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Executives

Jeffrey L. Dodge - Senior Vice President of Investor Relations

Richard F. Smith - Chairman and Chief Executive Officer

Lee Adrean - Chief Financial Officer and Corporate Vice President

Analysts

David Togut - Evercore Partners Inc., Research Division

Manav Patnaik - Barclays Capital, Research Division

Paul Ginocchio - Deutsche Bank AG, Research Division

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

Carter Malloy - Stephens Inc., Research Division

Allison Jordan

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

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

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

Equifax (EFX) Q4 2012 Earnings Call February 7, 2013 8:30 AM ET

Operator

Good day, everyone, and welcome to the Q4 2012 Equifax Earnings Call. Today's conference is being recorded. At this time, it is my pleasure to turn the conference over to Mr. Jeff Dodge. Please go ahead.

Jeffrey L. Dodge

Thank you, and good morning, everyone, and welcome to today's conference call. I'm Jeff Dodge, Investor Relations, and with me today are Rick Smith, Chairman and Chief Executive Officer; and Lee Adrean, Chief Financial Officer. Today's call is being recorded. An archive of the recording will be available later today in the Investor Relations section of the About Equifax tab on our website at www.equifax.com.

During this call, we'll be making certain forward-looking statements to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in the filings with the SEC, including our 2011 Form 10-K and subsequent filings. We will also refer to certain non-GAAP financial measures, adjusted diluted EPS attributable to Equifax and adjusted operating margin.

Adjusted diluted EPS attributable to Equifax excludes the CSC acquisition fees, a pension settlement which we announced during the quarter, certain income tax items, the loss on the deconsolidation of our Brazilian business and acquisition-related amortization expense.

Adjusted operating margin excludes the CSC acquisition fees and the pension settlement, which was a noncash charge. These measures are detailed in our non-GAAP reconciliation tables included with our earnings release and also posted on our website. Please refer to the non-GAAP reconciliation in our various investor presentations, which are posted in the Investor Relations section, under the About Equifax tab on our website.

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

Richard F. Smith

Thanks, Jeff, and good morning, everyone. It's hard to believe it's already been 2 months since we were with many of you at New York Stock Exchange. Hopefully, you found that a great opportunity to see our management team first hand, get a better understanding of our strategy and some of our key growth initiatives. Based upon your feedback, it appears the insight and outlook we provided you was viewed positive. We're excited about the growth opportunities that lie ahead. We want to thank you again for your time and your interest in our company. As you know, we have been intensely focused on the rapid deployment of innovation and the continuous strive to improve our execution. Our performance for this quarter and for the year reflects that effort.

For the fourth quarter of 2012, total revenue was $558 million, up 9.5% from the fourth quarter of 2011. The adjusted operating margin was 24.9% compared to 24.7% in 2011, up 20 basis points. And finally, the adjusted EPS was $0.78, up 14% from $0.68 a year ago. Across many dimensions, 2012 was a record year for Equifax. For the first time in our history, we surpassed $2 billion in revenue. We added over $1.8 billion in market value, and we closed the acquisition of our largest and last affiliate in the United States, CSC Credit Services. And we broadened our product offerings, we also expanded our global presence. All in all, a good year.

Each of our business units has some very noteworthy accomplishments in 2012. We expect their success last year to fuel the momentum in 2013. For the year, USCIS delivered 16% revenue growth and expanded operating margins by over 100 basis points. A couple of highlights for USCIS, we formalized our enterprise-wide distribution process, leveraging the scale, skill and scope of USCIS customer relationships that still services by Workforce Solutions, North American Commercial Solutions and North American Personal Solutions. So I could tell you firsthand that the traction that it's gained and the difference it's made in the marketplace is significant and of great value for our customers, too.

Secondly, in USCIS, we expanded our key client program, something we introduced a number of years ago. We have 2 new clients under Tom Madison's leadership, and we strengthened the management team with both outside hires and internal promotions.

We also took this model, this KCP Service Model, into new verticals, specifically the telco market to better address the needs of a very large and important market segment to us. Also in USCIS, we expanded our Decision 360 strategy and it's delivering significant wins in the marketplace, as we demonstrate and differentiate the value of the unique insights we bring to our customers' critical decisioning needs. That will continue to be a great focus for us in 2013 and beyond, as well.

International. Excluding the results of Brazil in 2011, International delivered solid constant dollar organic growth of 9% while maintaining 30% operating margins and further penetrating our key markets with new products and services. Here's a handful of highlights. We continue to leverage our strong franchise in key geographies with new product innovation, growth of our analytics and enabling technology services, broadening our served markets and increasing the scale of operations through better IT and organizational discipline. Despite really weak economies, our U.K. and Spanish management teams relentlessly executed on their strategic initiatives, enabling us to gain market share and deliver a 10% local currency growth in revenue for the year.

