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Equifax, Inc. (NYSE:EFX)

Q3 2007 Earnings Call

October 23, 2007 8:30 am ET

Executives

Jeff Dodge - Senior Vice President of Investor Relations

Rick Smith - Chairman and Chief Executive Officer

Lee Andrean - Chief Financial Officer

Nuala King - Corporate Controller

Analysts

Kyle Evans - Stevens

Mark Bacurin - Robert W. Baird

Andrew Jeffrey - Robinson Humphrey

Frederick Searby - JPMorgan

Michael Meltz - Bear Stearns

Dhruv Chopra - Morgan Stanley

Andrew Ripper - Merrill Lynch

Kevane Wong -- JMP Securities

Jamie Brain Wood - UBS

Bruce Simpson - William Blair

Matt Otis - KBW

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q3 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. Instructions will be given at that time (Operator Instructions).

I would now like to turn the conference over to Mr. Jeff Dodge. Please go ahead, sir.

Jeff Dodge

Good morning and welcome to today's conference call. I'm Jeff Dodge, Investor Relations and with me today are Rick Smith, our Chairman and Chief Executive Officer, Lee Adrean, Chief Financial Officer and Nuala King, Corporate Controller.

Today's call is being recorded. An archive of the recording will be available later today on our website at www.equifax.com. During this call, we will be making certain forward-looking statements to help you understand Equifax and its business environment.

These statements involve a number of risks and 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 2007 Form 10-K -- or 2006 Form 10-K and subsequent filings.

You should also reference the risk factors included in TALX Corporations March 31 2006, Form 10-K and June 30 2006, Form 10-Q.

I would also like to point out that the company's use of non-GAAP financial measures including diluted earnings per share adjusted to exclude acquisition related amortization expense and certain 2006 legal and tax matters a measure, we call adjusted EPS.

And operating income, operating margin and net income adjusted to exclude the impact of the 2006 legal and tax matters are explained in our earnings release and a full reconciliation between each of the non-GAAP measures and the corresponding GAAP measure is provided in the tables accompanying the press release and in our GAAP, non-GAAP reconciliations found on the investor center on our website.

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

Rick Smith

Thanks, Jeff. Good morning everyone. Thanks for joining us this morning. Our performance this quarter is attributed to the diversification of our business mix and also the strategic initiatives that we launched last year that are gaining some solid traction for us. And we will walk through some of those throughout the presentation this morning.

Total revenue $492.5 million, up 25% over 2006, our International, North American Personal Solutions and North American Commercial businesses, again, delivered strong double-digit revenue growth.

U.S. Consumer Information Solutions was down 1% year-on-year, driven primarily by the Mortgage Activity and Marketing Services. The Core Online business was up 1% for the quarter and TALX delivered $70.4 million in revenue.

Operating Income was $129.2 million, up 7% and adjusted operating income increased 12%. Diluted EPS was $0.48, down from $0.61 in 2006. 2006 included $0.10 benefit, related to the favorable impact of the 2006 tax and litigation matters mentioned in our opening comments.

Adjusted EPS was $0.58, up 5%. For the year-to-date, total revenue was $1.4 billion, up 17%. TALX contributed 9 points of that growth. Again, year-to-date, diluted EPS was $1.53, down 6% and adjusted EPS was $1.73, up 8%.

Based on our year-to-date performance and market trends, we expect revenue growth for the full year to be approximately 19% and adjusted EPS to be between $2.28 a share and $2.32 a share versus the guidance we gave you in June of $2.25 to $2.33 a share.

I'll go through some of the specific highlights now by businesses. First in the U.S. Consumer Information Solutions business, they continue to address customer needs; for effective decisioning tools, for managing risk and cross-selling their existing customer base.

Online Consumer Information Solutions grew 1% with their online transaction volume up 5%. Regional Teleco customers contributed significantly to this growth; while, our largest national accounts were down slightly.

We ended the quarter with 29% of our Online transactions delivered through one off our platforms, a decisioning platform during the period, up from 27% for the same period last year. Through September, 16% of our Online transaction volume included scores for models built by Equifax, this compares to approximately 13% for all of 2006.

In Credit Marketing over 33% of names listed included a score from Equifax model. Mortgage Reporting was down 3% for the quarter. Our Settlement Services venture continues to gain transaction in the marketplace. As you will recall that was a new product we launched in late 2005, 2006.

Credit Marketing Services revenue declined 6% for the quarter as customers continue to focus more on managing their existing customers for risk and revenue growth versus acquiring new customers.

Direct Marketing Services revenue was down 1% compared to the third quarter of 2006, but up 3% from second quarter of this year as we started to benefit from the integration of our DMS Data Assets into Solutions for a Traditional Financial Institution Clients.

North American Commercial Solutions continued to deliver outstanding performance with revenue growth of 45%. Our U.S. Commercial Database continues to add depth and breadth to its files. As of the end of September over 20% have four or more relationships with members of the small business financial exchange, and over 75% of the business folders contained at least one financial account and one trade account.

Over 80% of these folder had at least 2 accounts while over 49% of the folders contain at least 5 different accounts. We also signed a three-year, multi-million dollar contract with the Fortune 500 Company for a Global Enterprise Wide Data Integration Solution that facilitates a single view of their prospects and existing customers leveraging the Unique King and matching technology of our Austin-Tetra assets.

North American personal solutions has continued to do execute on its strategy and deliver outstanding financial performance, delivering revenue growth of 19%. Revenue generated through direct response activities was up 25%, while revenue through our call center was up 17% for the quarter.

Approximately, 71% of revenue during the quarter was subscription based up from 61% in third quarter 2006. Subscription customers grew to $1.4 million by end of the quarter up from $1.2 million in the second quarter of 2007.

