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Equifax Inc. (NYSE:EFX)

Q1 2010 Earnings Call

April 29, 2010 8:30 am ET

Executives

Jeff Dodge - IR

Rick Smith - Chairman and CEO

Lee Adrean - CFO

Analysts

Carter Malloy - Stephens

Andrew Jeffrey - SunTrust

George Mihalos - Banc of America

Shlomo Rosenbaum - Stifel Nicolaus

Michael Meltz - JPMorgan

Dan Leben - Robert W. Baird

Operator

Good day everyone and welcome to the Equifax first 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 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 2009 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 and adjusted operating margin. These measures exclude the $8.4 million restructuring charges that we reported in the first quarter of 2009, adjusted diluted EPS and non-GAAP financial measures includes the result of discontinued operations, but excludes the restructuring charge taken in the first quarter of 2009 and the acquisition related amortization expense.

Please refer to the non-GAAP reconciliation section included in the earnings release and 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.

Rick Smith

Thanks, Jeff good morning, everyone. Our first quarter results were very encouraging. We ended the quarter pretty much inline with our expectations and we saw strengthening in trends as the quarter progressed. As for the numbers the total revenue for the quarter was $461.3 million, up 3% on a reported basis and flat on a constant dollar basis in the first quarter of last year.

The operating margin was 23.3%, up slightly when compared to the fourth quarter adjusted operating margins of 23.2%, adjusted EPS was $0.56 0which is inline with the outlook we gave during the fourth quarter earnings release. As I stated today, my optimism for the full-year has improved.

Given how we ended the quarter and as four of our five business units deliver constant dollar revenue growth over the prior year. Here is some details, first on the Online Consumer Information Solutions operating margin were up slightly compared to fourth quarter 2009. As we continued to gain traction in some of our newer online products such as we’ve always focused on consumer’s income and ability to pay, I’ll talk about that in some detail later on.

Despite of 35% reduction in the mortgage application index, the Work Number verifications actually grew 5%, during the quarter due to strength in collections, government and consumer finance. The mortgage portion started slowly for the Work Number towards six, seven weeks and then finished strong over the remaining four or five weeks of the quarter, given the confidence as we go into the second quarter.

Personal Solutions, we exceeded our expectations for both revenue growth and operating margins, its direct-to-consumer branded description business grew by over 13%. Also this quarter represents the first quarterly year-over-year growth since the third quarter of 2008 as the team has done a fantastic job on executing the number changes in experience that our online customers have.

I think North America’s commercials, US commercial and risk marketing business delivered strong double-digit growth by the business segment exceeded our expectations for those revenue growths and operating margin in the quarter. International continued to make progress in many of its markets in net of our expectations for revenue growth for the quarter.

We’ve talked many times about our four pillars of growth strategy, one, increased share of customers spend. Two, increased penetration of technology and networking services; three, differential data that is unique from a competition, by full expansion into key emerging markets as I’ll talk about all four of those now.

As you know to-date, we’ve made some very important strategic acquisitions. We’ve introduced the number of very unique products. We brought many of our existing customer relationships and develop significant new customer relationships based on superior value of our products and services.

Today, I want to take you through some very real live examples, but how the strategies playing out in the marketplace and with our customers and allowing us to gain market share. According to the charm the 360 degree deal of the customer, you could as talk about that in the past, where we display the powerful insights our customers gain, and they leverage the benefits of our employment, our income, our wealth and our tough going utility data combined with our credit data brought them a better decisions in an increasingly challenging competitive environment.

I’m going to walk you through now some specific examples where we gained share over the first three months of 2010. In the first quarter, we signed a multiyear deal with $25 million to $30 million with the major insurance company, increasing our shares selected core product offerings from a very small share to 100%.

Although this customer had given a majority of their business to a competitor for over 15 years we’ll also count it with a lower price. We own this opportunity because, we represented a stronger longer-term business partner due to the diversity and quay from data assets the breadth of our decisioning platforms spend of superior analytic capabilities.