In Latin America, our high-value offerings in technology and analytical services grew over 25% in 2012. That has been a key area of focus for us now for a number of years across International but specifically in Latin America. In Russia, overall volume growth and new product offerings contributed to a very strong double-digit revenue growth. And in India, we continue to exceed our targets for new contributing members and records in the database, which significantly enhances our value of our strategic investments in new products and analytical capabilities. In fact, in India now, we have over 200 million records and over 200 different data contributors, so again some great momentum in India.

On the Workforce Solutions, they had a great year, growing 15% and expanding their operating margins by almost 100 basis points. This was driven primarily by a 34% increase in verification services. At year end, total records in the Work Number database were over 222 million, up 6% from year-end 2011, on a clear path to reach 70 million active records and 250 million total records. This expansion of records will fuel growth for a number of years ahead.

We will further penetrate our served markets by using new product innovation to add new value to those records and through our enterprise selling initiatives. Workforce Solutions is gaining traction within the financial services, specifically the credit card and automotive verticals, addressing their needs of the build and pay underwriting requirements. And we've talked about that for quite some time, really taking the Work Number database beyond just mortgage in a new market. So the credit card and automotive verticals are paying great dividends already. Additionally, Workforce Solutions continues to broaden its focus in the government sector, with public agencies in all 50 states and the District of Columbia to support their efforts to reduce improper payments and improve agency services and staff efficiency.

Personal Solutions had an outstanding year with 13% revenue growth, a strong 30% operating margin and significant market share gains. Due to new product launches such as Equifax Complete, subscription-based revenue grew 16%, and the average revenue per subscriber was increased by 12% from 2011.

We also increased our U.S. based platform and marketing expertise and brought it to Canada and European operations to accelerate their opportunities with consumers. As a result, U.K.'s personal solutions product delivered strong double-digit growth and significant market share gains in 2012. The success that Trey [ph] and his team have had by taking these capabilities and bringing them in a stronger fashion to Canada and a new fashion to U.K., has given us great hope that we're going to in fact take the same approach to other countries around the world and build a Personal Solutions business.

North American Commercial Solutions, as we talked throughout last year, faced a challenging 2012 with weak market conditions, the constrained growth and pressured operating margins. For the year, revenue grew 1% and the operating margin was 22%. High-single digit growth in our U.S. Risk segment offset weaknesses in our U.S. marketing and also Canada. However, they turned the corner in the fourth quarter and delivered 4% growth with continued strength in U.S. Risk and improved performance from U.S. marketing. Commercial strategy to penetrate new markets is starting to build momentum, with the pipeline for new business up 45% at the end of 2012 versus 2011.

One of the processes we go through on a routine basis is to review our portfolio. When we determine that a business no longer fits our long-term strategy, we obviously are going to take a divestment strategy. So over the past week, we have divested 2 small, nonstrategic business units. One is Settlement Services, which was partly started and built a number of years ago in USCIS, and the other, Talent Management in Workforce Solutions. It's a win for us, it's a win for the buyers and it's going to be a win for the customers and our employees, as well. Combined, these units generated $800 million in revenue last year at margins that were below the Equifax average.

Beginning this quarter, first quarter 2013, these units will be treated as discontinued operations. I should point out that the financial impact of these divestitures to total company earnings per share is nominal and was fully anticipated when we presented the 2013 guidance during our Investor Day at the New York Stock Exchange in December.

I'm proud of the performance the team delivered in 2012. Some additional highlights: our new product innovation process launched over 60 new products, including some insurance scores in the U.K., family plan and Personal Solutions and many others. We have now launched over 60 products per year for 5 consecutive years. We expanded our served markets in Workforce Solutions, as I mentioned, by introducing products that target the auto and the card markets. We continue to [indiscernible] and other world-class processes to better control our cost, improve operating margin and strengthen our market position. In fact, our reputation and expertise in the area of LEAN and process improvement is being recognized by our customers. Increasingly, customers are asking for our help in deploying LEAN in their operations to improve productivity within and across our respective organizations.

A quick look forward. Our focus in 2013 will build on the momentum we created in 2012. A few points for you. Although it's only been 6 weeks, we're off to a really good start with the integration of CSC Credit Services. It will be known, by the way, in the future as our central region within our FSC organization, which had no problems to date, and we fully anticipate a smooth, quick and successful integration.

