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Equifax (NYSE:EFX)

Q4 2011 Earnings Call

February 09, 2012 8:30 am ET

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

Carter Malloy - Stephens Inc., Research Division

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

Nadia Lovell - JP Morgan Chase & Co, Research Division

David Togut - Evercore Partners Inc., Research Division

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

Manav Patnaik - Barclays Capital, Research Division

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

Georgios Mihalos - Crédit Suisse AG, Research Division

William A. Warmington - Raymond James & Associates, Inc., Research Division

Unknown Analyst

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

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Richard Cheever

Operator

Good day, and welcome to the Q4 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, 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 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 businesses 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, a tax benefit in the fourth quarter 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 also present revenue growth excluding Brazil to provide a clearer understanding of our revenue growth for the businesses and 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 other various Investor Relations presentations posted on our website in the Investor Relations section under the About Equifax tab on our website for further details.

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

Richard F. Smith

Thanks, Jeff, and good morning, everyone. Thank you for joining us today.

I think you'd all agree 2011 was a very solid year for Equifax. In fact, it was a year in which we saw accelerated organic growth as each quarter unfolded. In the fourth quarter, organic non-mortgage revenue growth accelerated from 8%, up from 7% in the third quarter and 4% in the first quarter. And by the way, total organic growth, when you include mortgage, was actually 9%, the strongest we've had in quite some time.

Throughout the year, we continued to invest in critical growth -- revenue growth initiatives, ending the year with $75 million in CapEx and $127 million invested in strategic acquisitions around the globe. We also invested our shareholders, returning over $220 million in the form of dividends and share buyback.

Our investments in new product innovation continue to pay great dividends. In 2011, we generated very strong double-digit growth in new products for risk services, Verification Services, fraud, technology and local services and marketing. In fact, for the year, we launched a total of 69 products around the world, and that allowed us to expand into new markets and gain share with existing customers as well as new customers.

Taking a quick look at some of the high-level financials for the quarter. Obviously, Lee will give the detailed financials later on. Total revenue from continuing operations is $510 million, up 6% from a year ago. If you exclude Brazil, total revenue was up 10% for the quarter and up 11% in constant dollars. Operating margin was just as we expected, 24.7%, up 190 basis points from a year ago, obviously benefiting from the operating leverage that we get as well as deconsolidation of our Brazilian operations. Finally, adjusted EPS from continuing ops was $0.68 a share, up 10% from $0.62 a year ago.

And now, as I normally do, I'll go through some business highlights. Our internally-generated momentum in 2011 positions us very well for strong growth this year. The environment of our customers is obviously very different than what it was just a few years ago before the recession. Our strategy has enabled us to adapt extremely well to the emerging needs and provide high-value solutions that help -- will help them be more successful in this challenging environment.

So here are the highlights. I'll start with USCIS and move through all 5 of them. First, USCIS had an outstanding year, exiting with double-digit revenue growth, expanding its operating margin by 120 basis points over the fourth quarter of a year ago and, like their peers around the world, launched 13 new products as NPI becomes an integral part of their growth.

We exited the year with broad-based growth and volumes across all sectors, including financial services, that's the large financial services, regional financial services as well, telco, mortgage and our channel partners, really, truly broad-based volume growth across all entities for USCIS. They also delivered $23 million or 3 percentage points of their growth from NPI, and these are products that were built over the last 3 years, so great success there.

Here's a few highlights just so you have some sense for where that 3 points of growth is coming in -- coming from for USCIS. One is the launch of a new database that includes positive payment informations from the telecommunications, utility and satellite video companies. We've talked about that before. That was a strong contributor for them in 2011 and will be stronger in 2012. Number two, unique products, such as personal income models and enhanced debt income ratings, which obviously help our clients make more discerning credit and account management decisions. Number three, digital marketing services, which utilize unique Equifax wealth data to better target Internet ads. And we talked about that for the last couple of years, a great growth product for USCIS.

Number four, products like Undisclosed Debt Monitoring, which we launched a few years ago, help mortgage lenders reduce fraud. Five, products that help our clients comply with new regulatory requirements like Reg Z. Number six, new applications for enabling technologies to help our clients manage account relationships more effectively. And seven, services to help investors evaluate mortgage-backed securities using our consumer credit data and superior matching technology.

Given the breadth and diversity of our data assets, we've also broadened our distribution channels. For example, we launched a major growth initiative in the insurance sector, and the results are very encouraging. We also increased our resources and strength in our disciplined and strategic pricing to ensure that our pricing reflects the value of our customers receive and realize selected improvements where value is unique.

Our customers increasingly recognize the power of our analytical solutions for the year. 44% of the files we delivered to customers contained at least 1 Equifax annuity products. This is particularly impressive when you consider that we have increased our penetration in each for the last 3 years, starting from 28% back in 2008.

Customers in USCIS are very interested in our value-added offerings that intensified throughout the year. You've already witnessed it through our competitive wins in our NPI initiatives. To further support growth from these high-value solutions, we continue to invest in our Technology and Analytical Services while broadening and deepening our analytical capabilities. These investments will continue to contribute to the USCIS growth in 2012 and beyond. So just a great year, a great ending, a great momentum for USCIS.

International, they successfully delivered on a number of important strategic initiatives last year, they strengthened our market position, gained market share, made strategic acquisitions across their served markets and they also obviously combined their Brazilian assets with our key partners in Brazil to become a strong and formidable competitor in a very important growth market for us.

A couple of highlights for International. The new management team in the U.K. achieved significant penetration -- market penetration through intense focus on their customers' changing needs in what continues to be a very competitive environment, just a banner year for the U.K. team.

