Equifax's CEO Discusses Q2 2011 Results - Earnings Call Transcript

Jul.28.11 | About: Equifax Inc. (EFX)

Equifax (NYSE:EFX)

Q2 2011 Earnings Call

July 28, 2011 8:30 am ET

Executives

Jeffrey Dodge - Senior Vice President of Investor Relations

Lee Adrean - Chief Financial Officer and Corporate Vice President

Richard Smith - Chairman and Chief Executive Officer

Analysts

William Warmington - Raymond James & Associates, Inc.

Daniel Leben - Robert W. Baird & Co. Incorporated

Carter Malloy - Stephens Inc.

Jaime Brandwood - UBS Investment Bank

Georgios Mihalos - BofA Merrill Lynch

Rayna Kumar - Evercore Partners Inc.

Richard Cheever - SunTrust Robinson Humphrey

Operator

Good day, everyone, and welcome to the Q2 2011 Equifax Earnings Release Conference Call. Today's conference is being recorded. At this time, it is my pleasure to turn the conference over to Mr. Jeff Dodge. Please go ahead, sir.

Jeffrey Dodge

Good morning, and welcome to today's conference call. I'm Jeff Dodge, Investor Relations, and with me today are Rick Smith, our Chairman and Chief Executive Officer; and Lee Adrean, Chief Financial Officer. Today's call is being recorded. An archive of the recording will be available later today in the Investor Relations section in the About Equifax tab of our website at www.equifax.com.

During this call, we'll be making certain forward-looking statements to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in the filings with the SEC, including our 2010 Form 10-K and subsequent filings. We will refer to a non-GAAP financial measure adjusted diluted EPS from continuing operations attributable to Equifax, which excludes acquisition-related amortization expense and the loss in the merger of our Brazilian operations with Boa Vista Serviços.

Since our Brazilian operations were merged with Boa Vista on June 1, we also present revenue growth excluding Brazil from both second quarter of 2010 and the second quarter of 2011 to provide a clearer understanding of our revenue growth for those segments that will continue to be reported in our operating results. These measures are detailed in our non-GAAP reconciliation included with our earnings release and posted on our website. Please refer to the non-GAAP reconciliation and our investor presentations, which are posted in the Investor Relations section under the About Equifax tab on our website for further details.

Now I'd like to turn the call over to Rick.

Richard Smith

Thanks, Jeff. Good morning, everyone. Thanks for joining us. As I typically do, I'll start the conversation off by giving a high-level overview of the second quarter. I'll then get into some details, some highlights according to the business units, and then I'll come back and give you some thoughts on an outlook for the third quarter.

Second quarter, we continued our solid broad-based growth and expanded our operating margin, consistent with what we told you earlier this year. The diversity of our strategic initiatives and the strength of our execution continue to pay dividends in what is largely kind of a sluggish economic environment in many parts of the world, as you know.

For the quarter, total revenue from continuing operations was $487.1 million, up 6% from second quarter of last year, excluding Brazil, which you know we merged, and I'll talk about that later in the Boa Vista. So excluding that, total revenue was actually up 7%, which is solidly in line with the outlook we provided in April.

Operating margin was 23.5% up from the year ago, benefiting from continued operating leverage in many of our business segments for the transaction and our strategic growth initiatives and obviously, the merger of the Brazilian operations. Finally, adjusted EPS from continuing operations was $0.61, up 9% from $0.56 last year.

Getting into some of the brief highlights, the business units. When we started with USCIS, they continued to experience broad-based improvement in many sectors, which has enabled its largest segment, Online Consumer Information Solutions, to deliver solid growth quarter-after-quarter. Online Information Services year-on-year volume growth has sequentially improved now 6 straight quarters from a negative 15% in the first quarter of 2010 to a positive 11% this last quarter, second quarter of 2011.

Our telco positive database, which we've talked to you about in the past, is launched earlier this year, is also generating very strong customer demand, as both installations and commitments are ahead of our expectations. We also launched a new scoring product based on this database. At this point, we'll exceed our original revenue targets for 2011, and most importantly, create a very strong foundation for growth in that unit in 2012 and beyond.

Us sticking with USCIS, our Decision 360 initiatives, when we leverage the multiple data assets that we have, are making a significant part of our new product activities and pipeline. Through June, we're generating revenue from 13 different product offerings, many of which were just launched as recently as late 2010.