As evidenced by our consistent performance during the past few quarters, we have clearly refocused our business model to deliver more consistent growth and profitability in our Personal Solutions business.

Next, International, international revenue growth was driven primarily by our high value-added solutions including Enabling Technologies, Predictive Sciences and Marketing Services. Europe grew revenue by 20% in the quarter as Core Information Services in both the United Kingdom and Iberia experienced strong volume gains.

Revenue growth in local currency for the quarter was 11%. U.K.’s Core Consumer volume was up 27% with volume from the top 20 customers up 23%. Growth from the top 20 was broad based including banks, retailers and government. Utilities and debt collection customers were the principal drivers for growth with our small regionally based customers. Latin American revenue grew 16%, 9% in local currency.

With Enabling Technologies, Predictive Sciences and Marketing Services all growing double-digits, 5 of our 6 countries delivered strong double-digit revenue growth. Marketing Services, Analytics and Enabling Technologies represented 30% of international revenue in third quarter, up from 27% in third quarter of 2006.

Canada consumer revenue was $28.2 million, up 14%, 6% in local currency, as new pricing initiatives were implemented from Marketing Services, were implemented and Marketing Services continued its strong performance from the second quarter of 2007.

Finally in international, last week we closed the acquisition of the number two credit reporting company in Peru. This continued our focus on completing strategic tuck-in acquisitions to strengthen and solidify our Latin American franchise.

Last TALX, TALX's revenue grew 7% to $70.4 million when compared to the same period in 2006. The Work Number grew 14% while adding almost $6.6 million total records to the database during the quarter, twice our target objective.

We now have 45.3 million active and 158.9 million total records in that database, an outstanding quarter for the Work Number. We currently have 8 million total records in backlog, which is down from 10 million records in the second quarter of 2007.

We are making great progress on integration, EID Verifier, one of our Enabling Technology platforms used for ID verifications is being implement to enhance the securities customers access to the Work Number and TALX will soon be assessing our commercial database for credentialing new employment and income verifiers.

Revenue synergies, today customers will be able to access the Work Number via ePort, our Internet based enabled distribution portal, which is used by many customers today for a credit-based solutions.

And we are going to talk a lot more, Bill will specifically about the synergies as will I when we are together this Friday in New York at the Investor Conference.

I will now turn it over to Lee for more financial details.

Lee Andrean

Thank you, Rick and good morning everyone. This morning all financial information I will be discussing will be presented on a GAAP basis except as otherwise noted. You should also refer to the Q&A, which is attached to our earnings press release for additional financial information.

For the quarter, consolidated revenue was $492.5 million, up 25%. Operating income was $129.2 million, up 7% from 2006, which included the favorable net impact of several litigation matters in 2006.

Operating income adjusted for these matters increased 12%. Net income was $67.9 million, down 14% from 2006, which included the favorable net impact of several litigation matters and a one-time tax benefit in 2006.

Adjusted net income increased 2%. Earnings per share adjusted for acquisition related amortization and the litigation and tax matters noted above was $0.58, up 5% from $0.55 in the third quarter 2006.

In our U.S Consumer Information Solutions business, Online Consumer Information Solutions revenue was $161 million, up 1% when compared to the same quarter last year. Online volume was up 5%, driven primarily by Telco and regional customers.

Mortgage Reporting Solutions revenue of $17 million was down 3% from the third quarter of 2006. Growth in our new Settlement Services offering helped partially offset lower demand for traditional tri-merge mortgage credit report.

Credit Marketing Services revenue of $39 million declined 6% for the quarter. Quarter-to-date our prescreening revenue, which is primarily used for new account acquisition is down 15%.

Our portfolio review products are up 5% continuing the trends we experienced in the second quarter where financial institutions focused more of their marketing on cross-selling and risk management of current customers.

Direct Marketing Services revenue was $27 million down 1% compared to the third quarter of 2006. The operating margin for U.S Consumer Information Services was 39.8% down from the adjusted operating margin in the third quarter of '06 at 40.7%.

This reflects continued to focused investment in new products and technology to support future revenue growth and expenses related to the conversion of Bank of America to our Interconnect Enabling Technology platform.

North America Commercial Solutions revenue was $16.7 million, up 45% from the third quarter of '06. U.S Commercial Transaction volume was $1.2 million, up 28% from Q3 2006 primarily driven by growth from our ten largest customers.

Transaction based revenue in the U.S Commercial business now represents over 63% of total commercial revenue in the U.S.

In October of 2006 we acquired Austin-Tetra to add a critical strategic technology to our commercial business. Beginning in the fourth quarter this year, year-over-year growth in this business will include Austin-Tetra in both the prior year and current year periods and reported growth will likely be in the teens.

In North America Personal Solutions revenue grew 19% to $38.6 million. Operating margin was 26.9% for the quarter compared to 48.1% for the same period in 2006, which benefit from a litigation settlement in our favor.

Excluding that settlement adjusted operating margins in Q3 '06 was 20.4%. The increase in adjusted operating margin reflects a shift to more efficient marketing channels and leverage from increasing scale in the business.

Our international business grew revenue by 17% in the quarter to $122.9 million. Canada Consumer revenue was $28.2 million, up 14% in U.S dollars and 6% in local currency.

Europe delivered revenue of $47.6 million, up 20% in U.S dollars and 11% in local currency, and Latin American grew revenue 16% in U.S dollars to $47.1 million in local currency Latin American revenue growth was 9%.

TALX delivered $70.4 million in revenue representing the first full quarter since the acquisition closed on May 15th. This revenue was up 7% when compared to the same period in 2006 as an independent company.