Early this year, we acquired Workload in the U.K. It's an information solutions company with investment data assets, very similar to IXi here in the U.S. We're leveraging the management team, products and analytics expertise in IXi to further develop the business opportunities and establish a unique capability in one of our larger international geographies. I've got high hopes for that product over in the U.K. in 2012 and beyond.

In Brazil, we have fundamentally altered the competitive dynamics by combining our business assets in Brazil with Boa Vista. Now a much stronger competitor in a fast-growing market, the integration of our operations is well under way, now making great progress and now focused on developing new products and driving strategic growth initiatives in Brazil. Boa Vista is benefiting from the overall market growth in Brazil, and we continue to be very excited about our venture and the opportunities that lie ahead.

We also closed on credit bureau acquisitions in Ecuador and Costa Rica last year, which will expand and broaden our revenue growth opportunities across the fast-growing Latin American geography. Our investment that we made a few years ago in Russia is generating very strong returns for Equifax. During the year, we grew revenue in excess of 70% and increased our ownership from 28% to 33%. We'll continue to step up that ownership in 2012.

India is also progressing well and in line with our expectations. We now have 250 data contributors, over 149 million records loaded already into the database, and we launched 12 new products last year for our Indian customers.

We continue to make very good progress in our high-value solutions. In 2011, we launched -- we strengthened relations with our customers and realized further market penetration as revenue for our Technology and Analytical Services product line excluding Brazil was up a nice 20% across International properties.

NPI activities in International, like everywhere else, contributed significantly to our revenue growth. In 2011, 15% of our International revenue was driven by new products introduced since 2008, substantially above our corporate target of 10%.

Our competitive position in International could not be stronger. In those markets where we have the largest share, we've strengthened our customer relationships through innovation and intense focus on customer service. In markets where we do not have the largest share, we have gained share or improved our competitive position through innovation, strategic investments and strong management discipline.

On now to TALX. TALX Workforce Solutions made great progress on our strategic initiatives despite headwinds in the mortgage market. The actively employed record count in the Work Number database increased now to over 51 million records, up 5% as 280 new companies contribute over 5 million active records and inactive records for the year. The Work Number database now over has 210 million records, which is a great accomplishment. TALX further expanded its ability to grow actively employed records from mid-market employers through partnership agreements which provide access to a significant amount of new active records, and they'll be the benefactor of both partnerships starting in 2012 and beyond.

The acquisition of DataVision, a provider of low-cost manual verification and workflow management services, and eThority, a provider of sophisticated HR analytics solutions, will significantly deepen our relationships with customers who purchase our employment and income verification solutions and the employers who contribute records to the Work Number database.

On the PSol. 2011, I think you'll agree, was a record year for PSol. Record revenue, improved operating margins, rigorous management discipline and execution and increased market penetration. They delivered growth of 15% for the year. That growth was driven in both subscribers -- for the year, driven by growth in both subscribers, which were up 6%, and average revenue per subscriber, which was up 11%. And we have migrated to a more of a feature-rich set of products. Again, NPI is a big part of the story and PSol as well.

And with an intense focus on their critical operating metrics, such as churn, conversion rate, cost per account acquired and value-added pricing, operating margins improved by 160 basis points to 30%. There's great momentum in PSol, and the customer experience is getting better every day. We fully expect to continue to making market share gains in 2012 as we continue to introduce new products and further improve our customer touch points.

Finally, North American Commercial Solutions delivered double-digit revenue growth driven by U.S. risk, which is continuing to take market share by leveraging both the quality of our data with analytics to deliver high-value solutions to our customers. Our performance in 2012 -- 2011 underscores that even in a relatively mature business environment, new regulations and business challenges create new opportunities for us to deliver above-average growth by meeting our emerging needs for our customers with unique and powerful solutions. Business model linking unique and diverse data assets, analytical innovation and capabilities and proprietary decision technology is, in fact, enduring.

Now, as always, Lee, if you can now go through the financials, it'd be great.

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.

The resilience of our core business activities along with continued execution of our long-term strategy enabled us to deliver our strongest quarterly performance in 2011. Compared to the same quarter in 2010, the fourth quarter of 2011 consolidated revenue of $510 million was up 6% on a reported basis and 10% when Brazil is excluded from both years. Excluding the impact of changes in foreign exchange rates, revenue was also up 6% on a reported basis or 11% excluding Brazil.

Operating margin was 24.7% compared to 22.8% for the fourth quarter in 2010, and diluted earnings per share from continuing operations attributable to Equifax was $0.60 per share, up 20% from the fourth quarter of 2010. Excluding a cumulative multi-year tax benefit and the impact of acquisition-related intangible amortization, adjusted earnings per share attributable to Equifax was $0.68 a share, up 10% from $0.62 in the fourth quarter a year ago. Also during the quarter, we repurchased 1.9 million shares of stock for $67 million.

Moving to the individual business units. U.S. Consumer Information Solutions revenue was $216 million, up 13%. Online Consumer Information Solutions revenue was $137 million, up 17%, driven by improved market demand, the addition of select new customers, new products and certain pricing actions. Fourth quarter online volume was up 17%, significantly exceeding the 9% growth through the third quarter.

Mortgage Solutions revenue of $33 million was up 13% compared to the fourth quarter of 2010. Core mortgage reporting was up slightly due to a favorable level of refinancing activity when compared to the fourth quarter in 2010. And Settlement Services benefited from further customer penetration and delivered strong double-digit growth during the quarter. The Mortgage Bankers Application Index was down 6% in the fourth quarter of 2011 from a year ago.

Consumer Financial Marketing Services revenue was $46 million, up 2%. We noted at the end of the year that while demand in our transaction-based businesses held up well, our project-based businesses like Consumer Financial Marketing Services experienced some softness as corporate buyers deferred discretionary projects in the face of global economic uncertainty.

