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Equifax (NYSE:EFX)

Q2 2014 Earnings Call

July 24, 2014 8:30 am ET

Executives

Jeffrey L. Dodge - Senior Vice President of Investor Relations

Richard F. Smith - Chairman and Chief Executive Officer

John W. Gamble - Chief Financial Officer and Corporate Vice President

Analysts

Georgios Mihalos - Crédit Suisse AG, Research Division

Paul Ginocchio - Deutsche Bank AG, Research Division

David Togut - Evercore Partners Inc., Research Division

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

Andre Benjamin - Goldman Sachs Group Inc., Research Division

Gregory Bardi - Barclays Capital, Research Division

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

William A. Warmington - Wells Fargo Securities, LLC, Research Division

Brett Huff - Stephens Inc., Research Division

Operator

Good day, and welcome to the Q2 2014 Equifax Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeff Dodge. Please go ahead, sir.

Jeffrey L. Dodge

Thanks, and good morning to everybody. Welcome to today's conference call. I'm Jeff Dodge, Investor Relations. And with me today are Rick Smith, Chairman and Chief Executive Officer; and John Gamble, 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 on 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 the filings with the SEC, including our 2013 Form 10-K and subsequent filings.

We will be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax that will be adjusted for certain items, which affect the comparability of the underlying operational performance. Adjusted EPS attributable to Equifax excludes the acquisition-related amortization expense and the associated tax effects. This measure is detailed in our non-GAAP reconciliation tables included with our earnings release and also posted on our website.

Also, please refer to our various investor presentations, which are posted in the Investor Relations section of our website at www.investor.equifax.com for further details.

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

Richard F. Smith

Thanks, Jeff, and good morning, everyone. Thanks to -- as always, for making time to join us on this call today.

Before I jump into my -- to the overview of the strategic accomplishments for the second quarter, let me, at least by phone, introduce John Gamble. I think everyone knows John is our new CFO. John's been with us for about 2 months now, and off to a great start.

As you would expect, the transition between Lee Adrean and John Gamble has been a very thoughtful one, a well-thought-out one, smooth and is going extremely well. John has inherited a really good team, good processes, and he's off to a great start. So John, welcome.

And as always, after I go through my strategic update, John will jump in and give you the financials. And we'll both be here on John's first call to answer any questions you may have of either one of us.

Our performance in the second quarter was very strong. It was above our guidance and it was really driven by a continued strong execution of our core strategic initiatives. And those initiatives, again, offset the mortgage headwinds that we saw in the first half of the year and that continued in the second quarter. And the execution that we continued to deliver positions us very well for a strong performance in the second half of 2014 and into 2015.

For the quarter, revenue was $614 million, up 5% on a reported basis and 6% on local currency basis versus the second quarter of 2013. When you exclude the mortgage market headwinds and include our acquisitions that we made last year and some in the early part of this year, revenue grew 9% in U.S. dollars and 11% in local currency.

Our operating margins was off to a strong 27.3%, up from 26.9% a year ago. Our adjusted EPS was $0.96, up from $0.92 last year, and up from our guidance of $0.92 to $0.95. So I think any way you look at it, a really strong financial performance for us in the second quarter.

And now we'll all go through each of the BUs with some detail there. First, with USCIS, and that team continues to innovate. It continues to have rigorous execution against these initiatives and as a result of broadening and deepening our customer relationships. And for the first half, their core non-mortgage market organic growth rate was a solid 6%, and I'll give you some details around that 6%, that good performance.

With one of the top 4 banks in the United States, we have leveraged our successful implementation of the analytical sandbox, which we've talked to you about a number of times on this call. We've now taken that analytical sandbox to the next level. It's allowing us to develop tools to help them forecast. Our longer-term focus with this institution is to develop an insights-based, enterprise-wide analytics ecosystem that will support multiple decisioning applications, including modeling, forecasting, market analysis, account management and prospecting.

So think of it this way, when we talked to you about a year ago, I think it was, about launching these very unique analytical sandboxes, we said there's multiple ways to make money. One was the actual implementation of sandbox, which that was at the time that we launched. The second phase we talked about was the ability to develop new products and capabilities. That's what this is all about, and that's what they're paying us for not the sandbox, but for the products and capabilities that come out of the sandbox. And the third potential bite of the apple we talked about was the potential of actually having them outsource their analytics to us, that's still to come. But a great, great step with one of the most important banks in the United States.

Secondly, our enterprise-wide focus on key industry verticals broadens our reach and strengthens our competitive position. We recently signed a multiyear agreement with our largest insurance customer to build a prospecting database that will be their primary source for marketing campaigns. This particular opportunity was a competitive takeaway and further solidifies our exclusive relationship with a very large customer in one of the targeted growth sectors we talked to you about.

