, the kind of process improvement, and LEAN operating discipline that Rick described this morning, helping make us more efficient year in, year out. I think all of those are very evident to the people in this room. Some of the things that probably are a little bit less visible are some of the factors which tend to moderate that margin expansion a little bit. We are investing in growth and believe that driving higher growth is a very important part of delivering value to our shareholders. So when we invest in profit and growth initiatives, new products and new markets, we're investing additionally in marketing, in sales, in development. New products take time to scale. The product and market mix, no one would be happier than me if all of our growth was in credit reports and online income verifications. Those are 90% incremental margin. And if all our growth was coming from there, you'd see a very strong margin expansion. But it's also coming in products that have different margin profiles. And we're very happy with that mix, but it's not one that naturally, simply by itself expands our margins. That's things that we have to do consistently over time. Investment in evolving capabilities. Rick talked about some of the trends that we're seeing in our market that we are preparing for and trying to capitalize on in terms of stronger analytics, big data capabilities beyond what we've established already that we're investing in and we talked about explicitly when we announced the CSC acquisition. And then potential regulatory requirements that we think will add some operating expense. We think that's more likely in the millions than the tens of millions, but again, we have to manage both positives and some of the investments that we're making. But the net should be consistent with this trend, something in the range of 25 basis points per year margin expansion. That, by the way, is going to add about 1 point to EPS growth above revenue growth.

Another great characteristic of our business is we're a very strong cash generator. The -- over the last 4 years, our free cash flow as a percent of net income has ranged between 120% and 150%. So we generate a lot more cash than we report as net income. That obviously, gives us the ability to invest in growth, but also create financial leverage for the benefit of our shareholders. Now if you look at how we've allocated that cash or that capital over the last couple of years, I think the last 3 years together are pretty representative of how we would expect to allocate capital over time. We see about 50% is going to capital expenditures in order to drive organic growth and acquisitions in order to add to that growth, the 1% to 2% we talk about. You'll see in this slide, the actual acquisition spend this year, year-to-date, is quite modest. I think that's $7 million if I can read that from here. But I've also put in that bucket, the cash we have built up on our balance sheet to position ourselves to be able to readily handle the CSC acquisition because in the fourth quarter, that will turn into acquisition spend. The other 2 components of the bar, dividends and share repurchase, are returning cash and capital to our shareholders. That's about 50% of our cash flow. So we think a very healthy mix, and the kind of bluish, dark blue section here of that slide, the leverage that, that gives us in terms of reducing share count adds about 2 percentage points to our earnings per share growth. And that's net of the amount -- that is the gross amount. Obviously, as I do the calculation, I think it comes to about 1, 1.5 to 2 percentage points of the leverage, net of the shares that takes the buyback just to offset equity compensation. So we're very sensitive to, got to do that first, but this will add 1.5 to 2 points to earnings per share growth.

So when you put that together, the financial model for the company is consistent with what we've been saying. I think what's become evident over the last 4 to 6 quarters is the absolute clarity with which we're delivering against this model, and this model continues as we go forward. On the left side of this page, we think we can -- our markets on average, if we simply show up at work every day and do a good job of delivering same products to the same customers and grow with end-market demand, on average, we're about a 2% to 3% market growth company, probably below that in the more mature markets, consumer credit in the U.S. and the U.K. and Canada, above that in some of our International markets. In TALX, given that it's a much less penetrated market, our Workforce Solutions, much less penetrated market. If that's all we do, we're not a very exciting company and most of you don't bother showing up for this meeting. The excitement of the company is the 4 or 5 points that come from strategic initiatives, the kind of execution we've talked about against an innovation, particularly driven by new products and penetration of new markets. And when you add that to the market growth, that's the 6% to 8% repeatable organic growth we expect and then another 1 to 2 points from M&A as we predominantly add either tuck-under type acquisitions or maybe more exciting, complementary acquisitions that allow us to continue to expand our business footprint in very logical and consistent ways. And you put all that together, that's 7% to 10% growth in revenue, on average, over a business cycle.

On the right -- left-hand side of this slide, you can see the targets that we've talked about for each of our businesses in terms of multiyear growth. We've also got margin targets, and as I was looking at this earlier in response to someone's question of Rudy about what he thought margins might be with CSC, I realized the high 30s to low 40s was a little bit hedged because we had -- when we wrote this slide, we hadn't got the definitive agreement signed. I would take off the high 30s part. We should be low 40s on USCIS with CSC. And as a total company in the mid- to upper 20s.