We will continue to leverage Decision 360, expanding and broadening our product services to gain market share. We'll step up our investment analytics and look for capabilities to further increase the value of our insights to our customers. We intend to accelerate growth in our fast-growing Fraud and ID Management business. We will continue to pursue opportunities to acquire or leverage new and unique data resources, including unstructured data. We'll do this through internal development, acquisitions and partnerships. And to ensure that we can support these growth initiatives, we'll continue to invest in critical infrastructure initiatives, such as building platforms, human resources and a standardized international systems platform.

I can tell you this, and hopefully you saw it in December. The energy our team has around these opportunities of growth in front of us are exciting, and their desire to win is extremely encouraging. So with that, I'll turn it over to Lee for a deeper financial look at 2012. Lee?

Lee Adrean

Thanks, Rick, and good morning, everyone. This morning, I will be referring to the financial results generally presented on a GAAP basis. You should also refer to the Q&A and non-GAAP reconciliations attached to our earnings release for additional financial information.

As Rick mentioned, after year end, we divested 2 business units: Settlement Services in USCIS and Talent Management in Workforce Solutions. The financial results of these 2 businesses are included in our reported fourth quarter results, as we had not made firm decisions to proceed with these divestitures until after quarter end.

However, these 2 businesses will be reported as discontinued operations beginning with the first quarter of 2013. To facilitate your modeling for 2013, we have included the impact of these divestitures on their respective segments and total company for the full year 2011 and '12, and quarterly for 2012, in a table included with our earnings release.

Now let me return to the quarterly results. Compared to the same quarter of 2011, for the fourth quarter of 2012, consolidated revenue of $558 million was up 9.5% on a reported and constant currency basis. Operating margin was 17%, which was negatively impacted by a non-cash settlement -- pension settlement and fees associated with the CSC acquisition. Excluding these onetime items, the adjusted operating margin was 24.9%, up from 24.7% in 2011.

Diluted earnings per share attributable to Equifax was $0.38. During the quarter, we recorded several one-time items, which are detailed in our non-GAAP reconciliation. The cumulative impact of these onetime items negatively impacted GAAP EPS by approximately $0.27.

Adjusting for the onetime items and excluding acquisition-related amortization, adjusted earnings per share was $0.78, up $0.10 or 14% compared to the fourth quarter of 2011. This includes approximately $0.02 per share of tax benefits and 3 days' results of operations from the CSC Credit Services acquisition, which closed on December 28.

Moving to the individual business units. U.S. Consumer Information Solutions revenue was $236 million, up 9%. Online Consumer Information Solutions revenue was $148 million, up 8%. A majority of this growth came from a combination of increased volume and improved pricing in mortgage and auto end-use markets, while the remainder came from pricing and new product initiatives in other end-use markets, partially offset by declines in transaction volume from select high volume but lower unit priced accounts in the financial services market.

Average revenue per transaction was up 17% in the quarter, due to the shift in transaction mix toward higher-priced units and away from lower unit price accounts and to increased revenue from subscription-billed products.

Transaction volume was down 9% due to shift away from high volume but lower-priced accounts. Mortgage Solutions revenue of $43 million was up 28% compared to the fourth quarter of 2011. Both mortgage reporting and Settlement Services delivered strong double-digit growth in the quarter. Our Undisclosed Debt Monitoring Services continued to deliver strong double-digit growth as we had several new customers and broadened our distribution channels.

Consumer Financial Marketing Services revenue was $45 million, down 1%. Credit Marketing Services revenue was up approximately 7%, while IXI declined as financial institutions reduced their use of wealth-based data in select applications due to regulatory uncertainty, which we are now addressing.

The operating margin for U.S. Consumer Information Solutions was 37.4% compared to 37.5% in the fourth quarter of 2011.

Our International business unit's revenue was $125 million, up 7% on a reported and constant dollar basis. By region, Latin America's revenue was $48 million, up 8% in U.S. dollars and 9% in local currency, driven by strong double-digit growth in analytical services and marketing services.

Europe's revenue was $44 million, up 4% in U.S. dollars and up 3% in local currency. Strong double-digit growth in Analytical Services and Personal Solutions helped to offset a decline in our consumer and commercial online information offerings, which continue to be impacted by weak economic conditions.

Canada consumer information revenue was $33 million, up 10% in U.S. dollars and up 7% in local currency. Strength in Analytical services, particularly in Fraud Services, helped to offset weaknesses in Consumer Information Solutions.

International's operating margin was 29.8%, up from 28.7% in 2011. Equifax Workforce Solutions revenue was $117 million in the quarter, up 11%. Verification Services, with revenue of $70 million, was up 27% for the quarter, driven by strong double-digit growth in mortgage, preemployment, government and auto markets.

Active employment records increased 6% over the prior-year period and combined with product innovation and end-user market penetration to drive strong, continuing growth.

