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Executives

Jeffrey L. Dodge - Senior Vice President of Investor Relations

Richard F. Smith - Chairman and Chief Executive Officer

Lee Adrean - Chief Financial Officer and Corporate Vice President

Analysts

Manav Patnaik - Barclays Capital, Research Division

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Carter Malloy - Stephens Inc., Research Division

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Bethany Caster

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

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

Jaime Brandwood - UBS Investment Bank, Research Division

David Togut - Evercore Partners Inc., Research Division

Equifax (EFX) Q3 2011 Earnings Call October 27, 2011 8:30 AM ET

Operator

Good day, everyone, and welcome to the Q3 2011 Equifax Earnings Release Conference Call. Today's call 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

Good morning, and 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 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 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 on the merger of our Brazilian operations with Boa Vista Serviços.

Since our Brazilian operations will merge with Boa Vista on June 1, we will also present revenue growth excluding Brazil from Q3 of 2010 to Q3 of 2011, provide a clearer understanding of our revenue growth for the businesses 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 Relations presentations, which are posted in the Investor Relations section under the About Equifax tab on our website at www.equifax.com.

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

Richard F. Smith

Great. Thanks, Jeff. Good morning, everyone. Thanks for joining us today.

We delivered what I call another very solid performance in the third quarter, a performance that is broad-based and the contribution of our organic growth initiatives continues to accelerate. All 5 business units delivered revenue growth in the quarter: 3 business units comfortably exceeded, and 2 met the expectations we outlined for you during the last quarter's earnings release.

We also expanded our operating margin beyond the upper end of the range that we had targeted for the quarter. It's clear, I think you'll agree, that product innovation is an important contributor to our revenue growth. Our new products are gaining meaningful share with our customers and traction in all the markets where we serve. As a result, our core non-mortgage organic revenue growth has accelerated each quarter this year, reaching 7% in the third quarter, up from 6% in the second quarter and 4% in the first quarter.

This consistent and strong performance provided a healthy level of cash flow, which we've allocated in a very balanced manner. To date, in 2011, we have invested $59 million in CapEx, $116 million on strategic acquisitions and investments, and in addition to returning $134 million to shareholders through dividends and stock buyback.

For the quarter, total revenue from continuing operations was $490.4 million, up 4% from the third quarter a year ago. When you exclude Brazil, total revenue was up 8%, which is our fastest-growing quarter this year. Operating margin was 24.8%, up significantly from a year ago, driven by broad-based improvements in operating leverage and the merger we talked about many times now of our Brazilian operations into Boa Vista. Finally, adjusted EPS from continuing operations was $0.65, up 8% from $0.60 a year ago.

And now as I usually do, I'm going to just -- I'll jump into some highlights. Business unit by business unit, I'll give you a quick outlook for the fourth quarter, and then Lee will give you the financial details.

I'll start with USCIS. They continue to make great progress on their Decision 360 initiative, which we've talked about now for a couple of years. Couple of highlights there: we have significantly strengthened our revenue position with a large bank, as their primary credit reporting partner signed a 2 -- a new 2-year agreement, representing over $20 million in contract revenue. In addition, this client signed a 2-year multi-million dollar agreement for our IXI Wealth Complete Solution. They also signed an exclusive VOE VOI contract with TALX. That offering gives you a clear example how our differentiated data assets differentiate us from our competition.

Also during the quarter, we completed the migration of a large credit card issuer from a competitor to our platform of consumer credit information products. This competitive takeaway is a great opportunity for us, and we expect it will generate over $25 million in incremental revenue over 3 years.

Despite sluggish bank lending activity, our Online Information Services continued to deliver strong growth. Year-over-year volume was up 9%, continuing to reflect strong customer demand for our core product offerings. As uncertainty in the environment and competition increases, our customers' need for more accurate decisioning tools has intensified. And we expect that to continue for this foreseeable future and position us well due to our unique data assets.

Next, our value-added analytics continue to capture customer mindshare. During the quarter, 38% of our online transaction volume included an analytical component of an Equifax model. This represents eighth consecutive quarter of year-over-year gain in the penetration of our analytical solutions.

Lastly for USCIS is the successfully leveraging its diverse data assets and enter new areas of decisioning value chains, broadening penetration with our new large customer segments, gaining share and creating demand for new decisioning applications. For example, for our telco and utility customers, our NPI initiatives have resulted now in contracts signed over just the past few months, representing approximately $22 million in incremental new revenue for 2012.