The Work Number delivered revenue of $29.1 million, up 14% for the quarter. Total records in the Work Number database grew to 158.9 million, up 20.6 million or 15% from the same period in 2006.

Transaction volume for the Work Number was $3.6 million for the quarter, up 22% from the third quarter of 2006. And the Tax and Talent Management Services segment delivered $41.3 million in revenue during the quarter. TALX operating margin was 14.2%, adjusting for incremental amortization from the acquisition of TALX, the adjusted operating margin will be approximately 28%. Like Equifax generally, this TALX is a high margin, strong cash flow business.

For the corporation as a whole, operating income was $129.2 million, up 7%. EBITDA, a non-GAAP measure defined as operating income before depreciation and amortization and adjusted for the net favorable impact of certain 2006 litigation matters was $168.1 million, up 24% for the quarter.

Operating margin was 26.2% in the quarter. On a non-GAAP basis excluding the impact of our TALX acquisition in 2007 and the 2006 litigation matters mentioned previously operating margin was 28.2% in 2007 compared to 29.3% in the third quarter of 2006.

The difference reflects increased cost of litigation and increased investment in marketing and technology infrastructure to support future revenue growth. We repurchased 11.1 million shares during the quarter for $441.6 million. We have now repurchased $621 million against our $700 million post acquisition share repurchase program.

Outstanding debt was $1.4 billion, up from $504 million at the end of 2006. Reflecting the acquisition and subsequent share repurchase. In summary, a solid performance across a diverse set of businesses all of which are providing critical, high value information based decisioning tools to our customers. Now let me turn it back to Rick.

Rick Smith

Thanks, Lee. As I mentioned at the beginning, this strong performance in the quarter is really attributed to the diversity of our businesses, our broad based end market mix, our high value-added product offerings, a lot of the strategic initiatives that we have launched like NPI and pricing. I am really proud the way this leadership team has stepped up and we look forward to sharing more successes in the coming quarters.

As many of you know we are hosting an Investor Conference this Friday at the New York Stock Exchange. There we will in New York clearly for you. The strategic vision and an update from last year and some great progress the team has made on some of the commitments we discussed in 2006 and we hope we can see many of you there. Operator, I would now like to open up for questions.

Questions-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Kyle Evans of Stevens. Please go ahead.

Kyle Evans - Stevens

Hi. Good morning, Rick and Lee.

Rick Smith

Hi, Kyle.

Kyle Evans - Stevens

Could you help us quantify corporate total exposure to mortgage and maybe dig down a little bit within the C. I. S. Canada and work number businesses?

Rick Smith

We see a, traditionally talked, Kyle, and did inflows on any one-quarter as different products and geographies grow. But we talk in range of 10% to 15%, in terms of excluding TALX now. For the third quarter for the core full Equifax business it's about 12%, total exposure to the mortgage market, that's through our concluding TALX.

And then the TALX, business, if you take the work number on the tax business and than put it all together and look at the exposure they have in mortgage it's about the same kind of range. So, 12 to 13% the TALX.

Kyle Evans - Stevens

Okay. Thank you. On TALX, could we dig down a little bit there? A nice record addition quarter there at 6 million but the backlog fell to 8 million. What are some of the initiatives that that you have place to get that backlog juiced backed up?

Rick Smith

It's good news Kyle. Great backlog down in that’s good, which is, here's the process. One of the client, a customer agrees to provide us the data it sits in what we call backlog. The longer it sets in backlog the longer it takes for the longer it sets in backlog, the longer it takes for me to monetize that actually have verify fires come and access that data.

So, we have been sitting at 10 plus million for quite sometime. Bill and his team have done a fantastic job in getting that down to eight million. You should think about as it comes down that's good news because my fires now have more data in the database for which they can access and pay me.

Kyle Evans - Stevens

It does not impair your ability to continue putting up 6 million records a quarter going forward?

Rick Smith

No.

Lee Andrean

Kyle, I would note, Bill can field has long said about 3 million records is quarter is a reasonable target. I think the 6.6 million reflects the positives of accelerating some of the backlog can drive revenue and still hire the trend at record decisions.

Rick Smith

Does that make sense, Kyle.

Kyle Evans - Stevens

It does actually. On the verifications side of the work number business are you starting to see revenue cross selling, through larger sales force?

Rick Smith

We actually, we'll talk to you on Friday, I assume you will be in New York, dozens of clients a who have crossed sold generating significant revenue. I mentioned before you will see it on Friday and so as Bill and Dan, far more bullish today than we were at the time of the acquisition. There is great synergy here and you will see it on Friday. We will give you specifics.

Kyle Evans - Stevens

Thank. I will be there on Friday. And one last question, the international growth was very strong in the quarter and as I look out in 2008 could you help me think about how sustainable common currency growth, right around the double-digit market is for the international businesses?

Lee Andrean

Yeah, exclude the currency and look on local currency. The thing we are doing in Latin America of new product transfers from other parts of the world to Latin America, pricing initiatives in Canada, value based pricing in the U.K., Marketing Services in the U.K., new leadership in Iberia, which is bringing our new decisioning platforms to Iberia.

A lot of those initiatives are just gaining traction. Rudy has only been at this now for 10 months so I'm, and you will see it we will lay it out for you in the three-year plan. The long-term growth for international over the next three years is at 9% to 11%.

Kyle Evans - Stevens

Great. Thanks. I will get back in queue.

Rick Smith

Thanks, Kyle.

Operator

Thank you. Our next question comes from the line of Mark Bacurin of Robert W. Baird.

Mark Bacurin - Robert W. Baird

Good morning everyone.