Employer Services revenue was $48 million, down 6% compared to last year, resulting from continued softness in tax management services, reflecting lower unemployment compensation claims activity and a delay in renewing work opportunity tax credits by the federal government, which were not renewed until January.

The Workforce Solutions' operating margin was 22.4%, compared to 23.2% in the fourth quarter of 2011. Since the federal government had not renewed the work opportunity tax credit program, we could not report revenue even though we continue to perform the necessary work for our customers. With the resolution of the fiscal cliff negotiations, work opportunity tax credit program has been extended, and we can now record revenue-associated work completed in the fourth quarter.

Our North America Personal Solutions revenue was $53 million for the quarter, up 16%. Strong growth in our subscription revenue, the additional penetration in Canada and breach activity were the major contributors to this performance. Operating margin was 30.1% compared to 30.5% in the fourth quarter of 2011, reflecting increased marketing activity in driving new subscribers.

North America Commercial Solutions revenue was $28 million, up 4% on a reported and local currency basis. Strong growth in our U.S. risk segment was partially offset by weakness in Canada and our U.S. marketing activities. The operating margin was 34.4%, flat when compared to the year-ago quarter.

In 2013, we'll be making some adjustments to the USCIS and Personal Solutions, which do not impact the reported results of the total company. However, they will impact your modeling and our reported results for these 2 business segments in 2013. First, we have aligned some of our wholesale accounts to be consistent with the current organizational accountability. As a result, the revenue and expense from these accounts will be transferred from Personal Solutions to USCIS.

Since this changes the reported results for these 2 units, we have included the impact retroactively for the full year 2011 and the quarterly and full year impact of 2012 in the attachment to our earnings release. Additionally, CSC acquisition, Personal Solutions, will realize some expense synergies beginning in 2013. As a result, we continue to expect the operating margin trend for Personal Solutions to be consistent with what we presented during the Investor Day at the New York Stock Exchange.

For the full year, consolidated revenue of $2.2 billion in 2012 was up 10% on a reported basis and up 11% on a constant currency basis. Excluding Brazil, a non-GAAP measure, full year revenue was up 12%. Operating margin was 22.6%, which was negatively impacted by the noncash pension settlement and fees associated with the CSC acquisition. Excluding these onetime items, adjusted operating margin was 24.7%, up from 24% in 2011.

Diluted earnings per share attributable to Equifax is $2.22. On a non-GAAP basis, our adjusted earnings per share was $2.97, up 18% from the prior year. Now let me turn it back to Rick.

Richard F. Smith

Great. Thanks, Lee. Some quick comments about the full year of 2013 and the quarter, then we'll go to questions. Back in December, during our Investor Day, we outlined 2013 and gave you an outlook. We talked about 10% to 12% revenue growth, 20% to 25% growth in adjusted earnings per share and operating margin in the range of 26% to 27%. We also indicated that we expected the mortgage market to remain relatively strong through the first half of 2013, but then down 15% for the full year.

We also described an economic environment where we expected modest U.S. GDP growth of around 2% and sluggish global GDP growth of approximately 2.4%. We continue to be confident in our ability to deliver 2013 results within those ranges outlined in December. For the full year, excluding the impact of the recent -- including the impact of the recent dispositions that we've talked about, our expectation for adjusted EPS from continuing operations is between $3.56 and $3.64 a share.

For the first quarter, assuming the current exchange rates and the continuation of the mortgage activity we experienced this past quarter, our outlook for revenue growth from continuing operations is between 10% and 12%. Adjusted earnings per share from continuing operations is expected to be between $0.84 and $0.87 per share for the quarter, up 20%, 24% from the first quarter of 2012. The negative impact in the first quarter from the 2 disposed businesses that we talked about, ESS and Talent Management, is approximately $0.01 for the quarter. So with that, operator, I'd like to open up for any questions or comments.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from David Togut with Evercore Partners.

David Togut - Evercore Partners Inc., Research Division

In the fourth quarter, the business segments with the strongest organic growth tended to show flat to down EBIT margins, whereas the slowest growing business, International, actually posted the best year-over-year margin gains. Can you maybe shed some light on why, and how should we think about business segment margins for 2013?

Lee Adrean

Sure, David. I think we've said for a while, we certainly worked to drive consistent margin performance on a total company basis, but it's very easy to see quarter-to-quarter fluctuations in individual businesses. USCIS was down 10 basis points year-over-year. We are making some investments in our fraud product lines there, where we see good opportunity. And given the size of business, and it's our biggest, but you spend $0.5 million or $1 million of additional investment a quarter and it's 20, 40 basis points. So that pretty readily can explain quarter-to-quarter fluctuations. So we don't really focus on individual business unit quarterly margins, so much is trends over a longer period. We do focus at a total company level of ensuring that we're delivering consistent performance. Our expectations on margins for next year across the business units continue to be consistent with what we said at the Investor Day in December.