With our unique solutions, we can enable this testaments offer more competitive rates approved customers who would otherwise had been rejected, reduce frauds, ID analytics, ID authentication and data verification and approve the underwriting for small businesses for example, again by leveraging the most unique data assets in the industry.

In the first quarter, we increased our share of online credit approach from 25% to 50% and a key business units of a top four bank. Our current relationship includes products from eight Equifax business units including online consumer information, IXI, mortgage reporting, direct marketing services, the Work Number North American Commercial and technology and then analytical services truly overwhelming the customer with all of our product offerings.

The new opportunities include additional market share for a Work Number products, analytics and our new personal income model, which leverages both our divested assets as well as our analytical capabilities. The power of this 360 degree view of the consumer is enabling us to expand our partnership with another top four banks. In addition to our InterConnect platform and our core services offering, we’re leveraging a broader way of newer products including the Work Number. Reg G complains income in credit capacity models, that’s the income formulations, settlement services, and property evaluation estimator.

Today, eight different Equifax business segments are also showing solutions to seven different business segments of this customer although we have now the largest share on the credit-based information and solutions, to a very special projects our technology and local services unit has provided this customer with valuable insight and careful to improve their underrating practices while enabling them to find new opportunities to grow revenue and profit.

Finally and very exiting, we recently won an opportunity with a major internet proto to help them determine worked advertising content to display to consumers on the internet. With the IXI data, will be that’s full partner for data driven targeting for household economic information and that if you look through a further enhanced benefits of the IXI data for this customer with income data at the plus four level.

Our unique data and capabilities enabled us to win this opportunity at it price more than two times with economic paying to our two competitors with lesser quality information. In fact many of the IXI’s current clients strongly hear this portal to integrate IXI data into their online product offering. Our new -- I’d say it was enormous digital marketing space, it looks very promising.

No one else in our industry has the ability to solve these increasingly complex problems, but we can now solve, we got unique data assets. Technology and analytical services performs a critical support for many of our 360 degree initiatives, domestically and internationally. Our creative and innovative analytics continue to be highly valued by our customers.

Equifax scores delivered on a credit reporting increasing just over 20% in the first quarter of 2008, totaled 30% to the first quarter 2010. We are also leveraging our decision platforms on a global scale. InterConnect was introduced in Canada as you know last year, we have a number of signed deals and active customers in Canada coming in 2010 and we have another large customer in the contract stage and a growing pipeline.

InterConnect is also being deployed in UK, where they have a one signed financial institution and building a pipeline of new opportunities over the point of similar plan across our footprint in Latin America. As you know last year we really expanded this scope of what we call TAS, Technology and Analytical Services, to further leverage its expertise in the areas where required solution is not surely dependent on Equifax data and that is a significant change more past strategy where we sold our Technology and Analytical Services only to pull through data. We are now looking at being data agnostic as it comes to those solutions.

We’re increasing our investment in this area to develop software solutions that will integrate analytics on customer information and on other various data assets. It enable us to enter new markets, where we can leverage our decisioning software tools quickly and develop a products and capabilities in the areas of fraud, maximizing customer profitability, and improved portfolio management.

Now moving onto new product innovations, something we’ve talked to you about a lot over the past two years is continued again significant attraction for us. We’ve launched 12 new products during the quarter. The revenue from products launch during the prior two years, we approach you as charity index it was $40 million in the first quarter of 2010, that up 29% from the first quarter 2009. Our long-term goal as you know we’ve had at least 10% of our revenues in each business unit, generated by new products launch during the previous three years and we’re well on our way to doing with that.

Also during the quarters, you have read to receive the license from Reserve Bank of India that operated credit reporting, that it’s in India along with six Indian financial institutions as our partners. We have the CEO now onboard in India and we’re not soliciting and loading data from a number of financial institutions. We expect to be fully operational over the coming few months, but view that as great launch on growth opportunity for Equifax.

The growth operations, we continued to make great progress with our LEAN initiatives. Many of our customers asked us to develop joint process improvement initiatives, using LEAN great competitive differentiated for us and we further scandalizing various tools and measures in our international operations to improve operating efficiencies and continued to register our cost outside the US. We continued to make significant progress on our key strategic initiatives and have a number of outstanding growth opportunities in front of us. Our outlook for the second quarter is consistent with the outlook for many of our customers, which is lot of going optimism.