The mortgage sector, you know it, it was tough. And it was tough as we expected. We told you it would be tough. It started -- difficult comparisons started in late first quarter and will continue through fourth quarter 2011, but we obviously anticipate the costs should improve nicely as we move in 2012.

Finally, in USCIS, customers are increasing their usage of our data analytics -- of our analytics solutions to enhance the decisioning process. During the quarter, 39% of our online transaction volume included an analytical component from Equifax model, and that compares to 32% in the second quarter of 2010.

Now onto International. They had great results for the quarter. When you exclude the merger of Brazil, International delivered solid double-digit revenue growth for the quarter. Let me talk about Brazil for a second, and I mentioned this before. We are really excited about the merger of our Brazilian operations with Boa Vista and expect that this will create a comparable competitor for consumers and commercial companies in a very important and growing economy. We'll have more to say in the future quarters. But needless to say, we're active. We're aggressive. We're working very closely with Boa Vista to integrate these 2 businesses into one combined entity.

Our new management team over in the U.K. has reenergized that organization. They have brought innovation and new products and solidly improved customer relations. As a result, they are delivering double-digit growth through the quarter and continue to increase their market penetration in what is a challenging economy.

Excluding Brazil, Latin America, overall, had a very strong double-digit growth driven by strong performance across all geographies. We've also increased our ownership stake in a very important and growing economy, and that is Russia, from 28% to 33%. We're very excited about the growth prospects of Russia, short term and long term. Year-to-date, in Russia, we are way ahead of plan and expect to have great momentum as we exit this year and go into 2012.

A strong -- on to TALX now, strong performance in our online employment and income verification services. That's the old product we used to call the Work Number, very strong growth there, double-digit growth. And that helped to offset mortgage headwinds in what we call the 45060 business. I mentioned to you last time that we are moving on the 45060 to diversify the revenue stream away from just mortgage, much like we've done over that years for the called Work Number. That's on track. And our plan is to have that diversification start to unfold as we exit this year, which should bode well for the 45060 product as we go into 2012.

Sticking with TALX, also we continue to cross sell, as we've been doing now for a number of years. The Work Number product into our USCIS customer base, another highlight there is we've just recently signed a very large telco customer. We'll be integrating the Work Number database into the point-of-sale system to reduce manual reviews of individuals without a credit file.

TALX continues to execute on a number of strategic initiatives that could significantly increase the active record count in the Work Number database. This will not only broaden the revenue opportunities for TALX but will also benefit the other businesses as we have a larger database from which to draw upon. More to come on that in the coming quarters.

Moving on to Personal Solutions in the quarter. North American Personal Solutions had a strong double-digit growth in new subscriber sales, in addition to increasing the average revenue per subscriber. With this quarter's performance, Personal Solutions has increased market penetration in each of the last 6 quarters. We continue to have very good success with our new products and expect the continuation of market share gains as we've experienced in the past.

Finally, North American Commercial Solutions had another strong double-digit growth and improved operating margins. They have now delivered 7 consecutive quarters of solid double-digit growth in spite of a sluggish economy. That's it for the business highlights.

Let me go to some overview of the overall company and start with something we talked a lot about, which is NPI. You hear me talk a lot about the importance of investing capital. In New Product Innovation, it's one of our more strategic growth initiatives. New products in their third year -- we call it vitality of mix [ph], so in their third year delivered approximately 2 to 3 percentage points of incremental revenue growth for the company.

In general, we're ahead of our revenue targets and have a couple of products that could evolve into very large revenue contributors soon. We also have a very robust pipeline of new products. Many of these access multiple data assets and leverage our analytical capabilities to create unique product value solutions for our customers.

The NPI process is being pushed deeper into all of our organizations. It is becoming a part of our DNA. With this unique data assets that we have, our analytical capabilities and our talent, robust decisioning platforms that we've developed, we have a rich opportunity and long run rate. We continue developing high-value product solutions for our customers that will make important contributions to our revenue growth.

Obviously, in addition to NPI, investing in strategic tuck-in acquisitions has been and will continue to be a part of our strategy to drive consistent long-term revenue growth. We've built a strong financial and operating discipline to ensure these acquisitions contribute to improving a return on invested capital overtime. Based on the kind of acquisition opportunities we see in the marketplace today, we expect TALX acquisitions to continue to make an important contribution to our competitive positioning and long-term business success while adding incremental value to our shareholders. Pipeline is as strong now as I've seen in quite some time. In fact, probably as strong as I've ever seen in my tenure here at Equifax.

