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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

Molly R. McGarrett - JP Morgan Chase & Co, Research Division

Manav Patnaik - Barclays Capital, Research Division

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

Daniel R. Perlin - RBC Capital Markets, LLC, Research Division

Carter Malloy - Stephens Inc., Research Division

Paul Ginocchio - Deutsche Bank AG, Research Division

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division

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

David Togut - Evercore Partners Inc., Research Division

Equifax (EFX) Q1 2013 Earnings Call April 25, 2013 8:30 AM ET

Operator

Good day, and welcome to the Quarter 1 2013 Equifax Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeff Dodge. Please go ahead, sir.

Jeffrey L. Dodge

Thanks, and good morning. 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 in the About Equifax tab of 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 businesses are set forth in the filings with the SEC, including our 2012 Form 10-K and subsequent filings.

We will also refer to our non-GAAP financial measure, adjusted diluted EPS attributable to Equifax. Adjusted diluted EPS attributable to Equifax excludes acquisition-related amortization expense. This measure is detailed in our non-GAAP reconciliation table, which is included with our earnings release and also posted on our website.

Also, please refer to our various investor presentations, which are posted in the Investor Relations section under the About Equifax tab on our website for further details.

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

Richard F. Smith

Thanks, Jeff, and good morning, everyone. Thanks for joining us again this morning. Our performance for the first quarter 2013 was, in my opinion, strong and was broad-based, as 4 of our 5 operating segments delivered strong double-digit growth for the quarter. This performance -- a lot of the performance was primarily driven by the continued broadening [ph] focus of each of our business units as one of our most important strategic initiatives. They're all continuing to execute well and have energized their organizations to innovate and identify new and expanded opportunities for growth.

Take a quick look at the high level of the quarter. Revenue was $567 million, up 12% from the first quarter of a year ago. Margin was 26.3%, up from 25.4% last year. And EPS was $0.87, up 26% from $0.69 a year ago. So to put things into context, those results compared favorably to the annual outlook we provided in December then again in January of 10% to 12% revenue growth and operating margins in the range of 26% to 27%. We also guided in February adjusted EPS growth of 21% to 24%. So a solid financial quarter and broad-based.

In addition to the financial performances, the business continues to improve their market position by delivering high levels of innovation, analytics and customer service. As I always do, I'll kind of go through some highlights for each of the business units, and I'll also give you a sense for each business unit, what the outlook looks like for the second quarter of 2013.

The focus for USCIS for the quarter, obviously, was integrating our new central region, which was the acquisition of CSC, and preparing that organization to deliver accelerated core non-mortgage growth in 2013 and beyond. We've organized the CSC acquisition into what we now call, again, our Central Region. A number of activities are underway to train the sales force, integrate them into joint account planning and rightsize the organization to eliminate unnecessary redundancies. Rudy and his team are off to a very good start.

During the first -- during the quarter, USCIS also launched the first phase of our analytical sandbox approach for our second top core bank. We've talked about this concept of sandbox a few times in the past. And while it's now gone live a lot of great excitement there. There's a lot to be done in the weeks and months ahead, but this is a clear example of how we are leading and innovating for our customers. The database will be extraordinary broad-based, including our data, our clients' data, scores, attributes and potentially third-party data, where needed. With our modeling and analytical platform, this customer can brainstorm, test, validate and produce models to significantly improve their decision-making with consumers and small businesses.

With our unique Decision 360 data assets, intimate knowledge of the banks' modeling challenges, a dedicated relationship team and understanding of the clients' complex data consumption requirements, we are uniquely qualified for this type of opportunity. It's really exciting to see us take our relationship with these big banks to a whole new level strategically.

Finally, we continue to make good progress on the verticalization of our sales organization in USCIS. Growth is beginning to accelerate in some of our focus areas. For example, we created late last year a vertical around the automotive segment in the U.S. And in the first quarter, the automotive vertical exceeded 10% growth, while the market grew at approximately 6%.

While organic growth was below our long-term target in the first quarter, it was largely in line with what we had expected for USCIS. The slower growth is really due to a particularly strong performance in 2012. A relatively slow January in the U.S. can explain why. It was weather, it was sequestration, uncertainty regulatorily. But market overall we felt was slow in January. The good thing is it picked up nicely in February. That pickup continued in March. The trend continues into April. As we look at USCIS, we look forward into the second quarter, we see USCIS clearly coming in line in our long-term growth projections we gave you, which is back in the range of 5% to 7% organic growth. And total growth, when you include the acquisition of CSC, stepping up to 18% to 20%. So a good solid second quarter outlook for USCIS. And we'll answer any questions you may have regarding that during the Q&A.

While at International, they continue to make good progress on their strategic initiatives. Here's some specific highlights. They continued to increase the penetration on our targeted verticals like insurance in the U.K., telco in Canada and the financial institutions in Latin America. They continued to accelerated our growth of unique products such as fraud in Spain and Canada and eID in Latin America.

Expanding the geographical footprint of our unique decision tools such as InterConnect is now a program across Europe and in Latin America. We're delivering strong double-digit growth in our analytic services offerings throughout Europe, Latin America and Canada. They continue to grow U.K.'s Personal Solutions business at strong double-digit rates. That's been a transformed business for us in the U.K.