The operating margin for U.S. Consumer Information Solutions was 37.5%, up from 36.3% in the fourth quarter of 2010.

Our International business units revenue was $116 million in the quarter. Excluding Brazil, following our deconsolidation of that unit in the second quarter, reported revenue grew 10%, and local currency revenue growth was 12%.

By region, Latin America's revenue was $45 million. Excluding Brazil from the prior-year comparison, reported revenue grew 10% in U.S. dollars and 14% in local currency. The analytics and marketing services product segments were particularly strong, although all major product segments delivered double-digit growth during the quarter.

Europe's revenue was $42 million, up 15% in U.S. dollars and up 16% in local currency. Strong double-digit organic growth in the U.K. and the acquisition of Workload earlier in the year offset weakness in Iberia.

Our Canada Consumer information revenue was $30 million, up 3% in U.S. dollars and 4% in local currency. Growth was generally consistent across all product lines. Finally, International's operating margin was 28.7%, up from 23.6% in 2010, reflecting primarily the deconsolidation of Brazil in the second quarter.

Moving on, as many of you already know, we have changed the reporting format for TALX to be more consistent with how we are now operating that business unit. As a result, we will be reporting TALX Workforce Solutions, the new name for the business unit, along with 2 lines of business: Verification Services and Employer Services. Verification Services includes our employment, income and Social Security number verification services, while Employers Services includes our Tax and Talent Management Services as well as certain complementary payroll-based transaction processing services which previously had been included with Verification Services.

For the quarter, TALX Workforce Solutions revenue was $106 million for the quarter, up 3%. Verification Services, with revenue of $55 million, was up 11% for the quarter. 10% growth in non-mortgage verification revenue and the acquisition of DataVision more than offset the double-digit decline in mortgage-related verifications.

Employer Services revenue was $51 million, down 4%, reflecting a modest decline in unemployment claims activity and reduced hiring by the TSA, our largest client for Talent Management Services.

The TALX operating margin was 23.2%, down from 24.4% in Q4 of 2010, largely driven by changes in mix within our Employer Services offerings and the additional acquisition amortization from the acquisitions DataVision and eThority.

North America Personal Solutions revenue was $46 million, up 21%. New subscriber growth and a significant improvement in average revenue per subscriber, as Rick described, were the primary drivers of overall growth.

Operating margin was 30.5%, down slightly from 30.9% in Q4 of 2010. North America Commercial Solutions revenue was $26 million in the quarter, up 6% on both a reported and a local currency basis. Strong double-digit growth in U.S. transaction volume was partially offset by lower Data Management project revenue, again, as economic uncertainty resulted in caution by corporate buyers relative to new client marketing programs.

The operating margin for our Commercial Business was 34.4%, up from 32.3% in the year-ago quarter. Finally, corporate expense was up 6% when compared to the fourth quarter in 2010.

For the full year, consolidated revenue from continuing operations was $2 billion, up 5% on a reported basis and 8% when Brazil is excluded from both years. Operating margin for the year was 24.0% compared to 23.1% for 2010. Our tax rate for the year was 37%, and we expect our 2012 tax rate to be roughly similar, although this can vary by -- vary quarter-to-quarter. Diluted earnings per share from continuing operations attributable to Equifax was $1.87. Excluding the impact of the loss on the deconsolidation of Brazil, a tax benefit in the fourth quarter and acquisition-related intangible amortization, adjusted EPS attributable to Equifax was $2.52, up 9% from $2.31 in 2010.

And during the year, we repurchased 4.2 million shares of stock for $142.3 million. Net of shares issued for equity compensation plans, shares outstanding declined by $3 million over the course of the year, and our available share repurchase authorization at year end is $112 million.

Now let me turn it back to Rick.

Richard F. Smith

Thanks, Lee. It's a fact [ph] that 2011, I think, by any measure, it was a really solid year. Our team executed at a very high level against the strategic growth initiatives that we set forth a few years ago. That combined with a modestly improving economic environment in most parts of the world gives us great momentum as we leave 2011 and enter 2012, obviously entering with our fastest core organic growth rate in the fourth quarter we've had in years.

Now looking forward. The first quarter, assuming the current exchange rates and excluding Brazil, is expected to deliver revenue growth from continuing operations between 9% and 12%. Every business unit is expected to deliver high single- to low double-digit revenue growth in the quarter. Adjusted EPS from continuing operations is expected to be between $0.64 and $0.67 per share for the quarter, which will be up somewhere between 10% to 16% when compared to the first quarter of 2011.

Now a look forward for the full year. Our outlook for the full year is for solid growth from each business unit. For 2012 when compared to 2011, we're assuming no real economic improvement in the U.S. In fact, our base case is around 2% GDP growth in the U.S. and a modest recession in Europe. With that being said, I will now walk through some expectations for each of the 5 business units.

Starting with USCIS, where we expect, for the year now, USCIS to deliver solid mid- to upper single-digit revenue growth, both will be higher in the first half of the year when compared with the second half of the year as we anniversary certain products and some pricing initiatives and customer penetration wins we had in mid-2011. We'll also continue our aggressive investment in NPI to significantly enhance the long-term value of our products and services to our customers in USCIS.

Now TALX Workforce Solutions is expected to deliver upper single-digit growth for the year as they continue to drive NPI market segmentation and expand the record count for the Work Number database, somewhat like USCIS. Maybe a slightly higher first-half growth for TALX versus the second half for the same reasons.

Third, on the PSol, we'll leverage the momentum from 2011 to deliver double-digit revenue growth. Again, in 2012, we will continue to invest more in marketing to support our long-term growth outlook for that business. Our Commercial Solutions business made great progress in 2011, developing stronger market position, growing revenue, expanding their operating margin. For 2012, we expect solid double-digit revenue growth once again.