Move on to International. In International, strong growth in all 3 geographies reflects continued progress across a broad range of strategic initiatives. All 3 geographies continue to penetrate the customer base with core product offerings in credit information, analytics and decisioning platforms while also made strategic investments that expand our footprint in Latin America and increased our ownership in Russia.

International continues to drive revenue growth in new product innovation, with over 14% of revenue this year from products launched in 2008, '09 and 2010.

On to Brazil. Our investment in Boa Vista has created much stronger competitor in Brazil. Through this investment and future investments, we expect 3 or 4 things: One, to participate in double-digit revenue growth over the next 5 to 10 years; two, further leverage our current investment in new products, decisioning platforms and technology with a much broader and richer base of consumer information; and three, benefit from Boa Vista's strong customer relationships, particularly with the large financial institutions where they had stronger relationships than we did at Equifax; finally, the integration of operations into Boa Vista is on schedule and in line with all of our expectations.

On to Europe. Europe had a very strong quarter of double-digit revenue growth as we continue to deepen our relationships with existing customers, introduce new product offerings that enhance customers' decision-making activities and broaden our unique data assets as we did with the acquisition of Workload earlier this year.

On to TALX. TALX successfully completed 2 very important strategic objectives during the quarter, with the acquisition of Data Vision and our recently closed acquisition of eThority. These 2 companies broadened our service offerings to both employers and verifiers while further strengthening our market position. I'll give you a little insight on both.

First, Data Vision. They are going to enable us to provide extremely cost-effective end-to-end deployment and income verification services to all of our customers. The range of capabilities start with the Work Number, most automated and cost-effective service, continuing them to the IRS 4506-T tax return information, and ending with manual verification of employees of companies that we don't have on the Work Number database. Simply said, what Data Vision has is they've developed an extremely flexible, easy-to-install workflow management software that can be easily adapted to many different data sources. As a result, our manual verification services can be delivered more cost-effectively than any of our less automated competitors.

Our next, eThority. They broaden our service offerings to employers, leveraging our core competency in analytics and giving us the ability to introduce new analytical solutions, TALX customer base. These high-value services will further differentiate us in the marketplace, resulting in higher retention rate and accelerate growth of the Work Number database.

On the PSoL. North America Personal Solutions has developed a great rigor and discipline that it executes on its strategic initiatives. Three straight quarters of solid double-digit growth and 6 quarters of year-over-year margin improvement is being driven by relentless focus on 4 areas: One, improving its engagement with consumers; two, continually driving improvements in key operating levers such as churn, conversion and customer lifetime value; three, increasing the return on marketing spend; and four, like all other business units, launching new products that continue to enable, engage and empower the consumer to make better decisions -- financial decisions.

Finally, North American (sic) [America] Commercial Solutions continues to win share in the marketplace, with another quarter of strong double-digit growth. We have launched several new products and we'll continue to feel that growth in the fourth quarter and beyond. We've created great synergies with our IXI business when we launched small business assets, which leverages $2 trillion of investable assets reported in the IXI database, deliver additional information -- informational value for our customers' targeted marketing initiatives.

We also launched QTC (quote-to-cash) Advantage, a premier decisioning platform for non-FI customers, which is a direct competitive alternative to both of our major competitors' product offerings in this space. QTC Advantage is an extremely user-friendly, customizable system that helps customers manage their accounts receivables more effectively, improving their cash flow and minimizing risk.

Finally, Lending Trends Benchmarking was introduced in our Commercial Solutions business. This product compares the portfolio of an individual institution with the market as a whole to identify trends, risks and opportunities. The institution can then develop a more effective portfolio strategy that will maximize their web on opportunities while minimizing the inherent risk of the portfolio.

As a company, our performance this quarter again demonstrates the culture we have here, a culture of accountability; accountability to ourselves, accountability to our customers and accountability to our shareholders. Despite what has become a continuously sluggish business environment, this focus on execution has enabled us to deliver very strong financial results in 2011 and more importantly, position us for continues solid growth in 2012 and beyond. We're going to continue to develop -- to deliver solid revenue growth in all of our businesses, focused on winning share with unique products and services, improving our operating margins and generating sufficient cash to satisfy our investment opportunities while also meeting our commitment to our shareholders.

I'll end, before I turn it over to Lee, with a quick look at the fourth quarter and I'll give you some insights where I think is -- yes, that's it, then we'll turn it over to Lee.

