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Equifax Inc. (NYSE:EFX)

Q2 2010 Earnings Call Transcript

July 29, 2010 8:30 am ET

Executives

Jeff Dodge – SVP, IR

Rick Smith – Chairman and CEO

Lee Adrean – Corporate VP and CFO

Analysts

Carter Malloy – Stephens

Andrew Jeffrey – SunTrust

Dave Lewis – JP Morgan

Shlomo Rosenbaum – Stifel Nicolaus

Bill Warmington – Raymond James

George Mihalos – Bank of America

Operator

Good day and welcome to the Equifax second quarter earnings release conference call. Today’s conference is being recorded. At this time, I’d 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 with 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 will be making certain forward-looking statements to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in filings with the SEC, including our 2009 Form 10-K and subsequent filings.

Also, we will refer to a non-GAAP financial measure, which we call adjusted diluted EPS attributable to Equifax, which for this report includes the operating results of discontinued operations, but not the impact of acquisition-related amortization expense and the gain on the sale of our APPRO product line. 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.

Now I’d like to turn it over to Rick.

Rick Smith

Great. Thanks, Jeff. And good morning, everyone. Second quarter for Equifax was the strongest quarter we have had in a number of years. More importantly than that, we are carrying very strong momentum, growth momentum, operating momentum, as we enter into the third and fourth quarter. I’ll talk more about that later on in the discussion.

The second quarter came in stronger than we expected. Four business units exceeded and USCIS solidly met the expectations we outlined for you during our first quarter earnings call. And while at the macro level, the environment continued to be challenging. I think you would agree. I am again very optimistic that we will continue to see continued year-over-year improvements for the remainder of 2010.

The numbers quickly. The revenue from continuing operations for the quarter was $460.7 million, up 7% on a reported basis and up 6% on a constant dollar basis in the second quarter of 2009. The operating margin was solid 23% when compared to the first quarter margin of 23.5%, and adjusted EPS was $0.58 a share, up from last year and first quarter. Overall, strong quarter for the company.

Although each business unit in their own way faced its own challenges and their own opportunities, they all improved as the quarter progressed and have built a solid pipeline of opportunities for the third quarter. And again, an important point there is, as the quarter progressed, each of the business units finished stronger than they started the quarter.

Quick look at each of the individual BUs. In the US Consumer Information Solutions, daily online revenue has strengthened just the beginning of the year, which is a great trend. As we ended the quarter, aggregate revenue from accounts with increasing revenue exceeded the aggregate revenue for those accounts with decreasing revenue, the first time since January of 2009. Additionally, our revenue from prescreen services was up 6%, the first year-over-year growth since the first quarter of 2007, but again sequential growth also for USCIS second quarter versus first quarter. So strong growth first time I think since 2007 as well.

Operating margin for USCIS also improved. For the second quarter, USCIS delivered significant improvement in operating margin from the first quarter, exceeding 37%, driven largely by increases in our Credit Marketing Services product line and our Mortgage Solutions products. And we expect that level of margin to continue or higher for the balance of the year for USCIS.

International exceeded our expectations for the quarter, growing 7% in local currency, as Europe, Latin America and Canada, all delivered positive growth for the quarter. In the International, our Personal Solutions and our Marketing Services product lines contributed healthy double-digit growth in the quarter. Also, our significant investments we’ve been making in Technology and Analytical Services is paying off in a big way, as we realized double-digit growth from our analytical and decisioning services in Canada, Europe and Latin America.

On the TALX, TALX exceeded our expectations again, delivering solid double-digit growth, as the Work Number, Rapid Reporting and Talent Assessment offset the anticipated softness in Tax Management Services. Great quarter again for TALX.

North America Personal Solutions delivered stronger revenue growth than we expected along with improved operating margins, a 12% growth in subscription-based revenue as a result of improved average revenue per subscriber due to pricing and mix optimization efforts. While acquiring new subscribers is challenging in the current environment, we expect to sustain the current level of revenue per subscriber. We have also made a number of very good process improvements over operational efficiencies, customer experience, and the rates for conversion and churn.