We are also deepening our relationship with customers by helping them drive synergies within their organization, create better standards and governance processes, reduce waste within the organization and improve the quality and effectiveness of their marketing efforts. For another top 4 bank, we are undertaking a 1-year professional service engagement to help them deploy Lean in their customer credit marketing organizations.

So think about this, we deployed Lean which is a strength we've had in our company now for a number of years. When we deploy that into our customers' operations, especially like this, one of the top 4 banks, it positions us as a thought leader and different than our competition, which opens doors for revenue down the road.

In our auto vertical, we have developed a unique solution, leveraging our Customer Services Database called the CDS -- CSD, and our patent pending fusion modeling technology. With this solution, one of the largest direct auto lenders, we'll be able to approve more applications real-time, improve its overall close rate in enhancing its competitive position with the auto dealers. Remember, the Consumer Services Database, CSD, as we call it, we used to call it NC+ [ph], that's our positive telco database. A combination of fusion modeling and that unique database is allowing us to gain share in the automotive vertical in the U.S. Again, another very important vertical for us for growth.

Our Decision 360 strategy to provide unique high-value insights for customers' decision needs continues to be an important growth driver for us. We're a very large credit card issuer. We combine the verification of income with credit data for their credit line increased program. The solution will enable to be in compliance with the Reg Z requirements, while at the same time, providing additional insights to improve their overall decisioning on these opportunities. Another example how D360 is really making a difference in the marketplace.

For 2014, we continued to expect USCIS to deliver non- -- deliver core non-mortgage market organic growth in their long-term growth range of 5% to 7%. On the International, they're making very good progress integrating the recent acquisitions, particularly TDX. If you recall, that was domiciled in the U.K. and Inffinix which is domiciled in Mexico, and delivering -- in developing our global collection strategy.

The second quarter performance was in line with our expectations, demonstrating ability to deliver performance on both their critical strategic priorities and operational initiatives. Strong organic growth in the FI and SME segments were the principle drivers of growth for International. PSol in Europe continues to deliver strong double-digit growth, up 32% from the second quarter of 2013. I think, you'll recall, we have deployed the efforts of Trey Loughran in the U.S. PSol team to the International footprint, and that's really paying dividends in places like Europe and now Latin America.

Our international telco vertical had 2 major wins in the quarter for a large U.K. telecommunications company. We were selected to deliver customized decisioning solutions for their mobile operations with our InterConnect platform. You might recall that deploying InterConnect globally has been a top priority for us over the last 4 or 5 years, another example that's gaining traction for us.

And in Chile, we're delivering an ID management solution for a customer acquisition, which will lower their cost of acquisition in addition to some of their back-office expenses.

Quickly on TDX. TDX continues to make really good progress. It's early days, only 6 months or so, but they're making very good progress. And strategically, we are very optimistic on the long-term fit for this company, not just in the current footprint, but in additional footprints as well. We've added a second large customer in Australia in the last couple of months and we're building a very robust pipeline of opportunities in Australia. In U.K., we continued to have significant contract wins in the pipeline we currently have, should enable TDX to deliver a very strong double-digit growth in 2015.

Workforce Solutions is making a significant progress in diversifying its revenue. Through their suite deployment and income verification solutions, they are enabling deeper transparency for risk decisioning and their employer community, they have become an industry leader in providing employers with insights and capabilities to support their compliance activities.

You've heard us talked about that, how Dann Adams and his team have brought data and analytics mindset and capabilities for not only the verifier side, but also the employer side. You've heard us talk about the CMA analytics in the past.

Some records for the Work Number database are up to just shy of 245 million records, and we now have over 3,700 companies contributing their employment and income information to that database. As you recall, our goal is not just to add the number of records, but also add more and more employers who contribute that data to us, and Dann has done a heck of a job on both fronts.

We are lessening our dependence on mortgage activity in EWS. During the quarter, our non-mortgage product revenue grew a very strong 10%. Through new product innovation and diversification into new markets, our verifier revenue is now over 60% of Workforce Solutions revenue, up significantly from the 35% level in 2007, which is the time we acquired the company.

And the value of an active record in the Work Number database now is up 94% since the acquisition of TALX in 2007. That comes through a lot of strong effort in our pricing team that comes through mix that comes through vertical market expansion diversification. So it's not just adding records to the database, but it's also the value of the record, and a combination of both those is pretty powerful financial model.

Our focus on the government sector is progressing well due largely to our strong working relationship with the Centers for Medicare & Medicaid Services in support of the Affordable Care Act. We have identified a number of strong opportunities to assist them and other government agencies with employment and income verification, ID management and fraud solutions. I'm sure that everyone or many of you have read the Wall Street Journal articles earlier this week. We'll, during the Q&A, answer any questions you might have regarding the recent appellate court decisions.

We are also uniquely positioned to help financial institutions meet their regulatory compliance obligations. Recently, a top 4 banks signed a contract to use our employment and income verification solution to meet CFPB requirements for their credit line, increasing offers -- increased offers.