International, excluding Brazil, is also expected to deliver low double-digit growth for the year, leveraging its #1 market positions in Canada and Latin America along with further market penetration in the U.K. So solid, solid growth across all 5 business units again in 2012.

Overall, our operating margin for the year should expand approximately 50 basis points as we benefit from the leverage we get from the accelerated growth. For the year, we expect internal investment in CapEx to be once again in that range of $75 million to $95 million.

Now we haven't done this in a while, but I want to also to provide a framework for you to think about as we think about the next 3 years and what kind of growth we expect the business to have. And, obviously, that model I'm about to lay out will include 2012. I said before, we've got a great team, a team I'm very proud of. They're executing at a high level. That will continue. We're going to continue to capitalize on our unique assets of data, and as a result of that, I do see a clear path to a sustainable 7% to 10% top line growth over the coming years. Adjusted EPS should grow 3 percentage points faster than the revenue due to a combination of operating margin expansion year-over-year and our financial leverage. Combine that with our dividend, that represents a 12% to 15% for our shareholders as we look forward for the next 3 or 4 years. So solid model and good returns for our shareholders.

So with that, operator, we'd like to open the phone line to any questions our audience might have.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Carter Malloy with Stephens.

Carter Malloy - Stephens Inc., Research Division

First off, you talked about growth before Brazil. But can you talk about sort of core Equifax organic growth if we skin out mortgage, how that looked in the fourth quarter versus the third quarter, if we saw any pickup or deceleration there?

Richard F. Smith

I thought I broke that out. If I didn't -- yes, so if you take out inorganic and you take out mortgage, the core growth was 8%. If you just look at total core organic growth, including mortgage, it's 9%.

Carter Malloy - Stephens Inc., Research Division

Okay. And the 8% ex mortgage compares to, I think it was at 7% in the third quarter?

Lee Adrean

Correct.

Carter Malloy - Stephens Inc., Research Division

Okay. Great, great. And then can we talk a little bit more about mortgage? The mortgage environment -- it's a 3-part question. So first of all, just overall mortgage environment and the impact on you and your 2012 outlook and guidance. Second part of that is within mortgage, it sounds like Work Number is a lot more origination-related than refi, so I want to clarify that. And then third, sort of a bigger picture, as we're looking at an AG settlement that's likely imminent and a flood of work on behalf of the banks for principal reductions and modifications, what type of work, if any, will you guys gain there, and how does that benefit, if it does, Equifax?

Richard F. Smith

I'd call that a run-on sentence, Carter. Let me see if I can -- overall, when we think about mortgage for the company for 2012, we have built a business plan that is assuming about a 20% decline in the mortgage market. So obviously, if there's any increase or pickup beyond that 20% forecasted decline, that's a benefit for us. And conversely, if it declines at a fast rate from 20% to negative. I think -- if anything, I think that 20% is solid, if not conservative. That answers the first part of your question. By the way, if you've read some of the reports that have come out recently, the refinancing is fairly strong in the month. It was fairly strong in the month of January and is continuing in February. So rates are obviously in historic lows. That's helping, and we benefit from that. But specific to Work, you made a statement about the more origination-focused rather than refinancing. They benefit from both. And the refinancing, they also get an impact as -- and pickup as well. So if refinancing picks up, that does benefit the Work Number. And the last question you had was basically a regulatory change with California. I think you're referring to New York coming in. And it's uncertain right now. If anything, that's a potential upside for us. We have not factored in that upside into our business plan.

Carter Malloy - Stephens Inc., Research Division

Okay, but it sounds like you're sort of agnostic towards refi versus origination. Both those things are positive or negative?

Richard F. Smith

Correct.

Operator

Next up, with SunTrust, we'll go to Andrew Jeffrey.

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

Question on USCIS top and bottom line in this quarter and looking forward. Seems like pricing in light of the accelerating volume growth was pretty stable. Just wondering about kind of what the one-time contributions were to the extent there were any. And then as a corollary, when I look down to the EBIT line, given the strength in revenue growth, might have expected a little more leverage in the segment, operating leverage. Can you, Rick, just talk about whether this is a structurally kind of different business than it was pre-financial crisis in terms of the sustainability of the operating leverage?

Richard F. Smith

Yes. One, I alluded to a little bit in my comments, and Lee may have as well, the performance you saw in the fourth quarter of USCIS was extremely broad-based, which is -- which helps. It's as broad-based as I've seen probably dating back to 2005, where you had great growth in our large FIs, great growth in our regional banking customers, great growth in telco. Auto was up, channel partners up, and just everything we had was strong growth. I've mentioned somewhere in my comments the fact that we continue to invest heavily in pricing resources and discipline, and we've been doing that for years. We stepped it up dramatically in the last 18 months in USCIS, helping us think about bundling their products, segmentation of products, positioning of products. Show you understand [ph] the values our customers get, the ROI they have and the enterprising we should have. And that's helped Rudy and his team, at least in the fourth quarter, negate some of what we typically see as price compression. As far as sustainability, yes, I think that the path we're on in USCIS of leveraging these unique data assets to expand the pie and gain share is, in fact, sustainable, that was represented in my comments, with virtually no more help from the broader market in 2012. I expect USCIS to have another really good year. On leverage, there's always mix that plays in, Andrew. I mean, if my memory is correct, jump in, Lee, I think the margin expansion was 120 basis points. First -- fourth quarter 2011 over fourth quarter 2010, that's great leverage. And you always have some mix. Mortgage had a nice little uptick in the fourth quarter. Mortgage tends to not be as high a margin as other products like OSIS. So all in all, I say it's a very, very good performance top to bottom.

