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Equifax Inc. (NYSE:EFX)

Q4 2009 Earnings Call Transcript

February 4, 2010 8:30 am ET

Executives

Jeff Dodge – SVP, IR

Rick Smith – Chairman and CEO

Lee Adrean – Corporate VP & CFO

Analysts

Michael Meltz – JP Morgan

Carter Malloy – Stephens Inc.

Shlomo Rosenbaum – Stifel Nicolaus

Dan Leben – Robert W. Baird

Nat Otis – KBW

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 recorded. An archive of the recording will be available later today in the Investor Relations section of 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 business are set forth in the filings with the SEC, including our 2008 Form 10-K and subsequent filings.

During this call, we will refer to certain non-GAAP financial measures, which are explained in the non-GAAP financial measures reconciliation attached to our earnings release, including adjusted net income, adjusted operating margin, adjusted diluted EPS and operating results, excluding the impact of foreign exchange.

These measures also exclude the restructuring charge and income tax benefit in the fourth quarter, which is described in our press release. The pretax impact of the restructuring charge is $16.4 million for the fourth quarter and $24.8 million for the full year of 2009. The after-tax impact of the restructuring charge is $10.4 million in the fourth quarter and $15.8 million for the full year. The tax benefit in the fourth quarter was $7.3 million.

Please refer to the non-GAAP reconciliation section in the earnings release and posted in the Investor Relations section under the About Equifax tab on our website for further details.

Now, I would like to turn it over to Rick.

Rick Smith

Thanks, Jeff and good morning, everyone. Obviously, 2009 was an interesting year, a year filled with some uncertainty and challenges, but a year that also, as we exited 2009, was a year in which we started to see some stability.

Our business model served us well. I think you would all agree, over the past few years, the leadership team and for that matter, all the employees of Equifax facing the challenges of 2009, they made some very tough decisions, while maintaining our focus on the long-term strategy and executing our short-term plans to manage our expense base.

We also accomplished two very strategic acquisitions in 2009 and delivered, I think, an impressive financial performance. We are a stronger company as we enter 2010 and I feel much better about the prospects for the upcoming year than I felt one year ago. We have unique and significant data assets that are unmatched by our competition. I'll talk about that in great detail later on.

We've also streamlined our cost base, we've institutionalized lean operating model that provided important operating leverage during the recovery. We have many new products that address customers' emerging needs for the marketing and risk management decisions and we continue to deliver attractive financial returns, enabling us to reinvest in the business and return value to our shareholders.

Taking a look at the quarter, our fourth quarter results were strong and exceeded the outlook we gave you on the conference call covering our third quarter earnings release. Total revenue was $464.3 million, up 1% in constant dollars from the fourth quarter of 2008 and up 2% in constant dollars from the third quarter of 2009. Operating margin was 23.2% excluding the restructuring charge, down slightly when compared to the third quarter of 2009, largely driven by mix. Adjusted EPS was $0.61, exceeding the guidance we gave during the third quarter earnings release.

Also some noteworthy accomplishments that the team delivered during the quarter. Number one, online consumer services is the core of our USCIS business. Its operating margins continue to be strong. For the fourth quarter of 2009, the operating margin was up slightly from the fourth quarter – from the fourth quarters of both 2008 and 2007, despite revenue being down over 9% during the quarter. As a result, USCIS can continue investing in NPI while countering recent pricing pressures in our marketing business.

TALX Work Number revenue was up 17% excluding the contribution from Rapid Reporting, continuing the double-digit growth trend since the acquisition in May of 2007. PSOL, Personal Solutions grew its direct-to-consumer brand of subscription business by 5% while delivering strong double-digit margins, over 28% in the fourth quarter and 23% for the full year. North America Commercial grew revenue 11.4% in the fourth quarter with 34% operating margin, up significantly from fourth quarter of 2008.

International delivered a solid quarter compared to the third quarter as operating margin improved by 50 basis points. In addition, year-over-year revenue grew – growth improved in all three major geographies when compared to year-over-year growth in third quarter. And we completed, as I mentioned before, two strategic acquisitions that will strengthen our franchise and broaden our opportunities for growth. And again, I'll talk about both of those in a moment.

And for the year, we delivered strong financial results in a very difficult environment, which Lee will report on shortly. We also made great progress on our most strategic – most important strategic objectives, which are intended to redefine the competitive landscape, as well as further diversify our revenue growth.