Finally, North America Commercial again exceeded our expectations with double-digit revenue growth and improved operating margins. The US commercial risk and data management delivered strong double-digit growth during the quarter.

As you know, we completed a very important divestiture during the quarter, as we continued to tightly align our business units to our corporate strategy. Direct Marketing Services, we call it DMS, was not a good fit for our long-term business strategy. We were able to sell the business to Alliance Data Systems at an attractive price, and most importantly, create a strong long-term strategic partnership with ADS.

As we’ve done in the past, we will continue to assess each of our business units in an effort to validate their role for our future business success and our ability to deliver the business performance that we and our shareholders expect. However, at this point, we have no further divestiture plans underway.

On the TALX, our Technology and Analytical Services offerings continued to deliver value to our customers, strengthen our partnerships, leverage our data assets, and develop long-term sources of future revenue growth. Innovative [ph] platform delivered strong double-digit revenue growth. During the quarter, revenues were up 31%, excluding pull-through revenue from data that is included in the transaction.

In the US, an increasing percentage of our revenue is now driven by our various decisioning platforms. Our Analytical Solutions continue to penetrate the market. Equifax risk scores delivered with an online credit report increased now to 32% in the second quarter, which is up nicely from both the first quarter of 2010 and the second quarter of 2009.

We’ve invested heavily and developing analytical products during the past few years. And as a result, the analytical insights that our products provide have become increasing valuable tool to approve our customers’ underwriting process. For example, since 2008, we have witnessed a steady increase in the number of scores delivered with each of our online transactions, and we expect that trend to continue into the economic recovery.

We’ve talked a lot about NPI. Our new product initiatives delivered another quarter of very strong double-digit growth. Year-to-date we are ahead of our expectations, and we expect that trend to improve as the year progresses. It’s a clear indication from our customers that the new products, which leverage unique data from the Work Number and IXI, are disrupting the status quo in the marketplace.

While ongoing activities with lean and other process improvement initiatives are also improving the fundamentals of our business operations by driving out unnecessary expense and positioning us with strong operating leverage. For the first two quarters of this year, we’ve exceeded our cost reduction targets for global operations and lean initiatives throughout the rest of the company have also exceeded targets we set at the beginning of the year. Lean is truly starting to become a part of our DNA and how we operate this company.

Over the past few years, our focus has been two-fold; continuing to execute on our strategy to drive revenue growth while exercising strong expense management discipline to protect their operating margins. As part of the team’s accomplishments during this period, we have significantly improved our product mix, acquired diverse and important data assets which will enhance our competitive position, strengthened the relationships with our customers, and improved our focus by divesting non-strategic business segments.

As the environment improves, many of the headwinds we have endured will abate and we would anticipate a solid lift towards revenue growth and operating margins. We are executing on a winning strategy that will deliver increasing value to our shareholders.

A quick look forward before Lee gets into some financial details for the third quarter. The third quarter USCIS revenue is expected to be up in the mid-to-high single-digit range when compared to the third quarter of 2009. We expect international revenue, excluding any impact of foreign currency transaction, to be up in the low-single digit range when compared to third quarter of 2009. It should be noted that third quarter 2009 was the strongest quarter for International. So we’ve got couple of comparables in the third quarter.

In the third quarter, TALX revenue is expected to deliver once again strong growth in the mid-teens. We expect strength in the Work Number, Talent Assessment, driven by further market penetration and new products will offset continued softness in Tax Management Services caused by the trends in unemployment. Personal Solutions should grow in the mid-single digit range for the quarter, and North American Commercial Solutions is expected to deliver low-double digit growth in the third quarter when compared to the third quarter of 2009. So once again, I think a solid second quarter and great momentum going into the third quarter for the company.

Lee, if you would give the detail for the financials, it would be great.

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 treats APPRO and Direct Marketing Services as discontinued operations given the recently completed sales of these businesses. You should also refer to the Q&A and non-GAAP reconciliations attached to our earnings release for additional financial information. Our second quarter performance benefited greatly from the continuing progress on our key strategic initiatives along with improving business conditions for revenue growth.