Russia. Russia continues to deliver strong operating margins and double-digit revenue growth. And during the quarter, we increased our ownership of a Russian enterprise from 43% to 50%.

Finally, India is progressing well. We continue to add new customers and add new data contributors, launch new products and improve our hit rates. Growth for International is expected to be in the upper single-digit range for the second quarter as these strategic initiatives continue to build momentum. Important to say also, as I think about International, it was -- and the performance in the first quarter, very much in line with our expectations and the guidance we gave you in December for International, as well as reaffirming that guidance for International in February of this year. So second quarter is expected to be very strong for International as well.

Onto Workforce Solutions. Workforce Solutions delivered another outstanding performance in the quarter and also positioned itself for some attractive growth in the coming years. Our total records in the database now exceeds 224 million. Dann and his team have done a really good job of continuing to find new and creative ways to add new records for that database, which as you know, enabled us to solve more problems for verifiers [indiscernible] accelerated growth rates.

At the Investor Day last December, we told you that the government sector was going to be a big focus for Equifax. And the recent announcement by SEITIS [ph] with Medicaid -- Medicare and Medicaid services. The CMS is a great example of a big win for us in this space. This project is uniquely tied to the Affordable Care Act, which mandates that all states set up a web exchange so consumers can quickly qualify, add for and enroll in healthcare benefits based on a variety of factors, including income. Our solution will reduce the need for manual verification in many cases, benefiting both the consumer and the state governments.

By the way, this is a great example of taking our fraud and ID Services business and which used to reside in the USCIS business. We had relationships in the CMS and bringing EWS in. Those teams partnered great together to win this very, very unique contract for us. As you may have seen, the contract is for 5 years and it is estimated by CMS to be worth up to the $329 million over the life of the contract. And just for clarification, this is the instant verification product, so it's a Work Number product that we're selling to CMS.

This year is all about building out the capabilities to prepare ourselves and prepare CMS to go live, the intent is to go live in the fourth quarter of this year. We expect there will be some revenue, obviously, this year, but it will be relatively small in 2013, building in 2014 and beyond. So as we get towards the end of this year, we'll have much greater insight into revenue outlook for 2014. But it's an exciting win for us. First, because we're selected over -- because of our unique employment in income data assets and technology capabilities. And secondly, it establishes us at a very important and valued contract with the U.S. government on a very significant initiative. It opens doors to the government that we've never had opened before. In addition, obviously, there are some enormous benefits for the consumer and streamline the qualification process. And finally, although there's development effort necessary to meet CMS's requirement, we anticipate fulfilling these transactions beginning again in the fourth quarter of this year. And not a significant CapEx expenditure. It'll all be ready.

Continuing with Workforce Solutions, they continue to make good progress penetrating some of our more traditional end markets, which we've talked about for a number of years now. For example, revenues in the auto and card sectors grew by over 50% in the quarter. And both segments continue to have long-term growth potential for EWS.

Finally, we've had some early wins with our new Central Region. It used to be known as CSC. And Workforce Solutions selling products into many of the larger financial institutions and customers, and we continue to make good progress penetrating our KCP accounts with EWS products. I'm sure you saw from our press release, the operating margins expanded by over 600 basis points for EWS for the quarter, in addition to the benefit of recording [indiscernible] revenue. Every business segment in Workforce Solutions expanded their operating margins in the quarter as they continued to benefit from investments and technology and improved operating efficiency. We can talk as much as you want to about [indiscernible] later on. Great performance across-the-board for Workforce Solutions. We expect Workforce Solutions to continue to deliver high single-digit revenue growth in the second quarter.

On the PSol, they delivered their ninth consecutive quarter of double-digit growth with strong operating margin in the quarter. They signed 4 breach deals. They're delivering strong double-digit growth in Subscription revenues, primarily improving overall revenue per subscriber. They also continue to penetrate the Canadian market while providing technical and marketing support to enhance growth of our U.K. Personal Solutions product offering. Revenue growth for PSol in the second quarter is expected to continue in the low double-digit range.

Now after a difficult 2012 North American Commercial Solutions is making good progress with its customers and accelerating its growth to 10% for the first quarter. Further penetration of non-FI and telco verticals, share of wallet growth of existing customers and strong execution on NPI are contributing to the accelerated growth we saw in the first quarter. We expect revenue growth in the high single digit-range as these trends continue into the second quarter. And I'm confident that Commercial is back on the range of good growth going forward.

Now in conclusion, I feel good about where we're positioned. As many of you know, we have set high expectations for our management team and they have consistently delivered. Every business segment is healthy with an attractive set of short-term and long-term growth opportunities in front of them.

I'll turn it over to Lee now for the details.

Lee Adrean

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

With mortgage market activity generally holding in the first quarter at the elevated levels of last year's second half, as we expected, and with good operating execution on our growth initiatives, this quarter's performance was solid and at the upper end of the guidance range we gave last quarter. During the quarter, we completed the divestitures of 2 smaller, nonstrategic businesses, Equifax Settlement Services and Talent Management, as we previously announced. These are being treated as discontinued operations for accounting purposes, so the operating comparisons I will be sharing exclude these units from prior periods.