First, we've been talking about this for three years now, NPI, new product innovation. I'm very proud of the accomplishments we've made with NPI throughout the company, the process of idea creation, formulation, development and implementation of new products is achieved through many of our employees. It's a process that has become a very critical part of our DNA and delivered significant revenue growth for us in 2009. For the year, we launched 65 new products and generated $134 million in revenue from products launched in 2006, '07, and '08. We call that, as you know, our NPI vitality index.

Our three largest business units, USCIS, TALX, and international, all delivered strong double-digit NPI growth versus 2008. Our objective is to have over 10% of each business unit's annual revenue, driven by their NPI initiatives.

Next is our technology and analytical services, we call it TALX. Today's environment has added significantly to the challenge that our customers face in managing their lending risk and improving their underwriting decisions. As a result, customers, both domestic and international are increasingly demanding more innovations from our software and analytical solutions to address these challenges.

As you know, in 2009, we consolidated our enabling technologies and analytical services organization into our global technology and analytical services unit to pursue markets not presently serviced – served by our existing business units and to develop solutions that access non-Equifax. Now, that's an important deviation from us whereas in the past, that particular entity was viewed as only enabling data sales, now we are going to embark upon opportunities that are outside of the need for pulling through our data. And I would love to talk about that in the Q&A if you got any questions.

Finally, customers continue to reinforce that our InterConnect platform is the platform of choice for their decisioning needs. This platform has been very successful, as you know, in the U.S. and most recently in Canada and we've also introduced InterConnect in the U.K. and have received interest from some of our Platinum American customers as well. So that is a platform that will soon become a standard platform for us globally.

Our acquisition of IXI is already having an impact on our product offerings. With our combined experience, unique data, and sophisticated analytical resources, Equifax is leading the industry with powerful ability-to-pay solutions. Only Equifax can offer ability-to-pay solutions that leverage the Work Number database and in corporate models built with actual wealth and income data. And these solutions can be delivered in real-time or in batch to best suit our customers' needs. We are truly uniquely positioned there.

Our comprehensive set of data assets makes us the only source for a complete 360-degree view of the customers including their propensity to pay and with IXI and the Work Number, their ability to pay and their capacity to pay. The data assets of IXI will broaden the understanding of our customers' wealth, income, and spending, which can further drive breakthrough decisioning and targeting solutions for our customers.

In short, the building blocks we have in our vast data arsenal, combined with our capabilities in the analytics and decisioning technology, provide us with a much broader set of differentiated solutions to serve our customers' business needs.

The acquisition of Rapid Reporting we made last year has significantly scaled our 4506-T services within the Work Number business segment. Combined with our acquisition of Discover Source in 2008, TALX is the industry leader for IRS tax return information and social security number verification services. Rapid Reporting's 12-year relationship with the IRS has underpinned the evolution of these services for the industry.

We will continue to drive innovation, leveraging our close working relationship with the IRS and the Social Security Administration, anticipating various legislative proposals in Congress; and this is being undertaken at Fannie and Freddie, and with rigorous underwriting standards being adopted by many of large mortgage lenders will lead to attractive growth and product development opportunities for these types of services in 2010 and beyond. With our current scale of operations, we have the capacity to deliver a unique portfolio of products with the high quality services at a competitive price.

Something I have been deeply involved in, as we shift gears, is something we launched just recently called our key client program. Equifax, as you know, has a long history on focusing on the needs of our customers. Their need for innovation and new decisioning tools is more critical now than ever.

In 2009, we enhanced our commitment to a select group of our largest, most influential customers by dedicating some of our most talented professionals strictly to their needs. In my meetings with CEOs of our major customers, it quickly became obvious that we needed to rethink how we best organize and serve their large and complex needs in this new environment.

For many of them, we have had numerous initiatives underway throughout our company. They wanted a stronger coordination and cooperation across our enterprise, staffed with professionals who truly understand them, speak their language, and the utmost integrity – have the utmost integrity and very collaborative and engaged in our operational excellence.

In the fourth quarter, we organized a global key client program. Each key client will have a dedicated team including a chief client officer, as well as a specialist in each of our solution-oriented disciplines including analytics, decisioning, and marketing. Unlike many of these types of enterprise-wide initiatives, these teams have solid line reporting relationships to the chief client officer, not a more typical dotted-line structure.