Now for the details. Compared to the same quarter in 2009, consolidated revenue from continuing operations of $460.7 million was up 7% year-over-year. Changes in foreign exchange rates favorably impacted revenue by approximately $6 million. In constant dollars, revenue was up 6%. The acquisition of IXI and Rapid Reporting added approximately 4 percentage points of growth in the second quarter.

On a GAAP basis, the operating margin in the second quarter was 23% compared to 23.8% in the second quarter of 2009. Excluding the amortization of acquisition intangibles, adjusted operating margin for the second quarter was 27.8% compared to 28.4% for the same period in 2009.

Diluted earnings per share from continuing operations attributable to Equifax for the quarter was $0.45, excluding the impact of acquisition-related intangible amortization and the gain from the sale of APPRO, adjusted earnings per share was $0.58. Discontinued operations contributed approximately $0.015 to this result. With these operations fully divested as of July 1st, there will be no similar contribution in the third quarter.

We reduced debt by $81 million during the quarter and $107 million year-to-date. During the quarter, we also repurchased 1.7 million shares of stock for $55 million. As at quarter-end, our remaining Board authorization for share repurchase was $207 million.

Moving to the individual business units, US Consumer Information Solutions revenue was $184.6 million, flat when compared to the same quarter in 2009 and in line with the expectations we communicated during our first quarter earnings release. Online Consumer Information Solutions revenue, which excludes discontinued operations, was $120.3 million, down 6.7% compared to 2009, primarily driven by an 8% decline in our online credit decision volume. Average revenue per transactions was down 1%, primarily driven by sector mix shift.

Mortgage Solutions revenue of $28.8 million was up 1% when compared to the second quarter a year ago. Although the mortgage bankers application index for the quarter was down 29%, both core mortgage reporting and settlement services continued to benefit from share gains.

Consumer Financial Marketing Services revenue was $35.5 million, up 30%. In addition to the contributions of IXI, which performed as expected, Credit Marketing Services has stabilized after several quarters of decline and revenue from our prescreen services grew 6%, the first growth quarter for this product since the first quarter of 2007.

The operating margin for our US Consumer Information Solutions segment was 37.1%, up a full 2.5 percentage points 34.6% in the first quarter and down slightly from 37.4% in the second quarter of 2009. These margins are all now stated on a continuing operations basis. Compared to the first quarter, operating margins were maintained in Online Consumer Information Solutions, while the operating margins in both Mortgage Solutions and Consumer Financial Services improved significantly.

Our International business unit’s revenue was $118.2 million, up 12% from $105 million in 2009. In local currency, revenue was up 7% from a year ago, ahead of the expectations we communicated during our first quarter earnings call, as all three geographies delivered positive local currency growth.

By region, Latin America’s revenue was $56.7 million, up 21% in US dollar terms and 12% in local currency when compared to the same period in 2009. Europe delivered revenue of $32.5 million, down 1% in US dollars, but up 4% in local currency when compared to the same period in 2009. Both the UK and Spain delivered positive local currency growth despite the challenging economic circumstances in both countries.

Canada Consumer Information revenue was $29 million, up 15% in US dollars and 1% in local currency when compared to the same period in 2009, reflective of a low growth economy with limited consumer credit activity at the current time. International’s operating margin was 25.4%, up from 25.3% in 2009. Our TALX revenue $99 million for the quarter, up 15% from the second quarter of 2009 and ahead of expectation, as we had previously communicated.

The Work Number delivered another quarter of strong broad-based growth with revenue of $50 million, up 28%, as the addition of rapid reporting, which performed as expected and double-digit revenue growth from Work Number collections, free employment in government markets offset softness in mortgage and consumers finance markets.

Tax and Talent Management Services delivered $49 million in revenue, up 4% compared to last year, driven significantly by strong performance in our Talent Assessment business, which more than offset the year-over-year decline in Tax Management Services from lower unemployment claims activity. The TALX operating margin was 23.2%, flat with 2009.

North America Personal Solutions revenue was $40.3 million, up 8% from prior year and significantly better than the outlook we gave during our first quarter earnings call. Direct-to-consumer subscription revenue was up 12% year-over-year, driven largely by the increase in average revenue per subscriber. Operating margin was 25.4% for the quarter, up from 21.5% in the second quarter of 2009, as operating expenses declined 3%.