Let's look forward a little bit now and talk about the balance of the year. As we have demonstrated for a number of years now, the strength of our portfolio of businesses enables us to consistently deliver solid revenue growth and improve the operating performance quarter-after-quarter. Our success has also enabled us to continue investing in our key strategic initiatives, positioning us well while returning value to shareholders in spite of the economic uncertainty. Based upon the progress we've made with many of our initiatives, this year, I am confident that we'll deliver revenue growth that is solidly in the range of 6% to 9% for the remainder of the year versus the 6% to 8% revenue growth we indicated earlier in the year. And that is in spite of the fact that the economy is not going to improve in the second half of the year, in my opinion. And two, that our comps versus mortgage last year are much, much tougher in the second half of the year, which gives you feeling for the core underlying improvement of the rest of our business, non-mortgage related. We'll do that while further expanding our operating margin for the balance of the year.

For the third quarter, specifically, I'll go through each of the business units now. For the third quarter, specifically, USCIS will continue to execute on its growth initiatives, leveraging their unique data assets, which we call Data 360 with strong customer franchise and NPI. And for the third quarter, we expect low single-digit revenue growth over 2010. In 2010, our third and fourth quarters, as I mentioned before, were particularly strong for our Mortgage business.

On the International, our market positions in each of our countries where we operate offer many opportunities, many opportunities for revenue growth and margin expansion. For the third quarter, excluding the impact of foreign currency translation in Brazil, we expect revenue growth to be in the upper single digits to low double-digit range when compared to third quarter 2010.

In TALX, we continue to make good progress on increasing our data assets, broadening our product offerings and diversifying our customer base. Given a very strong mortgage activity we experienced last year, TALX is expected to grow in the low-single digits when compared to third quarter of 2010.

PSol has been very successful in executing on its strategic initiatives and improving its market penetration. I fully expect that to continue for the third quarter. Personal Solutions should deliver low double-digit revenue growth.

And lastly, before I turn it over to Lee, our North American Commercial Solutions team continues to drive innovation and really execute on a very high level and take market share. I expect that to continue, and then we'll deliver very strong double-digit growth when compared to the third of quarter 2010.

Lee, if you would now walk through the financials?

Lee Adrean

Thanks, Rick, and good morning, everyone. This morning, I will be referring to the financial results from continuing operations, generally presented on a GAAP basis. You should also refer to the Q&A and non-GAAP reconciliations attached to our earnings release for additional information.

For the second quarter, our performance was in line with the expectations we outlined in April. As in the first quarter, many of our business segments continued to deliver good revenue growth and margin expansion, which enabled us to offset continuing weakness in the mortgage sector. Compared to the same quarter in 2010, for the second quarter of 2011, consolidated revenue of $487.1 million was up 6% on a reported basis and 7% when Brazil is excluded from both years. Excluding the impact of changes in foreign exchange rates, revenue was up 4% or 5% excluding Brazil from both years.

Operating margin was 23.5% compared to 23% for the second quarter of 2010. Diluted earnings per share from continuing operations attributable to Equifax is $0.28, down from the second quarter of 2010 due to the loss on the transaction in which we merged our Brazilian operations with Boa Vista. Excluding the impact of acquisition-related intangible amortization and the loss on the transaction in Brazil, adjusted earnings per share attributable to Equifax was $0.61 per share, up 9% from $0.56 in the second quarter of 2010. A pretax loss of $10.3 million was recognized during the quarter related to the Brazilian transaction, which is included in other expense on the income statement. In addition, tax expense of $17.5 million was also recorded in conjunction with the transaction. Finally, during the second quarter, we repurchased a little over 800,000 shares of our stock for $31.3 million.

Moving to the individual business units. Our U.S. Consumer Information Solutions business revenue was $194 million, up 5%. Online Consumer Information Solutions revenue was $128 million, up 6% as online credit decision volume trends continue to improve. Second quarter online volume was up 11%, marking 6 quarters of improved year-over-year performance, as financial institutions continue to grow their lending portfolios.

