Equifax Inc. Q4 2008 Earnings Call Transcript

Feb. 5.09 | About: Equifax Inc. (EFX)

Equifax Inc. (NYSE:EFX)

Q4 2008 Earnings Call Transcript

February 5, 2009 8:30 am ET

Executives

Jeff Dodge – SVP, IR

Rick Smith – Chair and CEO

Lee Adrean – Corporate VP and CFO

Analysts

Carter Malloy – Stephens

Dan Levine – Robert W. Baird

Jaime Brandwood – UBS

Michael Meltz – JP Morgan

Operator

Good day and welcome to the Equifax fourth quarter earnings release conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeff Dodge. Please go ahead, sir.

Jeff Dodge

Good morning, and welcome to today's conference call. I’m Jeff Dodge, Investor Relations. And with me today are Rick Smith, our Chairman and Chief Executive Officer, and Lee Adrean, Chief Financial Officer. Today's call is being pre-recorded. An archive of the recording will be available later today in the Investor Center of our website at www.equifax.com.

During this call, we will be making certain forward-looking statements to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in filings with the SEC, including our 2007 Form 10-K and subsequent filings.

During this call, we will also refer to several non-GAAP financial measures for Equifax's consolidated in the fourth quarter of 2008. These measures include adjusted net income, adjusted operating income, and adjusted operating margin. These measures determine net income, operating income, and operating margin by adjusting for certain items indicated in sections A and B in the non-GAAP financial measures attached to our earnings release. We also provide adjusted diluted EPS, which is excluding acquisition-related amortization in the items just noted.

Finally, we will refer to adjusted EBITDA defined as operating income before depreciation and amortization, and the certain items we mentioned earlier. We will also present operating results excluding the impact of foreign exchange so that you will have clear understanding of the fundamental business operation. Please see the section of our earnings release entitled Reconciliations of Non-GAAP Financial Measures to the Comparable GAAP Financial Measures; for further details, in the non-GAAP reconciliations posted in the Investor Center on our website.

Now I would like to turn it over to Rick.

Rick Smith

Thanks, Jeff. Good morning, everyone. I’ll start of this morning. I’m going to not repeat or create any superlatives that you may have heard in the past that would describe the economic environment that we are all dealing with on a global basis, but rather tell you that look back on 2008 just how proud I am of this business, their performance, and the strength of this business model to deliver the results they delivered in 2008 when our customers, both business and consumer customers, were dealing with pains that they have never endured in the past.

This team has had to make a lot of tough calls in 2008 and it did it with great integrity, speed and effectiveness. We had to make calls where we walked from unprofitable and non-strategic business that didn’t make sense long-term. And we had to make some tough calls on expenses. And to do all that, I always tell our team to keep things in perspective. You’ve got to look to the landscape around you. And when you see the customers again and the pain they are in, to finish that year as we did, and I’ll go through some financials and Lee will go through details. It’s truly remarkable.

I think one is of particular highlight to me is the fact that when we look at it on a cash operating margin basis, the fact that this business was able to maintain a cash margin year-on-year of 30% in my view was quite outstanding. But for the last three years we as a business have been on a cultural transformation, and that transformation prepares to deal very directly with the challenges that we faced last year and will face going into 2009 as well.

There are four areas of particular highlight I’d like to mention. Number one is new product innovation. We’ve talked about that numerous times over the past years. It has developed into an engine driving new sources of revenue growth. In 2008 we generated over $75 million in new product revenue, and we have over 80 new products in pre-launch stage as we enter 2009 that’s gaining significant momentum for us as we go forward.

Number two, our leaders were empowered and took responsibility for making some tough decisions, as I mentioned, to restructure their organizations. They reallocated more work to our application development outsourcing partners, most of which are offshore. As a result, we have entered 2009 with an annualized expense run rate that is approximately $70 million lower than a year ago.

Number three, lean and workout. We’ve talked about those with you before, now deeply woven into the fabric of our operational activities. In 2008 we initiated over 35 projects, trained over 450 people, and generated over $12 million of incremental expense savings, which contributed to lower expense run rate as we entered 2009. At the same time, we continue to invest in our future because this economy will turn, and when it turns we are going to be in a very, very good shape.

We are leveraging a resilient business model that drives attractive operating margins and cash flows to make those investments. The synergies across our [ph] US credit, we got USCIS, direct marketing and the Work Number databases has attracted strong customer interest and are expected to drive significant new revenue in 2009. In fact, we just launched a multi-million dollar initiative with a very large national bank in the US to support their various lending activities, including loan modification, and we have many more of these activities in the pipeline. I could tell you these are opportunities that will generate significant revenue for the company going forward that never existed before this dislocation that we experienced starting in 2007.

Our goals for the fourth quarter were challenging as the environment continued to deteriorate, but we performed and we delivered a solid result. Total revenue was $446.6 million, down 4% in constant dollars and down 9% on a reported basis including the negative impact of FX. Operating margin was 26%, up from 24.5% in the fourth quarter of 2007. And our adjusted EPS was $0.61, up 3% year-on-year.

For the full year, revenue was $1.9 billion, up 5% over 2007. Operating margin was 24.7%. On a non-GAAP basis, excluding acquisition-related amortization expense and the impact of restructuring and asset write-down charges, the adjusted operating margin, as I mentioned earlier, was 30% flat for 2007. Our adjusted EPS was $2.48, up 7% year-on-year. While we have more work to do in 2009, we are doing the right thing to continue building a sustainable business model that grows with attractive margins and returns for our shareholders.