North America Commercial Solutions revenue was $18.6 million, up 18% on a reported basis and 13% in local currency, driven by strong double-digit growth in our US operations. Revenue was also ahead of the expectations we’ve communicated during our first quarter earnings call. The operating margin for our commercial business was 20.2% compared to 15.4% in the second quarter of 2009. With the broad-based points this quarter, we are well positioned to deliver successive improvement in year-over-year revenue growth for the remainder of the year.

Now let me turn it back to Rick.

Rick Smith

Great. Thanks, Lee. Quickly before we get to Q&A, as I said just a few minutes ago, there are many uncertainties at the macro level. At the micro level, things we can control day in day out – I feel better than I have felt in three or four years. We’ve got a great set of initiatives. We’ve got innovation taking hold across to company. Lean is taking hold across the company. We have taken a tough call over the last few years to (inaudible) in line and to give us significant amount of margin when this market does turn

As I look forward to the third and fourth quarter, again I am convince we all have continued improvement in our operating performance for the balance of the year. For the third quarter, specifically assuming the current exchange rates, we expect revenues to be up in the mid 12% or single-digit range from the year ago quarter. Adjusted EPS is expected to be between $0.55 and $0.59 a share. And when considering the dilutive fact of our recent divestiture, which was approximately (inaudible) a share. The guidance for the third quarter consistent with our outlook for improving performance in the second half of 2010.

With that, operator, we’d like to open up to any questions our audience might have.

Question-and-Answer Session

Operator

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

Carter Malloy – Stephens

Hey, guys. Congratulations on the quarter. I thought that it was great.

Rick Smith

Thanks, Carter.

Carter Malloy – Stephens

On the DMS revenues and APPRO, can you break those out what they actually were in 2Q, because all the consensus numbers actually include them? So we’re just trying to get an apples-to-apples.

Rick Smith

Yes, sure. Lee, do you have that? (inaudible) Hold on a second.

Lee Adrean

About $18 million in Q2.

Carter Malloy – Stephens

Great. And then on TALX, can you just talk about how or why, what’s driving the Work Number growth in the face of such serious mortgage volume headwinds and why you guys expect those to stay elevated in the face of continuing declines?

Rick Smith

Carter, it’s truly broad-based. It’s a lot of new products that we are launching. Our collections business is going to really gain great, great traction, which is great. We continue to add more names and records to the files, which obviously gives you lift. The government business is strong. Pre-employment is starting to pick back up. So it is broad based. There is no one piece that’s driving it. It’s just the continued growth. It’s kind of an amazing story now. For the three years we’ve owned it, this thing has grown strongly for each and every quarter for three years. So I expect that to continue, Carter.

Carter Malloy – Stephens

No question. And –

Rick Smith

We’re also introducing the Work Number to more and more customers leveraging USCIS as well as (inaudible).

Lee Adrean

Yes. Carter, I would note our active records were up 4% year-over-year and our total records were up 5%. So even with flat market demand, as we have more records, we capture more revenues. Second, in addition to what we’ve done in the pure verification part of the business, our complementary services, which dovetail with the record-keeping services we are performing with verification are up nicely year-over-year. Those are things like I-9 services, W2 services, electronic time keeping. So there are several things around that whole bundle of services that continue to go well even in a soft economy.

Carter Malloy – Stephens

Okay, great. And lastly, you guys alluded to an ADS partnership, can you give us a little more color on what that is?

Rick Smith

Yes. We’ve always done some things with ADS and I’m working with their Chairman. We have decided more things we should be doing together. And negotiating the transaction of, say, like DMS enabled their Chairman now to get closer. And I think there is broader – better days ahead in our relationship with ADS. I’ll leave it at that right now, Carter. I expect us to get a lot closer strategically with them in the coming months.

Carter Malloy – Stephens

Okay, fair enough. I’m going to hop back in the queue. Thanks.

Rick Smith

Thanks.

Operator

We’ll take our next question from Andrew Jeffrey at SunTrust.