Workforce Solutions core non-mortgage market organic growth rates continue to be above their long-term range of 7% to 10%, so a strong execution in EWS.

The current environment for our Personal Solutions segments continues to be challenging. As we thought in the past, the free market that has emerged. Growth in our transaction and part revenue has slowed, but the acquisition of TrustedID last year enables us to pursue a whole new set of indirect opportunities in the pipeline there for the indirect opportunity is as strong as we have seen in quite some time and gives us great hope that PSol will, in fact, turn -- return to their long-term growth model.

We are currently developing new strategies to optimize the return on general marketing spend and plan to test the launch of these campaigns during the second half of 2014, early part of 2015. Assuming no change -- no significant changes to the regulatory environment, I am confident that the strategic path that Trey Loughran and PSol are on, that PSol will return to their upper-single-digit growth rates in 2015, and really leveraging the TrustedID indirect market opportunity, as well as our new strategic plan for the core business.

Finally, North American Commercial Solutions. A few years ago, we shifted to a customer-centric model. We embarked upon what we called an enterprise-wide distribution marketing strategy to maximize our penetration of products and services into targeted market segments.

USCIS was designated as the business unit responsible for executing strategic initiatives. They were the biggest, they had the most pipes and most customers. We first established our key client program with 4 of our largest customers. We now have 8 customers in KCP. We quickly followed that organizing our enterprise-wide marketing teams. We've targeted verticals like mortgage, auto, telco, utilities and insurance.

This strategic initiative has contributed greatly to North American Commercial Solutions' historical growth and market share gains.

The environment is changing and our customer relationships are now much broader and deeper. At the same time, our successful enterprise selling gives us tremendous opportunity to continue driving growth and market share gains for our commercial business.

The next logical step in the evolution of our enterprise distribution strategy is to simplify the way our commercial customers interact with us, to allow us to accelerate growth and penetration. To accomplish this, we're going to consolidate the U.S. portion of the commercial business into USCIS, and the combined entity will be renamed USIS versus USCIS. The Canadian piece of commercial will go into international and leverage their strong relationship in Canada.

As you will recall, it wasn't that many years ago, that was the structure for commercial. And to allow us to have a little bit more focus, to get more scale, which we have done, I broke it out as a direct report to me. So it's not going back to the old structure we used to have in the USCIS in Canada. We are as committed today as we have ever been to growing commercial, and I'm convinced now that we've incubated it for a few years, combining with International and USCIS will do just that.

So in summary, all the business units are performing at a high level. Best practices regardless whether they originated or being leveraged across the organization. With depth of experience, our management team has enabled us easily move people and ideas across businesses. And while the individual business units will have difficult challenges from time to time, our portfolio of businesses could not be stronger or better positioned than we are today.

We're now halfway through 2014 with 2 strong quarterly performance behind us. I'm proud of our team and how they've executed against their strategic initiatives, enabling us to overcome the mortgage headwinds in a much better shape than we anticipated when we entered the year. We built good foundation for continued growth in 2014 and beyond.

And with that, John, officially welcome to your first earnings call with Equifax. I'd like you to kind of walk us through the financials, then we'll come back and do some Q&A.

John W. Gamble

Great. Thanks, Rick, and I'm very excited to be joining the team and looking forward to a long and successful career.

So as Rick already mentioned, we had some exciting opportunities in front of us. We're successfully maneuvering the headwinds and feel very good about our positioning and our various markets and the growth we should be able to deliver for ourselves, our customers and our shareholders. I'll be referring to the financial results from continuing operations generally presented on a GAAP basis.

Now let me turn to the quarterly results. Rick already covered the total company financials, so I'll focus on the individual business units.

Overall, U.S. Consumer Information Solutions came in a bit better than we expected. Revenue was $264 million, up 2% when compared to the second quarter of 2013.

Online Consumer Information Solutions revenue was $191 million, up 4% when compared to the year-ago period and up 7% from the first quarter of 2014.

Mortgage Solutions revenue of $28 million was down 15% compared to Q2 2013. This compares favorably to the Mortgage Bankers Application Index, which was down 52% in the second quarter.

Consumer Financial Marketing Services revenue was $45 million, up 7% when compared to the year-ago quarter.

The operating margin for U.S. Consumer Information Solutions was 41.5%, up from 40.2% in the second quarter of 2013.

International revenue was $153 million, up 18% on a reported basis and up 23% on local currency basis. Acquisitions contributed approximately 17 points to the local currency growth.

By region, Europe's revenue was $72 million, up 53% in U.S. dollars and up 40% in local currency, driven by the acquisition of TDX and mid-single-digit organic growth in our core business.

Latin America's revenue was $48 million, down 1% in U.S. dollars, but up 19% in local currency, driven broadly by double-digit organic growth in consumer and commercial information solutions, decision solutions, analytical services and personal solutions.

Canada Consumer revenue was $33 million, down 3% in U.S. dollars, but up 3% in local currency.