USCIS online volume trends are expected to improve modestly in the fourth quarter, in addition to an increased level of revenue from positive telco database and NPI. For the upcoming quarter, we expect USCIS to deliver high single to low double-digit revenue growth versus fourth quarter of 2010.

International. We'll continue delivering strong revenue and operating margin results for the fourth quarter. Excluding the impact of foreign currency translation in Brazil, we expect revenue to be in the upper single-digit range when compared to fourth quarter 2010.

In TALX, we'll offset the current weakness in the mortgage market and what was the -- a very, very strong mortgage market growth in the fourth quarter 2010. With organic growth this year, our growth initiatives and modest contributions from Data Vision and eThority in the fourth quarter, growth is expected to be in the low single digits.

Personal Solutions is expected to continue adding new subscribers and increasing average revenue per subscriber as it has done throughout the year. For the fourth quarter, PSoL should again deliver very strong double-digit revenue growth.

Finally, North American (sic) [America] Commercial Solutions will continue winning market share and executing on NPI to again deliver very strong double-digit growth when compared to a year ago.

Now, Lee, if you'd give them the financial details?

Lee Adrean

Thanks, Rick, and good morning, everyone. This morning, I'll 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 financial information.

For the third quarter, we delivered strong results both in terms of revenue growth and operating performance. Compared to the same quarter in 2010, for the third quarter of 2011, consolidated revenue of $490 million was up 3.5% on a reported basis and 8% when Brazil is excluded from both years. Excluding the impact of changes in foreign exchange rates, revenue was up 2.5% on a reported basis or 7% excluding Brazil. Operating margin was 24.8% compared to 23.3% for the third quarter in 2010. Diluted earnings per share from continuing operations attributable to Equifax was $0.54 a share, up 11% from the third quarter of 2010. Excluding the impact of acquisition-related intangible amortization, adjusted earnings per share attributable to Equifax was $0.65 a share, up 8% from $0.60 in the third quarter of 2010. Also during the quarter, we repurchased 1.4 million shares of stock for $44 million.

Moving to the individual business units, U.S. Consumer Information Solutions revenue was $202 million, up 4%. Online Consumer Information Solutions revenue was $136 million, up 6% as online credit decision volume trends continue to improve. Per quarter, online volume was up 9%, again reflecting the value of our decisioning solutions for a variety of applications, particularly in the face of modest loan growth.

Mortgage Solutions revenue of $32 million was flat compared to the third quarter a year ago for mortgage reporting was down from the very strong quarter a year ago as mortgage application volumes declined, while Settlement Services was up nicely for the quarter as we continue to increase market penetration. The Mortgage Bankers Application Index was down 2% from the third quarter of 2010.

Consumer Financial Marketing Services revenue was $35 million, up 3%, and the operating margin for our total U.S. Consumer Information Solutions business was 36.6%.

Our International business units' revenue was $119 million. Excluding Brazil, following our deconsolidation in the second quarter, reported revenue grew 17% and local currency or constant dollar revenue both was 12%.

By region, Latin America's revenue was $45 million. Excluding Brazil, reported revenue grew 18% in U.S. dollars and 16% in local currency. Local currency revenue growth was broad-based, as all major product lines delivers double-digit growth.

Europe's revenue was $41 million, up 16% in U.S. dollars and up 11% in local currency. Contributors to the growth include Consumer and Commercial Information, Personal Solutions and Workload, an investment asset information company in the U.K. which we acquired earlier this year.

Canada Consumer Information revenue was $33 million, up 16% in U.S. dollars and 9% in local currency. All product lines contributed to the growth in the quarter, with Technology and Analytical Services delivering double-digit growth, with Fraud Services being the key contributor. Overall, our International operating margin was 29.3%, up from 25.2% in 2010.

TALX revenue was $103 million for the quarter, up 4%. A decline in mortgage activity was more than offset by approximately double-digit growth in the non-mortgage customer segments in the acquisition of Data Vision. The Work Number, with revenue of $57 million, was up 4% for the quarter. Double-digit growth in consumer finance, pre-employment and government sectors and the acquisition of Data Vision helped to offset the double-digit decline in mortgage.

Tax and Talent Management Services revenue was $46 million, up 4%. The TALX operating margin was 23%, up modestly from Q3 in 2010.

North America Personal Solutions revenue was $46 million, up 14%. New products, pricing, volume growth and product mix all contributed to the strong growth during the quarter. Direct-to-consumer branded subscription revenue growth was strong, up 21%, driven by double-digit growth in subscribers and healthy growth in average revenue per subscriber, reflecting a shift toward more feature-rich premium offerings. Operating margin for our Personal Solutions business was 32.8% from 31.9% in the third quarter of 2010, largely benefiting from the improved pricing and product mix.