Those -- this is kind of almost a scorecard you can measure. Are we making the progress we expect for each of our businesses?

So overall, operating metrics, revenue growth, 7% to 10% as I described. Operating margin of about 20, 25 basis points expansion each year. That adds another point in getting the earnings per share. If I just skip to the dividend line, 25% to 35% of net income allows us to add another 1.5 to 2 points of EPS growth through financial leverage -- the benefit of leveraging our financial capability. That leads to an adjusted earnings per share growth, 10% to 13% annually.

Free cash flow of 120% to 150% of net income and an adjusted ROIC and by adjusted -- the same adjustment we make in earnings per share, it's recognizing the cash flow that we're getting from acquisition amortization and looking at really, on cash returns of about 15% per year.

And with that, I'm not going to take questions now. Rick and I are going to -- after I've docked questions earlier, now I'm not going to take questions either. Rick and I are going to do a Q&A in a few minutes, but I'm going to turn this over to Rick for some final comments.

Richard F. Smith

[indiscernible] This will be quick. Thanks, Lee. I hope that it was beneficial, educational for you, I leave you with a couple of thoughts. One, you've got a team that is a great team. Our team has got great credibility after coming through the economic downturn, has delivered great growth. They're enthusiastically embracing -- Rob, will you join us?

Robert Kamerschen

Yes.

Richard F. Smith

They enthusiastically embrace innovation, execution, and a passion for growth. The environment going forward economically, regulatorily, is I think, much like the times have been in the past and even in that outlook, we remain as a team highly optimistic and confident we can deliver the returns that Lee and I have showed you here today.

So with that, Jeff, I think we got some questions over the Internet, correct? And the audience as well. Questions for us -- or if you didn't get your questions answered fully from the business unit leaders, we can do that. Yes, Andrew?

Unknown Analyst

Rick, you seem to have a great grasp on kind of all the moving parts in your business, the external risk, it strikes me, beyond just the macroeconomic environment is regulatory, you've made mentioned to it a couple -- mentioned it a couple of times.

Could you kind of flesh out where you think the upside case is from a regulatory perspective in the U.S. versus the downside cases? It just seems like the range of outcomes is potentially from very benign to maybe not so great economically [ph].

Richard F. Smith

Yes, that's a great question. I leave you with one thought before we get into that. The regulatory changes are not just the U.S, we're seeing shifts in many parts of the world. And I think they're manageable. I don't want to discard them. They're important, we're focused. We've got Robbie Kamerschen back if you've not met him who's heading up full force [ph]. Think about it this way, CFPB is -- the mandate is just now developing. If you think about maybe late 2012 through probably mid-2013, and specific to CFPB, our focus now is on building a compliance infrastructure that ensures as the mandates evolve and are handed out to our industry that we have the ability to comply with those mandates. There are unknowns what those mandates are going to be today, clearly are unknown, specific to CFPB. And as Lee alluded to earlier, we think of that spend in a millions of dollars, not tens of millions of dollars. But rest assured, we take it very, very seriously. We've got a full group of CFPB in Atlanta with our team right now, kind of learning and exchanging ideas. So my commitment to you is that as the mandates evolve and we can digest and interpret what those mandates might mean for us, our investor, our customers and the model we'll be as transparent with you as we are in everything else we do. At this juncture, I think it's closer to the benign than the extreme, to use your vernacular. We'll get through it, and we'll focus as much on opportunity as we will threat. And again, I used earlier, I think Dann also talked about it in his presentation, Dodd-Frank and the ability to pay was a regulatory change that we looked at and said there's an opportunity for The Work Number. So hopefully, that helps. David and then we'll go to -- here's one here. Right there.

Paul Ginocchio - Deutsche Bank AG, Research Division

It's Paul Ginocchio from Deutsche Bank. I think on the last call you changed your definition of core growth and you started adding in initiatives. I know you'd sort of talked about that in the last couple of quarters, talk about some of the initiatives in mortgages. Can you just talk about what led -- why you've decided to change it? And is it -- I guess, that's going forward that's how you do it.

Richard F. Smith

Yes. Let me jump in. Lee, if you want to add to it, please do. What Lee and I started to think about, remember the old definition, and wanted to give you great transparency. I was looking at not just organic versus inorganic, but I think one of us talked about this earlier. Mortgage is a sizable piece of business for us. It can be in the teens, maybe low-teens up to the high-teens as percent of our total revenue. And we felt an obligation to make sure you had transparency into core organic non-mortgage. And I think we started that process a couple of years ago.

Lee Adrean

Three years.