Lee Adrean

And Andrew, the thing I would add is that one of the ways we are driving growth is not simply waiting for the traditional bank customers to order credit reports for issuing credit cards. We're expanding, we're doing more with analytics, we're expanding our position in telco, we're expanding our position in insurance. And -- but to do that, we have to scale the organization. We're adding some salespeople, we're adding marketing people. So to drive the kind of growth that we're driving does require some added resources to expand our footprint, both from a product perspective as well as a customer perspective.

Richard F. Smith

Good point.

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

Okay. Is there anything -- and that all makes good sense. Is there anything structurally, Lee, that you think would prevent this business from being a 40-plus-percent EBIT business the way it was in the last cycle? Or has the world just shifted a little bit, and that's not the -- an attainable long term goal? I'm just trying to frame up in the context of Rick's long-term outlook the segment profitability.

Lee Adrean

Yes. I think this business continues to have great profits characteristics. I think we've also tended to say that people should think about steady margin improvement, not big pops, because we are also investing in the growth opportunities to drive higher growth. So we have to get there over some period, yes, but it maybe longer than the -- what -- if you simply think about an incremental fall-through on traditional business, we're not going to get there at the rate that would imply. But we do think there's good runway.

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

Okay, that's helpful. And then, Rick, I mean, I'm very encouraged to hear you -- your willingness to comment on sort of a long-term view. Is it safe to assume that as you look at the broad, at least domestic financial institution landscape that we're back to a more normalized environment? Because you've been somewhat circumspect with regard to giving longer-term guidance since, I think, for almost 5 years now, 4 or 5 years.

Richard F. Smith

That's a great question. A word of clarification. No, I think we're back to normalized -- if normalized is the 2002, '03, '04, '05, '06 time frame, no we're not there. But it is -- it definitely is an improving -- modestly improving environment in the U.S. versus the last few years, Andrew. So my bullishness on the future is predicated upon kind of that modest improvement in the U.S. economy, a modest recession short-term in Europe, but then it's really predicated upon the team's ability to execute. And I've said this to a number of our investors and analysts over the past 6 to 9 months. We've invested heavily on the ability to execute as a company. We've invested heavily in bringing in some great talent to the company. And as a result, the team has executed at the highest level I've seen in my 6.5 years here. So it's really that, that gives me the confidence to give you a multiyear outlook.

Lee Adrean

Again, I would reemphasize. It's just not executing on the things we've always done and squeezing a little bit of incremental growth. It's expanding our footprint with new -- it's the kind of revenue growth addition we can get from new products and entering or expanding in some market segments.

Operator

Next up we have Michael Meltz with JPMorgan.

Nadia Lovell - JP Morgan Chase & Co, Research Division

This is Nadia Lovell in for Michael Meltz. I just have a couple of questions. Personal Solutions accelerated throughout the year. What's behind that? Have you changed marketing strategy at all?

Richard F. Smith

Oh, yes, that has been a top-to-bottom -- new leadership. I think it's been 18 months ago or so we [indiscernible] that Trey Loughran, he's brought a new team with him. A new focus on metrics -- we've got some background noise [indiscernible] on the phone.

[Technical Difficulty]

But heavy focus on churn, heavy focus on dispersion, heavy focus on new product innovation. We're more aggressive in the marketplace and advertising as well, driving subs, increasing our ARPU. So yes, top-to-bottom kind of overhaul of that PSol product.

Nadia Lovell - JP Morgan Chase & Co, Research Division

And then I have another question. In Brazil, are you getting to a point where you can start to increase your ownership stake beyond the current 15%?

Richard F. Smith

We have the vehicle, as you know -- we announced this -- when was that? Mid-last year. There were a series of triggers that allow us to do so. We have not done so yet. We're actively involved in the process of integrating the 2 companies, driving new product to market, gaining market share. So on the operational aspect, forget the ownership for a second, operationally, we're doing everything we've set out to do and may be slightly ahead of pace.

Nadia Lovell - JP Morgan Chase & Co, Research Division

Okay. My last question. How should we think about your free-cash-flow priorities in 2012 in terms of acquisition versus share buybacks?

Richard F. Smith

Certainly.

Lee Adrean

Yes, I think they continue to be -- what we've said before, it's hard to plan for acquisitions, because we try to be extremely disciplined in the ones we pursue. But acquisitions, when the right ones present themselves, that will always be a priority in comparison to share buyback. Share buyback, the rewards are probably more immediate. But acquisitions that may help us expand our footprint in logical ways where we can bring leverage through our skills and capabilities, where those bring assets to us that leverage into our base, create more long-term value.

Operator

Next with Evercore Partners, we have David Togut.

David Togut - Evercore Partners Inc., Research Division

Rick, you were pretty explicit in terms of your revenue growth assumptions for each of your 5 business units for 2012. Can you give us a little more granularity on your expectations for margins for each of the 5? And perhaps in conjunction with that, give us a sense of where you have more investment versus last investment for the year ahead.

Richard F. Smith

Yes, no, David, we don't break out, at least at this juncture, the margin book. I can tell you that in general terms, where -- PSol is at a very, very high level of margin. I think the margin last year was 30%. I don't think you'll see much expansion there. You'll see businesses like Commercial at a very high level, modest upside in Commercial. Lee, you jump in here as well. I would expect in 2012 similar margins in TALX, expanding margins in USCIS and some expanding margins in International.

Lee Adrean

Yes, I think that's right. And I would emphasize, at a total company level, we are very committed to delivering moderate but steady improvement in margin. But business by business, we'll have some businesses where we're investing in a given year. We do not try to manage consistent, steady improvement margin for every business every year. That becomes too constraining. But at a total company, very committed to improvement.