Let me recap some of the more significant highlights for our business. I’ll go business unit by business unit. I’ll start with USCIS. They had a tough year, as you know, because the economy was difficult in the US. The customers were significantly reduced lending origination driven by more stringent underwriting standards and less demand as many consumers began deleveraging. But they persevere.

Operating margins were strong as a result of tight expense management, our lean process activities in global operations and the restructuring initiatives they undertook. They continue to focus on leveraging and growing our analytics and enabling technologies solutions. For the year, approximately 20% of our US online transaction volume included scores from the models built by Equifax. We finished the fourth quarter with over 22% of delivered scores coming from an Equifax built model. Great progress throughout the year.

As we broaden our enabling technology product portfolio in market segments served, we are going to change our penetration metric from a unit volume measure to a measure based on the level of revenue driven by these platforms. For the year, 28.4% of our online revenue was generated through one of our enabling technology platforms, up from 26.7% in 2007.

New product innovation in USCIS continues to build great momentum. During the year, ten products were launched and $26 million of new product revenue contributed to offsetting declines in some of our more traditional core product offerings. We also launched new business initiatives, as we discussed with you before, in Capital Markets, Collections, most recently Identity Management and Government. All of these are being nurtured and invested in and get a lot of attention from the leadership team of all of Equifax, and they all have significant potential for long-term revenue growth.

Mortgage settlement services, we referred to that in the past as ESS, exceeded our expectations in 2008. At our Investor Day, in which many of you were at, on October 2007, we said that this business being ESS would offset the decline in our core mortgage reporting business. In 2008, mortgage solutions including ESS actually grew 6%, even though the core mortgage reporting revenue declined some 15%. And I could promise you, as I’ve said before, that business has got significant wind at its back. We are in a very unique value-added position, and I have high hopes for settlement services going forward.

During the year we aggressively invested in this product line. We hired additional experienced sales professionals. We broadened our relationships with existing customers while continuing to sign new customers. In one situation, we significantly expanded a multi-million dollar relationship with a large national lending institution. In December, after being notified of insolvency of a title [ph] services provider, we’ve put a plan together to take over all title services activities, including a large volume of loans that were already in the approval process.

Recently we had our analytical team perform an analysis of the potential refinancing activity should interest rates continue at the current levels. At the current mortgage interest rates, we estimate that there are approximately 13 million consumers who could potentially qualify for refinancing. We started to experience an uptick in this activity during December, as refinancing activity began to increase. We expect that to continue, again, as long as interest rates stay in that 5.5% or less range.

The Work Number business also benefits from mortgage uptick in two ways. As more rigorous underwriting standards impact customer demand for employment and income verification and our ability to provide income and employment verification as well as credit attributes in order to better screen and accelerate banking – banks loan modification program. Personal solutions also benefits from the increased consumer purchases of its tri-bureau monitoring and scoring products. So in general terms, mortgage performed very well. ESS, personal solutions and the Work Number were all great benefactors of that uptick we’ve seen in refinancing. That should continue in 2009.

Now onto International. International continued investing in new products, record rates, while transferring high value products in technologies across the various geographies. In Canada we launched a fraud detection product called Citadel, which was originally developed in the UK. We installed the InterConnect design – InterConnect decision platform developed in the US and completed our first installation for a major lending institution in Canada. And we implemented strategic pricing initiatives with an average unit revenue increasing 3%.

In the UK, we maintained good operating margins in the face of declining revenues in an economy that is now in a deep recession. We increased our penetration in the collections and government sectors with new products and package services. And we increased the level of ADM [ph] outsourcing to improving our cost structure and delivery on NPI initiatives.

In Brazil, we delivered 9% local currency growth with strong double-digit growth in large banks, telecommunication companies and insurance companies. We talked a lot about our partnership with ACSP. That strategic partnership continues to grow and expand. As you know, they are the second largest consumer reporting agency in Brazil. It’s working very well to enabling us to drive incremental revenue through new products, expand our customer relationships. And in 2009 we’ll be developing additional new business opportunities to improve our competitive position and growth potential in Brazil. I remain very, very optimistic on Brazil. Finally, we increased our operating margin by 2 percentage points in 2008 in Brazil.

Next business unit, on the TALX. TALX delivered strong growth in the Work Number, up 12% in the fourth quarter and tax management services up 6%, while account management business was down in the quarter. We continue to penetrate the market with the Work Number, increasing our contributor client base of 17% and transaction volume by 8% in 2008. Our cross-selling initiatives with USCIS continued to accelerate as we closed 68 deals in 2008 and have a pipeline with over 120 opportunities that we will aggressively pursue in 2009.

We have talked all along about the differentiating value of the Work Number. And you are seeing that first hand now, the fact that the Work Number is growing 12% in the pipeline, I only mentioned the pipeline of cross-selling opportunities, we have got an enormously robust new product suite leveraging the attributes of the Work Number and our credit database and our relationship with customers across the US. So I feel very optimistic as I look forward on the Work Number synergies.