The second quarter, USCIS revenues expected to be down in a low single-digit range when compared to second quarter of 2009. However, it will be up mid single-digits, when compared to the first quarter of 2010. We expect international revenue excluding any impact of foreign currency translations to be up and a lower single-digit range, when compared to second quarter of 2009, all 3G graphic regions are expected to deliver positive revenue growth in the second quarter.

The second quarter TALX revenues expected to deliver strong growth in the high single digit to mid-team range. Strengthening the Work Number will be partially offset by expected softness in the Tax and Talent Management services as improvement in the job markets lowers unemployment clients’ activity.

Personal Solution should continue to show growth in a low single-digit range in the second quarter of 2009, as market conditions improved and transaction with our newer products increases and our ability to execute the change we’ve talked about past six month are gaining traction. North American Commercial Solution is again expected to deliver high single to low double-digit growth in second quarter, when compared to the second quarter of 2009. So this is how employment affected across all products as we go to the second quarter.

So with that I’ll stop and turn it over to Lee, who will give you the details on a financials. 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 treat APPRO was a discontinued operation given the recently completed sales of this presence. You should also refer to the Q-and-A and non-GAAP reconciliations attached to our earnings release for additional financial information.

As Rich as pointed out, our quarter performance is encouraging, when compared to fourth quarter of 2009, first quarter 2010 revenue on a constant dollar organic basis was up $0.06 of a present from the fourth quarter. This reverse is modest sequential declines we’d seen in the prior three quarters. This quarter’s performance reinforces our view that business conditions are beginning to improve and that our full-year outlook is expressed in our fourth quarter earnings release remains appropriate. Now with the details, compared to the same quarter in 2009 consolidated revenue of $461.3 million was up 3.3%.

Changes in foreign exchange rates favorably impacted revenue by approximately $14.8 million. In constant dollars, revenue was flat. The acquisition of IXI and Rapid Reporting in the fourth quarter of last year, added approximately three percentage points of growth in the first quarter.

On a GAAP basis, the operating margin in the first quarter of 2010 was 23.3%, compared to 22.6% in the first quarter of 2009. On a non-GAAP basis, our first quarter operating margin from continuing operations is down from the prior year, but comparable of 23.2% we reported in the fourth quarter 2009, as for adjusted for the restructuring charges we recorded during that quarter. Excluding the amortization of acquisition intangibles and the restructuring charge in Q1 of 2009, the adjusted operating margin from the first quarter was 28.3%, versus 29% in same period in 2009.

Diluted earnings per share from continuing operations attributable to Equifax for the quarter was $0.44, excluding the impact of acquisition related intangible amortization, adjusted EPS attributable to Equifax was $0.56. Total debt increased by $26.3 million from December 31, and during the quarter, we repurchased 300,000 shares of stock for $9.4 million. As at quarter end our remaining authorization per share repurchase was $112.

Moving to the individual business units, US Consumer Information Solutions rev, it was $191.4 million, down 6% for the quarter, but slightly better than the expectations we communicated during our fourth quarter earnings release. Online Consumer Information Solutions revenue, which excludes discontinued operations, was $119.8 million, down 8.5% compared to 2009, primarily driven by a 15% decline in our online credit decision volume. The average revenue per transactions is up 1% as pricing gains with our smaller customers were offset by the negative impact in sector mix shift.

Mortgage Solutions revenue of $23.2 million was down 9% when compared to the first quarter of 2009. However, the mortgage banker’s application in debts for the quarter was down 35%. Core mortgage reporting in settlement services each significantly mitigated the impact of lower applications through share gains.

Consumer Financial Marketing Services revenue was $30.2 million, excluding the contribution from IXI, revenue was down approximately 11% do largely to lower pricing with our largest customers. Direct Marketing Services revenue was $18.2 million, down 9% from the first quarter of 2009.