Now let me return to the quarterly results. Compared to the same quarter in 2012, for the first quarter of 2013, consolidated revenue of $567 million was up 12% on a reported basis and also up 12% on a constant currency basis. Operating margin was 26.3%, up 90 basis points from last year, largely due to operating margin expansion in Workforce Solutions, Personal Solutions and Commercial Solutions.

Diluted earnings per share attributable to Equifax was $0.67, up 15% for the same quarter last year. Excluding acquisition-related amortization, adjusted EPS was $0.87, up $0.18 or 26% when compared to the first quarter of 2012.

Moving to the individual business units. U.S. Consumer Information Solutions revenue was $245 million, up 17%. Excluding the acquisition of the CSC Credit Services business, organic growth in USCIS was 3%.

Online Consumer Information Solutions revenue was $176 million, up 14%. Most of the growth resulted from the CSC acquisition. Excluding the CSC acquisition, revenue grew slightly. Transaction volume was down 10%, driven by lower activity levels in telco and select lower-priced financial institutions, offset by an increase in average revenue per unit due to improved customer mix and some pricing initiatives.

Mortgage Solutions revenue of $30 million was up 33% compared to the first quarter a year ago, driven largely by the acquisition of CSC Credit Services. Organic growth was approximately 12%.

Consumer Financial Marketing Services revenue was $40 million, up 17%. Organic growth was approximately 4%. The operating margin for U.S. Consumer Information Solutions was 37.5% compared to 38.7% in the first quarter of 2012. USCIS operating margin decreased in the first quarter of 2013 as compared to 2012 due particularly to increased depreciation and amortization expense, which negatively impacted margin to 240 basis points.

Increased depreciation and amortization expense was primarily a result of the additional $9 million of acquisition-related amortization expense related to CSC Credit Services acquisition. In addition, transition expenses resulting from the CSC acquisition negatively impacted the operating margin by over 100 basis points in the quarter. We anticipate operating margins to move up in Q2 consistent with the long-term range we guided to during Investor Day in December.

Our International business unit's revenue was $124 million, up 2% on a reported basis and up 4% on a constant dollar basis. By region, Latin America's revenue was $47 million, flat in U.S. dollars and up 4% in local currency. Double-digit growth in analytical services and marketing services offset weakness in Chile, driven by the regulatory change that took effect in the first quarter of 2012. For the remainder of the year, we expect growth in Latin America to improve.

Europe's revenue was $45 million, up 3% in U.S. dollars and up 4% in local currency. Good growth in government and insurance sectors, combined with strong double-digit growth in Personal Solutions, offset weakness in our commercial information and marketing services offerings given the economic conditions. Canada Consumer Information revenue was $33 million in the quarter, up 4% in U.S. dollars and 5% in local currency. Strength in analytical services, particularly in fraud services and marketing services, helped to offset mortgage weakness in Consumer Information Solutions.

International's operating margin was 28.1% compared to 31.8% in 2012. Last year's first quarter margin was by far the highest of the year, so this is a difficult comparative base. Margins in the year's first quarter and for the rest of the year are likely to be more similar to margins from last year's second through fourth quarter's high 20% range.

Workforce Solutions revenue was $124 million for the quarter, up 14%. Verification Services with revenue of $69 million was up 21% for the quarter, driven by strong double-digit growth across all market segments, including mortgage, auto, government and [indiscernible]. Total records on file ended the quarter at 224 million, up 7% over the year ago period.

Employer Services revenue was $55 million, up 6% compared to last year. As to catch up on the work opportunity tax credit, employment credit services followed it's reauthorization by Congress in January and offset weakness in other tax management services.

The Workforce Solutions operating margin was 30.3% compared to 24.1% in the first quarter of 2012. With the renewal of the work opportunity tax credit program, we were able to record revenue for work that was performed in 2012. The resulting benefit to the operating margin in the quarter was approximately 160 basis points. Additionally, each line of business in Workforce Solutions improved their operating margins when compared to the first quarter of 2012, driven by strong revenue growth.

North America Personal Solutions revenue was $51 million, up 14% from a year ago. Strong growth in subscription revenue, breach projects and additional penetration in Canada were the key drivers of this performance. Operating margin was 28.4% compared to 25.1% in the first quarter of 2012, driven by lower credit file and monitoring expenses resulting from the CSC acquisition.

North America Commercial Solutions revenue was $23 million, up 10% on a reported and local-currency basis. Strong growth in our U.S. risk and marketing segments was partially offset by slowness in Canada. Operating margin was 21.3%, up from 16.8% a year ago quarter, as all business units delivered year-over-year improvement in their operating margins.

Now let me turn it back to Rick.

Richard F. Smith

Great. Thanks, Lee. For the second quarter, assuming current exchange rates and the continuation of the mortgage activity we've experienced in the past 3 months, our outlook for revenue growth from continuing operations is between 12% and 14%, adjusted EPS from continuing operations is expected to be between $0.88 and $0.91 per share for the quarter. That's up 23% to 27% for the second quarter.