The next business, number four is our North American Personal Solutions that delivered strong operating performance in 2008. Operating margins improved as their subscription revenue base grew 13% last year. In January of this year, we launched a TV advertising program to promote credit watch three-in-one monitoring. We are launching it on select cable programs such as CNBC, USA, TNT, A&E, CNN, ESPN and Fox News channels. Trend results today albeit early are very positive for both website traffic and conversions. This is our first real foray of any nature, as you might recall, into TV advertising for our personal solutions business. We’ll monitor activity very closely over the coming months.

Our last business, North American Commercial Solutions continues to build a solid foundation for long-term growth and improved operating margins in the fourth quarter. Several data management and credit contracts were renewed, including a multi-million dollar telco deal. During 2008 we continued to invest in technology capabilities and data, completely restructuring the US database to improve accuracy and quality.

Over the course of the year, total trade-lines in the database increased 10% and a number of unique contributors increased by 62%. This further enhances the breadth and the depth of industry and geographic coverage for commercial. Also for commercial, seven new products were launched last year, including an enabling technology solution and a business fraud advisor. And this pace will continue in 2009 with nine products already in the pre-launch stage.

From an overall Equifax perspective, we are intently focused on the sound strategy supported by very clear vision. To be the trusted provider of information solutions that enrich and empower, our customers make critical decisions with greater confidence. In 2009, as we did in 2008, we will continue to focus on things we can control, namely executing our strategy and building our business model. We will invest for growth in Russia, India, Latin America, and through various tuck-in acquisitions. We will innovate through NPI our growth counsel, which we’ve talked about, our online tools were generating new products from employees in all of our geographies, process we call I-Jam [ph] and idea marketplace. And we will continue to innovate through our membership an exciting new benefit called the I-Card Foundation.

We will significantly increase the TALX synergies, leveraging our suite of products for collections for the collections industry, cross-selling in USCIS and new solutions incorporating attributes from the Work Number database. We will implement more lean and workout initiatives to drive our cost and improve our operating efficiency. We will continue to aggressively manage our expense base by restructuring and realigning resources through global sourcing and leveraging best-in-class outsourcing partners.

We will stay close to our customers, best understand their needs and opportunities. Customer intimacy will come from any many advisory panels, customer conferences, voice of customer initiatives, and continued strategic account calling by our senior executives. And lastly, we will continue to develop our culture of meritocracy through talent management, training and empowerment of our employees.

Lee, if you’d take it from here and go through the details of the financials, that would be great.

Lee Adrean

Thanks, Rick. And good morning, everyone. This morning all financial information I will be discussing are presented on a GAAP basis, except as otherwise noted. You should also refer to the Q&A and non-GAAP reconciliations attached to our earnings press release for additional financial information.

Our fourth quarter performance was good in a very difficult environment, both domestically and internationally. For the quarter, consolidated revenue of $447 million was down 9%. Changes in foreign exchange rates unfavorably impacted revenue by $25 million compared to the prior year, which was an even greater impact than we expected when we gave guidance in October. Constant dollar revenue declined 4%. Adjusted EBITDA, non-GAAP measure, was $154 million, down 2% for the quarter.

Operating income was $116 million, down 3% from the same quarter in 2007. And operating margin was 26% in the quarter, up from 24.5% in the fourth quarter of 2007. Net income was $64 million, down 2%. Diluted earnings per share for the quarter was $0.50, up from $0.49 a year ago. And excluding the impact of acquisition-related and tangible amortization, adjusted EPS in non-GAAP measure was $0.61, up 3% from $0.59 in the fourth quarter of 2007.

Turning to each of our businesses, in our US Consumer Information Solutions business, Online Consumer Information Solutions revenue was $135.2 million, down 10% when compared to the same quarter last year. For our core product, total credit decision volume was $125.6 million, down 14% compared to last year. Mortgage Solutions revenue of $18.2 million was up 43% when compared to the fourth quarter a year ago. Our Settlement Services offering drove most of this growth, but our core Mortgage Reporting revenue was also up 11% for the quarter, as both unites benefited from the increased level of refinancing activity during the quarter.

Credit Marketing Services revenue of $30.8 million was down 17% for the quarter. Our pre-screening revenue was down 37%, as financial institutions continued to restrict their new account acquisition activities. But revenue from our portfolio review product line was up 13%, as financial institutions continued to very actively manage their portfolio of existing customers.

Direct Marketing Services revenue was $24.2 million, down 14% compared to the fourth quarter of 2007 due to continued low consumer marketing activity across many industries. The operating margin for our US Consumer Information Solutions business was 36.4%, essentially even with the fourth quarter of 2007 and $20 million less revenue, reflecting proactive expense management over the last year. As USCIS continues to operate in a very challenging environment, we anticipate first quarter revenue will be flat to down slightly from the fourth quarter level.

Our International business recorded $105.8 million in revenue, down 18%. And local currency revenue was up slightly from a year ago. Obviously the significant movement in the foreign exchange rates over the last three to four months has dramatically impacted year-to-year GAAP comparisons of any of our international businesses. For total international, marketing services revenue decreased almost 5% in local currency, primarily due to Argentina’s current economic slowdown. Enabling technology services revenue grew 9% in local currency, driven by strong performance in Latin America and Iberia. Finally, analytical services local currency revenue grew 12% with strong performance in Brazil and the UK.