So essentially what we have done is taken the best and brightest people we have across the entire organization and they are now full-time dedicated to the health and wellbeing of select customers for Equifax. Each team is going to be evaluated and measured solely on their success in driving product penetration and revenue growth with the specific clients. The whole goal there is to disrupt the marketplace and gain share in these key clients.

I believe this approach will in fact disrupt the marketplace, driving deeper and longer-lasting relationships with our most customers and give us many new opportunities as we deliver superior solutions that leverage our unique capabilities and our unique data assets.

By now, I think you have all seen the press on our joint venture in India. After many months, in fact, years of active preparation, we have finalized and funded our partnership with six large public and private institutions in the banking and financial sectors. We submitted our application to the Reserve Bank of India and we expect to be granted a license sometime later in the first quarter or, worse case, probably second quarter of 2010.

Later this year, we expect to have the IT infrastructure completed and operational. Our global data service platform will provide key strategic differentiators such as the ability to host unique negative and positive data from a variety of sources. I am optimistic as – and remain as optimistic as I have in the past that this is a great long-term growth opportunity for Equifax.

Moving to global operations, they continue to be a critical driver of leverage across our business units. In 2009, we accelerated our lean initiatives to further improve operating leverage and give us the ability to quickly scale operations, consistent with our customer demands. We completed 54 initiatives across the business and delivered over $10 million of incremental expense savings in 2009. Over 1,200 individuals have been trained in lean methodologies and tools, further integrating the operational excellence culture into the management's DNA. And I expect that 2010 contributions and expect savings from lean to be even greater, in fact, up double digit over the savings from 2009.

Let's talk about the talent in the company for a second. It's a very important part of our culture here, recruiting the best, developing the best, and retaining the best. And to that end, we recently promoted two of our seasoned leaders to drive growth for our Personal Solutions and our Commercial Business units.

I think many of you know Trey Loughran. Trey has led our corporate development effort now for three-and-a-half to four years and most recently promoted to lead and become President of our North American Personal Solutions business unit. We've also promoted Alex Gonzalez, who was leading our strategic marketing activities. He is now the President of our North American Commercial Solutions business. I've got great expectations for both of these as they bring these business units to new levels of growth and profitability.

We have also hired a world-class Chief Technology Officer who joined us a few weeks ago, I believe three weeks ago, Dave Webb. Dave is a very seasoned IT leader, comes with a broad and diverse set of experiences in the IT world. And we look forward to having Dave join the organization.

We have accomplished a great deal over the past year while not deviating from our strategy and our business model continues to deliver strong operating margins and cash flow for reinvestment into the business and returns to our shareholders. Our balance sheet remains very strong; our access to capital is good. Our operating leverage will enable us to improve those margins when growth returns and I do expect that growth to return later on this year.

Clearly, the environment and Equifax have begun to stabilize, which is good news, a trend that I expect will continue throughout the first half of 2010. I also expect our financial performance to increase in the second half of 2010 as the economy continues and begins to recover.

Let me talk very briefly about the outlook for each of our business units for the first quarter. For the first quarter, USCIS revenue is expected to be down in the mid-to-upper single-digit range when compared with first quarter of 2009. That is primarily driven by the decline in the volume of mortgage lending activity that we saw in the first quarter of 2009. To refresh everyone's memory, we had a significant refinancing boom in the first quarter of 2009. I don't anticipate that will repeat, for obvious reasons, in the first quarter of 2010, but the underlying health of the USCIS business, excluding mortgage, is relatively stable.

In the first quarter, we expect international revenue, excluding any impact of foreign exchange translation, to be up modestly when compared to the first quarter of 2009, as growth in Canada and Latin America offset a slow U.K. economy. On a reported basis, revenue is expected to be up in the mid-teens due to the weakening of the U.S. dollar over last year.

In the first quarter, TALX revenue is expected to be up in the mid-teens when compared to the first quarter of 2009, driven primarily by the growth in the Work Number. In PSOL, we expect revenue to be down modestly when compared to the first quarter of 2009, but at a much better rate when compared to what we experienced in the first quarter of 2009 versus the first quarter of 2008. And North American Commercial Solutions first quarter revenue is expected to be up modestly in local currency when compared to the first quarter of 2009.