Andrew Jeffrey – SunTrust

Hi, guys, thanks. Good morning. A couple questions, just sort of bigger picture. Rick, it sounds like we are finally seeing the kind of cyclical term we’ve been waiting for. You mentioned prescreen volume up 6% in the quarter. Is that – should we think about that as a lagged effect to the increase in mailings we saw at the end of last year and the beginning of ’10, which didn’t translate into maybe what some would have thought would have been better prescreen volume in first quarter and now we’re just seeing kind of the catch-up on that?

Rick Smith

That’s one way to look at it. I guess in the first quarter we’ve seen prescreen up in about two years – 2.5 years – three years. And we’re seeing that trend, by the way, continue. We expect that to continue to grow in the third quarter. When the lag effect of the mailings that we saw in late last year, possibly. More importantly, our business model is, as you know, once prescreen picks up, a lag effect plus the 45-day, you then sort of see the uptick in online, which – again, we sort of (inaudible) for the first quarter.

Andrew Jeffrey – SunTrust

Okay. So that’s I guess a nice visibility. It seems like you are getting the portfolio of technologies well aligned with your competitive priorities in the market, which is great to see and continuing to buy back stock. When you sort of survey the product front, could you just walk through a few of your top priorities and specifically touch on technology or functionality you think you need to enhance your competitive position? One. And then two, the cross-sell potential between talks in the core business, which would dovetail nicely with the kind of acceleration you are seeing in the TALX segment.

Rick Smith

The priorities right now from a technology perspective specific to not the infrastructure itself, but monetization of technology, I’d say, comes in two primary buckets. One, we’ve been at now for couple of quarters. It’s taking the core decisioning engines we have that are so successful here than in other parts of the world. And that is starting to pay significant dividends, be it our fraud platforms we take in UK and bring it to Canada or our innovative platform we bring from Canada here to the UK and then to Iberia, also now down (inaudible) investment heavily in new decisioning engines across Latin America. So decisioning engines and accelerating that penetration outside the US because we’ve got great penetration within the US. The vast majority of all the great banks, we have decisioning engines already installed. So it’s replicating that model outside of the US.

The second area of technology we are investing heavily in is what we call database linking. We have a term that we call keystone, which is basically the ability for us to infiltrate all these very disparate databases we have real-time with very got cost efficiency to pull data together and build products faster and less expensively than we have in the past. And we’ve been at that now for about 12 months or so, and that should come to a conclusion sometime later on this year. So those are the two big things we’ve been investing in from a technology perspective. On the cross-sell, we’re hitting it out of the park, leveraging USCIS and the Work Number. And at the center of that, by the way, is our product management team building new products to disrupt the marketplace.

And by the way, it goes beyond just the Work Number and USCIS. It’s now embedding that plus IXI. So if you think about the credit data, income data, employment data and wealth data, leveraging that is making a big difference in the marketplace. It’s going to (inaudible) official to have Dann Adams who has peaked in his understanding of the credit side now running TALX and getting his hands on the Work Number data and leveraging skills and knowledge of the USCIS with now Rudy Ploder leading that. So a great progress today and I think even better days ahead.

Andrew Jeffrey – SunTrust

Okay. And I assume that as we get into ’11, maybe you can start to quantify the contribution from some of those initiatives.

Rick Smith

It’s already – it is outpaced. Any number we could possibly have thought of.

Andrew Jeffrey – SunTrust

Okay. Thanks a lot.

Rick Smith

Thank you.

Operator

We’ll take our next question from Michael Meltz at JP Morgan.

Dave Lewis – JP Morgan

Hi, good morning. This is Dave Lewis for Michael. I was just wondering if you guys could touch on what you are hearing from the banks. If you could just provide a little more detail there about customer acquisition plans now that FinReg is done?

Rick Smith

Cautious. I’d say cautious at this juncture. That’s from big banks to small banks. You may have, Dave, an outlier here there who is a little more aggressive. But by and large, what you see and read in the paper is what we feel and hear as well as we talk to the CEOs and head of marketing guys at the different banks. Cautious. If you want to get back in the market, you know they got to grow smartly. And Dave, what we focus on is, when you grow, growing smartly is so important. And we think Equifax is so uniquely positioned to help them grow, because not only the credit data, with the income data, the employment data and the wealth data. So we’ve spent a lot of time with the banks helping target markets, the right people with our data assets.