By region, Latin America’s revenue was $46.3 million, up 7% in local currency and down 10% in US dollars due to the dramatic strengthening of the US dollar. Europe delivered revenue of $35.9 million, down 8% in local currency and down 27% in US dollars. In the UK, market conditions have slowed dramatically as our consumer transaction volumes grew only 2% driven by growth in collections, government and retail, but offset by declines in financial institutions and telecommunication companies.

Our Canada consumer revenue was $23.6 million, up 2% in local currency, but down 175 in US dollars. Online transactions volume was down 3%, but we continue to grow revenue through our strategic pricing and new product initiatives. International’s overall operating margin was 27%, down from 28.6% in 2007. In the first quarter, we anticipate International’s revenue will be flat to down slightly when compared to the fourth quarter of 2008. That of course presumes no major further movement in foreign exchange rates from where we are today.

TALX revenue was $75.4 million for the quarter, up 2% from the fourth quarter of 2007. The Work Number’s revenue was $31.3 million, up 12% from a year ago. Revenue from governmental agencies was up 61% driven by increases in unemployment and governmental services. Revenue from mortgage customers was up 9% due to the boost in refinancing activity in the fourth quarter. And the collections sector was up 7% during the quarter. The Work Number database currently has $46.3 million active records, up 4% from the fourth quarter of 2007. And total backlog is 5.9 million records, down 34% from year-end 2007.

The Tax and Talent Management Services unit delivered $44.1 million of revenue during the quarter, down 4% compared to last year. Tax Management Services where we provide unemployment compensation and tax credit services was up 6% for the quarter. The Talent Management revenue declined by just over 50% from a year ago due to a hiring freeze at the TSA, Transportation Security Agency, our largest customer, and some other government-related clients.

The TALX operating margin was 19.9% compared to 20% a year ago. And in the first quarter of 2009, TALX is expected to increase revenues when compared to the fourth quarter due to seasonal fourth quarter revenue in our W-2 eXpress service and continuing growth in the Work Number verifications.

In North America Personal Solutions, revenue was down 3% to $37.2 million. Subscription based revenue grew 2% for the quarter and now represents 81% of total revenue, up from 78% in the fourth quarter of 2007. Operating margin increased 33.9% for the quarter compared to 26.1% in the same period of 2007. Looking to the first quarter, Personal Solutions revenue should grow in a mid-single digit percentage range compared to the fourth quarter, reflecting our plans to increase marketing activity in this business.

The North America Commercial Solutions revenue was $19.9 million for the fourth quarter. Revenue was flat in constant dollars versus a year ago, but down $1.3 million or 6% on a reported basis due to the effect on the Canadian part of that business with the strong US dollar. US commercial transaction volume was down 2% from a year ago, and operating margin was 28.3% compared to the 30.2% a year ago, as we continue to invest in new sources of data and new products. Commercial Solutions first quarter 2009 revenue should be down from the fourth quarter according to our usual seasonal pattern, which should be comparable to the prior year’s first quarter revenue.

General corporate expense was down $10 million from the fourth quarter of 2007 due to lower headcount, reduced discretionary expense, and lower bonus and sales initiatives due to reduced revenue and operating income in the fourth quarter. General corporate expense should average $25 million to $27 million per quarter over the course of 2009.

For the year, consolidated revenue of $1.9 billion was up 5%. Foreign exchange rates did not materially affect full year growth rates. Adjusted EBITDA, a non-GAAP measure, was $647 million, up 5% for the year. Operating income was $477 million, down 2% from 2007. Adjusted operating income, a non-GAAP measure, which adds back restructuring, asset write-down charges, and acquisition-related amortization expense, was up 5%. Operating margin was 24.7%. As Rick mentioned, on a non-GAAP basis, adjusting for restructuring and asset write-down charges and acquisition-related amortization, operating margin was 30% on the nose in 2008, flat with the prior year.

Net income was $273 million, flat with 2007. And diluted earnings per share was $2.09, up from $2.02 in 2007. Excluding the impact of acquisition-related intangible amortization from diluted earnings per share as well as the impact of the restructuring and asset write-down charges and the income tax benefit recorded in the third quarter, adjusted earnings per share, a non-GAAP measure, was $2.48, up 7% from $2.32 in 2007.

Over the course of the year, we repurchased 4.5 million shares for $156 million. We also reduced debt during the year by $168 million, which we felt was prudent given the uncertain market conditions. We ended the year with an outstanding debt of $1.22 billion. Our balance sheet remains strong. Our committed bank line, which currently runs through July of 2011, is $850 million, with $420 million drawn against the facility as of December 31. Given the uncertainty that continues in the capital markets, we expect to concentrate a significant portion of our free cash flow on debt repayment during 2009.

In US Consumer Information Solutions, online revenue was $566 million, down 7% when compared to the last year. For our core products, total credit decision volume was $564 million, down 7% when compared to last year. Mortgage solutions revenue for the year was $70 million, up 6% compared to the prior year. The strength of our settlement services up four-fold in 2008 was the primary driver for that performance. We expect this to continue into 2009 as we broaden our services with existing customers and continue signing new customers. Credit Marketing Services revenue of $132 million was down 16%. And Direct Marketing Services revenue of $94 million was down 13% compared to 2007. The operating margin for our USCIS business was 37.9%, down from 39.6% in 2007.