So now, let me turn it over to Lee who will give you more financial details. Lee?

Lee Adrean

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

For the quarter, compared to the same quarter in 2008, consolidated revenue of $464.3 million was up 3.9%. Changes in foreign exchange rates favorably impacted revenue by approximately $13.6 million. In constant dollars, revenue was up almost 1%. The acquisition of IXI and Rapid Reporting, two significant strategic investments made during the quarter, added approximately 2 percentage points of growth in the fourth quarter.

On a GAAP basis, the operating margin in the fourth quarter of 2009 was 19.7%. After adjusting for the restructuring charge, the operating margin was 23.2% in the quarter compared to 26% in 2008 and 23.5% in both the second and third quarters of 2009. Excluding the amortization of acquisition intangibles and the restructuring charge, the adjusted operating margin was 28.2%.

Diluted earnings per share for the quarter was $0.47. Excluding the impact of acquisition related intangible amortization, a tax benefit related to foreign tax credit carryforwards, and the restructuring charge, adjusted earnings per share was $0.61, flat when compared to the fourth quarter of 2008.

Even excluding the foreign tax credit carryforward benefit, we still had an unusually low tax rate in the quarter. At a tax rate excluding discrete items that would be closer to 36%, our adjusted EPS would have been lower by approximately $0.04, but still in line with our guidance.

Total debt increased during the quarter by $105 million. During the quarter, we invested $196 million in the two acquisitions we completed, of which a little under half was funded with cash from operations and the remainder from a net increase in debt.

In contrast to most of 2008 and 2009, when in most quarters we saw a modest sequential decline in constant currency revenue as activity in many of our end use markets continued to soften, we are somewhat encouraged by the most recent quarterly performance. Fourth quarter revenue was essentially flat when compared to the third quarter on a constant currency basis and excluding the impact of acquisitions, reflecting a more stable operating environment and continuing traction from our NPI initiatives.

Now, for the individual business units, U.S. Consumer Information Solutions revenue was $199 million for the quarter. Excluding the contribution from IXI, revenue was in line with the expectations we communicated during our third quarter earnings release in October.

Online consumer information solutions revenue was $122.2 million, down 9.6% compared to 2008, primarily driven by a 14% decline in our online credit decision volume. Average revenue per transaction was flat as price compression was offset by the mix of transaction volume.

Mortgage solutions revenue of $23 million was up 27% when compared to the fourth quarter of 2008. Mortgage reporting revenue was up 22% over the prior year and settlement services was up over 40% compared to the same quarter in 2008.

Consumer financial marketing services revenue, which is comprised of credit marketing services and our newly acquired IXI, was $30.9 million. Excluding the contribution from IXI, revenue was down in the high-teens from last year due to lower prescreen and portfolio review volumes with our larger customers and to pricing pressure. Compared to Q3 of 2009, revenue was down approximately 2% excluding the contribution from IXI.

Although our primary banking customers have continued to test and analyze various marketing strategies, they have been hesitant to launch large campaigns until they can ensure full and complete compliance with the Card Act. Direct marketing services revenue was $22.9 million, down 5.7% from the fourth quarter of 2008, but up 8.4% compared to the third quarter, reflecting normal seasonal patterns.

The operating margin for our U.S. Consumer Information Solutions segment was 33.2%, down from the third quarter due to lower total revenue and a shift in product line mix towards lower-margin mortgage solutions and direct marketing services.

International's revenue was $117.7 million compared to $105.8 million in the fourth quarter of 2008. In local currency, revenue was down 0.9% from a year ago and 0.8% from the third quarter, consistent with the expectations we communicated during our third quarter earnings release in October.

By region, Latin America's revenue was $55.1 million, up 19% in U.S. dollar terms and 3.2% in local currency when compared to the same period in 2008. This marks a return to year-over-year growth after declines in the second and third quarters of this year when Latin American economies temporarily weakened.

Europe delivered revenue of $35.9 million, flat in U.S. dollars and down 5.7% in local currency when compared to the same period in 2008. While still reflective of the year-over-year weak economic conditions, this is an improvement from year-over-year local currency comparisons in the first three quarters of this year.

Our Canada consumer revenue was $26.7 million in the quarter, up 13% in U.S. dollars, but down 1.5% in local currency when compared to the same period of 2008, again, the best year-over-year local currency comparisons this year.