Rick Smith

Hi, Mark.

Mark Bacurin - Robert W. Baird

A couple questions. I guess first on TALX overall revenue up 7%. I know you said the work number was up like 14, so that would imply that the tax and talent piece, but that was for the, was quite a bit weaker. Can you comment on what's going on there? I know that was the less strategic part of the acquisition when you made it. Are you deemphasizing revenues there?

Rick Smith

Absolutely not. I will have Lee jump in and give you some flavor there. It's a story within a story and I will come back and give you some thoughts on why I am bullish on that going forward.

Lee Adrean

The work number was up 14%, the combination of tax and talent management this quarter was up 4% versus a year ago. Actually last quarter that same comparison was up 1%; the tax business gets slowed down in the year and the talent management business, which had peaked in the third quarter of last year dropped off with the slowing from TSA, which people may recall if they had fold TALX in the past.

Both of those businesses are moving positively, the tax business is has recovered very nicely and is strengthening its growth rate and the talent management business also each quarter for the last three quarters has grown sequentially and is positioned for a stronger fourth quarter, which I think Rick may want to…

Rick Smith

Yes, one more point, Mark, that the non-work number performance was really dragged down in the third quarter due to the Pan business. It had a very difficult as we said year-over-year comparison in the third quarter.

The tax business performed very well in the third quarter. And back to Pan, the good news is they are not paid alluded but, they based on a very large corporate account in the third quarter, which further diversifies their revenue stream away from the TSA and will give them significant revenue list in the fourth quarter and beyond. So, the story there is very good.

Mark Bacurin - Robert W. Baird

Good. Rick, I’m going to ask about the international partnerships. You told us I think six months ago it would be about six months for Mexico or China or India. Maybe you are holding it for Friday but I didn't hear you mentioned in the commentary, so just curious?

Rick Smith

Yes, I talked about Peru, Mark.

Mark Bacurin - Robert W. Baird

Peru wasn't one of the original four.

Rick Smith

You’re right, yes, good memory, here more, I do want to save that for Friday. There's some exciting things going on and we will announce that on Friday.

Mark Bacurin - Robert W. Baird

Very good. And then just also was curious, any list this quarter from advantage core starting to see a few little things we got from retailers are no experience it time, one retailer, are you getting revenue list from advantage at point?

Rick Smith

Yes, we have solid performance, we have -- I think we may show you some stuff on Friday specifically but we have little top 20 bank so either using it or testing it, telecos are using it or testing with hundreds of clients right now either using it and or testing it so we are doing than expected it to do.

Mark Bacurin - Robert W. Baird

Great. And then just one final one for Lee, for the last several quarters the consumer -- U.S. consumer business has been putting up mid single-digit growth, which I was actually surprised seeing what's going on in the credit markets and this quarter we finally did see growth tail off to being up just a modest 1%.

As you looking out now are we starting to hit some tougher comps? Was there anything specific in the quarter that drove that, we finally saw that revenue slow down relative to what I would have thought would have happened a couple of quarters ago at least?

Rick Smith

No, I don't think there's anything in particular, I think you are reading in the papers every day it is not just a tough mortgage market but the banks are being a little more cautious on their general consumer credit marketing focusing more on their current customers and doing a little bit less new marketing and that caused the pull back from the first and second quarter growth rates.

There's nothing particular in the comparables this year to last year either in the third quarter or in the fourth quarter. And we are obviously working very hard with our customers.

We think we've got solutions that help them address their current needs and are carrying those out active with the customers but nothing particular in year-over-year comps, just a little bit more pull back in the third quarter compared to the second quarter in new marketing.

Mark Bacurin - Robert W. Baird

And Mark, Rick, one last thought, this may or may not have been a part of your question but as we look at what's happened in the U.S. credit markets in general U.S. consumer. And again as Lee said we are reading it every day in the papers we see the data every day here at Equifax, obviously those trends in behaviors and headwinds.

And we've taken into consideration as we have given you updated guidance for the first quarter and for the year.

Rick Smith

Very good, thank you.

Mark Bacurin - Robert W. Baird

Thank you.

Operator

Thank you. And our next question comes from the line of Andrew Jeffrey with Robinson Humphrey. Please go ahead.

Andrew Jeffrey - Robinson Humphrey

Hi good morning.

Rick Smith

Hi Andrew.

Andrew Jeffrey - Robinson Humphrey

Rick, can you talk a little bit about what you think sort of the intrinsic operating leverage is in the U.S. consumer information business you’ve been investing pretty heavily and you've this -- you’ve conversion its way to little bit in the second half. As you look out longer-term shipped you all us be gone up relatively normal credit environment.

Is this a business that we shall think about as having some pretty good operating leverage at some point?

Rick Smith

The answer is yes, but it is not just to be a transition and its not just NPI as well, as we mentioned. We are investing in core infrastructure technologies, service customers to a higher standard of availability, which is important to them.

It's a high fixed cost business, right? By and large and when the business is growing you get significant lift or operating leverage as you call it and when the business slows as it has done this quarter you tend to get some obviously some margin compression. But it's a wonderful business.

It's a great franchise. It throws off a lot of cash. It's a business that will get through this U.S. economic downturn and once again not only grow but gives us the leverage and margin we are expecting.

Andrew Jeffrey - Robinson Humphrey

Okay. So it sounds like operating leverage is going to be at least at the margin predicated on reacceleration and growth. To that end you obviously had a good teleco quarter for reasons I think most people understand a more challenge, FI quarter.

Any indication that we’re normalizing in terms of financial institution volumes or bottoming in financial institution volumes? How should we think about this demand environment here as far as stabilization versus the potential for any worsening?