David Togut - Evercore Partners Inc., Research Division

And Lee, you touched on unit volume versus pricing online CIS. I apologize, I didn't catch the numbers. What were they again in the quarter?

Lee Adrean

Our unit volume and our revenue were up about the same.

David Togut - Evercore Partners Inc., Research Division

Okay, so price flat.

Richard F. Smith

Yes.

David Togut - Evercore Partners Inc., Research Division

And just finally, Lee, the tax rate in the quarter was toward the low end of your guidance, I believe. Can you give us an insight into tax rate for 2012 in terms of what's embedded in your outlook?

Lee Adrean

I think what we've said for the year, the tax rate was 37% and, give or take, I would say 36% to 38%. That can float around a little bit. States are taking various actions. Frankly, the government's taking various actions. They tend to work against us, not help us, not surprisingly. But we are always looking for things that we can do. So I would simply say 37% plus or minus for the year, and it will tend to fluctuate by quarter.

David Togut - Evercore Partners Inc., Research Division

And just finally, Rick and Lee, you significantly increased the dividend, I believe, about a year or a 1.5 year ago. What are your thoughts for the dividend for the year ahead?

Richard F. Smith

Good question, David. We remain committed to that 25% to 35% that income being redistributed back to our shareholders in the form of dividend. We, in fact, have a Board meeting tomorrow. We'll discuss that tomorrow. But our anticipation will be we'll make a move up with the dividend this year.

Operator

Next up we have Julio Quinteros with Goldman Sachs.

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

One quick question. If you go back through the pieces of the model, and I guess I'm mostly focused on the USCIS, to a comment that you made, Lee, about the discretionary spending environment. If you sort of think about the business against volume sensitivity, discretionary spending versus recurring spending, is there a way to sort of think about how much of your business is potentially discretionary versus volume-sensitive versus recurring? Just trying to get a sense for -- the stability the business, obviously, is pretty strong. So as we go forward from here, what would be the potential exposure to any continued sort of sluggishness on the discretionary side?

Lee Adrean

Yes, it's really the -- what I would describe as discretionary project-oriented spending tends to be concentrated in our Consumer Financial Marketing Services aligned within USCIS. And even that, as some portion of that is subscription-based and some portion are the kind of one-time marketing studies or more discretionary types of projects, I haven't looked at it closely lately, but if you take even half as being discretionary and half as locked in to subscriptions, it's probably more subscription than that. And CFMS is 20% of USCIS. 20% -- USCIS is predominantly transaction-based. And as I said before, we've seen transaction activity performing very well.

Richard F. Smith

And the only thing I'd add there, Julio, if you think about the marketing piece of USCIS, which Lee just mentioned was 20%, a big chunk of that was actually -- is up -- it was solid in the fourth quarter. Our triggers were solid, our portfolio reviews were solid. It was just a piece of the 20% that was, I'd call discretionary that was slightly down. And as I think about that -- even if that is a little volatile, our discretionary spend, the market demand is starting to strengthen, and our execution on growth initiatives is actually in a very high level as well. So I think you have to think about that in context.

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

Definitely. And maybe just to think about the FI environment. Over the last couple of days, whether it's consumer spending, consumer loan volume, even the transaction volume data that we've seen out of the Visas and the Mastercards of the world suggest that credit, as a product, seems to be doing really well. Obviously, for you guys that has some implications. So can you sort of help us frame a little bit about sort of the FI conversations coming out of the CARD Act now and kind of post-urban world, what is the FI attitude and view about new credit, new account-on-file growth and continue to sort of drive that expansion as we go into 2012 from here?

Richard F. Smith

I describe it as improvement. As -- we spent a lot of time our there with our banking clients, it's not euphoria, but it's improving. Cautiously, optimistically improving. It feels better -- if I categorize a tone today, it feels better today than it's felt in a number of years. Auto lending feels pretty good. Credit card loans and issuance feel pretty good. Refinancing is strong. Obviously, home origination and new mortgages, still sluggish. Small business lending, still a little sluggish. Midsized to large corporate lending, improving. So the overall tone would be one of modest improvement.

Operator

Next up, with Barclays Capital, we'll go to Manav Patnaik.

Manav Patnaik - Barclays Capital, Research Division

I was just wondering if you could maybe add to that in terms of sort of what your free-cash-flow expectations are? I know you gave the CapEx range of $75 million to $95 million, but I was just wondering if you could provide a little more color on what your expectations are for free cash flow?

Richard F. Smith

Lee, take that one.

Lee Adrean

Yes, I would expect free cash flow to be relatively consistent. Obviously, we get a little bit of bump because our earnings are higher. The D&A will be a little bit higher. Though cash from operations should be up some, look at CapEx in the middle of a range would be up a little bit. Rick indicated dividends are likely to be increasing more or less in line with earnings, and that will lead to free cash flow, i.e., cash from ops less CapEx and dividends, in the $250 million, give-or-take, range. And that's what we've got available for acquisitions or share repurchase.

Manav Patnaik - Barclays Capital, Research Division

Okay. And the other question I had was relative to, I guess another way to ask what's sort of your subscription basis. But relative to the balance sheet deferred revenue item, how should we -- with a lot of other subscription companies obviously tend to focus on that item, but how should we tie that item on your balance sheet to your revenue trends? Because it clearly seems to be going in different directions.

Lee Adrean

Yes, the decline in deferred revenue really resulted from the deconsolidation of our Brazilian business, which had some deferred revenue. I think our subscription business is not a large part of what we do, but the deferred revenue on the balance sheet would generally tend to perform with our business. This year, really a function of the deconsolidation of Brazil.