Since September of 2010, our online inquiry volume has been up each month on a year-over-year basis. Mortgage Solutions revenue of $27 million was down 6%. Core mortgage reporting was down as mortgage application volumes continue to decline, while settlement services was up slightly, reflecting a continuation of our share gains in a challenging environment.

The Mortgage Bankers Application Index was down 13% from the second quarter of 2010. Consumer Financial Marketing Services revenue was $40 million, up 11%. Credit Marketing Services delivered mid-single digit growth and IXI delivered strong double-digit growth in the quarter.

The operating margin for U.S. Consumer Information Solutions was 36.5%, down 50 basis points from a year ago. Our International business units revenue was $131 million, up 11%. In local currency, revenue was up 4% from a year ago. Excluding Brazil from both years, as we had only a partial quarter revenue in 2011, reported revenue grew 18% and local currency revenue grew 11%.

By region, Latin America's revenue was $59 million, up 5% in U.S. dollar terms. Excluding Brazil, reported revenue grew 21% U.S. dollars and 17% in local currency. Local currency revenue growth was broad based with healthy double-digit growth in consumer and commercial information solutions, Technology and Analytical Services and marketing services.

In Europe, our revenue was $39 million, up 20% in U.S. dollars and up 9% in local currency. This performance was driven by strong growth in our core product offerings, as well as the contribution from Workload, an asset information company in the U.K, which we acquired earlier this year. Canada consumer information revenue was $33 million, up 12% U.S. dollars and 5% local currency.

As in prior quarters, Citadel, our premier fraud product and high-value technology in the Analytical Services, continued to be the principal contributors to our revenue growth in Canada. International's operating margin was 26.1%, up from 25.4% in 2010, driven by margin expansion in Canada and many of our Latin American countries.

TALX revenue was $96 million for the quarter, down 3%. The decline in mortgage activity largely contributed to this performance. The Work Number with revenue of $50 million was flat for the quarter. Double-digit growth in the instant verification of employment and verification of income product offset declines in our BPO activities, including the tax transcript 45060 government direct services.

Tax and Talent Management Services revenue was $46 million for the quarter, down 5%, driven largely by a decline in our Talent Assessment services. The TALX operating margin was 21.6%, down from 23.2% a year ago, driven by declines in our BPO services as a result of lower volumes and in Talent Assessment.

North America Personal Solutions revenue was $45 million, up 12%. Product pricing, volume growth and product mix all contributed to the strong growth during the quarter. Direct-to-consumer subscription revenue growth was strong, up 16%, driven by double-digit growth in new subscriber sales and mid-single digit growth in average revenue per subscriber.

Operating margin was 27.7%, up from 25.4% in the second quarter of 2010, largely benefiting from improved pricing and mix. North America Commercial Solutions revenue was $21 million, up 12% on a reported basis and 10% local currency, driven by double-digit growth in strategic accounts and Data Management and marketing services in the U.S. Operating margin was 20.9% compared to 20.2% in the year-ago quarter. And finally, corporate expense was down $1.4 million or 5% year-over-year.

Now let me turn it back to Rick.

Richard Smith

Great. Thanks, Lee. Let me summarize where I think we are for the balance of the year. I'll give you some comments and some specific numbers on the outlook.

We continue to be very confident on our outlook for the full year that we've communicated to you today. However, the economic -- the outlook for the remainder of the year obviously is predicated on the assumption that the resolution of U.S. debt ceiling and deficit reduction issues occurs without material disruption of the economy or the credit markets. It's an issue that's much broader than just Equifax, so assuming that is settled without massive dislocation.

For the third quarter, assuming current exchange rates, and excluding Brazil, we expect revenue growth from continuing operations to be up between 6% and 9% with operating margins between 24% and 24.5%. And with that, adjusted EPS and continuing operations is expected to be between $0.61 and $0.65 a share.

We conclude with a look towards the fourth quarter, while it is not our practice to give an outlook at this time for the fourth quarter, I want to provide you an earlier look into our expectations. In the fourth quarter, we expect revenue growth to be in the upper half of that range of 6% to 9%. Again, that is in spite the fact that mortgage comparisons will be very tough in the fourth quarter as well, so the underlying growth is strengthening. And at the same time, as I have communicated to you in the past, we expect operating margins to continue to expand into the range of 25% to 25.5% for the fourth quarter.

So operator, with that, I'd like to turn it over to you to open it up to any questions the participants might have.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question will come from George Mihalos with Bank of America.