Rick Smith

I will leave you with this thought here, is that the we have seen in the early part of October versus what we saw in September use the term I think normalizing, a stabilizing affect in U.S. financial sector, it has not significantly improved nor has it deteriorated.

So we've seen stabilization from September through October at this juncture. Again it's important I continue to underscore that view with our guidance. We went into this with our eyes wide-open clearly analyzed trends by every business unit as we posted and updated our guidance for you.

Andrew Jeffrey - Robinson Humphrey

Okay. And thank you.

Rick Smith

Thank you.

Operator

Thank you. And our next question comes from the line of Fred Searby with JPMorgan. Please go ahead.

Frederick Searby - JPMorgan

Yes, thank you. Kind of a follow up but in terms of the prescreen business and credit card marketing prospecting with the historic down market strategy that we are clearly not seeing right now.

Can you just give us your thoughts on what the banks are saying and when they are going to have confidence to go out and sort of pick that up? And then secondly just to clarify something, you took down your guidance for revenues for low into the range at 19%. It was almost symbolic. I'm wondering if it stabilized September, October, what have you specifically seen that maybe you do that so far into the quarter in October? Thank you.

Lee Adrean

Sure. Thanks, Brett. As far as the banks and maybe the attitude of the banks on acquiring new customers versus managing portfolios versus cross-selling products to their existing clients, it has he been flowed over the quarter, Fred.

From a more inquisitive tone if you will at the early part of the quarter to more of a stop, manage the credit risk within a portfolio, almost a bit of a paralysis as we exit the third quarter from the FI's themselves, but I would say I'd categorize now is really looking at way and by-products the most managed and understand the current risk trends within our portfolio, look at ways to cross-sell other products to existing clients.

But the actual acquisition, trying to go out into the marketplace and find new customers has slowed. And Lee had mentioned earlier what that 3% work with CMS. That's a direct reflection of their attitude, which is, let's manage the risk in the portfolio, let's cross over the current customers we are comfortable with and let's slow down the acquisition of new clients.

As far as the revenue growth we will give you range, back in June of 19% to 22% and just looking at the overall environment and all the great things, by the way we tend to focus on the U.S. economy but there's some great things going on I hope you are seeing within the U.S. commercial three star, international.

When I put it together, Lee and I look at the most likely scenario for the balance of the year with feel comfortable that business will deliver at approximately 19% revenue growth.

Frederick Searby - JPMorgan

Okay. If I could follow up with one question, you mention advantage score, I think you said you had eight out of the 20 largest banks testing or using it. I think you had any large banks or customers, are they actually replacing the FICO score or are they just using it in tandem and testing it?

Lee Adrean

In most cases right now, they are using it in tandem with FICO. I've been pretty consistent when I talked about this. I think over time they get comfortable with advantage score they will replace with FICO with this score.

Let's not forget this also use generic scores, they have their own scores as well. So I see it as an augment what they will do with generic scores generated in-house and replace FICO over time.

Frederick Searby - JPMorgan

Okay, great. Thanks guys.

Operator

Thank you. Your next question comes from the line of Michael Meltz with Bear Stearns. Please go ahead.

Michael Meltz - Bear Stearns

Thank you. I think I have three questions. Lee, can you isolate for us what was the TALX impact in the quarter and TALX dilution in the quarter?

Lee Adrean

Actually I have not calculated that precisely. It's more or less in line with our expectations, which would have been in the $0.02 to $0.03.

Michael Meltz - Bear Stearns

Okay. Can you tell us, your guidance for the year you gave us adjusted cash EPS guidance, has there anything changed on your GAAP guidance? I think it was $0.29 of non-cash amortization?

Lee Adrean

To be honest, Michael, we manage to the adjusted cash EPS figure and I literally haven't done the calculation. I don't think that the amortization has changed meaningfully its up it might be up a penny as we've done our final allocation of purchase price. We had slightly higher amortizable intangibles and a slightly shorter life. So the effective amortization in cents per share might be a penny higher.

Michael Meltz - Bear Stearns

Okay. In the U.K., I still struggling to understand how consumer credit volumes grew 27% and I think a tougher lending environment than we have here in the U.S. What's going on there driving that, because certainly that's kind of a record performance for your business?

Lee Adrean

Thank you. There is a continuation of some things we put in motion, Michael, a couple of years ago which is new leadership, new sales programs, new product introduction, value based pricing.

And let's not forget we are a number two player in that marketplace. We are always looking for ways to differentiate our offering versus the number one player there and the team is doing just that.

And its truly pretty broad based. It is not any one customer, not any one vertical. And we talked to you about the government program, I. D. verification, which we launched a couple of years ago. That particular program continues to is strengthen as well. So it true is broad-based performance.

Michael Meltz - Bear Stearns

Okay. And Lee, you had made a comment about CMS and I think you said quarter-to-date and you talked about prospecting down 15%. Were you talking about Q4 or were you just referring to Q3 that way?

Lee Adrean

I'm sorry, that was the Q3 result for the quarter, third quarter.

Michael Meltz - Bear Stearns

Okay. Thank you for your time.

Lee Adrean

Thanks, Michael.

Operator

Thank you. And our next question comes from the line of Dhruv Chopra with Morgan Stanley. Please go ahead.

Dhruv Chopra - Morgan Stanley

Yes. Good morning, gentlemen. I had a question on the gross margins they were, obviously very sharply up sequentially and sort of looking back I think the strongest since the fourth quarter of '03. Can you give us a sense on what's going on and what's driving that and is that sustainable?

Lee Adrean

I'm sorry, Dhruv, the question were the GMs were up?