As you know, our International margins have been impacted by the recent acquisitions. For the second quarter International's operating margin was 21.8%, up from 20.4% in the first quarter of 2014. As we indicated in our first quarter call, we expect to exit the year with an operating margin of over 25%.

Workforce Solutions revenue was $119 million for the quarter, down 3% when compared to the second quarter of 2013. Verification Services, with revenue of $72 million, was down 6% when compared to the same quarter of 2013. Employer Services revenue was $47 million, up 1% compared to last year. And the Workforce Solutions operating margin was 33.9% compared to 31.1% in Q2 of 2013.

North America Personal Solutions revenue was $54 million, up 5%. Growth was driven primarily by acquisition of TrustedID. Operating margin was 30.5% compared to 27.6% in Q2 2013, largely driven by reduced marketing expense in the quarter.

North America Commercial Solutions revenue was $23 million, up 1% on a reported basis and up 3% on a local currency basis. Operating margin was 17.3% compared to 16.8% in the year-ago quarter.

And I will turn it back to Rick.

Richard F. Smith

Thanks, John.

As we enter the third quarter, we are very encouraged by the various market opportunities we have for growth in each of the business units and continue to be very pleased with the execution of each of the BUs and COEs. While we still have a bit of mortgage headwind for the balance of the year, it has improved dramatically versus what we saw in the first half of the year. And as I've said before, the mortgage market is really unwinding very much like we had anticipated back when we gave guidance, early part of 2014.

For the third quarter, some of the current exchange rates we'd expect the reported revenue will be between $620 million and $625 million. Adjusted EPS is expected to be between $0.96 and $0.99 for the full year. We're still on the path to deliver our core organic non-mortgage market growth rate of 26% and 8%, and with the team's high level of execution and the opportunities we see before us, we are now in a position to increase our full year guidance.

Assuming the current exchange rates, we should end the year with revenue between $2.440 billion and $2.465 billion, and adjusted EPS between $3.83 and $3.91. And I always said, versus our previous guidance of $3.75 to $3.89, and the current consensus of $3.83.

With this full year guidance, our revenue growth accelerates from about 4% in the first half of 2014 to a level of about 9% to 12% in the second half of the year. And most importantly, that gives us really good momentum and confidence as we go into 2015.

So with that, operator, if you would please open it up for any questions that they may have.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from George Mihalos with Crédit Suisse.

Georgios Mihalos - Crédit Suisse AG, Research Division

I wanted to start off, the USCIS again had another really strong quarter, revenues and margins certainly better than what we were looking for. Just curious, outside of auto, which has been hot for a while now, can you sort of call out another 2 or 3 end markets that you think are really sort of picking up steam recently?

Richard F. Smith

Yes, it's markets and it's share gains. So -- and I mentioned a few of them in the call towards -- we have insurance sector, some nice wins there. In our online business, especially with our KCP accounts. If you recall, KCP has gone from 4 large banks to 8 very strategic accounts, including the 4 large banks. And then online business area continues to accelerate. We're gaining share there. We talked about an analytical win we had with the sandbox, one of the top 4 banks. Auto continues to be fantastic for us. So it is really, really broad-based that's giving us great growth there. And obviously, with that kind of growth in a high fixed cost business, all that margin falls to the bottom line. You've seen a great acceleration of margin there as well.

Georgios Mihalos - Crédit Suisse AG, Research Division

That's great color. And I just wanted to dig in a little bit on the guidance for the full year. You have sort of tightened the range around your revenue with a higher midpoint. Just curious relative to your expectations, what is outperforming from a revenue perspective versus what might be coming in a little bit lighter now that you've sort of updated that range?

Richard F. Smith

Well, PSol will take another quarter or 2 to implement their new strategy and execute, what I mentioned on the call, the TrustedID indirect wins. So that softened a little bit with a little bit of headwind. A few countries in Central and South America have softened a bit. But then you're seeing stuff like the core organic non-mortgage market growth rate in EWS. I mentioned that growing over 10% for the second quarter in a row. That's things like collections, government, credit card, auto for them. We just walked through an array of different areas that are growing very strongly in USCIS. Europe is growing stronger than expected. Our core organic growth rate in places like Spain and the U.K., which still tend to be troubled economies, are delivering very, very solid organic growth rates. In fact, I think we mentioned we didn't -- the organic growth rates outside the U.S. are growing at 6% to 7% growth rate, and that's inclusive of some pretty tough economies. So that's a long answer to a very simple question.

Georgios Mihalos - Crédit Suisse AG, Research Division

Okay. Just last question from a modeling perspective. John, the corporate expense line has been down pretty considerably over the first half of '14, your general corporate expenses, what's driving that? And then how should we think about modeling that over the back half of the year?

John W. Gamble

Yes. I believe the guidance we gave for the year was that corporate expenses would be up slightly. And I think that we still expect that to be the case. And I think what you're seeing really in the first half versus second half is really just timing mostly around investments.