Richard F. Smith

David, just 2 other data points. One, Lee mentioned it, on the second fast growth business in the quarter, Workforce Solutions, as he mentioned, the WASI [ph], the fact that we had no revenue at that time but we still had the expenses to produce the WASI [ph] products and then PSol gets fluctuation obviously depends on the level of advertising investment. But again, look at the stuff we gave you for this year, 26% to 27%, obviously, the big business units have got to step up to get there, and we're confident they will. And two, as Lee said, that will be good as it's going to give you a framework on a multiyear, so go back and look at that. We stand committed to those numbers.

David Togut - Evercore Partners Inc., Research Division

Okay. Just given the divestitures and some of the restatement, I have a couple of quick housekeeping questions if I could. To what business segment within USCIS are you moving PSol revenue to?

Lee Adrean

That would be the online business.

David Togut - Evercore Partners Inc., Research Division

Okay. And then, did Equifax Settlement Services previously rely -- reside in Mortgage Solutions?

Lee Adrean

Yes.

Richard F. Smith

Yes, it did.

David Togut - Evercore Partners Inc., Research Division

Okay. And then the Talent Management disposal, was that within Employer Services?

Richard F. Smith

Yes.

David Togut - Evercore Partners Inc., Research Division

And just finally for 2013, do you have a read on interest expense, tax rate and D&A?

Lee Adrean

Yes. Interest expense, I'm going to do this one from memory. Tax rate will be between 35% and 37% for the year. Interest expense, between $60 million [ph] and $75 million for the year, and D&A, I don't have. I think, my recollection is it's roughly comparable, up slightly to this year. Well actually, that's not true because I'm not factoring in -- plus and then add CSC on top of it and I don't remember what that number is.

David Togut - Evercore Partners Inc., Research Division

What's the amortization schedule on the goodwill for the acquisition?

Lee Adrean

Goodwill is not amortized. The bulk of the amortizable intangibles, I believe, are over about 15 years.

Operator

Our next question will come from Manav Patnaik.

Manav Patnaik - Barclays Capital, Research Division

The 26% to 27% operating margin guidance, it seems a little conservative to me. Can you maybe just help us understand sort of the moving parts there and, I guess, the confidence in that range?

Richard F. Smith

Well, if confidence is higher, we wouldn't have given you the range. We talked that range in December, reiterate now, it's factoring in the benefits of CSC, it's also factoring in the fact that we, as we mentioned, the December we'll take roughly $20 million of the upside and invest -- upside being from the CSC acquisition and reinvest that back into the business for infrastructure needs, as well as products to accelerate growth long term. So you're going to get core organic non-CSC, if you will, expanded margins in line with the long-term range we gave you a year or so ago, 20, 25 basis points. You layer on top of that the CSC benefit and take out about $20 million for reinvestment.

Manav Patnaik - Barclays Capital, Research Division

Okay. And I mean, in terms of the divested assets, I guess you mentioned you had that planned. What's the outlook in terms of -- are there many other units, a few other units out there that potentially fit in that non-core bucket?

Richard F. Smith

That's an ongoing process, I don't see any right now, to be honest. It's an ongoing process. As you know, over the 7.5 years I've been here, we've disposed of DMS business, we disposed of a little [indiscernible] business and now these 2, so all relatively small amounts strategic. But no, at this juncture, I see nothing else at that non-core description that needs to be disposed of, no.

Manav Patnaik - Barclays Capital, Research Division

Got it. okay. And then one final one. Just on the -- I think it was on the fraud side where you guys had mentioned you guys are going to step up investment there, potentially look for acquisitions. Maybe you could just dip a little more granular into what areas of the fraud that are seeming really attractive at this point in time?

Richard F. Smith

Well, we think we're uniquely positioned with our unique data assets to be a bigger player. We're a good-sized player today. We're over $100 million in the traditional -- between $100 million and $150 million, to be exact, in the traditional fraud market. A lot of it with the Work Number does when you have the verification of employment, verification of income, is the sole fraudulent promise. We're announcing a new leader, a new focus, a new team internally to take these historic products we have in fraud, build a new strategy to invest. I think what we're going to see initially is leveraging our current assets to be a bigger, faster grower in this marketplace. We will look at acquisitions if they make sense. But again, as we discussed in December and discussed in many different conferences, we think we're really uniquely positioned to be a player here in a much bigger way.

Operator

Paul Ginocchio with Deutsche Bank has our next question.