In our North America Commercial Solutions business, revenue was $22 million, up 18% on a reported basis and 16% in local currency, driven by strong double-digit growth in Commercial Risk and Marketing Data Management Services in the U.S. The operating margin for our Commercial business was 23.6% compared to 17.9% in the year-ago quarter.

Corporate expenses were down $700,000 year-over-year or 2%.

Now, let me turn it over to Rick.

Richard F. Smith

Okay, thanks, Lee. Our business continues to perform very well in this sluggish economy because we worked aggressively to diversify our revenue base during the past few years, capitalizing on our core competencies of unique data, leading-edge analytics and high-value decisioning platforms. As a result, we are now less dependent on traditional consumer-based lending activities we'd ever been in the past. That now represents that 30% -- approximately 30% of our revenue. We've also increased our penetration in new segments, such as telco, utility industries.

We expanded our geographic footprint in Latin America, Russia and India. We acquired new data assets that enable us to participate in a much broader range of decisioning. We've ingrained NPI into our DNA, such that every business unit is continuously innovating to ensure that we have the most competitive high-value solutions for our customers.

So to wrap this up before we go to Q&A, for the fourth quarter, assuming current exchange rates and excluding Brazil, we expect revenue growth from continuing operations to be between 8% and 10%, operating margins will be in the range similar to the third quarter, representing solid growth over operating margins in the fourth quarter 2010. And with that, adjusted EPS from continuing operations is expected to be between $0.65 and $0.68 a share.

Given our strong performance today and my outlook with the fourth quarter, we'll end 2011 much stronger and better positioned than we entered this year. Our early read as we look at 2012 is that we assume no economic improvement with geographies in which we operate around the world. But with that, it's knowing how well we're executing on our growth initiatives across the businesses, we expect 2012 will perform at levels equal to or better than the performance levels of 2011. And, obviously, a lot more to come on that, but I want to give an early read. At this juncture, I remain confident that 2012 is shaping up to be a very good year for us as well. And when we're back together giving you the fourth quarter results, obviously we'll give you a great insight to the year at that time.

So with that, operator, we'd like to open up for any questions our guests might have.

Question-and-Answer Session

Operator

[Operator Instructions] We'll first hear from David Togut of Evercore Partners.

David Togut - Evercore Partners Inc., Research Division

Rick and Lee, a couple of quick questions. We saw a very substantial margin expansion both International and in North America Commercial. Was all the International margin expansion sort of organic or were some of that the accounting change with Boa Vista?

Lee Adrean

That predominantly reflects the deconsolidation of Boa Vista in International.

David Togut - Evercore Partners Inc., Research Division

I see. And then in North American (sic) [America] Commercial Solutions, EBIT margins were up almost 600 basis points. Is that a sustainable level or were there any call-outs in the quarter?

Lee Adrean

No, I think the margins in that business will move around a little bit quarter-to-quarter because it's a relatively small business and some relatively small expenses can cause that margin to shift, but we think that is sustainably in a low 20s moving toward the mid-20s.

Richard F. Smith

Yes. And, David, last year, the third quarter 2010 for Commercial was abnormally low as well.

David Togut - Evercore Partners Inc., Research Division

I see. Unit pricing trends, Lee, and online CIS, any significant changes in the quarter and any significant mix change, small versus large lenders?

Lee Adrean

No, I think it's pretty much been trending as it has the last few quarters, down a couple of points. That includes in it the fact that in the recession, margin -- the mix improved a little bit, it's returning to a more normalized mix. But I think the trends are pretty much as they have been for some years.

David Togut - Evercore Partners Inc., Research Division

Any thoughts, Rick, in terms of key milestones we should measure you on with the Boa Vista combination over the next few quarters?

Richard F. Smith

I am very involved. I was just down there, David, meet with the team, very pleased with the progress. Everything right now is focused on integration, number one. Exchanging of new product platforms, we can help them accelerate growth. It's going to be under the covers for a period of time until we get this thing fully integrated, so there will be no real metrics you can -- you'll see on the outside. But it is our intent, as soon as we think that it makes sense, to increase our investment and take control of the asset, we'll do so, but a lot of work to be done.