Georgios Mihalos - BofA Merrill Lynch

A couple of quick questions here. Just your thoughts on your capital deployment here, given where the stock price is relative to your M&A plans. Are you favoring one versus the other over the near to intermediate term?

Lee Adrean

Yes, when you compare share repurchase to acquisitions, the acquisitions you have to take the opportunities that present themselves when we're there. I think that our investors know we are very selective in making sure the things we do are a good fit with our business, and if we're going to be able to get value. But if they fit the strategy and complement what we do, near-term fluctuations and our stock price are not going to have a significant impact on that. Now having said that, our debt-to-EBITDA ratio is a little bit below our longer-term objective. And as Rick pointed out, barring significant dislocation in the capital markets from what's going on in Washington these days and expect that, that's going to tend to move back up both because of acquisitions and share repurchase.

Georgios Mihalos - BofA Merrill Lynch

Okay, and maybe you guys can talk a little bit about some of the strength that you're seeing specifically in that LatAm region, obviously, the 17% constant currency growth. How broad based is that? And what is your confidence level that you're going to be able to continue over the back half of the year to grow that business at that type of a level?

Richard Smith

George, it is very broad based. Every platform we have in Latin America continues actually on a very high level. We have a great leadership team down there. Paulino Barros, who leads our International operations, bring in a new level of rigor and focus on NPI. And with that, I'm highly confident the growth rates we're seeing will continue.

Georgios Mihalos - BofA Merrill Lynch

Okay, great. Just last question for me. Lee, the corporate expense was a little lower than what I had modeled for this quarter. Should we still be looking on a year-on-year basis for sort of the mid-single-digit increase there?

Lee Adrean

Yes. Yes, you should. Yes, that will tend to fluctuate some quarter-to-quarter because we do have various projects in our corporate expense line that can come and go. So you can see some fluctuation, but I think something in the mid-single digit range is probably still appropriate for the year.

Operator

Our next question will come from Rayna Kumar with Evercore Partners.

Rayna Kumar - Evercore Partners Inc.

This is Rayna. I'd like to ask a question on behalf of David Togut. What factors are driving the continued slowdown in TALX, both in the Work Number and in Talent Management?

Richard Smith

Well, Work Number, we just talked about a fair amount on the call. And that is the core number, which we -- is the holy grail within the Work Number, so is the instant verification online, that's growing strong double digit. It's grown strong now for 4 or 5 years. The slowdown is driven by what we call 45060 product, which is a product that we bought maybe 18 months ago. I may be off a little bit, but I think about 18 months ago. And that product is only focused today on the mortgage sector. And you know what's happening in the mortgage market, right? So the whole plan there, and what Dann Adams and his team were doing is just like the deal with the instant verification Work Number, diversifying the applications and revenue streams beyond mortgage. And as I said, in the second quarter that, that will take us some time. Pipeline is there. The activity is there. And it's my plan, as we exit 2011, we'll have a full broader diversification for 45060 which will bode well. And Talent Management should have a very strong second half of the year. There were slowdowns in TSA in the first half of the year. The diversified revenue streamed away from this TSA, and we expect good growth year-on-year in the second half of the year .

Operator

Carter Malloy with Stephens has our next question.

Carter Malloy - Stephens Inc.

Thanks for the color on 4Q. Just curious what the -- if we are going to have more of a mortgage drag on a year-over-year basis, what are the incremental drivers there to accelerate us out on the third quarter, both on revenue and margin actually?

Richard Smith

Well, on revenue, of all the things we've been talking about -- I think a very, very high level of execution across the company, number one. Number two is NPI. We've talked about this now for a number of years and NPI truly is a huge part of our DNA. I mentioned in there that just the products that we launched in the last 3 years were giving us 2 or 3 points of growth. So that's driving the revenue growth. And with that, you get expanded margins. As I promised you would have, in the past, really good margin expansion. We started this year at 23.1%. We told you we'd get that 100 basis points of improvement x Brazil. That gets you to 24%, and we're going to commit to a 25% to 25.5% for the fourth quarter. So as you know, this model is highly leverageable. And in the tough years we went through, we had a high fixed cost. That's a drag on your margin. Now we're starting to execute and grow, incremental margin should flow through the bottom line, and that's the plan.

Carter Malloy - Stephens Inc.