Dave Lewis – JP Morgan

That’s good. Thanks, Rick. And then just one more from me. The 360-degree winds that you had last quarter, can you just give us an update there and what the pipeline looks like?

Rick Smith

Strong. And when clients – every day. It’s across the whole sector; small banks, mid banks, big banks, insurance companies. So the 360 view is resonating extremely well for the customers.

Dave Lewis – JP Morgan

Thank you.

Rick Smith

You’re welcome. And that’s what you’re seeing, a pickup in USCIS and seeing strong growth in TALX as well.

Operator

And we’ll take our next question from Shlomo Rosenbaum with Stifel Nicolaus.

Shlomo Rosenbaum – Stifel Nicolaus

Hey, guys. Looks like you guys got a lot of good positive momentum. So keep it up.

Rick Smith

Thank you.

Shlomo Rosenbaum – Stifel Nicolaus

I want to ask you a little bit about what you commented, Rick, on the disruption from IXI and TALX. Could you give us some examples and maybe quantify where you are starting to see that change in the marketplace and your positioning within the marketplace?

Rick Smith

Absolutely. The level of conversations, Shlomo, we could now have with banks is far different from we’ve ever had in the past and far different than anyone else can have right now. You can combine the look at a client making an underwriting decision, and it’s not just based upon your credit, you pass credit behavior. But are you employed? How long you’re employed? How much income do you have? How volatile is that income? How much wealth do you have? All those come into play on your ability to pay off an obligation. So our customers now have a much better way to make an underwriting decision than they ever had in the past.

As a result, the result of that is all the ones we’ve been talking about now for the past X number of quarters, it’s why TALX is growing at the rate they are growing. It’s one of the reasons we are seeing significant turnaround in USCIS. It’s a core of all the new products. We’re talking for years about our NPI, core NPI, not sometimes those things we’re doing with IXI and things we’re doing with the Work Number in combination with the core credit. And there is more to be done, by the way. And starting think about our income data that we have at zip plus four level, by the way. So you can target market either digitally or otherwise much better, smarter than you could before. So if you can couple together wealth data, the zip plus four, and income data zip plus four, and the credit data zip plus four, those are things going out to do in the past. So it’s helping on the underwriting side and the marketing side.

Shlomo Rosenbaum – Stifel Nicolaus

Are you seeing that result in you guys taking market share? I mean, how you will –?

Rick Smith

Yes, yes, yes.

Shlomo Rosenbaum – Stifel Nicolaus

And how are you measuring that?

Rick Smith

Our accounts I didn’t do business with yesterday, or accounts I did do business with yesterday, but at a lesser amount, and I’m doing more share. So we see the new customers and I met some of them I think last quarter. An insurance company we’ve never done business with, we’re now their primary provider as a result of this. Or maybe in other cases where I’m doing business with the bank and I get X dollars of revenue or X share of the revenue, now it’s gone up by some factor. So we track it very seriously and measure it every month.

Shlomo Rosenbaum – Stifel Nicolaus

Are you displacing any competitors as a result of this?

Rick Smith

Yes.

Shlomo Rosenbaum – Stifel Nicolaus

Okay. Just a couple more questions. Can you just into detail on – mortgage was very strong. Is the ESS business growing and outpacing what we’ve seen beforehand? Just trying to nail down what’s driving that, particularly as it’s really, really good quarter.

Rick Smith

On the margin or the top line?

Shlomo Rosenbaum – Stifel Nicolaus

Top line. USCIS.

Rick Smith

Yes. The trend is – the continuing trend, as we’ve said in the past, we have outperformed the index now for – I can’t remember, a number of quarters. And that trend is continuing. So its core mortgage, tri-merge, it’s the reseller channel, it’s ESS, it’s the commerce, the whole suite of products we have to offer. But let me touch on one of the things, which I think is important as well, which is not a part of your question, but Lee mentioned it. We have overwhelmed our mortgage business with lean and have taken a lot of cost out, improved processes. So you saw nice improvement in margin in the second quarter as a result of not just top line growth, but a much more attrition operation. We expect that to continue going forward as well.