David Togut - Evercore Partners Inc., Research Division

Just finally, any thoughts, Rick, in terms of -- Rick and Lee, in terms of the tax rate for Q4?

Richard F. Smith

Lee?

Lee Adrean

Yes, I mean, the tax rate moves in a range that's probably anywhere from 34% to 38%, depending on various items that may occur. I would expect we're probably in the lower half of that range. I don't expect us to be at the very top end of that range. We're about 36.1%, and I would expect we'd be in that level or maybe slightly lower.

Operator

Next, we'll hear from Jaime Brandwood of UBS.

Jaime Brandwood - UBS Investment Bank, Research Division

Rick, Lee, just wondered in terms of your confidence on acceleration in the USCIS business, I think you spoke about high single-digit to low double-digit growth in Q4. Can you just talk a little bit more around the different drivers there? I think you talked about some incremental revenues in your telcos business. You also talked about the volume growth, the transactional volume growth going up a little bit? Just if you could provide a bit more color there. And together with that, with that revenue acceleration that you're expecting in USCIS, could we at last see a quarter where the margin in that division returns to year-on-year expansion, that you start to see some operating leverage there?

Richard F. Smith

Yes, let me see if I could give you a little texture there. Well, I'm highly confident for those numbers I've mentioned, and the reason being, I'd give you a couple of anecdotes of where we've taken some share in the marketplace, signed some very, very large new contracts, those are now behind us, so revenues start to come in the door, that's number one. Number two, Decision 360 is hitting on all cylinders right now in the marketplace. It was not actually just taking market share, in that case, it's creating new demand for applications that never existed. Number three, we talked, I think it was last quarter or maybe the quarter before, about the positive telco database. That's starting to really run full speed. I mentioned a $22 million in contracts signed. So that, and then NPI is significant across the board for USCIS. You get a little lift in things like auto. I saw some core market growth as well in auto, but mostly, it was internally generated growth.

Lee Adrean

Jaime, I would add one thing. The fourth quarter last year was a little bit weaker seasonally than our typical pattern. The -- so, I'd just be a little careful. We think we're going to have a very strong fourth quarter as we get into next year, probably not continuing pushing the double-digit rates, but it was only a few quarters ago, people were wondering if we can even grow this business anymore, and we're very confident...

Jaime Brandwood - UBS Investment Bank, Research Division

Exactly.

Lee Adrean

That it's a solid path in this business.

Richard F. Smith

Jaime, on this -- the other question you have, which I think was margin, I don't have the data in front of me. I think we actually had incremental expansion in the third quarter sequentially over last year. Is that correct, Lee?

Jaime Brandwood - UBS Investment Bank, Research Division

I was just thinking year-on-year.

Lee Adrean

Yes. It was up in the fourth quarter.

Richard F. Smith

Yes, fourth quarter will show expanded margin versus the -- versus a year ago. Also remember this, that I'm more bullish now than I've been for quite some time on growth overall. With the USCIS, we're making some investments here. I mean, get that [indiscernible] database, for example, up and running, and that could be a significant revenue contributor in the future. That requires some investment, so we're investing to sustain and further accelerate the growth in our business as well.

Jaime Brandwood - UBS Investment Bank, Research Division

Just the $23 million that you mentioned coming out of the telco database, is that annualized revenue or is that total over a period of a number of years?

Richard F. Smith

Now that, well, I think I said $22 million, I think, but it's $22 million next year. So contracts we signed this year, that will deliver that revenue in 2012.

Jaime Brandwood - UBS Investment Bank, Research Division

And very lastly, just North America Commercial, you are obviously continuing to gain market share there, very clearly from Dun & Bradstreet, I mean, and possibly also growing faster than the other rival. Just wondering, to what extent -- beyond your capabilities and your different product offering, to what extent is that driven, if at all, by you having a different price point to your competitors? Are you cheaper in your offering than, say, a Dun & Bradstreet?

Richard F. Smith

Our philosophy, in general terms, is to compete on value, not on price, and that applies to North America Commercial as well.

Jaime Brandwood - UBS Investment Bank, Research Division

Okay. So not a driver, basically?

Richard F. Smith

No.

Operator

And we'll take a question from Carter Malloy of Stephens.

Carter Malloy - Stephens Inc., Research Division

So first off, and I know you guys just talk about this a lot off-line but just want to circle up on Decision 360 and NCTUE+ as drivers of 2012. Are those meaningful drivers? And in your statement that 2012 performance will be equal to or better than '11, are those a big part of the picture next year or are you leaving yourself room for upside coming from those 2?