So, going back over Talent Management, TSA is obviously a very large customer there. But in general, how much are your government-related customers as a percent of that business? And what's the expectation to that to accelerate the back half?

Richard Smith

If you take a look at the entire Talent Management, the entire TALX Management business, which is the Talent Management and TALX. On the TALX side, obviously, a very low concentration on government. On the Talent Management, it's still dependent, highly dependent upon the government with the diversifying everyday, getting corporate customers up. At the end of the day though, Carter, the ebbs and the flows, the ups and the downs of specifically the Talent Management piece of the business, on the overall enterprise of Equifax is negligible.

Carter Malloy - Stephens Inc.

Okay, and then lastly, I just want to return back to the margins. I mean, this is a very impressive fourth quarter we're looking at putting up. Is there any reason that should moderate and pull back in 2012?

Richard Smith

Yes, you've got cyclicality in our business, so you can't just simply take that. What you should take to the bank is our commitment to get this margin, talking about 24% to 26% range. When you exclude Brazil, 25% to 27% range, we're executing against that. You can't take any one quarter because of the cyclical nature of our business and say that is the one right to next year.

Lee Adrean

And Carter, if I can pick up on that. Several of our businesses tend to have a bit of a seasonal peak in margins in the fourth quarter. PSol, historically, we've found is not as fruitful an advertising market because of the competition with holidays and what the customers are really buying at that time of the year, our IXI business tends to have a bit of a spike in the fourth quarter just because the timing of when they signed many of their contracts and a couple of other businesses. So the fourth quarter does tend to be seasonally high, but I think Rick's comment about being committed to being in the 24% to 26% range is absolutely appropriate.

Operator

Our next question comes from Dan Leben with Robert W. Baird.

Daniel Leben - Robert W. Baird & Co. Incorporated

Just to follow-up on Carter's question on the margins. On the USCIS business, NPI is obviously a driver of a lot of the growth we're seeing there. At what point do we hit the inflection point, where we start seeing year-over-year expansion in margins in USCIS as the growth from NPI kind of offset some of the incremental cost?

Richard Smith

Yes, I think as you look at one, which is, Dan, I don't give a whole lot of credence or focus quarter-to-quarter at the BU level. You're going to have anomalies and changes there. So the fact that USCIS had a 50 basis point margin compression is not a concern to me nor should the BTU or investors. In general terms, as you see USCIS, I expect their margins like the rest of the company to continue to expand as we exit this year and going into 2012 as well.

Daniel Leben - Robert W. Baird & Co. Incorporated

Great. And then one of the comments that Lee made on the marketing side at Commercial Solutions, could you talk a little bit more about that business? I think it's one that we don't talk about very often, just some of the trends you're seeing there.

Richard Smith

Yes, the team is executing very well. Alex Gonzalez and his team have done a very nice job there and restructured the organization. And because that focus and execution and innovation as well in the marketing piece of business as well as the risk piece of the business, we'll have a nice growth now for 7 consecutive quarters.

Operator

Our next question comes from Bill Warmington with Raymond James.

William Warmington - Raymond James & Associates, Inc.

On TALX, one of the pushbacks we've heard about TALX has been that it's relatively high price point has limited its market opportunity. But it sounds like that new telco win disproves that, and are you guys using a new strategy on that product?

Richard Smith

Bill, it's a great question, and the answer is if you think of the core Work Number product, it is made up of a product that has many different attributes. In fact, over 50 different attributes. And as you think about the problem you're trying to solve, in some cases, you may need all 50 attributes in the mortgage space. In other applications like telco, credit card or others, you don't need all 53 attributes. So I can give a different cut of the Work Number, if you will, a modified Work Number at a different price point, for a much higher volume transaction. So that's a modification we've made to the Work Number a year or so ago trying to reposition it into higher growth, lower value and slower price areas while still protecting the great margin, the great value of the true Work Number with 50-some attributes.

William Warmington - Raymond James & Associates, Inc.

Okay, I see. And one more question for you then on the New Product side. What about New Product opportunities at IXI? Have you been seeing any success there and any opportunities on the digital side?