International's operating margin was 27.5%, up from 27.0% in 2008 and up approximately 50 basis points from the third quarter. Operating margins were up in eight of the 11 country geographies.

TALX revenue in the fourth quarter was $89.4 million, up 18.5% from the fourth quarter of 2008 and approximately 12% excluding the contribution from Rapid Reporting. The Work Number continues to deliver broad-based growth with revenue of $41.6 million. Tax and talent management services delivered $47.8 million of revenue, up 8% compared to last year. And the TALX operating margin was 21.1% compared to 19.9% in the same period in 2008.

In North America Personal Solutions, revenue was up $36 million, down 3.2% from the prior year and generally in line with the expectations we communicated during our third quarter earnings release. Direct-to-consumer subscription revenue was up 5% year-over-year, but was more than offset by double-digit declines in breach and transaction revenues, which have been more economically sensitive.

Operating margin was 28.1% for the quarter, which is up from 27.3% in the third quarter, though down from 33.9% in the prior year. During the fourth quarter, advertising expense was up 20% compared to the fourth quarter of last year as we continued to promote various subscription products with TV advertising.

North America Commercial Solutions revenue was $22.2 million, up 11.4% on a reported basis and up 7.5% in local currency. Compared to the third quarter, revenue was up 38%, substantially ahead of our expectations communicated during the third quarter earnings call. Our data management product revenues delivered healthy double-digit growth as several new and existing customers initiated products – projects to support their revenue growth initiatives. The operating margin in our commercial business was 34% compared to 28.3% in the fourth quarter a year ago.

In summary, our fourth quarter performance was solid and very much in line with the expectations we communicated last October.

For the year, compared to 2008, consolidated revenue of $1.8 billion was down 5.8%. Changes in foreign exchange rates unfavorably impacted revenue by $48.9 million. In constant dollars, revenue declined 3.2%. Operating margin was 22.3% for the year compared to 24.7% in 2008. On a non-GAAP basis, adjusting for restructuring charges, the adjusted operating margin was 23.7%. Excluding acquisition related amortization, comparable to the reported metric of one of our public competitors, adjusted margins were 28.5%.

Diluted earnings per share for the year was $1.83, down from $2.09 in 2008. Excluding the impact of acquisition related intangible amortization, the restructuring charge and the income tax benefit previously noted, adjusted earnings per share was $2.33, down from $2.48 in 2008.

With the fourth quarter adjustments, we have now fully recognized our foreign tax credit carryforwards. As a result, looking forward, our effective tax rate in 2010 is expected to increase to a range of 37% to 38%, more than 2 full percentage points higher than 2009's adjusted tax rate. This will negatively impact our earnings per share in 2010 by approximately $0.07 to $0.08 when compared to 2009.

Finally, we reduced debt during the year by $45 million while financing the acquisitions that we described. Throughout the year, we worked hard to position ourselves for a recovery. We accelerated the operating cost initiatives in our traditional businesses to protect our operating margins, achieving a $60 million reduction in expense, excluding the impact of foreign exchange in our expense base for those businesses.

We also invested in our growth businesses such as TALX and mortgage reporting, expanding operating margins in those businesses by almost 400 basis points collectively. In conjunction with the acquisitions we made in the fourth quarter, we issued $275 million of five-year notes at very attractive rates, due in large part to the strength of our balance sheet and strong operating cash flow.

Delivering this performance in 2010 reflects very much on our balanced focus of aggressively managing our expenses, while investing in our strategic growth initiatives.

Now, let me turn it back to Rick.

Rick Smith

Great. Before we get to Q&A, let me just give you a few closing thoughts. One, I expect that GDP around the world will be – there will be some growth, but it will be modest and improving throughout the year. And I think that employment, specifically in the U.S., is going to remain at high levels – unemployment at high levels throughout most of the year. You may see a slight improvement towards the very end of the year. Home prices will continue to face pressure due to foreclosures rising.

So on the positive side, we are starting to see an increased interest from credit card issuers to begin soliciting new customers. And that should drive growth for our business in the second half of the year. As a result, I think 2010 will be a year we return to growth. With this outlook and given the current foreign exchange rates, we expect operating results to be stable at their current levels during the first half of the year and then pick up nicely in the second half of the year.