Richard F. Smith

No, the NCTUE+ and Decision 360 does just for the U.S. I mean, we've got growth going on PSoL and North America Commercial Solutions and International as well, but those will be 2 nice growth drivers for USCIS next year.

Carter Malloy - Stephens Inc., Research Division

And on those products, I assume they're at the USCIS or maybe to a little higher type of margin profile, but as we go into next year, you talk about performance equal or better; I assume that's top line. On the bottom line, are you saying that we'll be able to hold margins or you think we'll actually see further expansion?

Richard F. Smith

I think I'm not going to give a lot more outlook at this point in time. I typically don't even talk about 2012 as we're wrapping up the third quarter of 2011. Just want to give you some insight that I'm confident in this model for next year, it's is going to be a growth business, and I would think we're going to be in this range if not expanding margins in the future.

Carter Malloy - Stephens Inc., Research Division

That's great to hear. And then lastly, circling back on B2B, is that -- the growth you're seeing there, is that more on the sales and marketing and database side of the business or are you seeing it more on the risk management side?

Richard F. Smith

Both sides, the risk management side and the marketing side are both growing.

Carter Malloy - Stephens Inc., Research Division

But both of those are up double digits?

Richard F. Smith

I don't have the exact breakout there, Carter, but they're both growing. Hold on a second. Lee, you got it?

Carter Malloy - Stephens Inc., Research Division

Sorry, I'm making you dig through the file there.

Richard F. Smith

Yes, they are. Yes, they both are, both going double digits.

Operator

We'll go next to Dan Leben with Robert W. Baird.

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

First, can you talk a little bit about -- you mentioned a competitive customer, when it's going to bring in some pretty sizable incremental revenue over the next few years. Could you just talk about the dynamics that helped you win that deal and steal it away from a competitor, what they're really focused on in their evaluation?

Richard F. Smith

Every time we go to try to either expand the pie or share shift business, it's based upon value. And centered on value, at least in the U.S. and it's not data 360, try to expose them to different data assets we have and intrigue them with that. So it's the TALX number, the Work Number in TALX, the IXI and now NCTUE+, and that's what happened here as well.

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Great. And then you mentioned the NPI contribution internationally. What's that generating overall in terms of additional revenues?

Richard F. Smith

For International or for the company?

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

For the company.

Richard F. Smith

It's roughly a vitality lead jump, and the vitality mix for this year is 10%, which is roughly $200 million.

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then when you look at the acquisition pipeline, a couple of nice deals in TALX. Is that largely where the pipeline has shifted to that side of the business, outside of any additional investment in Boa Vista?

Richard F. Smith

No and yes. Well, we did a couple of not really small nice tuck-in acquisitions in Latin America. We like the talk about, I think it was the first quarter we did the -- that IXI-like business over in the U.K., so it is balanced. I think my focus really is on organic growth, to be honest, Dan, and then where we can have some nice small tuck-in acquisitions, we'll do those. So it's a --

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Great. And then last one for me, just could you talk about the acquisition contributions both from the quarter and what the expectation is in the fourth quarter?

Richard F. Smith

Well, again, I told you the core non-mortgage organic growth is 7% for the quarter, yet mortgage actually was down. Contributions are down.

Lee Adrean

Mortgage was -- yes, if you break out the cost dollar growth contributions, core non-mortgage was about 7%. Acquisitions added about 1.5 points but mortgage, comparison to prior year, which had a very strong refinancing spike, took away about 1.5 points; fourth quarter, more acquisition contributions, slightly higher, might be about 2%.

Operator

Moving on to Dan Perlin with RBC Capital Markets.

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

I just wanted to clarify a couple of things. So Lee, on the overall margin expansion that you saw this year, in aggregate, right? It was 100 -- a little over 150 basis points.

Lee Adrean

Yes.

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

Are you saying that's all a function of the adjustment to Boa Vista?

Lee Adrean

No, the increase in International was essentially a function of -- you take out the Brazilian revenue. And as we've said before, because of the investments we were making in Brazil, that was operating at a near-breakeven. You just pull out that revenue, that had about a 400-basis-point impact on International, and about 100-basis-point impact on the company. 50 basis points was improvement then spread across the remainder of the company.