Our International business grew revenue by 7% to $505.7 million. Latin America revenue grew 20% in US dollars to $220 million. In local currency, revenue growth was 15%. Europe delivered revenue of $175 million, down 5% in US dollars and essentially flat in local currency. And Canada consumer revenue was $111 million, up 4% in US dollars and 3% in local currency. International’s operating margin for the year was 29.6%, down slightly from 29.8% a year ago.

TALX revenue was $305.2 million, up 70% from 2007, which was a partial year beginning with the May 15, 2007 acquisition. On a pro forma basis, full year revenue growth was 6% compared to a full year in 2007. The Work Number’s revenue was $131.9 million, up 82% from 2009 and up 9% on a full year comparison. On a 12-month basis, revenue from governmental agencies in the Work Number business was up 44%, revenue from collections was up 18%, and revenue from mortgage customers was down 10%.

Although average revenue per transaction increased for most sectors, the average revenue per transaction for our Work Number business was flat with 2007 due to the increase in government agency transactions, which are lower revenue per unit transactions. The Tax and Talent Management Services unit delivered $173 million in revenue, and TALX operating margin was 17.4% compared to 16.3% in 2007 for the period beginning with our acquisition.

In North America Personal Solutions, revenue grew 6% to $163 million. Subscription-based revenue grew 13% for the year and represented 77% of the total revenue, up from 72% in 2007. And operating margin was 28.5% compared to 22.1% in 2007. Finally, North America Commercial Solutions revenue was $71.5 million, up 6% from 2007. US commercial transaction volume grew 4% from 2007. And transaction-based revenue in the US commercial business represented 54% of total commercial revenue in the US. Total US commercial revenue was up 10% for the year, and operating margin for the total business was 19% compared to 17.7% a year ago.

Now I’ll turn it back to Rick.

Rick Smith

Thanks, Lee. As we kind of recap some of the highlights from 2008, I’d be focusing on five things that we take particular pride in. Number one is we maintained those very strong healthy margins, which has been a priority for us through this market cycle. Number two, we have invested significantly new products that will help our clients in this environment solve the problems they never have solved before and also position us for a good long-term growth when this thing starts to turn.

Number three, we have extended our analytical and enabling technology capabilities to a global footprint at an accelerated rate. Number four, we have expanded into emerging markets. And number five, we have continued leverage and add to our very unique data assets around the world.

When this economy recovers – and I can’t tell you when it’s going to be. But when it does, we will be stronger and more diversified with sustainable high-return growth for our shareholders. And think about the incremental margin lift you get when you’ve taken the cost that we’ve taken out of this business in the past 18 months. Until the economy does bounce back, we will continue to anticipate the environment and execute our growth strategy while protecting those operating margins.

During 2008, many of our customers frequently revised or withdrew guidance. And given the slowing global economic growth, many more have not committed to specific performance targets for 2009. They continue to be cautious and concerned, as are we, about the economy. Declining consumer spending, increasing delinquencies and loss rates – record mortgage foreclosures, declining asset values, and this impact has hindered their ability to deliver shareholder return.

As a result of this cloudiness, if you will, in the economic landscape, we are not going to provide our traditional full year guidance with the same confidence level as we have in the past. However, it’s important our shareholders understand how we are managing the company to minimize risk and maximize return. As always, we will be straightforward in our discussions and we will endeavor to give you the information you need to understand the value of your investment in Equifax.

In 2009, the leadership team will continue to focus on maximizing revenue growth to our core product offerings as well as new products. Lean and workout will improve our operating efficiency, global sourcing will drive efforts to optimize our expenses with key suppliers across the enterprise, and we will continue to give you good transparency, as Lee just tried to do, in each of our business units. While we will not be giving annual guidance for 2009, we will provide you with our best estimate of the upcoming quarter.

For the first quarter of 2009, assuming the current economic activity that we experienced in the fourth quarter and in January continues and the current exchange rates that we have today, consolidated revenues for the first quarter is expected to be in a similar range as reported in the fourth quarter of 2008. At current exchange rates, the negative impact of the weakening dollar on revenues when compared to the first quarter of 2008 is expected to be approximately $28 million. Adjusted EPS for the first quarter at current exchange rates is expected to be between $0.52 a share and $0.57 a share.

Also, based upon actions taken in recent weeks, we expect to take a restructuring charge during the first quarter of approximately $6 million to $8 million, ensuring that our expense base is appropriate to our expectations for revenue. As has been our practice, our guidance for adjusted EPS excludes the impact of this anticipated restructuring charge.

For the full year, CapEx is expected to be between $75 million and $100 million, and for the full year, our tax rate is expected to be in the range of 36.5% to 38.0%. As always, our leadership team will continue to be accessible to you, and Lee and I will be visiting many of you during the course of the year through investor conferences, road trips, conference calls, et cetera.

In closing, I’m proud of this team. This team navigated some very rough waters in 2008. It delivered outstanding value to our customers and our shareholders. The resiliency of this business model has enabled us to continue investing for growth. And in spite of the environment, we achieved some very aggressive targets for new sources of revenue that will make even bigger contributions when that economy does improve. And it will improve at some point in time.

That’s all we have for our formal comments. Operator, if you are there, we’d like to open up to the audience for any questions they might have.

Question-and-Answer Session

Operator

(Operator instructions) And we’ll take our first question from Carter Malloy with Stephens.