Operating margin for our US Consumer Information Solutions segment was 33.1%, down slightly from 33.4% in the fourth quarter of 2009, and down from 36.3% in the first quarter of 2009. Our international business unit’s revenue was $116.2 million, compared to $100.8 million in the same quarter in 2009. In local currency, revenue was up 1.6% from a year ago and consistent with the expectations we communicated during our fourth quarter earnings release in early February.

By region, Latin America’s revenue was $55.1 million, up 20% in US dollar terms and up 5% in local currency when compared to the same period in 2009. Europe delivered revenue of $33.9 million, up 2% in US dollars and down 5% in local currency when compared to the same period in 2009. While still reflected of year-over-year weak economic conditions, this is Europe’s best year-over-year local currency performance since September of 2008.

Canada Consumer Information revenue was $27.2 million, up 25% US dollars and 4% in local currency when compared to the same period a year ago. Also this was best their best year-over-year local currency performance since filling of 2008. International’s operating margin was 24.7%, down from 28.7% in 2009, lower online volumes, which represented our highest margin offerings has been offset by growth in marketing projects and other services allowing us to achieve revenue growth in a still challenging environment, but putting downward pressure on operating margins.

As the business environment begins to recover in some of these international geographies, online volumes should increase and we would expect operating margins to improve. TALX revenue $95.3 million for the quarter, up 8.4% from the first quarter of 2009, in short of the expectations we had previously communicated as the mortgage market prove to be more challenging than anticipated.

Excluding the acquisition of Rapid Reporting, revenue growth would have been flat. The Work Number continues to deliver broad-based growth with revenue $49.7 million up 23%. Excluding rapid reporting the Work Number was up 5% that strengthen government, collections and consumer finance markets allowed us to achieve solid growth despite lower mortgage volumes in a weak labor market, which impacted some of our complimentary services.

Tax and Talent Management services delivered $45.6 million in revenue down 4% compared to last year, driven largely by the strong performance in 2009 and the year-over-year decline in unemployment compensation claims that we’ve experienced in 2010. The TALX operating margins is 22.6%, up compared to 21.5% in 2009.

North American Personal Solutions revenue was $39.7 million up 3% from the prior year, which was significantly better than the outlook we’ve communicated in February. Direct-to-consumer subscription revenue was up 13% year-over-year driven largely by 10% increase in average revenue per subscriber. Operating margin was 25.2% for the quarter up from 15.5% a year ago. Credit Marketing expenses were lower than in the prior period.

North American Commercial Solutions revenue was $18.7 million, up 18% on a reported basis and 12% in local currency driven by higher volume of transactions and project activity. Revenue was substantially ahead of the expectations we’ve communicated through our fourth quarter earnings call in February.

US Commercial Risk and Marketing delivered very healthy double-digit growth as well as improved operating margins, compared to the first quarter of 2009. Operating margin for the segment is 23.5% compared to 14.4% a year ago. In summary, our first quarter performance continues to gradually improving outlook, which we believe will enable us to deliver overall revenue growth in 2010.

Now, let me turn back to Rick.

Rick Smith

Thanks Lee. In closing I’d say, lets summarize additionally, we’re moving to a period of stability and I’m gaining more confidence in our outlook for the back half of the year based on recent activity levels and discussions with many of our customers, in fact we talk internally transactions better about the outlook now from the prospects for growth and I’ve talked probably three years since mid-2007 and into the downtown. So for the second quarter some current exchange we expect revenue to be up in the low to mid single-digits range from a year ago and adjusted EPS in the range of $0.55 to $0.59 per share.

So with that operator, we’d like to open up for any Q-and-A calls might have.

Question-and-Answer Session

Operator

(Operator Instructions) We’ll first go to Carter Malloy of Stephens.

Carter Malloy - Stephens

First of all, the volume and pricing trend as a little surprising and just to go back you said, in the quarter our volume was down 15% and price was up 1%?

Rick Smith

Yes.

Carter Malloy - Stephens

For the rest of the year, I was kind of maybe looking at or after expecting the opposite of that being that as the larger players get back in the market, we would see volume growth to maybe some pricing compression. Do I have that backwards?