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

Got it. Okay. And then, the timing of kind of throttling up and/or down on investments within telco in North America, I was actually surprised to see USCIS margins not be up year-on-year this quarter. My -- I guess I kind of misread how we kind of left it last quarter; I thought that was going to be up year-on-year. And I'm just wondering, were there incremental investments as you progressed to the quarter within the telco exchange or something else that kind of kept you at that level? Or was it a function of kind of this mortgage market pulling back a little bit relative to last year?

Richard F. Smith

Well, a couple things. I'd -- by the way, the margin we got out of USCIS for the quarter is largely in line with what Lee and I expected, but I'm not sure if we had communicated something different or your models had showed something different. But, yes, we're making investments as we talked and reported the telco exchange. And as the ESS business which, as you know we have, and USCIS grows, it's a lower-margin business, it grew in the fourth quarter a little faster than the overall USCIS did. And it's also by the way one of the things you'll see in the fourth quarter. It's going to grow, it being ESS, at a faster rate than the rest of USCIS as well. So it was in line with our expectations.

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

Okay. But to be clear now, you're saying year-on-year growth in this line item in fourth quarter for margins?

Richard F. Smith

Correct.

Operator

We're next to Manav Patnaik with Barclays Capital.

Manav Patnaik - Barclays Capital, Research Division

I just wanted to clarify one thing. I think you mentioned that the margin guidance for the fourth quarter you said would be at the comparable level to third quarter, and I think if I have my notes correct last quarter, you had guided to about 25% to 25.5% range, is that correct?

Richard F. Smith

You're right. There's 2 things. Thank you for catching that. Two things that are slightly different than we gave guidance: One, I just alluded to in the last question, is that ESS is now growing at a faster rate than we had anticipated. We had nice wind in ESS since we've last talked, and that margin is at a lower rate than the company average, so that puts a little drag on it; and then secondly, at the time we last talked about margin outlook, the couple of small acquisitions we just announced were not in my calculation. That puts a little drag on the early quarters. Those are 2 little headwinds in the -- on the fourth quarter. But the core business itself, if you exclude those 2, will be in a range I just mentioned compared to what I mentioned last time.

Manav Patnaik - Barclays Capital, Research Division

That makes sense. And then just to get some more color on just your M&A strategy in pipeline, you mentioned a lot of tuck-in acquisitions. Internationally, I guess, everyone seems to be in a lot of deals or there seems to be a lot of candidates available in Latin America. I was just curious, in terms of color, in the Asia-Pacific region, is there a good pipeline there? Is that of interest, just some parts around there?

Richard F. Smith

Yes, we continue to look where it makes sense strategically for us long-term in all parts of the world. I described the M&A pipeline as strong now, more in the realm of tuck-ins than large transformational deals. But we're looking at most countries you could possibly imagine that have growing middle class population, data privacy laws that's -- are favorable to our kind of business model. Nothing imminent this juncture but we continue to be very aggressive where it makes sense.

Manav Patnaik - Barclays Capital, Research Division

Got it. And just finally on that, I mean, just thoughts on your sort of doing a more sizable acquisition. I mean, it seems like there's some assets out there that are up for sale now, and I guess with the continued economic environment, if it gets worse that is, there might be some more up there, so I was just curious how you guys evaluate the opportunity on more sizable deals.

Richard F. Smith

On the sizable deals, they've got to be good companies. Unfortunately, most of the sizable deals either on the market or potentially coming on the markets don't make sense for us at this juncture. They're just not really solid companies. I'm not going to buy a troubled company just because it's a good price.

Operator

And next, we'll hear from Julio Quinteros of Goldman Sachs.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

I wanted to talk a little bit about the -- so 2012, maybe just going back to the sustainability of your guidance here, as you thing about the buildup for '12, where could be the biggest variances? Obviously, Europe was pretty strong. Looking at the International segments, when you think about what's going on over there, how much of a drag could that actually represent relative to the expectations for '12 to be essentially equal to or better with before you get to finish in 2011 here?

Richard F. Smith

If you think about our largest -- probably just thought of [ph] caveat that I had used before, and that isn't there's no economic improvement globally but there's no significant decline economically in any environment, so it's just kind of status quo. So if they were in massive double-dip recession in Europe, that would have some variance. But as I sit here now, I don't want to spend much more time looking into '12. But as I sit here now looking at the European footprint, Julio, I feel very confident in the growth initiatives we have in the U.K., in Iberia, with a lot of good results in the fourth quarter and good results in 2012. I wouldn't have said that we are confident in the overall growth rates for the company level in 2012 unless I was confident that each of the geographies aggregated together, would give us this kind of results. So Europe will be okay next year as long as there's no significant recession.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Okay. And then maybe just coming back to the U.S., thinking about the HARP program in the mortgage business itself, how do you guys see that playing through as we go into next year? Is that an incremental driver opportunity?