Richard F. Smith

Three years ago. As Lee and I started to think about a better way to communicate to you, what we're doing as a company, we had excluded any element of innovation in the mortgage markets that Dann and Rudy were succeeding in. And you've always saw in our mandate is that we have to grow at a faster rate or decline at a slower rate in mortgage depending on where you are in the cycle. And there are many levers you can pull to get there. It could be greater penetration or could be greater innovation. So we fine tune that model. I think it was the one the last couple of quarters, to say, "Hey, the team get some credit for innovating in the mortgage market because they'll continue to innovate." So that was the rationale for the change, kind of extract out the innovation, or penetration we're getting in the mortgage market.

Manav Patnaik - Barclays Capital, Research Division

Just a question for each of you. So for Rick, just on a big picture perspective, how do you position yourself? What are your views on the looming fiscal cliff or slope, or whatever you call it, and how do you prepare for that? And -- putting you on the spot there. And...

Richard F. Smith

Manav, how much time do you have?

Manav Patnaik - Barclays Capital, Research Division

I've got time, actually. And Lee for you, just after that on the capital allocation priorities and clearly after the CSC deal you guys talked about first getting back to your target leverage before you do buyback and stuff. But post that, how do we think about sort of buybacks versus dividends? Like, what's the preference, because -- the 25% to 35% dividend range, should we just assume that growing with net income growth, or how does -- how should we think about that perspective.

Richard F. Smith

Well, how about if I take his question, he takes mine. To be very clear, the forecast that we laid out specifically for 2013 on a multiyear that Lee showed and I showed as well as one assumption. The assumption is that we get to the fiscal cliff issue. I'm not sure anyone can clearly define for you exactly what the implications are in the global economy, or the U.S. economy, if we'll go over the cliff. I am optimistic in that I don't think there's going to be -- it's just my opinion, that there's going to be a radical solution between now and January 1. I think they come to some compromise to kick the can down the field a bit further and resolve it later in 2013. If they go over the fiscal cliff, you'll see the analysis as well as I. Ranging anywhere from taking a 2-plus percent GDP growth forecast for next year, down to slightly positive to slightly negative. So that is not contemplated in our forecast for next year. The assumption is that they get through it, they kick it down the field a bit and resolve it later next year.

Lee Adrean

In terms of capital allocation and particularly return of cash to shareholders, you're absolutely correct over the course of 2013, we expect -- I would say little to no share repurchase. Obviously, we're always judging exactly where want to be. But we are -- we have levered a little bit beyond our normal targets. We've positioned ourselves to do CSC. We're -- I think we're comfortable levering up to that level and then coming back as we did after the TALX acquisition, which is now our Workforce Solutions business. And positioning ourselves to have the flexibility to appropriate things going forward. Beyond that point, then the question is as we get back to a normal blend, how much of the return to shareholders may come in dividends versus share repurchase? Absolutely expect that we'll continue be true to our 25% to 35% of net income being paid out to shareholders. We're probably going to lean a little bit towards the higher end of that range, and that will grow as our earnings grow. And then the remainder, we're likely to use for share repurchase.

Richard F. Smith

Dave, before we go here, I guess, we got something on the [indiscernible].

Lee Adrean

Shlomo had a question. He's been dying since Rudy's presentation to ask this one.

Richard F. Smith

Let's do Jeff first, then we'll come to Shlomo then David.

Jeffrey L. Dodge

This is from one of our web participants, but in terms of the CSC deal, are there opportunities to sell other products and services into the customer base? And what was included or not included in our revenue guidance that we gave?

Richard F. Smith

The answer is clearly, yes. And I think if he was talking about that offline earlier, it's -- might want the ability to bring products to those customers in to those 14, 15 states. But at the ease at which we already can do that. When you have more control over the partnership, more control over the asset, more control over the customers, the speed at which we can deploy solutions should be greatly enhanced since the time the revenue will be better. As far as what was included when we disclosed the acquisition as there are modest expense synergies that build over time and they were, as I described it, de minimis revenue synergies at this juncture in the expected financials. Okay, Shlomo?

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Just getting back to the 2013 revenue guidance excluding CSC, and should we think of it as the organic growth taking a step down just because the comps are tough this coming year in mortgage? Because the implication seems to be more like a 5% to 6% organic growth if I exclude the CSC revenue. And then I'm going to ask another one after that.