Manav Patnaik - Barclays Capital, Research Division

Okay, fair enough. And then, I guess, just some housekeeping for the quarter. In terms of the -- what was the acquisition contribution? I think it was 1.6% last quarter. What was that this quarter?

Richard F. Smith

What is this quarter, is that a -- first quarter?

Lee Adrean

Q4. Q4.

Manav Patnaik - Barclays Capital, Research Division

No, fourth quarter, sorry.

Richard F. Smith

Just under 2%.

Manav Patnaik - Barclays Capital, Research Division

And the expectations in this 9% to 12% guidance for the first quarter?

Richard F. Smith

Is your question how much of the 9% to 12% is...

Manav Patnaik - Barclays Capital, Research Division

Yes, I guess what your -- correct, yes.

Richard F. Smith

I don't have it broken out, Lee, do you?

Lee Adrean

I don't recall. It's going to -- it's probably a little bit less than that, just because I think we've got something that's falling off in the 12-month anniversary.

Richard F. Smith

Yes, roughly that will be -- that's more close to 1%, 1.5%.

Operator

We'll now go to Dan Perlin with RBC Capital Markets.

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

So back in early kind of December, Latin America obviously had a good quarter. But you had mentioned that you were seeing some modest slowdown there. And with the 14% local currency growth this quarter, I'm just wondering, did that kind of reverse from what we saw? Or were kind of October and November just really strong months, December kind of played out as it was? Or are we starting to see kind of reacceleration back there?

Richard F. Smith

Yes, I don't actually recall the discussion saying we're slowing. The growth in Latin America was broad-based. It was across all countries, like we've seen now for quite some time. And not just all countries, but all -- mostly all products across all countries. So as I look at Latin America and I look at 2012 first quarter and total year, I think the growth we're seeing there is definitely sustainable.

Lee Adrean

Yes. And I would add second and third quarters, excluding Brazil, Latin America was growing in 16% for us. It slowed slightly. The GDP growth generally in Latin America is slowing slightly. But with a broad range of our products, our revenue is holding quite well.

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

Okay, super. And then with Brazil's integration going well and I think you mentioned that your focus now is on new products, can you just comment on the areas of kind of new product development where you think you have a competitive advantage to that market?

Richard F. Smith

Yes. I think it's -- obviously, leveraging the size and the scale that both these companies bring together. And that's taking the price [ph] at our workforce in other parts of Latin America, in other parts of the world, down to Brazil. And that could be things like analytical solutions, decisioning, so on and so forth, fraud products that we have that have worked very well in other parts of the world. That was really the value that the partners saw in us is a good leadership team that understands how to innovate and bring new products from one part of the world to Brazil. So that's exactly what we're doing.

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

Okay. And then on the long-term plan, 3-year horizon, the 7% to 10%, I'm wondering does that assume that you're bringing in some of these minority interest kind of relationships? Or is that -- is the message there that, that is kind of what we are going to see out of the kind of existing structure of the business?

Richard F. Smith

I'm not sure what you're referring to when you say minority interests. You may be thinking of Russia or something like that, but -- that's the existing companies we see today.

Operator

Next up with Credit Suisse, we have George Mihalos.

Georgios Mihalos - Crédit Suisse AG, Research Division

Just wanted to dig in a little bit more on the OCIS revenue growth. Obviously, you guys have had the 2 large competitive takeaways ramping. Can you give us a sense as to when those contracts will be fully ramped and maybe what their contribution was in this quarter?

Richard F. Smith

Yes. Both of them were -- and Lee, I'm thinking from memory here, both of the ones we referred to, I think it was the last earnings call, should anniversary. It was late third quarter, early fourth quarter of last year. I think one may have been in October and one was maybe just a month or so prior to that. And as far as the contribution of those 2 to the overall growth, I have not done the calculations, my instinct is it's not significant because the growth we're seeing in USCIS is so broad-based, again, across multiple products and almost every single vertical that we play in. So it truly is broad-based and not driven by 1 or 2 takeaways.

Georgios Mihalos - Crédit Suisse AG, Research Division

Got you. That's good to hear. And just looking at your outlook in 2012 for the TALX business. I think you said you're looking at upper-single-digit revenue growth. Can you talk about your confidence in achieving that number given the sensitivity there to mortgage, and I think you had said that you're kind of forecasting the mortgage business overall being down 20%?

Richard F. Smith

Anytime, and the team is executing very nicely. They had massive headwinds, as we said, last year in the -- starting late second quarter through the fourth quarter, those headwinds have abated. And we have built a plan that's assuming there's 20%-ish decline in the mortgage market, at the end [ph] is diversifying the Work Number well beyond the mortgage markets we talked about. We're increasing the Work Number records, which obviously give them great leverage on the topline and bottom line. We talked about partnerships, we've got to go down market, so I'm highly confident.

Georgios Mihalos - Crédit Suisse AG, Research Division

Got you. And last question for me. Just looking at Europe, you guys are looking for a modest recession there. But on a constant currency basis, I mean, you continue to push really strong growth in the European market. Is that really just new products hitting the market, or is there anything more to that that's really driving the outsize growth?

Richard F. Smith

It's largely that. NPI is allowing us to go into new markets that we didn't serve before. It's allowing us to take share with current customers who we are serving. We're leveraging the IXi-like database over to the wealth database to create new products. We think that'll be [ph] Decision 360. So it's really a great execution by the leadership team in the U.K.

Operator

Next up is Bill Warmington with Raymond James.

William A. Warmington - Raymond James & Associates, Inc., Research Division

A question for you on the longer-term revenue guidance framework that you gave. In the past, you've talked -- you've given a little bit more detail in terms of the split there as it breaks down between organic and acquired and then also kind of what's coming from some core growth markets, new products from strategic initiatives and then finally acquisitions as part of that. I just wanted to know if you could...