Paul Ginocchio - Deutsche Bank AG, Research Division

Just looking back at 2012, I just wondered if you could give us a split between refi and purchase within mortgage, and what was mortgage revenue for the -- or mortgage-related revenue for the entire 2012.

Richard F. Smith

Yes. The total, we've always talked about mortgage being somewhere in a range of 15% to 20%. It was in the upper end of that range, in the upper teens for the year. Refinancing makes up approximately 70% or more of that business. And as we talked about as we look at the guidance for 2013, the 15% down year-on-year for the year as we factored into our budget, it largely is driven by the assumption that rates do go up and refinancing drops in the second half of the year.

Paul Ginocchio - Deutsche Bank AG, Research Division

And can you split out that upper teens revenue exposure between refi and purchase?

Richard F. Smith

Yes, again, roughly 70% of the total. And one thing you should know, Paul, too, as you think about your model going forward is that the Settlement Services product that we launched and have just sold will reduce our exposure to the mortgage market if you look back by about 3%.

Paul Ginocchio - Deutsche Bank AG, Research Division

And, Lee, if I could just ask real quick, does the pension settlement help your cost going forward?

Lee Adrean

It had minimal impact on our expense.

Operator

Our next question will come from Andrew Jeffrey with SunTrust.

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

Rick, you've talked about NPI for some time, you're obviously gaining some pretty nice traction. And now it sounds like as an extension of those efforts, perhaps strategically you're pivoting toward an increasingly high-value offering to your customers as evidenced in telco with the new USCIS this quarter. Can you just talk about sustainability of pricing? I think that's something incrementally that is a positive surprise at least to our mind and also talk about that in the context of how CSC will affect the USCIS pricing, reported pricing results, in '13.

Richard F. Smith

Yes. Two great questions. You know, Andrew, we have been at strategic pricing, which is -- for about 6.5, almost 7 years now. We built a -- I don't use this term loosely, a world-class pricing team. There's a lot of opportunity left still. And it's not just a matter of picking a price from X to X-plus-something. It's how you bundle products together, it's how you segment your customers properly, it's really understanding price elasticity, it is new product introduction. So it's across many different facets and I like to -- we're in early innings of the pricing game here at Equifax. Specific to CSC, and one of the values we talked about a little bit in December, is the ability to deploy the things that we think are unique to Equifax on new assets and this asset would be CSC, things like process improvement in LEAN, but also pricing. So one of the first things that Rudy and his team are doing is taking the asset base that we've purchased, and making sure the pricing team looks at all the opportunities across different customers, different verticals and segments and so on and so forth, and instilling the same level of discipline there that we have in the core of the business around the world. So I think there's opportunity for CSC.

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

Okay. So it does sound like you're maybe a little more sanguine with regard to the sustainability of your pricing.

Richard F. Smith

Yes. If you think about our long-term objective of growing the operating margin 25 basis points, some of it comes from leverage, just gross scale, and some of it comes from process improvement and the other key driver is and will be [indiscernible]

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

Okay. And then, Lee, just to clarify, did you say 100 basis points roughly of annual EBIT margin improvement in '13?

Lee Adrean

No. I said we should be in the 26% to 27% range so...

Richard F. Smith

Up from 20, was the last year's rate.

Lee Adrean

24.7% for the year.

Richard F. Smith

It's 24.7% last year, and we're going 26% to 27%.

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

Okay, that's helpful. And then Rick, if I might sneak one more in. Could you just talk about any regulatory expenses? I assume they're baked into your guidance, but is there any maybe long tail kind of surprise risk out there?

Richard F. Smith

Well, maybe I'll start with a broader answer than maybe what you think, which is CFPB. We have regulatory expenses that we manage in every geography we operate, and the regulatory landscape around the world is moving at a pace that's unlike anything I've seen in my time here. The contemplated expenses, yes, are in our budget. Specific to the CFPB, which is our new regulator in the U.S., that landscape is still moving. They were here with us for multiple weeks at the end of the year. They're going across the industry, gathering as much knowledge as they can about the industry. We don't know yet when their mandate will be published, and hence, what we've got to do as a business. But right now, what we're doing is spending time building out what we call compliance management organization, so the ability to actually be compliant once a mandate comes out. So I always tell people, Andrew, we have been heavily regulated throughout our existence. It's just the cost of doing business. We're prepared for it, and we also look at it on the revenue side, by the way, as every bit as much of an opportunity as there is going to be a threat. And what I mean by that, if you think about the ability to pay, which is a mandate coming out of CFPB, look at the policies around mortgage, we think we're very uniquely positioned to help CFPB, help the underwriters and help the consumers.

Operator

Carter Malloy of Stephens has our next question.