Dhruv Chopra - Morgan Stanley

Up to about 60%, which was up sequentially and probably the highest since fourth quarter of '03. Can you just provide a little color on what happened in the quarter?

Lee Adrean

You know, I think some of that may reflect the addition of TALX. Keep in mind the work number GMs are extremely high and that helps drive, that may be helping drive the mix. I don't think a fundamental changes within the traditional Equifax businesses other than the gross margin at our personal solutions business is probably also expanding nicely.

Dhruv Chopra - Morgan Stanley

Okay. Great. And then a quick question, there's been a lot of press currently around credit freezes and one sensitive view and other totally different view. What are you seeing in the environment? Are you literally going to have to go down and sort of individual rules for 50 states or have you been successful in trying to come out with a national standard?

Lee Adrean

Dhruv, we are ready bring you to Washington in order to be successful at the Federal level logistic. Today, no we have not been successful. Right now there are 39 states I believe that have local state laws. Some other mirror the laws the other states have enacted and there are 11 who are currently undecided at this juncture. So we are currently operating within that framework and it's not an issue for us. We will find a way to deliver to the local states needs. But our preference sure as heck would be to have a Federal preemption and have one standard.

Dhruv Chopra - Morgan Stanley

Sure. In terms of financial commitments, we went through the whole factor a couple of years ago, that I guess is now known as a regulatory recovery fee, would that basically go towards funding some of the costs that you would have to incur?

Lee Andrean

Yeah, I don't think the costs would be significant at all. There may be some involved and won't materially change the financials. We will price the product in the marketplace to cover whatever investment we have to make, Drew and I think the most important thing is to date the states that you have had file freeze as a legislative offering the take up rate is deminimis, so I don't see it as being significant.

Dhruv Chopra - Morgan Stanley

Great and just quick final question on Latin America I think you mentioned five out of the six countries strong double-digit growth. If I recall that's been the case and I believe its Brazil that's lagging a little bit. Is that correct? And if so, what are the steps apart from new country management that you are taking out there to get that.

Rick Smith

Good memory, Drew, it is Brazil. We put a new leader in there about nine months ago who is making good progress. We are winning in a lot of places. We are winning in marketing services. We are winning in the non-FI, the corporate accounts. We are winning in the large banks and small banks with marketing services.

It's just that we, that Serasa is a good competitor, their view of value based pricing is different than ours. They've been very aggressive in some of those sectors. Having said all that I'm convinced we are on the right path, number one.

Number two, Rudy who runs our international team and I were just down in Brazil and we met with most of the major banks, and the encouraging news that's out there, Drew, is that with the sale of Serasa by these banks, these large Brazilian banks to Experian, these banks are now interested in providing us with their negative data.

So that will enhance fairly significantly the database for which we can operate and offer value to the Brazilian client. So the landscape I think will change favorably for us going forward and that's before we even talk about the advent of positive data, which is on the horizon as well for 2008 in our belief.

Dhruv Chopra - Morgan Stanley

Thank you.

Rick Smith

Thank you.

Operator

Thank you. And our next question comes from the line of Andrew Ripper with Merrill Lynch. Please go ahead.

Andrew Ripper - Merrill Lynch

Good morning, gentlemen. Just a question on U.S. consumer information and then I have another one to make, how big a drag was the mortgage business on the consumer information side? I think you mentioned that it was about 13% of sales for that business.

Lee Adrean

I think we mentioned and also that the mortgage business was down in third quarter versus third quarter versus third quarter 2006 3%.

Andrew Ripper - Merrill Lynch

But within U.S. consumer information through mortgage sales, you said you got all of your mortgage incorporated with the mortgage solutions, isn't the consumer information side affected by mortgage related enclosure as well.

Rick Smith

Our mortgage revenue, there's the part we record on mortgage reporting, which is where we sell directly to lenders. There is also some other streams that are mortgage related. They are a little harder for us to have precisely but we do estimate those every period. In total the complete set of mortgage revenues as well as we can estimate it in U.S. consumer was probably down about 5% and that's a base of about $50 million a quarter.

Andrew Ripper - Merrill Lynch

Okay.

Rick Smith

So a slightly larger effect in the mortgage reporting line alone but comparable overall kind of percentage effect 5% instead of 3%.

Andrew Ripper - Merrill Lynch

Okay. And did that sort of change over in the course of the quarter? And if September was weaker than July and August have you extrapolated the rates of contraction in terms of pitching your full year guidance?

Rick Smith

Please state that again. There was a lot of noise in the background.

Andrew Ripper - Merrill Lynch

Just saying I presume the mortgage business deteriorated over the course of the quarter so I was asking have you extrapolated September's rate of contraction in terms of pitching your full year guidance?

Lee Adrean

We did.

Rick Smith

Yes. And the other thing is we did the numbers. We launched the ESS product similarly the compression in the mortgage arena will continue. The good news is that our ESS Business, the Equifax Settlement Services is gaining nice traction for us helping off put some of the compression.

Andrew Ripper - Merrill Lynch

The Banker’s Association statistics suggest that origination was down 25% for the quarter and obviously your numbers compare very well with that. Are you sort of saying that that's down for the settlement services products or are you sort of performing better than the origination statistics would suggest even if you take the other fact out.

Lee Adrean

Let me see if I can answer it this way. We don't expect the mortgage market to improve in the fourth quarter that's the heart of your question, now earnings guidance. We don't expect that 25% year-over-year decline to improve in the fourth quarter.

Andrew Ripper - Merrill Lynch

And just finally, that wasn't the heart of my question but just trying to understand why I'm looking at Mortgage Banker Association start saying down 25% for the quarter, you are reporting minus three for mortgage solutions or setting you down 5% on the course of the consumer side.