For the first quarter, assuming the current exchange rates, we expect revenues to be up in the low-single digit range from a year ago and adjusted EPS is expected to be somewhere between $0.53 a share and $0.57 a share including the negative impact of a higher effective tax rate. For the full year, we intend to give you CapEx guidance. This year, we expect CapEx to be in the range of $75 million to $100 million.

2009, we delivered what I call solid financial performance in that economic environment. As we enter 2010, I feel much better than I did a year ago. We got strong balance sheet, we got great data assets, we've got unique product offerings, and most importantly, we also have an improved economic environment, which should bode well for the company.

Operator, we will stop there and we would like to open it up now to any questions that the team might have.

Question-and-Answer Session

Operator

(Operator Instructions). And we'll pause for a moment. We'll take our first question from Michael Meltz with JP Morgan.

Michael Meltz – JP Morgan

Thank you. I think I have three questions. Just – I appreciate, you've kind of mentioned the currency impact a few times. Just to clarify one last time, in the first quarter implicit in your guidance, what is the contribution? Is that about $10 million?

Rick Smith

Lee?

Lee Adrean

It's about $13 million to $15 million at today's exchange rates.

Michael Meltz – JP Morgan

Okay. Secondly, Rick, in terms of Card Act and what you are doing now with the ability-to-pay products, how are you pricing some of these and have you actually closed deals on some of the products or how does the selling process work?

Rick Smith

Yes, let me answer the middle of your three questions first. Have we closed some? Yes, we have built some very unique scores that – income scores, which give the underwriters of risk a sense for how much debt they have versus their income, so their ability-to-pay. We are offering a suite of products, Michael, not just any one product, depending on what the customers need. I mean, I'm not going to mention the particular clients. But we closed a number of accounts. The pricing on a score would be a premium to a traditional score as you might guess, because of the KS lift we are getting. But the intent is to build a suite of products depending on each individual customer's needs.

Michael Meltz – JP Morgan

And is this leveraging VantageScore or this is Equifax custom score?

Rick Smith

That's a great question. No, it is taking – it’s a custom score. It is leveraging the Work Number data, it is leveraging the IXI wealth data, and as well as the data we have in the credit file itself. We call –

Michael Meltz – JP Morgan

Okay.

Rick Smith

Debt-to-income score.

Michael Meltz – JP Morgan

All right. You had mentioned in your prepared remarks something about potential for more government action to – I took to mean embed your product offerings. Are you talking about – will the – like the FHA or similar will require income assessments or what were you talking about there?

Rick Smith

Yes, what I'm referring to in general terms is regulation mounts towards the desire or need to actually verify someone's ability to pay off any kind of obligation. We are uniquely positioned, we are helping – trying to help write language that puts us in a very unique position because we are the only one to have income data and wealth data combined with the credit data. So it's broad-based. It's not just FHA, it's not just credit cards.

Michael Meltz – JP Morgan

All right. Last question from me. Lee, what's the thinking on cash flow priorities? Is there – I mean, we saw a couple of acquisitions in the fourth quarter. Where does buyback stand on the list?

Lee Adrean

Yes. I think we continue to drive that off a view of where we want to see our debt-to-EBITDA leverage over the last several quarters and I think we continue to feel targeting the range of 1.75 to 2 times debt-to-EBITDA positions us effectively to absorb acquisitions like the ones we did in the fourth quarter. We ended 2009 with a debt-to-EBITDA at about 2.1 times. So we would be a little bit more leaning towards debt reduction until we are back into that range, but I would expect to see some balance between share repurchase and debt reduction over the course of the year.

Michael Meltz – JP Morgan

All right. Thanks for your time.

Rick Smith

Thank you, Michael.

Operator

We'll take our next question from Carter Malloy with Stephens.

Carter Malloy – Stephens Inc.

Hey, guys, thanks for taking the questions. Looking at this great quarter and then out on your guidance for Q1, are you just employing some conservatism here around the Card Act or are there other specific impacts there for the reason for conservatism?

Rick Smith

No, I wouldn't say – so we are talking about revenue, Carter, being up year-on-year, and that's good news. Number two is, you look at the EPS versus 2009 and if you look at – if you strip back some of the numbers and you look at some other income, we had some other income benefit in 2009 in the first quarter that doesn't repeat in the first quarter of 2010. In fact, we have local positive other income, so there is actually some negative as we have some investments coming through as we launch India. So that's some – just some noise, if you will, in the numbers.