Lee Adrean

No. We’re just saying is, we have been, as you know, driving strategic pricing which is segmentation new products with quite some time and we’re getting the benefits of that. We also have some mix from time-to-time going on almost skew it, but the 1% increase with the downdraft in revenue or in the volume. It’s largely driven by (Inaudible) last three or four years on strategic pricing.

Rick Smith

Carter, I think you’ll also see as we go through the year the comparisons will shift some, because of what the periods we’re comparing to. We saw continuing declines, fairly meaningful declines in volumes, which is the first couple of quarters of last year, so as we flatten out, we think we’ll start seeing a bit growth, we’ll start seeing an improvement in the volume comparisons, to the extent that is driven by the very largest clients, you may see a little bit of pressure on pricing, but we’re also seeing good progression in some of our mid-market and smaller clients.

So that pricing maybe a little mix, some pressure from the larger clients with good penetration with the smaller clients, which you will definitely see we expect that you will see improving volume comparisons as the year, unfolds.

Carter Malloy - Stephens

Then on the marketing side of that business, so it was down 11% of ex-IXI, because of pricing; but where volumes actually up in the prescreen piece of the business?

Lee Adrean

We did see volumes improving in the quarter.

Carter Malloy - Stephens

I’m going to impression that a lot of those were contractual obligations, so just curious how you saw that much pricing declining in prescreening.

Lee Adrean

The some the pricing changes really occurred mid-last year, so you’re still anniversarying that effect.

Carter Malloy - Stephens

Then you gave the breakup. Can you give the actual revenues for IXI and Rapid Reporting?

Lee Adrean

We’re not going to give them precisely that make the process gets you close.

Rick Smith

We gave this in many cases, part of last year, first quarter selection bottomed have compliance for the year and those expectations that we’re articulated post acquisition, so I couldn’t up this little model quarter one.

Carter Malloy - Stephens

Lastly, on PSOL, what were the drivers there again --?

Rick Smith

It’s none a set of market improvement. We have been making number, but changes to the customer experience, which are helping, which increase things like conversion, lower turn, would increase ARPU revenue per unit, and are subs slightly as well.

Operator

We’ll go next to Andrew Jeffrey of SunTrust.

Andrew Jeffrey - SunTrust

Rick, just to clarify, you said that you think international revenue is up low single-digits year-on-year in the second quarter. Is that right?

Rick Smith

Yes.

Andrew Jeffrey - SunTrust

Could you elaborate on that a little bit? That implies a pretty significant sequential downtick in revs. I mean is that Europe? Look like Latin America had a pretty good quarter. Where is the pressure on international revenue coming from in the second quarter versus the first?

Rick Smith

I don’t have those numbers in front of me. Let me see if I can grab them real quick here.

Andrew Jeffrey - SunTrust

May be there some currency in that too, I don’t know --?

Rick Smith

Actually, I don’t have it in my finger tips, let me grab that and get back to you offline.

Andrew Jeffrey - SunTrust

Just generally, directionally, do you feel like the mix starts to improve in the international business in the second quarter?

Rick Smith

Yes, I think what you’re going to see, almost that’s in the second quarter or not as we exit this year is our expectation at the online revenue from an international starts to improve. We’ll get, because all cost actions we’ve taken over the past couple of years in international. It’s an improvement in that margin. I can’t talk - business start in the second quarter, but expected to improve as year improves.

Andrew Jeffrey - SunTrust

Then in USCIS, the margin trends actually look pretty good, considering that the volume remains under considerable pressure. To the extent that the first quarter was maybe the trough volume quarter, maybe the trough revenue quarter if the current trends persist, should we see that USCIS EBIT margin start to re-expand again and what kind of magnitude should we contemplate?

Rick Smith

The answer is yes, you should. Again for the same reason international, we’ve taken so much cost out of business. We’ve improved processes in Portland other view. We let stability in our USCIS margin and revenue. I would expect to see improvement margin throughout the balance of the year. Andrew, the incremental margin of business is enormous, and when we start to take growth you should see that overtimes drift backup from 33.5 whatever, up to the high 30s, I can’t promise that 6% in second quarter, but at that point the directional ahead is back up to you at the 30s

Andrew Jeffrey - SunTrust

So the message really is we should be more concerned about resurgence in volume because of the high incremental margins in that business than we should be worried about pricing?