Richard F. Smith

Great question. You're referring back to the 2000 -- I think '06 timeframe.

Unknown Analyst

Correct.

Richard F. Smith

We don't expect, in that model I just gave you, any improvement from the core market environment, which hopefully, we'll try not to be conservative. We assumed back in -- I think it was '06, '07, '08, 2% or 3%. We're assuming the same here. We assumed back then about 1 to 2 points of M&A. We're assuming the same thing here. What's really happening is because of our ability to execute the growth initiatives now at a much higher level than where we were when we first launched things like 4G and NPI and so on and so forth. We're stepping that up. And we're going to get more from our core organic growth initiatives, and that will now be 4% to 5%.

William A. Warmington - Raymond James & Associates, Inc., Research Division

Okay. And then, Rick, you also mentioned adding some resources in sales and marketing. I just wanted to ask in terms of the headcount of sales at the end of 2011 how that compares to the end of 2010 and then where you think it'll be when you exit 2012?

Richard F. Smith

I have no clue. That's an honest answer. We have -- each business is at a different point in their growth. What you should know is this. Over last 5 or 6 years, we have invested heavily in the growth levers for the company. So marketing has been a significant investment in new product innovation, product management, pricing segmentation, branding. Sales is invested heavily now that we're coming out this downturn, but I have no idea what those numbers are by business or in aggregate.

Operator

Dan Leben with Robert W. Baird is next.

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

Just wanted to first ask about the online CIS business. Historically, the last 8 or 9 years, the seasonality in that segment's down about $10 million versus the September quarter. Was this quarter primarily just a new customer wins, or has something changed in the underlying seasonal dynamics of that business?

Richard F. Smith

I don't think there's anything changed as far as cyclicality. If I go back to -- it was such a broad-based performance. That's what's different. Every vertical through our NPI initiatives, we're able to grow year-on-year.

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

Okay. And if you were -- if you look at those volumes on a same-customer basis, would the same theme be in place?

Richard F. Smith

Yes, it's a combination of growing with our current customers and expanding the customers that we serve. And thirdly, even with the customers that we service, not just taking share but solving problems with the data assets, we couldn't solve a [indiscernible] spending more money with us..

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

Okay, great. And then with the new regulator now officially up and running, what have you heard from there? And I assume you guys are not the focus for them in the near-term?

Richard F. Smith

We've intentionally reached out to them. We went up and sat down with the team in D.C., which I think it was back in December. I had a very good conversation with them. They've been here to talk our teams. So we're taking a proactive approach with them. And at this juncture, I feel we're well prepared.

Operator

Shlomo Rosenbaum with Stifel, Nicolaus is next.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

I just want to ask you a little bit about the growth. Everyone's asking about USCIS, but I'm asking a little bit more in terms of comparing to some of your peers that are out there. The growth really exceeds what we're seeing from some of the other competitors. I'm wondering, are you expanding the market, or are you getting a sense that you're -- have or taken market share? And I'm asking just beyond the few competitive takeaway that you guys have highlighted in the last quarter.

Richard F. Smith

Yes, it is -- that's a good question. Just a clarification. We are customer-unique data assets able to solve problems for customers that they weren't solving before, so hence, they're spending more money. So it's, I'd say, growing to the pie. Number 2 is we're able to take our products to different verticals we couldn't service as robustly in the past, i.e., insurance, and you take share there or expand the pie. And third, we're clearly taking share from -- existing customers we have, ex share, ex is going up, or taking share where we had no share before from new customers. A combination.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

To be -- you have a definite sense that you are taking some share from the other existing participants?

Richard F. Smith

Clearly. And I think I've given you examples over the last year or so. So, absolutely.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then in the Consumer financial marketing segment, IXi seems to have been on like on a tear for 1.5 year. And then the last 2 quarters, it slowed down. And is there anything different that's been going on in IXi? Is it really that they had a really high level of project or related work over there? Can you just give us a little more clarity?

Richard F. Smith

Yes, I think 2 things. And, Lee, jump in. One was last -- towards the end of last year, especially the fourth quarter of 2010, I should say, not 2011, they had an unbelievable run-up of some project-based work that did not repeat. So the comps were tough, and they had a couple of large projects, as Lee mentioned in his commentary, that were viewed on the label discretionary spend that did not materialize. The underlying growth of the company, the value proposition of the product for the customers is still strong.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

So it really is project -- tough comps and project work that for some reason is just slowing down right now.

Richard F. Smith

Correct.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then lastly, on the Commercial Solutions. Again, you had a very, very strong string of quarters in terms of year-over-year growth. And then this quarter was fine but not like the double-digit growth. Was there some deferrals that ended up happening that are slipping into 1Q that are just going to make that a particularly strong quarter?

Richard F. Smith

If you look at the core U.S. risk business, which is the core of that BU -- I forgot the number, strong double-digit growth in the fourth quarter. And much like IXi, they have a piece of the business we call NDM [ph], which is the marketing, which is a project-based business that is somewhat discretionary. And it was that piece of business in the fourth quarter that didn't pop like we had hoped it would pop. But if you go back to my commentary, I think in my concluding comments, I talked about the forecast for 2012, first quarter and total year, and I told you I expect good, strong double-digit growth from that.

Richard Cheever

Okay. And so we're not seeing -- you're not -- that's not indicative of any slowdown in the core markets that you're serving right now?

Richard F. Smith

No, sir.

Jeffrey L. Dodge

Okay. I'd like to thank everybody for their participation. We'll be around throughout the day if there's any additional questions. And with that, operator, we'll conclude the call. Thank you.

Operator

Once again, everyone, that will conclude today's call. Thank you for joining us. You may now disconnect. Please enjoy the rest of your day.

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