Richard Smith

The answer is yes on both sides. Within the IXI, if we think of the Data 360 strategy which is taking the core credit file with employment data and income data, IXI data and soon to be, this platform [ph] data, we're be building out new solutions. So IXI is an integral part of the Data 360 strategy. It has been for the last year and will continue to be. Digital marketing, yes, we launched that. As you know, Bill, about a year ago, very bullish on that. It takes us into a whole different dimension and area of growth with different market characteristics in the core credit business work. So it's already delivering, and I'm very optimistic long term with that as well.

Operator

Andrew Jeffrey with SunTrust has our next question.

Richard Cheever - SunTrust Robinson Humphrey

This is Rich Cheever on for Andrew. Just a couple of questions. First of all, on Europe. You mentioned -- what -- can you say again what the local currency growth was for the Europe second quarter?

Lee Adrean

I think 9%. Let me... 9%.

Richard Cheever - SunTrust Robinson Humphrey

Okay, and you mentioned a lot of that -- or some of that came from the addition of Workload. Is there an organic number?

Richard Smith

We don't break that out. I think Lee said in his comments, think of workload in total terms of Equifax de minimis specific to Europe, it does contribute, but the core organic growth was strong in Europe. So it's -- by no means is workload covering up a slow growth or no growth. Core business in Europe is strong.

Richard Cheever - SunTrust Robinson Humphrey

Okay, excellent. And you alluded to, I guess, our collective leadership playing chicken with our economy. But can you talk a little bit more about the FX hedges that you have in place? And is there, I guess, a threshold or a fat tail risk in the currency hedges?

Richard Smith

We don't hedge, Rich, here at Equifax.

Lee Adrean

Rich, most of our -- each of our country operations has both their revenue and their expenses in the local currency. And it's very hard to effectively hedge profit quotas [ph] and have an acceptable accounting treatment at the same time. So our results will tend to move somewhat with foreign exchange, which is why we're very transparent about the local currency growth versus the nominal growth.

Operator

Next question comes from Jamie Brandwood with UBS.

Jaime Brandwood - UBS Investment Bank

Rick, I just wonder if I could 2 or 3 questions. I was slightly confused by an earlier answer. I just wondered if I could ask again with regard to the USCIS margin. Just going back over my notes at the Q1 stage, and I seem to recall an indication that we start to expect to see the USCIS margin expanding year-on-year in the second half of this year. I didn't know if by that guidance you already meant Q3 or not. But are you now saying today that we shouldn't expect year-over-year margin expansion in USCIS until 2012?

Richard Smith

No, I did not say that.

Jaime Brandwood - UBS Investment Bank

Sorry, when exactly are you expecting the USCIS margin to start showing year-on-year expansion?

Richard Smith

Back end of this year.

Jaime Brandwood - UBS Investment Bank

Back end of this year, okay. And then just on the Personal Solutions business, I know it's not a metric that you disclose, but maybe you could give us a bit of a feel around your churn rates in terms of subscribers. So as part of the reason for the strong growth that you're seeing in subscription revenue because you're bringing down the churn rate, or is it mainly just because you're winning lots of new subscribers?

Richard Smith

There are multiple things that we're doing to improve the overall financial model of [indiscernible] and we have been for a couple years now. The churn rate in general terms over the past couple of years absolutely trended down. And that is benefit -- but that benefit is not a second quarter benefit but then it started back in probably 2009. So our ARPU is up and we've been able to manage churn at a very good level.

Jaime Brandwood - UBS Investment Bank

Then lastly, we've seen, obviously Experian making some interesting moves into the healthcare vertical via acquisition over the last couple of years in the U.S. Just wondering what your own views on the healthcare vertical are, and how you are addressing it?

Richard Smith

Yes, I looked at a few firms in the past and putting a few firms that they've looked back and I couldn't get my head around those. It doesn't mean it's a bad deal for them. It's probably a great deal for them. Obviously, healthcare is an interesting market. It's a fragmented market. It's a market that's here to stay. I've just not found the right deal for Equifax to play in there.

Jaime Brandwood - UBS Investment Bank

Do you do march indirectly in the healthcare segment in terms of selling data into those kind of providers?

Richard Smith

It's small, Jaime.

Operator

It appears there are no further questions at this time. I'd like to turn the call back over to our speakers for any additional or closing remarks.

Jeffrey Dodge

Thanks, operator, and thank you all for participating in the call. We'll be available if you have any additional questions. And with that, we'll terminate the call. Thank you.

Operator

Thank you, and that will conclude today's conference. Thank you all for your participation. You may now disconnect.

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