Rick Smith

Yes.

Andrew Jeffrey - SunTrust

Then last and I’ll pass it on to somebody else, the corporate expense line seemed to really make this quarter relative to my model and the street. What can we expect on corporate expense? I mean that has been a number that I am surprised by the extent to which you’ve been able to hold those expenses down and I’m just trying to get a sense of what the full-year kind of looks like there?

Lee Adrean

Andrew you’re right, that line in the last 2.5 of 3 years is fluctuated anywhere from $20 million to $29 million per quarter because it includes the number of items that can fluctuate period-to-period. The $20.4 million in the first quarter was about the same as last year if you take last years restructuring charge out, but that is low compared to what we would expect to run quarterly over the year. I would suggest a range of kind of $25 million to $28 million a quarter is probably more representative.

Rick Smith

I want to make sure, you get this point. If you take restructuring, cooperate expense is basically flat year-on-year.

Andrew Jeffrey - SunTrust

I’d missed the restructuring year-ago, so that makes a big difference.

Lee Adrean

Anderw, by the way, I think on the international question in our guidance in the low single-digits is constant dollars. If you’re looking at nominal dollars there was a significant effect of the FX.

Andrew Jeffrey - SunTrust

Could you just remind me? I think you said, Lee, what the FX contribution was in the first quarter?

Lee Adrean

Again our Q-and-A, I look it internal statements and measure against the different rates, so it’s a little hard for me.

Andrew Jeffrey - SunTrust

I’ll look at the Q-and-A in the press release. So just to be clear then, we should be looking for reported or GAAP International revenue that is probably up nominally sequentially?

Lee Adrean

I would say comparable to up slightly on a constant dollar basis.

Operator

We will go next to George Mihalos with Banc of America.

George Mihalos - Banc of America

Just to go back on the margin front, do you have an outlook for where you expect International margins to end up by the end of the year? And by the same token, given what I’d expect to be increased marketing spend, how should we think about the margins in the Personal Solutions business as the year progresses?

Rick Smith

So I’ll tackle the International piece first. I think it was 24.7 primarily start for quarter, I would think that’s kind of -- the turf that you were on margins from the 24% range and I do believe that I said that I think Andrew or Carter that the second half of the year we will start to see online volume to start to pick back up and now I’d like to think international over period of time, George, to be in the range of 24% to 27% and kind of sustain with that level. So I would expect that to improve as the year unfolds.

And for PSOL you are absolutely right. PSOL margins kind of ebb and flow based upon the vessel we have in advertising. And I think about that as I said before kind of being in the -- margins for the quarter were 25%. Fluctuates if you look at last year from 15% to 27%, I’d like to think that the margins of PSOL being 20% to 25% and you have again different results based on the timing of advertising investment.

George Mihalos - Banc of America

Okay, great. Then just with regard to the CARD Act being recently implemented, what is the feedback you are getting from issuers? Are you seeing more activity broad-based, or just from a handful of them and kind of think of the year progressing?

Rick Smith

The first is, we entered the first quarter, the trends are basically stagnation on solicitation continued. As we get into middle part of the quarter towards the end of the quarter, we can encourage a number of them and who (inaudible) became fairly aggressive in the solicitation, which gives me hope that that will continue in the second quarter and as you know, first in fact our marketing business investment is to our online business which we’d expect to see a pick up as we exit the second quarter and go into third quarter.

George Mihalos - Banc of America

Okay, great. Just last question for me, any benefit on the talent management side from the HIRE Act? And is there any way you guys can breakout the revenue growth in Brazil within Latin America?

Rick Smith

We don’t break out Brazil, but yet the HIRE Act is a significant contributor to our P&L on top line and bottom line that’s just starting as you know in the first quarter. So, that will be one of the backlog accounts of the year.

Operator

We will go next to Shlomo Rosenbaum with Stifel Nicolaus.