Lee Adrean

Yes. Well, let me put 2013 in perspective on 2 different dimensions. First is revenue. You're absolutely right. If you look at the revenue amount, we said for CSC, that's 5 to 6 points of acquisition-driven growth, if you will. We're saying 10% to 12%. So by subtraction, it's 5% to 6% organic. We do not build into our guidance acquisitions, we haven't done yet or don't have contracted. So if we're doing some acquisitions over the course of the year, that may add a little bit on top of that, but it would be 5% to 6% organic. As I said before, we'll try to make the underlying repeatable growth trend very clear as well as the cyclical or nonrecurring factors. And we do expect mortgage next year will be a little bit of a drag, which would explain 5% to 6% total existing company. But consistent with that, we would expect the non-mortgage market component to be growing in that 6% to 8% range. So very comfortable with that as an outlook. The other thing I'd like...

Richard F. Smith

On that particular point, as I said before, we come back in February with the final guidance. We'll tighten that up for you, give greater transparency where we expect the core non-mortgage business will be. But right now, we expect to be clearly in that range.

Lee Adrean

And the other I might highlight and this is again one that we'll tighten down in February. The numbers that Rick shared on earnings -- adjusted earnings share per share were up 20% to 25%. That's a bit of a broader range than we'll probably go out with in February. But if I put that in context, because I think there's a reasonably tight consensus for next year in terms of Equifax before we announce CSC, and we said we though when you combine CSC plus some investment we're going to make, the net of those 2 would be add $0.35 to $0.40 on top of it. That -- if you did that math, that would put you kind of probably the 20% to 23% range in terms of growth. And that would be consistent with a kind of a 15% to 16% downward move in the mortgage market. We do have to an in-house economist who is somewhat more optimistic than that in terms of less of a decline. Frankly, the feedback from some of our clients, which suggest we might see less of a decline. So we'll move -- if we see a lesser decline, something that's in the 5% to 10% down, then you're likely to see us in the 24% to 25% range. If we see the kind of 15% to 16% down, it's probably more of the 20% to 23% range. So that gives you a little bit of a roadmap for how to think about the EPS guidance for next year. And again, we'll give you a more specific target range and a little tighter range when we come out in February.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Just to keep on the topic of the CSC acquisition, is the tax EBITDA basically going to be the free cash flow over there and is that the way to think of it really good free cash flow to some of the EBITDA margins?

Lee Adrean

Well, you're crossing 2 things. The tax benefit we get will not affect the EBITDA margin. But obviously, more but as the EBITDA flows through because we're going to get a significant tax benefit.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then just to understand those margins, did they just have a sales organization, and that's basically what we [indiscernible]

Richard F. Smith

No, no. They have sales organization, They had a customer service call center else, they handled some distribution [ph] this quarter. They had, I think a total of couple of hundred people in their organization, I think roughly 80 or 90 of them were in the sales organization, so it was broader than just sales. David.

David M. Lewis - JP Morgan Chase & Co, Research Division

I mean, could you break down the 6% to 8% organic revenue growth target over the course of the business cycle between unit growth and price? And then in particular, can you give us insight into major unit pricing trends in your principal businesses in terms of what you expect over a cycle?

Lee Adrean

Yes, the -- although that's priced in so many different products and markets it's hard to comment on. But I would look at price as being more part of the 4% to 5% strategic initiative [indiscernible] then the 2% to 3%. The -- and the pricing that we see in our businesses varies quite a bit. If you look at -- even within USCIS, our core business, if you'd simply took core credit reports it tends to average down just a little bit every year and part of that is just a function of the mix has changed over time to be more and more concentrated in some of the big customers who tend to get our best volume-based pricing. On the other hand, with specific segments where we had unique value, we are able to increase price a little bit each year. So the net of that in a business like USCIS might be neutral to very slightly positive. If you look at the business like Workforce Solutions, where we have a highly, highly valuable database that others have not replicated, and we're doing things to increase the value of that database over time. On balance, we probably could get a little bit of price. Most of the increase in revenue per record that we see year-by-year is coming from expanding the usage into more and more segment than getting deeper penetration, but some of it is price. So I would say on balance, price across the company's probably a slight positive. but it varies unit to unit.

Richard F. Smith

I just want to add an additional point because I think we talked about this in the past couple of earnings calls. The model has changed dramatically in USCIS. This year, where revenues far outpacing the volume, which has not been the norm, historically for a number of years. As you think going forward, to Lee's point, think about that getting closer to neutrality versus significant step up of the addition. It does not mean Rudy and his team, I think he mentioned 18 pricing people will continue to aggressively look at price elasticity, bundling, value we can add for our clients to enhanced pricing. But I but I think is you build your models, think about being closer to neutral than what you saw in 2012. You said you have 2...