Operator

And we'll take our next question from Paul Ginocchio with Deutsche Bank.

Paul Ginocchio - Deutsche Bank AG, Research Division

I don't know if I missed it, but did you discuss online volumes in the consumer information systems?

Richard F. Smith

Well, I'm sorry, Paul. What was your question?

Paul Ginocchio - Deutsche Bank AG, Research Division

So what were online volumes in the online consumer information services?

Richard F. Smith

The OCIS volume was up 12% for the quarter.

Paul Ginocchio - Deutsche Bank AG, Research Division

Great. And is the reason the differential between the volume growth and the revenue growth, is that still that higher value mortgage is down and that should reverse in the third quarter?

Richard F. Smith

It's mixed largely. And mortgage is one piece of that. Customer mix could be another piece. Sometimes when you have large -- you have growth, as I mentioned, I think, just a second ago, in our very large strategic accounts, the pricing thresholds are different there than they would be for other customers. So just think of it generically as mix.

Paul Ginocchio - Deutsche Bank AG, Research Division

Okay. And then in the second half, does that mix improved from where it is today?

Richard F. Smith

I would not expect it to change dramatically.

Operator

Next, we will hear from David Togut with Evercore.

David Togut - Evercore Partners Inc., Research Division

If you could dig into the International margin outlook a little bit, if you addressed this initially, I apologize. I was joining from another call, but what should we expect from International now that TDX is fully integrated?

Richard F. Smith

Yes. One, I'm not sure when you joined. But TDX, as I mentioned on the call, if you've missed it, is coming along very nicely. We continue to integrate it successfully. We're getting great wins in our current footprint like Australia and the U.K. and we're very encouraged we have the ability to bring it to other markets like U.S., Canada and into South America. As far as margin goes, we had mentioned at the time of the acquisition, there would be a drag as we get TDX up and running on the margin for the first half of the year. And as we exit the year, we expect to fully [ph] be back to the historical range of around 25% or so for International. So we're very much on track with that. John had reiterated that in his comments as well. So from a strategic perspective, financial perspective and margin perspective, TDX and International are on the direction we had guided back in the first quarter.

David Togut - Evercore Partners Inc., Research Division

Got it. And just as a follow-up, could you give us your updated thoughts on capital allocation? And in particular, any thoughts about a potential 2015 dividend increase?

Richard F. Smith

Yes. I'll take a crack at it. John, if you want to jump in, you can add to it as well. Our dividend policy that David was -- established a few years ago, we remain committed to that and actually gives back 25% to 35% of our net income in the form of the dividends. So obviously, as net income rises, the dividend will increase. I don't anticipate changing that financial model, 25% to 35%. As I think overall, that capital structure outside of dividend, and we've been fairly light in our share repurchase in the first half of the year. You should expect us to increase, at a pretty significant rate, the share repurchase in the back half of this year.

John W. Gamble

But our leverage at this point in time is fairly low, right? Yes.

Richard F. Smith

Good point. And our leverage is 1.8, 1.9.

John W. Gamble

1.8, yes.

Operator

Next, we'll hear from Dan Perlin with RBC Capital Markets.

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

I want to come back to that International margin again a little bit. What are the trigger points that are going to get you guys back to this 25%? I think, originally, I'd always assumed that you were going to do some, I think, fairly reasonable amount of investments to take TDX into those other markets. And I'm wondering has that changed at all, or is that TDX running ahead of budget on the revenue side. Just it's a pretty big, I guess, jump to get to the 25% kind of run rate as we exit the year.

Richard F. Smith

No, it's pretty straightforward. Just the leverage you get as it -- business continues to grow and get the revenue stream, it tends to be more backend loaded, and TDX backend loaded than front end loaded, so you get some leverage there. We'll get the operational synergies you expect. But let me clarify a point, Dan. The cost to take the solutions -- the suite of solutions that we have with TDX into additional countries is very, very, very cost efficient. You can do it because the data, the solutions are housed in the U.K. So when you go to Spain, when you go to Columbia, when you go to Australia, you can literally do that with a salesperson or 2 or maybe you outsource it to a value-added reseller, so that the cost of implementation is very, very low.

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

Okay. It sounds like the analytical sandbox has moved kind of passed this beta testing idea, and you're even calling out as one of the -- I guess one of the growth drivers you saw in USCIS. And so I wanted to spend a second on a little bit the revenue model. You talked about the first stage as kind of setting up this enterprise-wide decisioning, but then you talk about selling the new products and capabilities. I'm just trying to get a sense of kind of how that revenue model builds out. One sounds like you've got greater visibility than the other end. And the other one sounds like you might have an upfront piece of revenue. So if you could just parse that, that would be great.