Carter Malloy – Stephens

Hi, guys, thanks for taking my questions. Can you help me understand the weakness in your commercial solutions versus your competitors in the period? I’m assuming that a lot of that has to do with your higher relative exposure to smaller businesses, but –

Rick Smith

Carter, could you repeat that one more time. You kind of cut in and out.

Carter Malloy – Stephens

Yes, sure. I’m sorry. Can you help me understand the weakness in your commercial solutions versus your competitors in the period? My assumption is that you have a higher relative exposure to small businesses, but you can just help me understand that a little better.

Rick Smith

That’s – yes. So if you are comparing us with TND or whoever else, Experian, a couple of things you've got to look at, yes. One, the focus of our exchange, our commercial enterprise has largely historically been focused on small to mid-sized companies, and they have been maybe impacted at a rate that's a little more severe or faster than the large companies, number one. But number two is, when you look at our business you've really got to break it into a couple of different buckets. And if you look at the core US business, there are three components to it Carter, there's the US, Canada and our database marketing business. And mostly, the investment is going into our core US business. And when you look at our core US business, it’s growing actually – it grew actually 10% – was that fourth quarter, Jeff? – grew 10% in the fourth quarter. So, solid growth.

Carter Malloy – Stephens

Okay, great. That’s good to hear. And then also you had mentioned applying free cash flow to paying down debt, but I missed it if you said it. Do you have any plans to buy back shares in ’09 or is that the whole –?

Rick Smith

Lee, why don’t you take that?

Lee Adrean

Yes. I think in most quarters what we’ve done is we have used our cash flow for some mix of share repurchase and debt pay-down. In the last –the first half of last year was a substantial year towards share repurchase. In the second half we shifted towards a higher focus on debt reduction. And I think we’ll see the same in the first half of this year. We will likely do some above, but it will be more heavily oriented towards debt pay-down.

Carter Malloy – Stephens

Okay, great. Thanks, guys.

Operator

And we’ll take our next question from Dan Levine with Robert W. Baird.

Dan Levine – Robert W. Baird

Great, thanks. Could you guys talk a little bit about the trends you saw in January and how that compared to the linearity of the months throughout the quarter?

Rick Smith

Yes, Dan, I’ll jump on that. It’s – there's obviously rationale behind the guidance that Lee and I just provided. And what we saw in January was actually very in mind with the trend we had seen in the fourth quarter of 2008. So you didn’t see – that’s an aggregate. That’s across the entire enterprise, across all lines of business, so on and so forth. You saw some positives in some areas and negatives in other, but when you aggregate together, Dan, we saw a trend that looked very much like we saw in the fourth quarter of 2008. So you didn’t see a significant increase in revenue and you didn’t see a significant decrease. That’s why our guidance is in a range of basically flattish with the revenue delivered in the fourth quarter of 2008.

Dan Levine – Robert W. Baird

Okay. And then just help me understand within the guidance, essentially the same revenue base first quarter versus fourth quarter with a lower earnings number, is that just payroll taxes that kick in in the first quarter or is there something else going on there?

Lee Adrean

There are actually quite a few moving parts between the fourth quarter of ’08 and the first quarter of ‘09. As I noted, the general corporate expense was lower in the fourth quarter than a typical run rate in part due to a lower bonus accrual in the fourth quarter. Each year our advertising and our personal solutions business tends to be low in the fourth quarter. It’s not typically a time of year when people are responsive to our products, but we step up our advertising in the first quarter and we’re actually going to do that even to a little greater degree this year given some opportunities we see.

Rick Smith

The TV advertising we talked about earlier is an example.

Lee Adrean

And our commercial revenue tends to spike at very high incremental margins in the fourth quarter due to the timing of certain renewals and some year-end true-ups on volume sensitive agreements. And as that revenue steps back down, that tends to have a high incremental effect. So there are several moving parts between the fourth quarter and first quarter that cause that lower earnings per share on a comparable revenue. And you typically see our first quarter will tend to be by a slight margin, the lowest, both revenue and EPS quarter of the year.

Rick Smith

And Dan, this is Rick. The only other thing I’d add to that is you have heard us say in the past that we cannot focus on any one quarter at a time. There's always more [ph] that Lee just articulated, but just general trends throughout a year.

Dan Levine – Robert W. Baird

Great. And one last question, just with the industry consolidation we are seeing in financial services. Have you started to see any impact there from pricing as well as any potential new customer wins where the acquirer went out and where you have systems?

Rick Smith

No, I mean, because we're still in that consolidating phase right now. As I've said many times before, I think the consolidation, one, it’s not over, it’s going to continue. I think it’s going to provide some opportunities, and we have some threats. I think what is really exciting, Dan, for us is to go in – we are the only ones in the US who have such a unique offering of being able to leverage our capabilities for big banks now. And almost every bank does some level of mortgage. We’ve got the Equifax Settlement Services, which is two years in the making and running at full speed and is very unique. We’ve got every bank now wants employment and income data. We are the only one that has a database of 189 million records on employment and income, and then our credit, very robust credit file. We are trying to leverage those capabilities and offering opportunities in solutions to customers that no one else can offer. So even if it consolidates, Dan, my charter to the team, to Dan and to Bill, is you should be growing share, growing revenue over time because you’ve got unique offerings that no one else has.

Dan Levine – Robert W. Baird

Great. Thanks, guys.

Rick Smith

Yes.

Operator

And we’ll take our next question from Jaime Brandwood with UBS.