Is there any other thing I should be aware of apart from the new supplement services product that’s enabling you to do so much better than the origination numbers would suggest?

Rick Smith

I would say there were a couple things. We've traditionally looked at and reported our businesses outperforming the market number one. Number two is we did make this year some small affiliate acquisitions, relatively small but they will help and third, ESS is again gaining traction.

Andrew Ripper - Merrill Lynch

Okay. Thanks for your answers.

Rick Smith

Sure.

Operator

Thank you. Our next question comes from the line of Kevane Wong with JMP Securities. Please go ahead.

Kevane Wong -- JMP Securities

Hi. Good morning, guys. Few things. First could you give a little more detail on the Peru Credit Bureau acquisition?

Rick Smith

Yeah, it was, we are number one in Peru and it's a good market for us, we've been there for a number of years and we acquired number two player in Peru. Nice little tuck in acquisition, fits right with our strategy, little integration required. Peru is not a big market for us so it’s not going to be a significant revenue end hasn’t, but significantly it makes sense?

Kevane Wong -- JMP Securities

Actually, give anything as far as revenues due to pricing.

Rick Smith

Say once more.

Kevane Wong -- JMP Securities

Revenues or pricing metrics, can you give us a little financial numbers?

Rick Smith

It’s in the single digits in millions in terms of revenues, so it’s small.

Kevane Wong -- JMP Securities

Okay. And second, also, if you look at TALX one of the initiatives they had was with providing verifications services when they don’t have the information on their own database. Can you give us information on how much that’s progressing, how much that’s adding on numbers?

Rick Smith

It is some you are referring to TALX, you referring to thin files or find it?

Kevane Wong -- JMP Securities

I think, it would be find it where people are calling and saying, hey, I need this things verified and if TALX has it they will do it and if they don't have it they will search around.

Rick Smith

Great. Just a part of your question, they are doing a great job, we’ve got a full time merger in there now, running fine also full time getting a good infrastructure in place. We had a couple of big wins.

In fact if you will be at the conference on Friday, pull Bill aside, he may say in his presentation, if not pull Bill aside and he will give you some specifics. They had some nice wins in the find it in the quarter. Simply said, good progress, real good progress.

Kevane Wong -- JMP Securities

And then lastly, curious if you can give information as far as are you getting a particular risk scoring increase, that’s what helping? So, last quarter one of your competitors really had strong growth with risk scoring products and I was curious if you were seeing that sort of factor continuing this quarter, I don't know if it's quantifiable or just for the data?

Rick Smith

So, One of the things, I'm not sure if it’s answers your question or not, one of the things I mentioned early on in my discussion was the accelerated rate of growth of scores in general, the number of scores that will actually sell in with our data is growing nicely.

So, if that's what you're referring to, yes, risk scoring is a big part of our strategy as you know tenants and it's growing at significant rates.

Kevane Wong -- JMP Securities

Are you predicting a lot of people in portfolios that are sort of running their text a lot more often than they have been because of where things are in the credit market?

Rick Smith

Yeah and we talk about it on the CMS side, they shift from acquisition strategies to really understanding the risk aspects of their portfolios. So that's exactly what's happening now and that's going strong having that's strong double-digit growth. It's the biggest piece of CMS.

Kevane Wong -- JMP Securities

Okay, thank you.

Rick Smith

Thank you.

Operator

Thank you and our next question comes from the line of Jamie Brain Wood (ph) with UBS. Please go ahead.

Jamie Brain Wood - UBS

Good morning. I just have a question. I think you talked about volume growth of around 5% in your U.S. Online Consumer Information Solutions. As far as looking back over the long-term history of this business and I'm really talking about going back literally the last 15 years, can you actually remember a period of time where that volume growth has gone into negative territory?

Rick Smith

In fact, I’m not sure if we met when I was over in London with you or not. But we've talked historically we've done an analysis in the U.S. all the way back to 1991 and it never, from 91 through 2000, now third quarter 2006, through 2006 has there been a year where there's been year-on-year negative volume and as you know there's been a lot of different economic cycles over that time frame.

Jamie Brain Wood - UBS

So what do you think it takes to push that volume growth into negative territory just in terms of trying to assess the down side risks here?

Rick Smith

I hope we never have to experience it, what it takes. I don't know. There's no easy answer. The impression is a significant recession, is it oil $200 a barrel, employment at 10%? You can draw Armageddon in your own view.

But I think the point we continue to try to make is it is a resilient business. It is a business that has been wonderful for 107 years, huge cash flow, but it's only 50% of our business. We continue to diversify ours, we continue to diversify ourselves into products, geographies, markets that are less dependent on the U.S. economy I think we've done that.

Jamie Brain Wood - UBS

Again, just looking back to say 2001 where basically you sort of saw significant boost to your credit report volume in terms of reduction in interest rates cross the U.S. economy. To what extent, how much more does the Fed need to relax before that kind of impact starts to the filter through into your business?

Rick Smith

I can't project that. I think right now if I had to give you my true sense and this is only Rick Smiths view, I'm not a economist

Jamie Brain Wood - UBS

Sure.

Rick Smith

We see the trends of behavior of the U.S. consumer routinely, I think what's plainly playing in the consumers benefit is a high employment rate that gives the U.S. consumer good confidence.

We do a survey on a quarterly basis of a couple hundred thousand, 100,000 consumers in the U.S. and right now even though there's a credit crunch, there's housing declines, there is home equity decline, the U.S. consumer by and large and I will show this on Friday in New York, buy and large still feels pretty good and that's driven by high employment. If that changes, I'd be concerned.