Richard F. Smith

Yes, there is 2 things to think about. One is we continue to add different players stand up, being able to sandbox with them, so we get paid for that, just like we have with other banks in the past. We're starting to do this, not just in the U.S., but outside the U.S. as well. Secondly, as I mentioned, one of the top 4 banks when you stand that up, we get their teams and our teams in there looking at the combined data assets and start hypothesizing about products and solutions. So what that's resulted in now is a series of batch projects and analytics that we've done for these banks and they pay us for that. So it's -- financially think about it is offline batch revenue, and it's really analytics and solutions that we're providing with the unique data assets.

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

Okay. And then just the last question I have. Are you -- across the demand environment for the consumer spectrum, primarily in the United States, are you seeing any change or I should say broadening of the spectrum relative to kind of the affluent consumer relative to the non-affluent consumer?

Richard F. Smith

Thanks, Dan. I'd say, overall, we're seeing -- I think your question was specifically the U.S., we're not seeing a whole lot of change in the U.S. dynamics for the consumer with the exception of 2 areas and one we've highlighted in the past, and that is the automotive market. Banks are aggressive in the automotive market, consumers, the age of the cars. The age -- I think some of the oldest levels in the history of our country. So that's obviously a high demand area for us. The other thing we're seeing, I'm not sure it really ties, affluent versus non-affluent, that is with inventory of homes coming down, prices going up. The demand for loans against their homes, so home equity loans is starting to rise for the first time in quite some time. And our forecast anticipates that will continue to accelerate to the back end of this year and clearly, through 2015. Hopefully that helps.

Operator

Next, we'll hear from Andre Benjamin with Goldman Sachs.

Andre Benjamin - Goldman Sachs Group Inc., Research Division

One question to follow up on the last one. With some of the conversation around potential banks getting more aggressive than the "subprime market," I was wondering, do you see any outsized contribution to growth from customers that are evaluating say, subprime product customers versus, say, a more affluent customer? Do they buy more reports? Do they spend more money on monitoring or is the revenue opportunity there pretty similar?

Richard F. Smith

Yes, I think we're fairly agnostic to this segment. With the -- as they go down subprime, I'm thinking of automotive and we talked that last time we talked about a thing called a superscore, as they go down to subprime, they're more inclined to ask a few more questions. So they are more likely to pull a verification of employment, a verification of income. If someone was walking in and has the score of 780, 800, this is excluding mortgage, they may or may not pull VOE/VOI. But clearly, as the markets go down, market -- their appetite for verification of income and employment goes up. They may also leverage things like our CSD, what we used to call NC+ [ph] or our -- which helps them PIN-file [ph]. So if they're not really credit active, they'll pull the file to see how they paid off the utilities and telco obligations in the past. So if there's upside Andre, it's really in those areas of VOE/VOI and CSD.

Andre Benjamin - Goldman Sachs Group Inc., Research Division

And I know you don't control the pace here and you see a lot of the same headlines we do, but I was just wondering if you can give some color on how the Verification Service is used for the onboarding process where public exchange is going, and how much that's currently contributing to verification revenue to date.

Richard F. Smith

Yes, sure. It's -- we've kind of framed up in the past, is it's above the minimum annual obligated threshold app that we have with CMS. All the trials that the government had rolling out was an initiative we obviously felt as well. There are some really exciting things going on with that right now. One we've talked about on the last earnings call is to help our employers show they're compliant with the Affordable Care Act. We're deploying analytics to those customers and we're charging for that. We've got a-- we've closed over 100 deals and a very, very strong pipeline on top of that. Secondly, as we deploy those analytics, we're getting more records added, and that's adding significantly to the Work Number database. And then third, as you know, in November, I think it's the 15th, is the next period for enrollment. So we expect to see some uptick then. You've seen, and I alluded to in my opening comments, there were 2 appellate court rulings a week or so ago and maybe even this week. A lot of noise there. Who knows where that goes, but we're no smarter there than you guys are at this point in time. But our instinct is that they probably solve this in a proper way between now and then, and there's little impact. But time will tell there.

Operator

Next, we will hear from Andrew Steinerman with JPMorgan.

Unknown Analyst

This is Louis Pavi [ph] stepping in for Andrew Steinerman this morning. So we heard Rick mention a couple of times that Equifax is helping clients more with prospecting, and we recall that Alliance Data bought the Direct Marketing Services division in 2010, and so is there a return to that type of business, and maybe with a little bit different approach this time?

Richard F. Smith

No, no. I mean, that was a great transaction for us, and it's in the right hand with the right owner. And yes, and our team are doing a great job with that platform we used to call DMS. That was not a core competency of ours. Our whole focus is to leverage our analytics, leverage our unique data assets to help our customers like ADS and like in banks be smarter in prospecting and growing their business. That's a win for us, that's a win for them -- for us. Don't expect us to get back in that business.

Unknown Analyst

Okay, great. And one more question, just it's obvious that Equifax is very excited about the TDX acquisition, and that's doing great. Can you talk a little bit more about the broader strategy in the collections space?