David M. Lewis - JP Morgan Chase & Co, Research Division

Yes. It's a 2-part question.

Richard F. Smith

You're like Shlomo.

David M. Lewis - JP Morgan Chase & Co, Research Division

The CFPB settlements with Discover and Cap One, how do we think that's going to impact the affinity market for Personal Solutions products? And then secondarily, our financial institutions starting to pull back for marketing these add-on types of products with their offerings.

Richard F. Smith

So Bob, why don't you get a microphone and can you just start with -- oh, you're mic-ed up. Maybe, you start with a generic though and then Trey, if you jump in specifically to the affinity market? When you see Discover and see American Express, you see a SIFI [ph] that they did. I think the indication goes back to Andrew, a question you asked earlier as you think about regulation, what it means. It's clear that the intent now is more penal than the past regulator, the FTC who regulated us, and the more you're out of compliance, there's a likelihood of a financial implication of that. So that's why it's so important that we spend that much money upfront to build the government infrastructure to assure that we give ourselves the best shot at being in compliance, hence not facing financial implication, but Trey, specifically affinity.

Joseph M. Loughran

So the first question about -- people [indiscernible], have people pulled back. The sense is that there has been a bit of pause in some of the -- there has been a bit of a pause in some of the programs as customers, as banks and others look at -- reevaluate their policies even make sure that they are in compliance and this emerging and evolving. And from a peace offer perspective, as I mentioned earlier, we focused largely on the direct side of the business. So we don't have a lot of exposure to the indirect side through the third-party. Is this an area that we continue to look at and to develop opportunities and an think there's opportunity for us down the road, but as in terms of a negative exposure, we really don't have negative exposure there. We obviously are certainly looking what's going on there making sure that we're doing the same -- in compliance the same ways those companies are and believe that we are have good controls in some place.

Richard F. Smith

How about here? Pass it through, the microphone, Bob.

William A. Warmington - Raymond James & Associates, Inc., Research Division

Bill Warmington with Raymond James. Just wanted to confirm just to be perfectly clear on the kind of getting to the 10% to 12%, so we're looking at 5% to 6% from CSG [ph], 6% to 8% organic, and then not negative 1% to 2% from mortgage, that gets you to 10% to 12%.

Lee Adrean

Yes.

William A. Warmington - Raymond James & Associates, Inc., Research Division

And then the question the core non-mortgage piece that you're showing going from 8.7 to 6.1 to 5.9, help us understand what we're going to see in the fourth quarter and the 2013? Is that leveled off? Do you think that steps down more? Is it being -- is the gap being filled in by the mortgage initiatives that are coming in there? Help us with our expectations.

Lee Adrean

Yes. You're getting the point of granularity, where it's hard for me to forecast that accurately, 6% to 8% and the issue with the 6% to 8% is you'll have different business contributing at that at different rates in different quarters. I'm relatively comfortable with the 6% to 8%.

William A. Warmington - Raymond James & Associates, Inc., Research Division

Can I go on to intermediate term? Last Analyst Day, when you said you said intermediate term, you gave specific years. Here, you didn't give specific years. So what does intermediate term mean? And then I think in a footnote, you said the 7% to 10% intermediate includes the CSC. So when I think about other years that won't include CSC, should I think less acquisitions in future years? How should I think about that footnote?

Richard F. Smith

Well, let me jump in, you add to it, Lee. The -- what I stated with and Lee ended with, which was far right hand column, which is what I think we called multiyear versus [indiscernible]. That is what you should expect from us. As we' every year do our growth playbook which is a strategic plan, we look out 3 to 4 years and what we think the environment's going to be and hence what our strategy should be in that environment. So it's a multiyear, as Lee said earlier, I've always said some years you're on a upside outer-edge of the lows, some years you might be on the low-end of those. But over a extended 3 to 4 period of time, you should think of us being in 'that 7% to 10% total growth and the 10% to 13% EPS growth.

Lee Adrean

Maybe let me be clear on one thing. 2013 will be higher revenue growth, higher EPS growth. The 7% to 10% and the 10% to 13% would be '14 and beyond.

Richard F. Smith

And we showed the '13 remember, it was 10% to 12%, and I think 20%, 25% on EPS, which includes...

Unknown Attendee

[Indiscernible] Does it include the CSC impact when double-star for the multi-year on the page [indiscernible].