And secondly, there are some mix changes in the business that create a little bit of headwind when we look at EPS quarter-on-quarter comparisons. But as far as the Credit Card Reform Act, yes, that is launched in February. I think you will see some positive benefit, but truly think that happens in second quarter, third quarter, and fourth quarter not necessarily the first quarter.

Carter Malloy – Stephens Inc.

Okay, great. And then on North America Commercial and your growth there, is that all in the B2B Marketing, the data management side of the house or are you seeing strengths in SBFE and in the more traditional risk?

Rick Smith

There is no doubt that the data management piece of it, business we used to call Austin-Tetra as we bought it, had great strength in the fourth quarter, but the core U.S. risk business had strength as well.

Carter Malloy – Stephens Inc.

Okay. And on those contracts you won inside of the data management part, were those in-house clients already or were those competitive wins or were those actually wins where you took them away or was that kind of a greenfield opportunity created by that Austin-Tetra product?

Rick Smith

A combination of both, Carter.

Carter Malloy – Stephens Inc.

Okay. Thanks.

Operator

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

Shlomo Rosenbaum – Stifel Nicolaus

Hi, thank you very much for taking my questions. I just wanted to ask you how you envision the Credit Card Act once that becomes implemented and your clients feel comfortable with more mass-marketing campaigns? How should we see that flow through your numbers? In other words, should we see the credit marketing first take a bump, and after – a certain lag for the OCIS to follow? And how should that impact the margins in that business? I wanted to start with that.

Rick Smith

Yes, you've hit it on the head. It will start with what we call CMS first – and CMS including the IXI business will be the first indicator that there is activity in credit card solicitation, followed quickly by online growth. And then you will also see it, after you will see a series, as Michael Meltz had asked earlier on – and a series of other scores we will be offering as well, the debt-to-income scores, ability-to-pay scores, things of that nature. And then ultimately, you will see a comeback into the portfolio reviews, account management.

Shlomo Rosenbaum – Stifel Nicolaus

Okay. And then just kind of moving around a few other questions over here, if I assume the acquisitions are maybe $10 million to $11 million revenue in aggregate, how should we think of the contribution from these acquisitions for the next quarter? And then again, what will the intangible amortization number – what are you guys expecting for the next quarter where as you have a full quarter of those acquisitions?

Rick Smith

Let me tackle the first piece and let Lee tackle the second piece. As you think about just kind of sequential performance on the acquisitions, when you think about the IXI business, it's having a seasonality that is heavier back-end loaded than front-end loaded. So fourth quarter will be the stronger of the quarters you typically throughout the year, albeit still growing, but the fourth quarter is the stronger quarter. On the Rapid Reporting business, you tend to see that as kind of evenly distributed throughout the year and yet a growth business. So no seasonality per se versus the IXI.

Amortization?

Shlomo Rosenbaum – Stifel Nicolaus

Should – in other words, should we – what percentage of revenue would you say – would you expect it to be kind of flattish if I'm just taking that all together, because you will see some core growth, but sequentially you might see a little seasonality from IXI?

Rick Smith

Are you saying flattish first quarter versus fourth quarter as a percent of growth?

Shlomo Rosenbaum – Stifel Nicolaus

Yes.

Lee Adrean

The one thing – Shlomo, the Q4 results included two months of those acquisitions and Q1, you'll see three months. Other than that, the – they will be relatively level in terms of run rates. One is a little stronger run rate in the first quarter, the other is a little weaker.

Rick Smith

Yes, I expect a much weaker [ph] first quarter.

Lee Adrean

The – just because the – each has a different pattern within the year. But basically, you will be up 50% because you have third quarter of three months instead of two months versus the Q4 revenue rate. On amortization, acquisition related amortization would be up about $1 million and again, that's just three months instead of two months.

Shlomo Rosenbaum – Stifel Nicolaus

Okay. And then, in Latin America, it seems to be – has done well, has resumed growth. Are we out of the woods over there now and should we – are you guys sort of seeing the – or expecting that that growth should continue?

Rick Smith

I think, obviously, if you look at the economic stability in Latin America, you had some turmoil in the first half of 2009. It's starting to stabilize, we got more new product transfers going on across most of the properties in Latin America. The simple answer is Latin America is a growth area for us, we are going to continue investing and growing each of our properties in Latin America.