Shlomo Rosenbaum - Stifel Nicolaus

Just want to get a little more detail on your outlook, particularly in the OCIS business. When do you expect to see some year-over-year stability in that, are we near the turning point over there? And then also, should we start to see margins expand sequentially in this unit now?

Rick Smith

Yes, I think we’re at the bottom in OCIS and I would expect as the volume improves in the later half of the year, we actually should expect some margin expansion.

Shlomo Rosenbaum - Stifel Nicolaus

So should we expect kind of flattish margins and then expanding throughout that kind of in-line with you guys’ expectations?

Rick Smith

I can’t predict exactly when the online improves, but I would expect kind of flattish in the second quarter and then improve in the third and fourth quarter.

Shlomo Rosenbaum - Stifel Nicolaus

Okay. Then just you talked about sales strengthening in the quarter. Could you give just more detail on which areas you are seeing kind of the pickup inter-quarter and what kind of offerings in which geographies, just a little bit more about that?

Rick Smith

As I say, as far as the market goes, first, our margin was kind of broad based, not just any one geography, but broad based, and then particularly it puts like US, I’d say what you saw was, we saw some confusion in the mortgage market in the first part of the quarter. The truth in lending standards were implemented, it called RESPA. The underwriters of mortgages haven’t changed the programming and so forth, still will kind of paralyze that we picked up strongly as we exited the quarter.

I mentioned just a minute ago that the credit card solicitation came in slow and then picked up in the back half of the quarter and then if you add all that, if you recall some of the wins I talked about in the opening discussion, a lot of things will close in the middle part of the quarter which give us great energy as we go into second and third quarter.

Shlomo Rosenbaum - Stifel Nicolaus

Okay. And then just one last one, as you talk about the wins and where you are picking up market share, are you feeling that IXI acquisition, some of the recent stuff you have done are making a significant difference in the market share just in perspective based on your pipeline?

Rick Smith

Absolutely, we have been talking now for some time with the 360 view, looking at the potential capacity and get rid of some of the true up of that obligation and with the income data, wealth data and the credit data every count will go into talk about how we can help them solve problems. It resonates and we are gaining share which is exciting and that’s always well for the future.

I can underscore nothing, I didn’t talk about in great detail the digital marketing space, now going to help advertisers target through the web portals, right customers is a huge space and a lot of money spent every year not a thousand, no one can help them target like we can, we can tell them here is the wealth data, zip plus four, seven households. Here is the income data for zip plus four and target your offerings accordingly, your hit rate is higher, so yes this data and you get assets both over the past five years is helping us gain share.

Shlomo Rosenbaum - Stifel Nicolaus

Let me just sneak in one more. In terms of your increasing mail volumes, did I understand you right that you expect to see it start to impact OCIS in the latter part of 2Q and then going into 3Q?

Rick Smith

You are talking specifically to credit card solicitation?

Shlomo Rosenbaum - Stifel Nicolaus

Yes.

Rick Smith

What we are seeing at the end of the first quarter was an increase in that solicitation, yes there tends to be about 45 day lag roughly between when you see a pickup in the marketing, you actually see a pickup on online, so we expect to see that pickup in the second quarter.

Operator

We’ll go next to Michael Meltz of JPMorgan.

Michael Meltz - JPMorgan

Three questions for you. Lee, you said in your prepared remarks you’re tracking or comfortable with your -- I think you said the full-year outlook you gave back in February. I don’t recall a full-year outlook. Can you tell us what’s that expectation is? And then I have two follow-ups please.

Lee Adrean

The comment we made was we expected the first part of the year to be stable at levels consistent with the fourth quarter and that we thought the second half of the year would show increasing growth and anything we’ve seen some signs of that just slightly earlier than we had expected, but it continues to cause us to believe that we’ll see strengthening trend through the year. It was not -- it was that qualitative directional guidance.

Michael Meltz - JPMorgan

Which I know so well. On APPRO, can you just talk broadly, more broadly? Are there other divestiture candidates that you are kicking around? Or how are you thinking of the portfolio? Then just by my math, that looks like selling that will trim EPS this year by $0.02 to $0.03. Is that fair?