Carter Malloy - Stephens Inc., Research Division

So first on the slight pickup there in the credit marketing piece -- or the marketing piece presumably with CMS versus IXI, is that -- do you see that as a good predictive indicator? Are you seeing card marketing budgets picking up? Is that something that we should see as a positive for growth in '13 in that piece of the business?

Richard F. Smith

Yes, we've seen card activity steadily ramp up towards the end of the year. Pre-screened business within that was up double-digit for the quarter, which is good.

Carter Malloy - Stephens Inc., Research Division

Okay. And then on Latin America business, can you give us an update on Boa Vista, how that business is trending and if and when you guys expect to maybe consolidate that?

Richard F. Smith

Yes, Carter, we were just down there last week, and on the integration side, it's going extremely well across all fronts. Being very well received, we've met with some of the largest banks in Brazil. Current customers and customers who want to do more with us. Reiterating the point to them that we in Equifax are keenly interested in being a long-term player in Brazil. So across all fronts, it's going well. The time line is undefined at this point in time, but stay tuned. It's an asset I want to control if we can get the asset the right price. So stay tuned and it's a good market by the way.

Carter Malloy - Stephens Inc., Research Division

And it's growing at a decent clip and has a good margin on it?

Richard F. Smith

Yes.

Carter Malloy - Stephens Inc., Research Division

Okay. And then lastly, to do a quick housekeeping one for Lee here is on the mortgage revenue exposure, call it 19% for 2012. I assume that's with Settlement Services, so x Settlement Services, your mortgage exposure on a run-rate basis is more like 15%, 16% something like that right now?

Lee Adrean

Yes. Around 16% to 17% -- 19% to 20% this year, 16% to 17% next year, excluding ESS.

Operator

Our next question will come from George Mihalos with Crédit Suisse.

Allison Jordan

This is Allison, in for George. I had a question on mortgage volume for 2013. You had previously mentioned an expectation of a 1- to 2-point hit on revenue growth due to lower mortgage volumes. Has your outlook there changed?

Richard F. Smith

Not at this juncture. We have -- we follow that, Allison, on a regular basis, as you might guess. We've got an internal economist. We've external economist we deal with, there's external benchmarks that you see, and at this juncture it still looks as if though we should expect a reasonable market in the first half of the year and then slowing in the second half of the year for a total mortgage market now being down 15%. And again, if you've followed us in the past, we expect that our business will decrease at a lesser rate than that as we drive penetration and we drive new products. But the market expectation still remains at 15% down for the year.

Allison Jordan

Okay, great. And then just one more question about Commercial Solutions. I guess it's good to see it's growing again. What are your thoughts on the sustainability of that growth for 2013, and what do you think a reasonable long-term target is?

Richard F. Smith

I remain optimistic that they have turned the corner, I mentioned that the pipeline was up over 40% as they exited the year versus the year prior. They're executing at a higher level now, which is important. It's critical for them to improve their execution in a tough market environment. We gave a framework in December at the New York Stock Exchange for commercial, which was a multi-year growth bid to upper level. Yes, so I think it's growing this business in the mid to upper single digits is reasonable long term.

Operator

Andrew Steinerman with JPMorgan has our next question.

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

Lee, I wanted to ask you a little bit about seasonality. When I look through the Equifax longer history, it looks like first quarter might have negative seasonality and fourth quarter might be seasonally favored. Over the last few years, we haven't seen that. And I'm just kind of assuming, it's the great recession and the mortgage pickup. So my question to you is when you look at first quarter guidance here for 2013, does this reflect kind of a return to more normal seasonality or has seasonal patterns changed since last week review trends kind of before the great recession?

Lee Adrean

Andrew, I think you're on the right issue. I think we have returned to something more like normal seasonality. Historically, the first quarter was the -- and our quarters are not that different, but the first quarter has typically been slightly weaker than the others, and I think that's what we are anticipating for this year. I would expect the second and third quarters would be the strongest quarters in 2013, and the fourth quarter could be, again, a little bit softer if mortgage market is slipping over the course of the latter half of the year. So Q1 and Q4, likely a little softer than Q2 and Q3 in terms of dollar amount of revenue and dollar amount of earnings.

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

And when you say dollar amount, you mean sequential, right?

Lee Adrean

Yes.

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

Okay, perfect. And then if I could just ask one more question on margins, do you feel like margins also have that type of seasonality, Lee?

Lee Adrean

Yes. The middle quarters would probably be the strongest margin quarters for the year.

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

Which one, second or third?

Lee Adrean

Yes.

Operator

Our next question will come from Bill Warmington with Raymond James.

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

So first question, I just want to confirm, you talked about 1% to 2% drag from mortgage and the 10% to 12% guidance. I just want to confirm we were still looking at 5% or 6% from CSC and 6% to 8% organic to get to the 10% to 12%.