Our second quarter guidance for revenue and adjusted EPS continues to reflect the strong first half performance, which was incorporated to our full year guidance. Giving the anticipated moderation in mortgage activity for the second half of 2013, we continue to be very comfortable with our full year guidance of 10% to 12% revenue and 21% to 24% for adjusted EPS growth.

We're going to have a much better look, guys, as we release our second quarter results in July as to what exactly mortgage might be doing in the second half, so obviously, we'll give you those views when we're together in July. Any way you look at it, the results we have in the first quarter, combined with the outlook we expect for the second quarter, positions Equifax for yet another record year.

So with that, operator, I'd like to open up to any questions the audience might have.

Question-and-Answer Session

Operator

[Operator Instructions] We will go first to Molly Garrett (sic) [McGarrett] with JP Morgan.

Molly R. McGarrett - JP Morgan Chase & Co, Research Division

I was wondering if you could just talk a little bit about the trajectory for OCIS for the year. Growth flattened in the first quarter. Where do you see re-acceleration and what will be driving that?

Richard F. Smith

Molly, I gave some insight there. If you take a look at the entire USCIS, it's lower in the first quarter than anticipated, really driven by July -- by January's results. And I gave guidance for the entire business unit to be in the 5% to 7% range. To get there, obviously OCIS has got to kind of carry their weight. So I expect improvement in the second quarter going -- that improvement continues throughout the year.

Molly R. McGarrett - JP Morgan Chase & Co, Research Division

Okay. And on mortgage, do you still have the same expectations as far as the market decline that you had at Investor Day? Or have your expectations changed at all?

Richard F. Smith

No, as I'd tell you -- alluded to at the end of my comments there, we're seeing continued, albeit slower growth than 2012 saw over 2011. The mortgage market is performing as we expected during guidance in December and reforming in February. For the first quarter, we expect that to continue in the second quarter. And when we're together in July, we'll have a much better view of the expectations for the third and fourth quarter. Right now, it's behaving as we anticipated.

Operator

We will take our next question from Manav Patnaik with Barclays.

Manav Patnaik - Barclays Capital, Research Division

Can you maybe just help break out the contribution from CSC in terms of revenue and incremental EBITDA like you -- just to try and compare the run rate to the full year incremental guidance you had given at the time of the acquisition?

Richard F. Smith

I won't give you the specific numbers, but CSC is performing almost identically to the guidance we gave earlier this year, financially, strategically, tactically. So all the guidance we gave you on EBITDA, margin impact and revenue impact is largely in line. There's nominal adjustments to the guidance we gave you before. Lee, would you add to that?

Lee Adrean

Yes, revenues for CSC are running ballpark about $30 million a quarter, and we expect that to hold through the year. We really can't directly measure EBITDA because we're consolidating it. It's hard to track the expense side. But consistent with Rick's comments, we're hitting our budgeted numbers, which were based on the case that we presented to you in December. So we're right on track with our incremental profit and EPS objectives.

Manav Patnaik - Barclays Capital, Research Division

Got it. And then, Rick, you mentioned obviously that we should continue to see improvement for the rest of the year in OCIS. Can you maybe elaborate just a little bit more on this mix shift of the declining, I guess, as you refer to the lower-paying customers and move into the higher end? Can you just maybe give us a little more color on what the dynamics there are and what's going on internally?

Richard F. Smith

Specifically looking at what drove the performance in the first quarter and why I'm confident in the second quarter?

Manav Patnaik - Barclays Capital, Research Division

Well, just on the OCIS side, you talked about the mix shift between the declines on the lower-end paying customers. But then you're, I guess, targeting the higher-paying. So I just want to know if you could provide a little more color on what that means.

Richard F. Smith

Great, great question, Manav. Traditionally, as you know, when you look at a portfolio of assets, assets could be traditionally like the customers that you have, like the products you have. We continue to look for ways to optimize that mix of portfolio you have, and OCIS is no different. We had some clients that were higher-volume but extremely low-priced, and that correlates to low profitability. And we continually look at those and say what makes sense short term and long term and modify that portfolio accordingly. So what we did in OCIS, to be very specific, is we have non-renewed, at our request, a number of clients but offset that with some very high-margin, lower-volume. So the mix was a good step forward from a profitability perspective for us. So don't think of that as being something that is a sea change mover continuation that you'll see significantly going forward. But every so often, we sit back and take that look and kind of prune the portfolio, the portfolio we want long term. That's what happened here.

Manav Patnaik - Barclays Capital, Research Division

And maybe just lastly on this, can you give us an example of the 2 different types of clients, like the high volume and the low volume but higher priced one?

Richard F. Smith

Examples, meaning verticals or examples...

Manav Patnaik - Barclays Capital, Research Division

Yes, correct.

Richard F. Smith

Yes, I won't give you the client's name, but largely in the FI space.

Operator

We will take our next question from Andrew Jeffrey with SunTrust.

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

Rick, can you talk a little bit about or elaborate a little on the CSC cross-sell efforts and where you see the greatest potential? Are we talking about selling some of your NPI solutions into that central region? And also, could you talk about the trajectory of the benefits you foresee from those cross-sell efforts as we go through the year here?