Richard F. Smith

Yes, that's a great one. We are equally as excited about this platform we bought in Mexico, Inffinix. In fact, we get [ph] smarter every day. Our initial thought when we bought both those companies was, one, it gave us capabilities we had to have for our current customers. It was a need they had that was being unfulfilled. It -- we also thought about TDX as being a platform that was for the larger, more sophisticated customers and countries. And in Inffinix would be a stronger fit for the developing countries like Central and South America. As we get smarter about both assets, we see kind of some combining of the 2 platforms, broadening the entire continuum of capabilities and collections as opposed to bifurcating them by sophistication of markets. So we're very, very hopeful that, not only will these businesses grow in the current footprint that they operate in, but we'll bring them to our broader footprint that Equifax operates in and eventually, into new countries where we don't operate at all. It's a very cost-effective way, I mentioned earlier, to get into new geographies, if you solve problems for customers, learn about the marketplace, and then expand our analyst capability beyond collections.

Operator

Moving on, we'll hear from Manav Patnaik.

Gregory Bardi - Barclays Capital, Research Division

This is actually Greg calling in for Manav. The margins for us were the biggest surprise, and I was wondering if you could help us sort of bridge the gap for the second half of the year. You've got the TDX benefit, so you should see higher margins in International. But I was wondering if there are any unique seasonal factors that we should consider for the second half of the year.

Richard F. Smith

The only thing -- I wouldn't say it's really seasonal, but John alluded to it and it impacts margins is that on the corporate expense line, we do have some investments we'll be making in the second half of the year. And remember, our investments tend to be largely around capital for new products and technology to grow. So you should see a step-up there, as John alluded to, that obviously impacts margin. But in general terms, what we should expect is -- we are committed to our long-term margin model, what we talked to guys about that. And that is every year growing 25 basis points or so on the margin, and we've done that for quite some time. We plan to continue this still going forward.

Gregory Bardi - Barclays Capital, Research Division

Okay. And then I guess the commercial and bringing it into the consumer businesses. I was wondering if there is any change in strategy there. Are they -- are you looking for additional cross-sell opportunities between the business lines, and what the thought process was there?

Richard F. Smith

Yes. Good question, Greg. So if you go back -- I can't recall exactly what year it was, but when broke out commercial into a North America unit reporting to me, it was to get me closer to the business, understand the business, take a very small business, incubate it and grow it. And I'm always convinced that, at that time, it needed more direct attention, and we did that and we grew it more successful. Then a couple of years ago, maybe 2 years ago, we launched this thing called enterprise selling, which is maximizing our interaction with our good customers in the U.S. and using the pipes and resources of, at the time, Dann Adams -- excuse me, Rudy Ploder. Rudy Ploder's leadership and his team in the U.S., and sell all of our products. They would sell a verification of employment income, the USCIS products and the commercial products. That has gained great traction in the last couple of years. And it became very obvious that the next up is just to make that organizationally a direct report into Rudy's team. Give all the attention it requires. It's been incubated, it's gaining traction. So it was just the natural thing to do to help minimize the confusion for our customers, minimize the inefficiencies we may have organizationally as well.

Operator

[Operator Instructions] Our next question comes from Jeff Meuler with Baird.

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

Did you guys say plus 9% core organic x mortgage constant currency?

Richard F. Smith

No. I think I said in my very opening comment, it was 9% growth, including acquisitions. Constant currency, is that right, Jeff? I don't know -- yes, the core organic non-mortgage market growth rate for the quarter was very much like the first quarter, mid-6% range.

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

Okay. And then, Rick, if I'm hearing you correctly, it sounds like you're naming more wins, larger wins and a relatively good pipeline versus what I -- how I remember you describing it in the past. Am I hearing you correctly? And if so, what's driving it? Is there something in the end market, whether it'd be competitor disruption or improvement in some of the end markets or is this really all about Equifax execution?

Richard F. Smith

I think it's a continuous story. Something we've been talking about for quite some time. And you're hearing me talking about some larger wins, but we've been building this for quite some time. It's really leveraging the unique data assets we've tried to build out since 2007. It's about the analytics capability drive off of those unique data assets. It's about NPI. So all the things we've been doing. And what you're seeing is the team is executing at extremely high levels, and I've said this a few times. It's probably the highest levels I've seen since I've been here. And when you put that all together, it's making a difference in the marketplace.

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

Okay. And then just finally on PSol, it seems like the free [ph] options are here to stay, but you sound pretty confident about getting some reacceleration next year, so maybe a little bit more on the PSol strategy?