Lee Adrean

Okay no, the 2013 includes the benefit of adding in a chunk of CSC revenue and profit. You get to '14 and beyond, that include CSC as part of the base on which we're growing. But it's not taking any credit for the acquisition impact, all of which would be in '13. And so in other words, adding CSC, doesn't change that 7% to 10% revenue growth or 10% to 13%, once we get past, once we anniversary the acquisition date.

Unknown Analyst

Yes, so another quick question. So on the -- you guys have done extremely well on the NPI initiatives and churning out 65, 75 new products really sounds pretty impressive. I just want to get one, a sense off that 65 let's say new products, like what percentage of that is version 2.2 or an upgrade versus -- absolutely novel [ph] brand new products? And the second part is I think Rick, you had mentioned earlier, the 10% goal at some point, you are going to look to increase that like how far or how much time do you need to take that to the next level for the company?

Richard F. Smith

Lee, why don't you answer the first one. I'll answer the second one first and then you can come back to it.

Lee Adrean

The -- we have tried when we talked about 3 percentage points of growth, we have tried to wash out to the extent possible, anything that may be cannibalization. For the most part, if you're just doing versioning, next version, next version, next version, that's not generally considered NPI. Now if we have a new version that significantly expands the market size or substantially greater value and really pricing forward, we will capture those kind of step change versions so that if it's version 2, version 2.1, version 2.2, we don't count that as NPI.

Richard F. Smith

Did that answer your question? Good. On the second part of your question.

Yes, we have talked about that. It's not time yet but we'll continue to think about the 10%, what should 10% be. At this juncture on the client, it will be moving up over next couple of years. 2013 -- as we enter 2013, I expected to be in that 10% range again. But over the years I'd like to think about a 12% kind of range. Just in the spirit of continually stretching ourselves and improving on that target. Yes?

Unknown Attendee

Rick, back to CSC. When you look at that -- the base of customers that's coming in, how far behind are they in terms of the NPI and rolling that out? Any metrics you can give us in terms of months, years, behind percentage of revenue behind? Any sense of how much room you kind of have to run in that new base?

Richard F. Smith

Yes, I won't quantify it specifically. But think about it this way, I tried to answer it very directly in prior question. When you have complete control over a particular asset in a geography, his ability -- Rudy's ability to navigate quickly, maneuver quickly to bring products to market. We don't have to negotiate price or royalties or whatever it might be. It is greatly enhanced. So I just think time-to-market with new products with new pricing actions will be greatly enhanced, but I don't have a percentage for you. Yes?

Unknown Attendee

If we assume that marketing activity is a leading indicator for future card generation activity, how have mailing been treating in and what does that mean for '13?

Richard F. Smith

Rudy, do you have an answer off the top of your head, or Jeff do you find?

Richard F. Smith

Jeff? Great delegation, Rudy.

Jeffrey L. Dodge

The card mailings have slowed down a bit, but we're not totally in sync with what you see in the marketplace in terms of card mailing. So we had single-digit growth in our credit marketing space business segment in the third quarter. And I think credit card mailings have been coming down double digits at this point. So they're not directly correlated with each other. So we've been saying basically a steady, single-digit growth in our prescreening products.

Unknown Attendee

If I can ask, the balance sheet, if I'm not mistaken, your leverage target is 1.75x to 2x. Why would you not consider operating at a higher leverage?

Lee Adrean

Well, there are times where capital is readily available and you can operate at higher rates. But I've been a public company CFO for 19 years, and I've seen all different environments. And it was only a couple of years ago, we couldn't even issue commercial paper. Our strategy because acquisitions are a part of our strategy and at the right times, the ability to do acquisition opens up strategic opportunities for us. We want to be -- have a strong enough balance sheet than in both good capital market environments and tough capital market environments, we can pretty readily raise capita, and at 1.75x, 2x, we think we do that.

Richard F. Smith

It wasn't that long ago that our leverage was closer to 0.9 to 1. So...

Anything else on the web? Great. If not, thanks for coming out. I hope you found this beneficial. I'll leave you with a thought, that I said a few minutes ago, and that is, this is a great company. I think you'll agree if you look at the talent of the team that you just saw today, the results you've seen for the past few years, the look we gave you going forward. Those don't have the characteristics of a stale, 113-year-old company. We're very optimistic about what we can do for our shareholders in the years to come. So thanks for your time. Jeff?

Jeffrey L. Dodge

Just a reminder everybody, we've got boxed lunches out there. The management team is going to stay here during lunch, so you're welcome to stay and eat with us if you want, or you can take it back to the office, so thanks again.

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