Richard F. Smith

Yes. One as I said before, just a little higher level math, the overall integration of the acquisition of CSC is right on target. It's going great. No negative surprises, a few positive surprises. So I'm really pleased at this juncture. As it relates to cross-sell and revenue synergies, if you go back to the time we announced this in December, what I said there holds true today. And that is, think about it this way. It's not necessarily there'll be new sources of revenue, but that time to revenue should be faster because we're not dealing with a third-party partner. It is our business. So what you're seeing now is our ability to bring products from NPI from across of suite of assets we already have into those customers in the middle part of the country. We're doing it with faster traction we could in the past. So that's the way I think about it. As far as trajectory, we're still early into it, 4 months into the integration. The effort right now has been on getting the culture together, the people together, the process together, and we have had some nice cross-sell wins at some financial institutions in CSC's territory. But it's too early to declare what that number is going to be long term.

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

Okay. And when I look at this quarter, and we saw non-mortgage organic revenue sort of below your long-term targets, and it sounds like January was the culprit. If you look at the full year, even considering the slow start, do you still feel good about 6% to 8% core non-mortgage revenue growth? And then, how much of that is going to be driven by NPI?

Richard F. Smith

The answer to the first part of the question is absolutely. We expect to be back at the 6% to 8% range in the second quarter and for the full year. In NPI, I'm not sure we've broken that out specifically, but the NPI in total should continue to perform at the same levels -- within the range we have historically, which is 10% by value and mix.

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

Okay. And one last one, if I may. Just from a macro standpoint, FICO made some comments last night generally about a little bit of a lift in the credit card environment. Could you comment -- CMS, I guess, Lee said was what -- up 4% organic. Are you seeing any movement in terms of the issuer's willingness to either ramp up marketing or come down the credit continuum at all?

Richard F. Smith

Yes, prescreen was up in the first quarter. So when you look at CMS, and I think the number we gave you was 4%, that's a combination of traditional CMS plus the wealth management business, the IXI business, as we call it. But the prescreen business was up -- I can't remember exactly what the number was. Jeff, maybe you do -- mid-double-digit for the first quarter, so we too are seeing prescreen lift in the first quarter.

Operator

We will take our next question from Dan Perlin with RBC Capital Markets.

Daniel R. Perlin - RBC Capital Markets, LLC, Research Division

So I didn't hear the core non-mortgage statistic from you guys. I know everyone's kind of alluding to it. But can you give us that number specifically so we're all on the same page?

Lee Adrean

For total company, it was about 5%.

Daniel R. Perlin - RBC Capital Markets, LLC, Research Division

It was 5%, okay. So that's what we have. And then Lee, you talked about transition expenses being about 100 basis points of headwind on the USCIS margin. Is it -- are you trying to say that in the second quarter you'd expect that to be negligible and that's how we should step it up, so 100 basis point sequentially? Or should we be thinking about this as you start to grow margins again on a year-over-year basis?

Lee Adrean

I would say, actually a combination of 2 things. One, yes, it should be -- transition expenses, largely though not completely behind us. The second is, because we are expecting stronger revenue growth in the second quarter, we'll also get some margin leverage from both.

Richard F. Smith

Dan, one thing Lee, I think, said earlier, was you should expect USCIS's margins to move into the range we guided to back in December and again in February.

Daniel R. Perlin - RBC Capital Markets, LLC, Research Division

Got it. And then at the time of the CSC deal, you had talked about reinvesting, I don't know, maybe $0.10 or so of the potential accretion. I'm wondering how much have we seen kind of reinvestments so far? And then how much should we expect throughout the year? Just given how this quarter played out a little bit lower, was there a little bit less investment and we should expect that to be heavier in the back half, given that's where the acceleration is expected to occur?

Lee Adrean

Yes, to a modest degree. We are ramping some of those programs. You'll see some of that in the corporate line, so you'll see a bit more corporate line expense growth as we get later into the year. Some of that will go into the business units. But we were spending in the first quarter, but it will ramp up somewhat from here.

Daniel R. Perlin - RBC Capital Markets, LLC, Research Division

Okay. And then last question. Can you just give us an update on what, if anything, is kind of transpiring around just the CFPB? And I know last quarter you talked about some clients being a little standoffish given how one of the products was structured. It's sound like you probably rectified that, but any update would be very helpful.

Richard F. Smith

Yes, we continue to work very closely with CFPB, and we're going to -- the focus, I think, as much in the last time was around getting a compliance governance structure in place, and we're making good progress on that when we come back sometime in the late second quarter, early third quarter to review that with us. So specific to the CFPB on a product position, we talked about IXI, and so the attributes there being potentially a concern of CFPB maybe [ph] discriminatory in some cases. We'll make a great progress there, building new models with different attributes. When the customers are satisfied, we're convinced CFPB will be satisfied with this one.

Operator

We will take our next question from Carter Malloy with Stephens Inc.

Carter Malloy - Stephens Inc., Research Division

On the Workforce side of the business, I think there's a couple of million of margin benefit. But even excluding that, there's a pretty significant gain there. Should we think about that as permanent process improvements and margin that's going to stick? Or should we model that margin back down going forward?

Lee Adrean

No, Carter. One, it was an outstanding performance, you're right, and [indiscernible] was a help. It was a drag last year, as you know, because we had all the expense and no revenue for EWS. In the first quarter you get the revenue with virtually no expense. But as you model EWS going forward, you should think of EWS being in the 30% range.