Lee Adrean

Yes. If you're breaking out mortgage separate from organic, that would be right.

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

Great. And then on PSol, what percentage of revenue in 2012 was breach-related?

Richard F. Smith

I don't think I have it on the top of my head. Do you guys have that? There were a few breaches -- maybe just back up as we think about it, Bill. Historically, we've had a down drag on breach. It was high a number of years ago. Basically there was amendments for a number of years. 2012, we did have a bit of an uptick with 2 main breaches, so the breach...

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

So we're looking at like less than 10%?

Richard F. Smith

Yes, way less than that amount.

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

Okay. All right, no problem. Then I wanted to ask a favor from Lee, if you don't mind walking me through again within online CIS, the pricing volume mix equation there. We talked about the volume being down 9%, I just want to make sure I followed that.

Lee Adrean

Yes. Average revenue -- we break it into revenue per transaction and then volume, and it can be a little misleading because we have some non transaction price revenue that affects revenue per transaction the way we do this simple calculation. But what happened in the fourth quarter is we shift our transaction mix, shift it towards higher-priced segments. Mortgage has a tendency to accentuate that, as mortgage tends to be in higher-priced segments, and away from some high-volume but lower unit price accounts. And then second, we did have increased revenue from subscription-billed products that we're having success with, and that affects our simple calculation of revenue per transaction. And then, transaction volume was down 9% due to that shift in -- away from high-volume but lower price accounts.

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

So just the revenue per transaction was up how much?

Lee Adrean

17%.

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

17%, got you. And would you throw in something there for mix or is that just built into that?

Lee Adrean

That reflects the shift in mix to higher-priced segments.

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

So the high-volume unit price accounts, what business line was that where you're seeing that shift?

Lee Adrean

They were -- I mean that's in OCIS online and that's in financial services customers.

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

Okay. I mean, what -- is it credit card or some other vertical?

Richard F. Smith

Bill, it's broad-based.

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

Okay, all right. And then the final question, I just wanted to ask you your thoughts around post the CSC acquisition. Your thoughts on your timing for going and doing M&A again, share repurchases, the general capital allocation question?

Richard F. Smith

The M&A will be dictated by strategy and what's available. We continue to be in the market looking for good tuck-in acquisitions around the world. I think initially what you're going to see is use the cash flow to pay down debt. We've talked about a range of 1.75 to 2.0-ish. We're at the upper end of that, and we'd like to get that down so it doesn't mean we won't do acquisitions but initially I think of it as paying down debt to get us back in a comfortable range. Lee, do you want to add there?

Lee Adrean

No, I think that's accurate.

Operator

And our last question will come from Dan Leben with Robert W. Baird.

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

First, you mentioned some regulatory uncertainty by clients around IXI, could you just expand on that a little bit and talk about what the issue was and then how it's being addressed?

Richard F. Smith

Yes. There are attributes that we use when we build various models across the business, including IXI. There were a few of our customers that were concerned about the use of some -- I'm not going to go into exactly what those are, but they were concerned about using those attributes in the future and would the government frown upon those and seeing those as maybe being discriminatory or misleading attributes. So we have to do -- by the way, there was no mandate from any one regulatory body that said you can't use these attributes, which is uncertain. And that uncertainty caused our customers to take pause, and what we've been spending our time doing is one, educating ourselves, educating our customers, but most importantly, building models that did not use those attributes. And we've done so, and those models proved to be largely as predictable as the old model. So we're taking those models now back to our customers.

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

Fantastic. And then just on the Settlement Services disposition, great example of a win for NPI. Could you just talk about what changed behind that business and why you don't view it as strategic versus a couple of years ago, and then just secondarily, any commentary around the multiples you received on the 2 dispositions, would be great.

Richard F. Smith

Yes. The ESS was a great new product, as you've mentioned. I think it must have been 6 or 7 years ago when we built that product. And it was a way to add more value to our current customer base. We had and hoped to get a different balance. If you look at the product offerings within the ESS, you get appraisal, and you have title close and we had built a long-term model with a different balance of mix between those 2 offerings, title close versus appraisal, we could never quite get the level we wanted on title close as a result of margin. It was not at the level we felt long-term made sense. There's better uses of our capital than that. So we sold it. And it's sort of multiple [indiscernible] tiny business. So it's -- I'm not going to disclose the multiple itself but take it as very small.

Jeffrey L. Dodge

Okay. With that, operator, we'll conclude the call. Thanks to everybody for your participation, and have a good day.

Operator

Thank you. Once again, that will conclude our call for today. Thank you all for your participation. You may now disconnect.

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