Shlomo Rosenbaum – Stifel Nicolaus

All right. Thanks, I'll jump back in the queue.

Rick Smith

Thank you.

Operator

(Operator Instructions). And we'll take our next question from Dan Leben with Robert W. Baird.

Dan Leben – Robert W. Baird

Thank you. Looking at – as the card companies get in compliance with the Card Act, is the approach they are taking up out of the gate kind of – we just have to meet the bare minimums and then we'll try to figure out what to do longer term to maybe potentially have a second leg of growth for your guys as you have some very leading solutions as they try to expand and get more intelligent about those decisions?

Rick Smith

Absolutely, Dan. It's a fair characterization.

Dan Leben – Robert W. Baird

So help us understand where we are at in that process or some of the companies that are going over now doing more than the minimum, or is it pretty much just the minimums?

Rick Smith

Yes, I think someone asked the question – it’s Michael I thought, earlier asked the questions early on – are we actually monetizing something as a result of the Card Act? So yes, there were a handful of clients who've come to us, who are going beyond the minimum and buying and testing some new scores that we have. So – your characterization is accurate. However, there are some exceptions, which are a handful of clients who are out ahead of the game.

Dan Leben – Robert W. Baird

Okay. And then help us understand, within the IXI business, how much of that is kind of prescreen work and will – kind of be driven by marketing versus going through in the actual typical scoring and looking around issuance?

Rick Smith

Well, the model – as you think about how we bought it and what their background was, we bought them as a, one, a unique data asset of $10 trillion of wealth data. It's at the Zip/Plus 4 level as you know. So its natural model was leaning towards prescreening or marketing. However, as we get to know these guys and their data, we are finding additional uses of the data, more towards the risk side, not at an individual level, but at aggregate level. And scoring is going to be a nice opportunity for IXI data as well.

Dan Leben – Robert W. Baird

Okay. And then could you just finally give us an update on a couple of the new product introductions that we talked a little bit less about on the call, specifically ESS and the asset-backed securities products?

Rick Smith

Sure. Both are gaining great traction. ESS continues to expand at very nice rates. We are winning customers across the board. We are shifting the model from predominantly – or heavily skewed towards on the appraisal side, more towards the title and close side. We've got a top-notch operator now running the factory, if you will, for us. So very pleased with the progress there and continue to grow. We expect significant growth in the ESS again in 2010. Capital markets continue to gain great traction. We are winning new clients each and every day.

Dan Leben – Robert W. Baird

Great. Thanks.

Rick Smith

Thank you.

Operator

We'll take our next question from Nat Otis with KBW.

Nat Otis – KBW

Good morning, gentlemen.

Rick Smith

Hi, Nat.

Nat Otis – KBW

Just a little bit more follow-up on that ESS. So you say you are moving from appraisal mode to the title and – is that from an underwriting standpoint, an agent underwriting standpoint? And are you then moving into more of the other services that are right at the front end?

Rick Smith

Well, it's typical. When you start to do business in the settlement services arena with clients, they tend to test your capability and get to know you on the appraisal side. So it's a very natural flow for us. You start off on appraisal, you prove your ability, they scale you up in appraisal, and then you eventually move to title and close part of the settlement services. So a very natural transition for us and we expect to see much more in the title and close piece of it in 2010.

Nat Otis – KBW

Great. And are there any – other than the partnerships that you started out with, are there any others that you are planning on or thinking of moving in direction within that space of – that could add to the breadth of what you cover??

Rick Smith

If you are talking about partners as in clients that we do business with, the answer is absolutely yes.

Nat Otis – KBW

Okay. More along the line on companies that might already – providing something there that you don't, but helps you, say, bundle a larger solution?

Rick Smith

Yes, that's a good question, Nat. We are looking at different offerings to provide to that customer base beyond this traditional ESS stuff we do today. I'm not going to go into any more detail than that. But yes, we are always looking at different value offerings to our clients.

Nat Otis – KBW

Great, thank you.

Rick Smith

Thank you.

Jeff Dodge

Okay. I want to thank everybody for their participation and we will be available this afternoon if there any additional questions. Thanks again.

Operator

This does conclude today's conference and we thank you for your participation.

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