Carter Malloy - Stephens Inc., Research Division

Okay. And then going into next year, will the CMS contract structure change that at all?

Richard F. Smith

Yes, obviously we'll know more as I mentioned earlier on at the end of this year. If it materializes at the level that the CMS disclosed, which we don't know if it will yet, it's work [ph] number, it's instant, so it's a very high-margin business. So let's hold that thought until we get closer to the year, we'll give you look at it then.

Carter Malloy - Stephens Inc., Research Division

Okay. And then going back to the question on CFMS, if you teased out IXI, which sounds like it's down again. I guess, one is, how much longer do we have to suffer through the comps on that one with that business being down? But two, more importantly, on the prescreen side of the business being up mid-double digits, Lee, can you tell us -- that was negative last quarter or that was maybe slightly positive, is that correct? It seems like a pretty big turn, and for you guys isn't that a pretty good leading indicator going into 2Q and beyond?

Lee Adrean

Well, first, IXI was down marginally. And it's kind of flattened out now year-over-year, so I don't expect that to be a factor as it was last year. In fact, we obviously are expecting that to return to growth. The last quarter CFMS comparison, I don't recall. I thought we were up in last year's fourth quarter over the prior year. Prescreen, up more than the rest of CFMS. But I think that had turned.

Carter Malloy - Stephens Inc., Research Division

Is there a fairly material acceleration in this quarter, though. Is that fair to say?

Richard F. Smith

What's that, Jeff? It turned up -- prescreen turned up in the fourth quarter, okay?

Carter Malloy - Stephens Inc., Research Division

And historically, how good of a predictor has that been at least for the FI component of overall OCIS?

Richard F. Smith

Yes. Carter, it used to be very good indicator pre-recession, and then we've got a 45- to 60-day lag. We saw, as we exited the recession, that there was less of a correlation between prescreen uptick and on the core credit report uptick in USCIS. So we'll keep a close eye on that over the next couple of months to see if, in fact, there is a higher correlation returns to normal. That would be very encouraging if it does.

Operator

We will go next to the Paul Ginocchio with Deutsche Bank.

Paul Ginocchio - Deutsche Bank AG, Research Division

Rick, two questions about -- one about sandbox. Any way to talk about or even size what the potential revenues would come out of some of these relationships? Is that possible? And second, is the CMS contract a one-off, or is there a pipeline of discussions you're having? Is there any way you could talk about the size of that potentially?

Richard F. Smith

Two great questions there. One, on the sandbox, I think I alluded to this in the last earnings call. There is -- whenever you stand at the sandbox, there's a revenue you get to load the data, to provide the services, to host the data, less than millions of dollars range. But more than that, it is -- I've have always said from day one, any time you can add this kind of strategic value to customers and get in there with smart people, look at data, look at attributes, look at scores and try to build new products, the real revenue comes downstream when we get to build new products, secondly. The third revenue stream is that some of clients are looking at this as a potential challenges. Do I want to outsource pieces of, if not all of, my analytics to someone like Equifax? And the sandbox is a great venue to prove that concept. So I think of the revenue stream really coming downstream here with new products and potentially outsourcing and that's exciting to us. As for CMS, yes, any time you get into a government entity like CMS and win a contract like this, this continues to validate and provide solutions to them, it will open other doors. For example, there's a potential that the government might look at pulling an employment record 1 year after the fact -- I'm sorry VOI after the fact. In short, if they have given you a discount for the Affordable Care Act a year later, how does your income look? So there are a lot of opportunities potentially for us to think of different revenue streams with CMS.

Operator

We'll take our next question from Julio Quinteros with Goldman Sachs.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Just thinking about the offsets to volume, it sounded like you said that there was obviously some increase in revenue per transaction and some other price levers to offset some lower volume overall, at least in the first quarter. If you kind of think about some of the offsets that you could see, if there were any volatility in volume from here forward on the OCIS section, do you still have those levers as you kind of go forward or are those kind of one-time items for the first quarter? Will there be other levers that you could continue to pull to offset any weakness in volume as we move forward from here?

Richard F. Smith

Well, one, I would expect weakness in volume. The forecast I gave you obviously contemplated certain volume level. Two, if you go back to -- I can't remember which -- who asked the question, but we intentionally lowered the volume with some accounts because the profitability didn't meet our thresholds, so that was very, very intentional. I don't expect that to be a continuation of new cleansing of accounts second, third and fourth quarter of this year. Did I answer your question, Julio?

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Yes, that helps. I guess I'm just thinking more on a macro basis. Then if things were to get worse into the back half of the year, would there be other levers? I mean it sounds like mix shift will be part of that. But you're comfortable at least relative to the second quarter guidance right now that there would be some volume improvements from here?