Shlomo Rosenbaum – Stifel Nicolaus

And then final one for me, have your internal expectations gone up a lot for the year based on the quarter that you guys have and the momentum that guys have got?

Rick Smith

Yes. I expect, as I said early on, as Lee said, that the guidance we gave you over the year is that second half will be stronger than it was in the first half. Second quarter exceeded our expectations. I’m more bullish now on the outlook for the second half of the year than I was in the first half of the year.

Shlomo Rosenbaum – Stifel Nicolaus

Okay, great. Thank you very much.

Rick Smith

Thank you.

Operator

And we’ll take our next question from Bill Warmington with Raymond James.

Bill Warmington – Raymond James

Good morning. And congratulations on the improvement in organic revenue growth.

Rick Smith

Thanks, Bill.

Bill Warmington – Raymond James

I just wanted to – that looked like – the organic revenue growth looked like it had improved to about plus 2% from minus 1% last quarter. I just wanted to confirm those numbers and then also ask that for your guidance in the third quarter of mid-to-upper single-digit revenue growth, how much of that do you think you're expecting to be organic.

Rick Smith

To answer your question, it’s correct.

Bill Warmington – Raymond James

Okay, good.

Lee Adrean

And the contribution –

Bill Warmington – Raymond James

Always good to check.

Rick Smith

Yes.

Lee Adrean

And the contribution from acquisitions is tracking pretty consistently. I think we said it was about 4% in the first quarter, probably a consistent second quarter, which is the organic growth over prior year results.

Bill Warmington – Raymond James

Okay. And the corporate expenses of $29.5 million, those were a little bit higher than what you guys had guided to in terms of $25 million to $28 million. Could you talk a little bit about what was behind that and then also how we should think about that going forward?

Rick Smith

I’ll let Lee answer. I give you one caveat. Even though it was up, obviously we did perform at EPS levels.

Lee Adrean

The increase over prior quarter was a little stronger than we had planned going in, really driven by some investment decisions we make as the quarter unfolds with a little bit stronger at revenue environment. We are investing a little bit more on some IT infrastructure and support. And Rick talked about some of the underlying investments we are making that will have strong long-term paybacks as well as a bit more investment in some market-oriented growth initiatives that in the incubation period we support from our corporate expense. I would expect given a bit stronger environment we’re seeing, the range for corporate expense for the second half of the year is probably $27 million to $30 million per quarter, which is a little bit higher than our prior direction.

Bill Warmington – Raymond James

Got you. Okay. The other question I had for you was, Personal Solutions growth, nice acceleration from around 3.5 to 7.5 in the quarter despite what's a pretty tough environment out there for consumer spending. So could you guys talk a little bit about what actions you've been taking to drive better revenue growth there and also talk a little bit about trends you're seeing and subscriber additions, churn and revenue per unit?

Rick Smith

Yes, sure, Bill. (inaudible) high level. I may have mentioned this in the past. Sometime late last year, I told it was time for a quick timeout. So it’s I think important to take a look at the business process, customer experience, and see how we can improve things. We brought an outside consultant in with some really good guys kind of ripped apart the model, looked for flaws and weak points in the process we can prove. We’re focusing on the unique visitors, total visitors, churn conversion, customer experience , pricing mix. And we are now well into the implementation and we started implementing that in early first quarter, and you’re seeing the benefits of that. You’re seeing ARPU move up, you’re seeing churn improve. The churn moved significantly down over second quarter of 2009. So it’s really a combination of all those. The new leadership team there, energized team, they are doing the right thing. So I feel very good about not only the second quarter performance but the outlook (inaudible) both on top line and on margin. I guess a great job on margin performance as usual during the second quarter.

Bill Warmington – Raymond James

Are you guys seeing a high level of reactivations – previous customers coming back to the product?

Rick Smith

I don’t know. We don’t have that data. (inaudible) I’d be misleading if I give an answer.

Bill Warmington – Raymond James

Okay. All right. Well, listen, congratulations on a strong quarter. Thank you.

Rick Smith

Great. Thank you.

Operator

And we’ll take our next question from Greg Mihalos at Bank of America.