Richard F. Smith

No, I don't -- I'm not counting on it. When you think about HARP one, I think that we claimed at the time that was announced $5 million to $6 million refinancing, I think it is somewhat $840,000, relatively insignificant. Also, HARP, it depends on the documentation which is a bit nebulous or unknown. At this time, what documentation do they need and they're not going to need a credit file and they may need to verify employment income and that's about it. So it's not a driver in my 2012 outlook. It's things like the telco database we talked about, things like Decision 360, it's the continuation of NPI, it's the accounts that we have won this year that will continue to give us this growth next year that I've alluded to earlier.

Operator

[Operator Instructions] Next, we'll hear from Bill Warmington of Raymond James.

Bethany Caster

This is Bethany Caster, sending in for Bill Warmington. Can you talk about your strategy for growing the Work Number database in non-mortgage verticals and where you've been having success?

Richard F. Smith

Sure, but that's been a big part of Dann's focus. It's become what's dependent on mortgage, so things like collection have seen great growth. The government sector has gained great growth, entering now into the card market, there's been great growth, auto market is next. So it's taking where we have great presence, knowledge and working relationships in the USCIS business and now bringing Dann and the TALX, the Work Number team into those channels.

Bethany Caster

Okay, all right. Got it. And when can we expect you to make an announcement about the small business financial exchange contract?

Richard F. Smith

That contract doesn't expire until the end of 2013. Yes, so -- sometime soon.

Operator

Next, we'll hear from Andrew Jeffrey of SunTrust.

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Rick, just we've talked a bit about the acquisition strategy. Just stepping back, big picture, when you consider Equifax's competitive position in the marketplace, particularly in the United States, how would you characterize yourself as positioned competitively with the current technologies that you have which seems pretty well-differentiated in the context, I guess -- the question is, of additional acquisitions you've been relatively acquisitive over the last couple of years, sounds like you still have an appetite, feels like there's a pretty deep mode around the business right now, feels like you're taking share. Does there come a point in which you kind of step back and say, Equifax has a great suite of technology assets, it's time to change capital allocation decision making or priorities a little bit at the margin?

Richard F. Smith

Well, that's if you believe my customer needs are static and the competition is static was not at all true. So my customer needs continues -- to grow and expand and need different solutions today than they needed yesterday. Conversely, if I get different data assets to solve problems for them today that they couldn't solve yesterday, by helping them greatly. Secondly, competition will not sit still. Competitions, they're smart, and they will always find ways to mimic or mirror what I've done in the marketplace with our unique data assets. So with a dynamic environment, I'm going to continue to look at data assets that I think add value to my customers, help them solve problems, help them grow and help us grow. So -- but you have to understand, if you think about financial model, it is by and large driven by organic growth initiatives. We've always talked that 1 to 2 points over time, coming from M&A, the rest coming from organic. That holds true today, that will hold true tomorrow, we're going to be a company centered on organic growth primarily to where it makes sense to augment it with acquisitions.

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Okay. So it sounds like your acquisition strategy will be somewhat tactical in that regard going forward, more like what we've seen in the last quarter or 2 rather than a TALX kind of transaction?

Richard F. Smith

Yes, let's see anything out there with that kind of level. We will always look at those but that's -- I don't see those kind of transformational deals on the radar screen right now.

Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And then a question just going back to USCIS, we've seen a big increase in mailing volumes. It sounds like you're thinking about a modest uptick in reporting volume. How would you -- how do you kind of relate the 2 if we continue to see a return towards a peak level, peak cycle mailing volumes? What does that imply for organic revenue growth in USCIS?

Richard F. Smith

I'd like to think eventually as mailings go up, consumers actually are extended credit and it trickles down from CMS to online. We haven't seen -- that is the traditional model, typically maybe 45 or 60 days later, after the mailing volume increases, you see a nice uptick in online. That trend has not repeated itself during this recovery period. So -- but having said that, I just gave you, I think, a very strong outlook for USCIS in the fourth quarter, so hopefully that helps.

Operator

And there are no further questions at this time. [Operator Instructions] And there are no further questions at this time.

Richard F. Smith

Okay, I'd like to thank everybody for their participation, and we'll be available if there are any additional questions. Thank you.

Operator

And that does conclude today's conference. Thank you all for your participation.

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