Richard F. Smith

Yes, I do. And again, we have a lot of levers. And I don't know what to expect. I wouldn't give you the guidance for the second quarter and for full year that counted so [ph] and our ability to deliver those results. As you go with softness in OCIS or elsewhere, we have a lot of tools we could pull, including the right deployment of Lean, looking at costs, so on and so forth. But we're very clear. I'm bullish on our revenue outlook for the second quarter and for the full year.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Can we may be take that thought to more of a -- I'm thinking more of a 2014 look at this point, I guess in some ways. What could derail the momentum that you guys have in 2013 as we really begin to zero in on the next year's growth trajectory just thinking about kind of a lower growth prospect in our model. But it sounds like there's a lot of opportunities still ahead of you. You have the CMS contract. You have some other pieces that are kind of really ramping up here. What would be the puts and takes to really kind of consider in terms of sort of a second half of '13 and then being able to sustain that momentum into 2014?

Richard F. Smith

Well, it's the typical suspects. Obviously, what does mortgage do would be one. We've given you our outlook on mortgage. Two is, the economic environment, and we're anticipating that the economic environment in '14 will be much like '13, maybe slightly improvement. So the good news is, if we get some economic step-up around the world in 2014, that's wind at our back we've not seen since 2006. So right now, as I look at 2014, I look at our initiatives that we have here. If the economic environment remains like it is today, I think we're in good shape. If the economic environment improves, it will get us a nice lift for us.

Operator

Next we'll go to Jeff Meuler with Baird.

Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division

On the analytical sandbox, it sound like you brought another large FI in recently. It's obviously a unique offering. What is the selling process there, and what does the pipeline look like? If we look out 18 or 24 months, is this something where you have 20 different analytical sandboxes with different clients? Or should we more think that it'll be kind of limited to large FIs?

Richard F. Smith

A good question, Jeff. I think long term, a lot of the pipeline is strong. And the time to close, it takes a few months. It's a complicated sell. Intellectually, it is an easy sell, but then there's some work required to actually get the sandbox environment set up and then loaded and then analytics starting to come out of it. If you think about it for a second, you take a step back, one, I'm hopeful we'll get a couple of more large clients. But if you go to mid-market and you go down market, oftentimes, those FIs don't have the analytical resources that we have or the large banks have and so have even greater need to kind of partner with us. So I don't think this is only a very large bank or FI play. I think it's a play across the enterprise.

Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then on EWS, if I hear you right, it sounds like you're expecting a little bit of revenue growth deceleration in Q2. On the Verification Services side, it sounds like good broad-based growth and the records growth remains strong. Should we think about the Q2 expected deceleration just being the [indiscernible] impact in terms of not having that upside benefit from Q1 repeat or is there something else going on there?

Richard F. Smith

Yes, one, it's much in line with the contemplated growth forecast we had back in February. Two, [indiscernible] yes, was a little higher than the first quarter, it will be in the second quarter. And third, remember we talked about mortgage across the enterprise, including USCIS and EWS, starting to slow in the middle part of the second quarter and then continuing to slow in third and fourth quarter. So it's a combination of both of those.

Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then just one last one for me. Should we think about there being a permanent step up, I guess, in terms of North America PSol margins following the CSC acquisition as you take out what otherwise was pass-through revenue?

Richard F. Smith

Yes, again, that will ebb and flow depending on the marketing investment we want to make to drive revenue growth. We guided, I think back in December, Jeff, in the high 20s. I think you should continue to see think of PSol in that range but it will ebb and flow quarter to quarter.

Operator

We'll take our next question from Shlomo Rosenbaum with Stifel, Nicolaus.

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

Rick, can you just give us an idea of some of the upside potential from the CSC acquisition, maybe some examples of things that CSC or you could not do individually in those geographies that you can do now?

Richard F. Smith

Yes, again, there's obviously some expense there, and we talked about that when we were together in December and again on the earnings call in February, and those are on track. Two is kind of the revenue. I mentioned that earlier, expanding new products to those geographies faster. Three is, I think there's some opportunity for pricing and folding their organization into our pricing process, which is segmentation on the same price elasticity, bundling and so on and so forth. Three, we have been very sophisticated in our approach to thinking about resellers, how you manage resellers to optimize profit, growth and strategic value. And we'll do that here with CSC. CSC has used over the years a number of resellers across their geography.

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

Okay. And then just to turn around in Commercial, could you talk little bit more about what was weighing on it last year, and just the contrast of what we're seeing kind of -- this starting to turn last quarter and now it looks like a real turn this quarter?

Richard F. Smith

Yes. Shlomo, I'll be very direct here. As I've told my team, this is executional -- lack of execution last year. We weren't paying as much attention to the pipeline as we should have. We are now. We weren't innovating it quite the way now I wanted to. We are now. The team has done a remarkable job of getting their hands around this, not feeling like they're a victim of the environment just because our competitors weren't growing and the market wasn't growing. But they shouldn't just grow. They've done a much for the job on those 2 fronts execution of the pipeline, getting closer to the customers and better innovation.

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

Okay. And then just lastly, on the Workforce Solutions margin, excluding that Workforce tax credit. It's a still pretty significant step up just on a sequential basis on the margins. So I was just wondering what else happened over here that made the margins step up that dramatically? Was there a piece of technology that went in or something else that's different that you're expecting the margins to be like that permanently?