Jamie Brain Wood - UBS

My other questions have been answered. Thanks very much.

Rick Smith

Thank you.

Operator

Thank you. And our next question comes from the line of Bruce Simpson from William Blair. Please go ahead.

Bruce Simpson - William Blair

Hi, guys. Question about peso. And then about commercial, so with personal solutions it seems you really have a good success in building the subscriber rates. And where are those subscribers coming from? Are you taking away from your competitors or are they new people that have never described to processes like that before? And then how big do you think that business can be? I think you mentioned that you are up to about 1.4 million subs. What's a realistic number over the next couple of years?

Rick Smith

Yeah. Good question, Bruce. In general, it's difficult for us to say exact where would they are coming from, competition versus new customers. But the team has done an unbelievably good job on improving the effectiveness of their advertising, to attract new clients. We have completely revamped the entire website. So that the -- once we'd get them to come to our website, their ability to navigate to get to a product, to get to an education site, is far greater, easier than it has been in the past.

Our retention of clients is better, so they are really hitting on all cylinders there. We talked last year about trying to get this business to about 70% to 75% subscription. As you recall, it wasn't that long ago it was the inverse of that, we were about 25% or 30% to subscription of balanced transaction. And we reversed that, so I'm comfortable with the range where we -- I think it was 71% right now for the third quarter, 71% to 75% is probably where you are going to balance out as far as the mix.

And then Steve's challenge is to continuing to out there and find new customers to continue to come to his site and by his products. I've talked about this business of being a 20% plus margin business and growing mid-teens, so that's how I see it growing in the future.

Bruce Simpson - William Blair

And what's the balance between individuals that you've reached out to on a directly consumer basis, versus cluster that is you got through. Any kind of a third party relationship with a financial sponsor?

Rick Smith

Good question again. It is mostly a direct to consumer.

Bruce Simpson - William Blair

Predominantly, like 75% or better or?

Rick Smith

Mostly, I don't know. It's 60% to 75%.

Bruce Simpson - William Blair

Okay. And then just very quickly on the commercial business, I think Lee made some comments, that now would you lap heading into the fourth quarter, it's probably kind of a teen's level grower. And can you update your thoughts about the size of the opportunity here, now that you are at kind of a $65 million earner? Also are you talking business away from D&B or are people paying for your product that have never had this service before?

Rick Smith

Yeah. It certainly is the first question part of your question first. I love this business, and I'm as bullish today as I was when we talked in New York City when we first spiked it out. And the fact that I asked in top of year-over-year, that's a one-quarter issue. We buy someone else next year, and then you have another brand will change the growth rates again. It's a solid business, it's value added. No one else has the consumer data, small business exchange; we are rapidly expanding the files.

I told you, I'd like to build this thing over the next three to five years about $300 million globally, and I talked about this business in the U.S. being $150 million or $200 million over that time frame as well. I'm as convinced today as I was last year, that's the path we are on. And Michael Shannon, who leads that business, will tell you his story when he sees you in New York on Friday. As far as where we, taking the business, yeah, we are taking the business from Dun & Bradstreet by and large because they are the predominant player in the U.S.

Bruce Simpson - William Blair

Thank you.

Lee Adrean

You're welcome.

Operator

Thank you. And our last question comes from the line of Matt Otis with KBW. Please go ahead.

Matt Otis - KBW

Good morning, gentlemen.

Lee Adrean

Good morning.

Matt Otis - KBW

I just have a couple of quick last ones. First, just going back to mortgage reporting, is there any way you can break out what component Settlement Services, how much it actually rings up there?

Lee Adrean

At this time Matt, we don't break that out.

Matt Otis - KBW

Okay. Any possibility for future break out if it gets material enough?

Lee Adrean

Yeah, I think if it's material enough we may consider that. I think what you will see is Dan Adams, if you are going to be there Friday TALX a lot about ESS. And where it's going, some big wins that he has, he will provide texture for it.

I noticed, I think, Tom Madison is doing a heck of a job in mortgage in a tough mortgage environment. We are lucky we launch this product last year. It's making a difference. It's solving problems for the mortgage industry.

It's helping to short-tern offset the compression, but when the mortgage market does turn and take back up these things poised to significant growth.

Matt Otis - KBW

All right. Great. And any color on how your marketing campaign went? Yes. I think you had the Credit Watch Gold marketing campaign, just any color on how that progressed?

Lee Adrean

This was the Direct TV?

Matt Otis - KBW

Yes.

Lee Adrean

Great memory, we are still evaluating it to make sure it actually gives us, what we call the return on marketing alarm versus other means of advertising. So it's still being evaluated at this juncture.

Matt Otis - KBW

Okay. And just last question, going in a historical perspective the transition from new customer acquisition to kind of customer management, any thoughts on how long that period can last?

You talked a little bit about a paralysis on there. Any thoughts on how long it can last between just new customers slowing down and then the lenders realizing they need to pick it up on the customer management side?

Lee Adrean

It's tough for me really to project that. It depends on macro economic issues as you might guess, but I don't expect it to obviously materially change in the fourth quarter, probably even in the first quarter or first half of next year.

But again that was factored into my guidance for the fourth quarter. And again it's a good thing we are diverse series of revenue streams in this country because the New York market has slowed, as you know.

Matt Otis - KBW

Thank you.

Lee Adrean

Thank you.

Rick Smith

Thank you.

Jeff Dodge

Okay. With that, operator, we will conclude the call. We appreciate everybody's participation and we will be available this afternoon if there are any additional questions. Thanks.

Operator

Ladies and gentlemen, this does conclude your conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.

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