Rick Smith

The second part of your question is directional that’s why it’s a semi capital structure neutral market and then obviously some thing we’ll do if we chose to mitigate some of that on the portfolio, yeah it is an annual excise we go through. Look at the portfolio’s saying what is strategic what is not. We have no need to sell anything at this juncture. However, it is always top of the mind there’s some assets that I cant really give lot detail on that, but there are some assets that follow strategic levels, that if I find the right buyer that is the right approach, I would sell those and redeploy that capital things like -- acquisitions like IXI, Rapid Reporting or others where our shareholders get a better return. So that’s a full process.

Michael Meltz - JPMorgan

Okay. Then last question for you. Any thoughts you can offer, Rick, on regulatory and we have seen the CARD Act come in and that I think has probably been a modest positive. But we’re also hearing about potential for free score mandates. There’s lots of things happening with Personal -- that could impact Personal Solutions. What else is out there that and how are you viewing it in the context of your business?

Rick Smith

Yeah, we somewhere spent a lot of time obviously in Washington, with our lobbyists looking at and thinking about, because I think about the current period, the things that have impact us, you are right, the CARD Act, it is net positive, I think RESPA over a period of time has virtually no impact to discuss in disruption in the first quarter. The SEC and the score and may be advertising functions, one of the competitors took had some impact on us in the first quarter.

The team has done a marvelous job of trying to navigate can get through that. Beyond that it’s uncertain as to what regulatory body is going to oversee us, as we go to SEC some of the protection agency or some combination of both, look at the financial model for us right now 2010, 2011, well, there is a lot of moment, I see nothing uncertain, the financial model of Equifax, is going to be impacted in any significant way at all.

Operator

We’ll go next to Dan Leben of Robert W. Baird.

Dan Leben - Robert W. Baird

Could you talk a little bit about how the mix of lenders has changed over time? Not necessarily quarter-to-quarter from kind of the larger banks versus the regional versus the smaller and community banks?

Rick Smith

Yeah, what you’re saying is, and I kind of highlighted it there, obviously the big banks certainly dominate the landscape and our whole folks there with the restructure we announced last year here to gain share and I gave you some examples how we are doing exactly that by leveraging the unique data.

So they are very important piece of our business the big four, they were important last year they are going to be more important for us this year, and next year I plan to be a bigger player in ‘12, and now we’ve got a -- I think a world class organization here that focuses on the small vendors across the US and I think some I mentioned earlier, that was actually growing segment, I think Lee did that’s a growing segment in the first quarter of our business so we’re not going to focus on just one or two segments we’re going to focus on doing the big fellow relationships and also growing our share of wallet with the small lenders as well.

Dan Leben - Robert W. Baird

Just from a historical perspective, what the mix would look like compared to today if we look back to, say, ‘06 or ‘07?

Rick Smith

Our revenue was big -- I don’t have that, you can get that, Jeff can get that to you, I’d be guessing if I gave you a number right now.

Dan Leben - Robert W. Baird

Then just on the Commercial Solutions business, very strong quarter there. Could you give us a sense of how much of that was market share gains versus some follow-through on volumes from some of the projects you did last quarter?

Rick Smith

It’s clear, we’re gaining share. We’re introducing new products, we’ve been over the last three or fours years building of the non-financial trade data base and that paid dividends.

Dan Leben - Robert W. Baird

Now, is this more on the project side, or on the transactional recurring side?

Rick Smith

Both.

Operator

At this time, I’ll turn the conference back to Mr. Dodge for any additional remarks.

Jeff Dodge

We’d like to thank everybody for their participation, and we’d be around answer any questions. Thanks everybody. With that we’ll conclude the call.

Operator

Thank you. A replay of this conference will be available starting today April 29, 2010 at 10:30 am Central Time and went through May 6, 2010 at 10.30 am Central Time. To access this replay, dial 719-457-0820 or 888-203-1112 and reference pass code 4166831. This concludes today’s conference call. Thank you for your participation.

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Source: Equifax Inc. Q1 2010 Earnings Call Transcript
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