Richard F. Smith

Yes, a couple of things that you should think of. One, it's a nice business model. When you've got a high fixed cost business and you start growing incremental margin, for sure at a very, very high rate, that’s number one. Number two, they continue to deploy Lean at a faster rate than they have before. Three, they have staffed up significantly in the last year on pricing in the broadest sense, so that's segmentation, bundling and so on and so forth, understand price elasticity and value-added to the different clients. So a combination of a great business model with more rapid deployment of Lean. And third, a more effective deployment of pricing strategies, which we have benefited -- yes, I can't tell if the last part of your question was a question or a statement. But yes, we are comfortable with the 30% range.

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

Well, it all came together this quarter because you guys are working on it and it all just came together this quarter?

Richard F. Smith

Yes.

Operator

[Operator Instructions] And we'll go next to David Togut with Evercore Partners.

David Togut - Evercore Partners Inc., Research Division

Rick, could you shed some more light on the CMS contract? Specifically, what's the level of visibility you have into the funding of that project? And then I guess, what are the milestones we should look for around funding? Is this at all at risk given some of the budget cuts in Washington?

Richard F. Smith

We are told by CMS that -- they announced the $320-some-odd million was, in fact, fully budgeted. Is that a risk, could it be a risk? Governments always have some things at risk. Right now they're saying, this is our funded amount the next 5 years you're awarded. And we signed the contract. So as far as milestones go, right now -- I was just down at St. Louis 2 days ago, and the team is full bore out with CMS and internally building the capabilities to service them and go live October 1. So the next milestone for us might be a check in July. When we get on earnings call to talk about how much progress we've made building out the capabilities. And there's some capability requirements required on their side as well. It's a huge priority for them. They're working full speed as well. So the touch point would be July and how both sides are doing in technically preparing ourselves to go live in October. And obviously, the next touch point will be some time in the fourth quarter. In fact, during the third quarter earnings we should be in the midst of the CMS going live at that time. We're going to give you an update, and the third milestone and fourth milestone will be as we're together in February of 2014, wrapping up 2013, and we'll be 3, 4, 5 months into it. We'll get insight into what 2014 looks like at that time.

David Togut - Evercore Partners Inc., Research Division

And then, Boa Vista, could you give us some insight into the financial performance of that business and your updated thoughts on when you might increase your ownership in that JV?

Richard F. Smith

Yes, since we don't consolidate nor control, [indiscernible] nor should I divulge the financial performance. That will be their call. But as far as we're involved, we had a board meeting, I think it was yesterday and the day before with BV, integration continues on pace. It's approaching 18, 19 months now. I think it turns 2 years in July-ish. So the teams are working hard to integrate the 2 companies, build products, make sure we're out in the marketplace and so on and so forth. So we remain actively involved, and we'll give you a better sense on the timing, David, of when there might be an opportunity to increase our stake in BV as we exit this year. So third, fourth quarter this year, we should have a pretty good insight.

David Togut - Evercore Partners Inc., Research Division

And then just a couple of quick housekeeping questions. The $25.5 million after-tax purchase price amortization to get to adjusted EPS, what would be the pretax impact of that?

Richard F. Smith

Lee?

Lee Adrean

David, I'm not...

Richard F. Smith

We'll calculate it, David. David, do you have another question while we're calculating that?

David Togut - Evercore Partners Inc., Research Division

Yes. Other question was, what was the share count at the end of the first quarter?

Richard F. Smith

120 million, was it?

Lee Adrean

123 million shares.

Richard F. Smith

123 million shares, David. David, do you have another question? David?

David Togut - Evercore Partners Inc., Research Division

Yes, I mean, perhaps just a question on capital allocation going forward for Lee, kind of post the CSC buyout. What would be your key capital allocation priority?

Richard F. Smith

I'll answer for Lee. He's still trying to calculate the after-tax. The capital allocation part remains consistent with our discussion in February, and that is pay on our debt so we have some flexibility should we want to purchase some companies. Number two, continuing to invest in organic growth, NPI for us. Three is obviously dividend or share repurchase. But right now, which is no different than it has been, the primary focus is going to be really paying down that debt as we did in the first quarter. I think we paid down $107 million, $108 million in the first quarter. So continue that process, give us some leverage on the -- some flexibility on the leverage.

Lee Adrean

David, on the -- if I go back to the acquisition amortization addback, the $25.5 million was up $11.6 million from a year ago. And that is -- there was $9 million of CSC acquisition amortization, which we just simply tax affected that as -- that's about $6 million. And then the cash tax benefit is another $6 million. It's about $12 million. So basically that increase year-over-year is a function of CSC, and those are the 2 components.

David Togut - Evercore Partners Inc., Research Division

I see. And then, Lee, could you remind me what the financing structure on the CSC buyout looks like in terms of floating versus fixed? And if there's a lot of floating, will you take it out more with fixed term over time?

Richard F. Smith

There was not a lot of floating. On the $1 billion we had about $200 million in cash. We borrowed a little under $300 million in commercial paper, and we issued $500 million in 10-year 3.3% notes. The $300 million of CP, we will take out with cash flow, but we will not -- other than that, don't expect to make any significant changes in our fixed and floating mix.

Jeffrey L. Dodge

Okay. I want to thank everybody for joining us on the call today. And with that, operator, we will close the call. Thank you.

Operator

That does conclude today's conference. We appreciate your participation. You may now disconnect.

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