Jaime Brandwood – UBS

Good morning. I have a couple of questions if I may. I just wanted to start by looking at your USCIS division, I think you talked about the volumes in the core product being down 14% year-over-year. And from memory, that’s a lot worse than what you were seeing in Q3. Well, I think it was almost flat. Just wondering what caused that pretty significant deterioration?

Rick Smith

Well, like I said, I think, Jaime, the revenue for online was down 10%. You have a mix in changes which you referenced 14%, which would be the volume. But the revenue was actually down 10%. And you got –

Jaime Brandwood – UBS

Just in terms of the volume, why did the volume get so much worse? I seem to recall that was almost flat year-over-year in Q3 and now it’s moved to minus 14% year-over-year in Q4.

Rick Smith

What you saw was in the September timeframe – if you guys gets the Q3 data for me. Dan – or Jeff, get that. Let me just pull up the Q3, Jaime.

Jaime Brandwood – UBS

Sure.

Rick Smith

But what you saw was in – when AIG and Lehman and others went bankrupt in late September, that just caused massive panic and shutdown with the system for the fourth quarter on online. And we actually came in, if you recall, last time we talked, we came into the third quarter with actually some optimism. We saw a very good start to the third quarter, and that really plummeted in the second half of the third quarter, continuing into the fourth quarter. Quick question, Jeff, just what was the volume in the fourth quarter percentage – third quarter, I mean? Do you have it or not? Or we’ll get back to Jaime. Do you have it or not?

Jeff Dodge

It’s about 3%.

Rick Smith

Okay. Jaime, you’re – yes. So your instinct was correct. We had a better performance in the third quarter and fourth quarter. And that’s really the rationale when you saw that massive dislocation that occurred in mid-September and it continued through the balance of the quarter.

Jaime Brandwood – UBS

So the kind of – the exit rate on that minus 14% as we enter January, was it still as bad as minus 14%, or was there some degree of improvement or not?

Rick Smith

Yes, I don’t study every week on online, but my assumption is, as we look at the forecast, Jamie, for the first quarter is no real improvement in the online volume and revenue in the first quarter for USCIS.

Jaime Brandwood – UBS

And what was core product pricing doing in the quarter? Again I seem to recall previous quarter, in Q3, pricing was down around 6% or 7% year-over-year. Just wondering if that improved or not.

Rick Smith

Yes. That pricing was actually positive in fourth quarter of 2008 versus fourth quarter of 2007. And in general terms, as I’ve always said – and I can’t remember who asked the question earlier, even though our customers are under significant pressure and everyone is competitive out there, we are not seeing any significant movement in pricing versus the historically trends. But specific to your question, fourth quarter is actually up 2%.

Jaime Brandwood – UBS

Up 2%, okay. And then moving on to your commentary on the UK, I think you said that – and again, your UK core product volumes were up 2% and yet your overall European cost of currency revenue growth rate was minus 8%. And I know you’ve got Spain in there as well, but the UK is the focus here. How do you sort of square both two together, the 2% increase in volume and the 8% reduction in year-on-year revenue?

Lee Adrean

The UK and Europe in total is more than just the online business. The walk from plus 2% on the UK volume, pricing was down around 5%. And the other portions of our business, particularly marketing services, which are not included in the transaction volume, were down as US financial institutions did the same thing. The UK institutions pulled back the same way the US institutions have. And again I would emphasize that quarter-to-quarter pricing – I say pricing in the loosest of terms, quarter-to-quarter pricing, number one, can fluctuate a fair amount because of the different mix of customers we may have. For instance, Rick said that our fourth quarter US average – and instead of calling it pricing, I might call it average revenue per transaction, favorable 4%. Some of that reflected we did have some specific statements where we had an opportunity to improve pricing. But we also thought a more –

Jaime Brandwood – UBS

Sorry. Can you repeat that number again? I missed that. Did you say plus 4% in average revenue per transaction was?

Rick Smith

Yes. Jaime, that's a combination of price, which your question to me was price, up 2%. When you combine price with mix, which is a different product mix, that was another 2%. In aggregate, the actual transaction – revenue per transaction was up 4%. Pure price.

Jaime Brandwood – UBS

In the US.

Rick Smith

Correct.

Jaime Brandwood – UBS

Okay, right. Yes.

Lee Adrean

So I’d just caution people to not interpret too much into any one quarter because we will see that jump around a little bit, particularly due to mix considerations.

Jaime Brandwood – UBS

Okay. And then just lastly, if I may, just taking a kind of a wider enterprise view and vis-à-vis kind of cost-cutting initiatives and restructurings and what have you, are you willing to hazard as a guess as to how much cost you might be able to take out of the business over the course of this year on an annual run rate basis in dollar terms?

Rick Smith

Jaime, was your question on a global basis or specific?

Jaime Brandwood – UBS

Yes. I’m taking a look at the whole enterprise, and as you look to kind of maybe cut costs and make the business a bit more efficient given the prevailing economic environment, are you willing to hazard a guess as to how much dollar cost you might be able to take out of the business (inaudible)?