Rick Smith

George.

Operator

George.

Rick Smith

George, are you there?

Operator

Please turn your mute function.

George Mihalos – Bank of America

Hi. Can you hear me?

Rick Smith

Yes.

George Mihalos – Bank of America

Hi. Sorry about that. I just had a couple of quick questions. I wanted to delve into the USCIS a little bit more. You mentioned the prescreen volume coming back strong, nice performance out of the CFM. Would you care to give us a sense of what you would expect sequential growth to look like on the OCIS side now, as some of those prescreens start to spill over into the database?

Rick Smith

You’re referring to third quarter versus second quarter?

George Mihalos – Bank of America

Yes, third versus second.

Rick Smith

Yes. Very much in line – I gave you the overarching look for USCIS. You're talking about USCIS being up a bit – upper single digits. I’d expect USCIS – is your question specifically about USCIS?

George Mihalos – Bank of America

Yes, specifically USCIS.

Rick Smith

We don’t expect sequential improvement third quarter versus second quarter.

George Mihalos – Bank of America

Okay. And if we can – taking a look again at the TALX business, the tax management – talent management, as you said, performed well, was that predominantly a market share move or is it just sort of broader economy improvement?

Rick Smith

Good question. If you think about that business, we combine them, but the dynamics are largely different in talent versus tax. The tax business, there is many great components of it, but a big catalyst, if you will, for growth is the trends in unemployment. And when unemployment is at a lower level, that business (inaudible). You start with obviously strong growth in 2007, 2008, 2009; slower growth in 2010. So that business in a high unemployment environment that we are in now is expected to be softening. What you’re seeing is significant growth in the talent assessment business, as some of our large customers start to rehire, and number two is a branch out, diversify the business model away from just government agencies to the public sector. So that’s where the growth engine there, the talent assessment business.

George Mihalos – Bank of America

Okay, great. Thanks, guys. And congrats on the quarter again.

Rick Smith

Thank you.

Jeff Dodge

Operator, we have time for one more question.

Operator

We’ll take our last question. It will be a follow-up question from Carter Malloy with Stephens.

Carter Malloy – Stephens

Hey, guys. Looking at the North America Commercial, we haven't touched on that much, was that more growth on the marketing side or the risk side of that business?

Rick Smith

US risk and marketing both are strong.

Carter Malloy – Stephens

And were those larger customers, smaller customers, competitive wins, or growth within existing customers?

Rick Smith

Competitive wins and growth within existing customers. But the business is starting to hum.

Carter Malloy – Stephens

Okay, that's good. And then on USCIS, what percent of that business is analytics-driven?

Rick Smith

Analytics-driven, we don’t break that out.

Carter Malloy – Stephens

I think in the past you've given us an idea of interconnect or –

Rick Smith

I gave you some numbers in the opening comments, which I’ve since forgotten, but – the growth rate of the decisioning engine, it’s significant growth, strong – which I think was 30% growth – 31% growth in interconnect, excluding – it's important. When you look at that quarter, you exclude the data pull-through. We’ll be looking at income models. We’ll be looking at interconnect or decisioning engines can just be would be very, very misleading to you if you include data pull-through. Excluding data pull-through was up 31% (inaudible) quarter.

Carter Malloy – Stephens

Okay, great. And lastly very quickly, on prescreen, you said I think it's going to accelerate in 3Q. I know some of that's due to lag, but do you guys – are you seeing thus far in the quarter the card marketers continue to accelerate their activity in the market?

Rick Smith

Yes, yes.

Carter Malloy – Stephens

Okay, great. Thank you.

Rick Smith

Thank you.

Jeff Dodge

Okay. I’d like to thank everybody for joining us on the call, and we’ll be available if you have any additional questions. Thanks. And with that, we’ll conclude the call.

Operator

Thank you. And as a reminder, that does conclude today’s conference. If you’d like to dial in and listen to the replay for this call, you may dial 1-888-203-1112 and reference your pass code, 4799858. That replay will be available from today at 8:30 Central Time until the 5th of August at 10:30 Central Time. Thank you for participating in today’s call. That does conclude today’s conference. You are free to disconnect.

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