Richard F. Smith

Yes. One, Trey is a solid leader, and he's done a very good job of understanding the current environment which we're in, adapting to the current environment for fleets. And I think short-term, he's done a really good job of maximizing the profit coming out of PSol, while he takes the ship and kind of redirects it. And when he redirects it, we'll go back to higher levels of growth. That's number one. And I've been through his strategy. I agree with his strategy. It's thoughtful and it will be effective and I think we'll start to see that as we exit this year and get into 2015. Secondly, we bought a really good franchise in a marketplace or the market segment that we had largely ignored in my time here in the indirect market, and we bought this company called TrustedID. And Scott Mitic who runs that, found that business, he and his team out there, running others have built a remarkable pipeline on the indirect side and that just takes time. So yes, the company -- takes time that once you get a pipeline built to close it and get the revenue, but that is coming, and it's coming strongly. So the combination of kind of taking the old, what we call kind of PSol east, getting this new strategy up and running and are leveraging indirect model. The combination of those 2 things gives me new confidence that we'll get back to the upper-single-digit growth rates next year and beyond. And then there's a big unknown out there. And I used that in my comments as it relates to PSol, and that is, where does the regulatory landscape, how does it evolves over the coming years? So assuming it evolves, as we are hopeful that it will, I think PSol's upper single-digit growth strategy, we talked about for long-term, is very, very realistic.

Operator

We'll now hear from Bill Warmington with Wells Fargo.

William A. Warmington - Wells Fargo Securities, LLC, Research Division

The -- on the commercial side of the business, that's been -- the growth area has been below average compared to the corporate average. Can you talked a little bit about what's driving that in terms of how much of it's macro or how much of it is competition, and how the new structure actually addresses that?

Richard F. Smith

Yes, I think it's, to be honest, it's always a combination of both. I think it's the small business lending, is starting to heal, but it's not real strong yet. And if you look at the transcripts from any of the banks, they would reiterate that. There is always some element of execution that we've got to look at ourselves in the mirror and say are we executing at the highest level possible. And so I think it's a combination both those there. I do think by taking down an organizational wall and making it more fluid by having Rudy and USCIS directly own that product capability for the customers in the U.S. will help, and same thing I think that when you get Carol Gray and Paulino Barros in Canada, and you take that artificial wall down of reporting and have unadulterated access to that, that should help in Canada as well.

William A. Warmington - Wells Fargo Securities, LLC, Research Division

Okay. And on the M&A side, if you could comment on the volume and the attractiveness of potential targets you're looking at these days.

Richard F. Smith

Yes. I'd say we just concluded our 3-year strategic plan, Bill, and M&A is tied to strategy obviously. And the pipeline continues to center around fraud and ID, analytics and tuck-ins, geographical expansion. I don't see, at this juncture, a need to do any large transformational deals by any means. We're still committed to our model of 1 to 2 points of revenue growth coming from acquisitions over an extended period of time, so I think that still holds true today.

Operator

We have one additional question left in the queue. We'll hear from Brett Huff with Stephens.

Brett Huff - Stephens Inc., Research Division

Somebody had a couple of questions around the USCIS and kind of what was driving that, and you outlined some of that. I'm going to ask again that question and just see if you'll comment on any uptick you all are seeing in card mailings, specifically because I don't think I heard you mention that. We've heard from a couple of people, one of your competitors. And then one of the issuing processors saying that they're seeing an improvement in mailings, maybe not to prime folks, not to subprime but kind of somewhere in the middle. Are you seeing any of that at all or any comments on that?

Richard F. Smith

Yes, I'd say. And it shows up in our marketing numbers. I would not describe it as overly robust now. It is definitely picking up sequentially, it's picking up year-over-year, but I'd describe it. And as I talk to CEOs of banks and card issuers and talk to our teams, it's still very early days. They're still very, very cautious in getting back into a more aggressive broad-based lower credit score card issuance strategy at this juncture. So yes, it's picking up a bit, Brett, but it's still just sluggish.

Brett Huff - Stephens Inc., Research Division

Okay. And then the second question is a little bit bigger picture. It seems like you've got a lot of levers you can pull as usual for rev growth and it sounds like your enterprise sales effort has been very effective, but you're always investing in new products. Which of those 2 levers, sort of the cross sale, if you will, or the new products do you see sort of the most upside here in the next year or so?

Richard F. Smith

Well, I think as I think about levers for organic growth, I think about NPI continuing to be -- it's a huge part of our DNA, it's a been a big part of our success for the past 7 years. That will continue to be. Secondly is verticalization. We've been at that now for a couple of years around the world. And we have identified the key verticals that are important for us, and we're actively and aggressively going after those in every geography of the world, and that's enabled us to gain share and win. And it's not just share gain, but it is -- because of our unique data assets that we have, Brett, it's enabling us to get customers to spend more money on solutions that they wouldn't have otherwise spent. And our competitors, at this juncture, don't have the ability to offer the same solution. So a combination of all 3 of those.

Operator

We have no questions left in the queue. I'll turn the call back over to our speakers for any additional or closing remarks.

Jeffrey L. Dodge

Thanks, operator. Appreciate everybody's time and interest and support of Equifax. And with that, we will conclude the call. Thanks, everybody.

Operator

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation.

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