Rick Smith

Let me answer it this way. We have been at this now systematically by trying to improve processes versus just ripping costs out since the second quarter of 2007. So we are almost into our second year of this. And I gave you a number I think Lee reinforced that number that our annual run rate of expenses entering this year is already $70 million below last year. On top of that, I mentioned that lean, we got a great leader in Andy Bodea and his team who really understand the tool, we're deploying that now globally. That saved $12 million along last year in its first year of implementation. So we’ll continue to manage expenses with one goal in mind, and that is delivering a balanced margin for this business. We’ve always talked about trying to protect that margin in 24% to 26% range. And we will manage NPI and growth, and we will manage expenses to protect that margin range.

Jaime Brandwood – UBS

And I mean – sorry to hog the quick Q&A. This will be my last one. But I know you obviously talked about new product introduction, I think, helping you delivering something like $70 million of incremental revenue this year or in the quarter. I mean, just from a kind of new product sales force investment and what have you, are you pulling back on that at all? Are you pulling back given the environment?

Rick Smith

No.

Jaime Brandwood – UBS

On either your sales force or your product innovation, product introduction?

Rick Smith

Absolutely not. And a great indicator is look at our CapEx guidance that we gave you. We gave you a guidance of $75 million to I think it was $110 million, up significantly over historical patterns if you look back in 2002, ’03, ’04, and ’05. We are going to continue investing in new products. This market will turn. I can’t tell you if it’s going to turn in late ’09, 2010, but it will turn. And the day we stop investing in our future of new products is the day we stop growing. So, no, we’re going to continue investing in growth.

Jaime Brandwood – UBS

Okay. Thanks a lot for your time.

Rick Smith

Sure, thanks.

Operator

And we’ll take our next question from Michael Meltz with JP Morgan.

Michael Meltz – JP Morgan

Thank you. I think I have three questions. Lee, the currency drag in ’09, I’m modeling – or I think I’m getting to a number of $70 million to $75 million for the full year, assuming current rates, is that the range you are thinking about?

Lee Adrean

Yes, it’s pretty close. I think literally at current rates it would be about $82 million.

Michael Meltz – JP Morgan

And what's the flow-through at the EBIT line on that?

Lee Adrean

It’s comparable to essentially the equivalent of our international operating margin, which is about 30%.

Michael Meltz – JP Morgan

Okay. The last question that the guy before me asked here, another way of asking it, your volume numbers at consumer online, do you think you are losing share or do you think some of it has to do with mix like you might not be as big in collections or some other areas? Rick, can you talk about that please?

Rick Smith

Sure, Michael, I’ll be very clear there. I mentioned in my opening comments we made some tough calls to walk from some business that we didn’t want. We always do that. We have not lost a piece of business that we had that we wanted to keep. And I mean that sincerely. We go through – and I know there’s been some talk about that around the circles, but we go through account-by-account reviews on a monthly basis. By product line by product line by product line, we have not lost a single piece of business that I can think of any significance since I have been here. And TALX is helping us bring in new value-add. I’m confident we’re going to gain share over the next couple of years as we leverage the Work Number. Experian and TU may have invested earlier in the cycle on things like collections and growing that at a fast rate, but we are not losing share where we have current share.

Michael Meltz – JP Morgan

Your point on walking away on deals, what’s an example on something that you – I mean, give us an example, please?

Rick Smith

I don’t want to be specific here, but it’s something that we always do. We have a very detailed pricing committee, Michael, that's led by a pricing guy that's independent. And finance is there and the business team is there. We go through every single large transaction, and sometimes we look at it and say, it just doesn't make sense and we walk from it. I can reinvest my money elsewhere in good profitable customers and protect that margin.

Michael Meltz – JP Morgan

Your point on cost take-outs – I think this is my last question – you said $70 million annualized? I don’t know what to do with that number. Are you saying take your expenses in full year ’08 of $144.2 million and deduct $70 million, and that’s the run rate? Or Lee, how should I be thinking of that?

Lee Adrean

No. The comparable we have made is – and of course, this may change the business conditions, but we have given guidance to expect revenue in a similar range to the prior year. We think our operating cost – constant dollar operating cost Q4 – Q1 this year versus Q1 last year is down at an annualized – at $18 million on a quarter, which annualizes to $72 million. So rather than try to track what did this initiative claim it delivered and what did this initiative claim it delivered, et cetera, et cetera is not a very simple what’s constant dollar operating expenses this year’s first quarter versus last year’s first quarter.

Michael Meltz – JP Morgan

Okay. Your point on CIS, if you’re saying revenues roughly the same, maybe down a couple million bucks in Q1 versus Q4, I assume your cost take-outs help you on expenses. Are you – is your goal to keep margin at 36% or will it dip below that at CIS?

Rick Smith

I’d say – let me take a stab at that. Again, on an annual basis, the goal is to take the Equifax margins and keeping that 24% to 26% range. You will see fluctuations by quarter at the Equifax level and you will see fluctuations at the business level at USCIS. But over time, USCIS should be in the 36% to 38% range over time.

Michael Meltz – JP Morgan

But not necessarily in ’09?

Rick Smith

No. I’d expect them to be in that general range for ’09 as well.

Michael Meltz – JP Morgan

Okay. Thanks for your time.

Rick Smith

Thank you.

Operator

And we have no further questions. I’d like to turn it back over to Mr. Dodge for any additional or closing remarks.

Jeff Dodge

All right. I 'd want to thank everybody for participating on the call, and we'll make ourselves available throughout the day if you have any additional questions. That will conclude the call. Thank you.

Operator

And once again, that does conclude today’s call. Thank you for your participation. And have a great day.

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