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Equifax (NYSE:EFX)

Q2 2012 Earnings Call

July 26, 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

Georgios Mihalos - Crédit Suisse AG, Research Division

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

Carter Malloy - Stephens Inc., Research Division

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

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

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

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

David Togut - Evercore Partners Inc., Research Division

Jaime Brandwood - UBS Investment Bank, Research Division

Steven Shui - Stifel, Nicolaus & Co., Inc., Research Division

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

Operator

Good day, and welcome to the Q2 2012 Equifax Earnings Release Conference Call. Today's conference is being recorded. At this time, it is my pleasure to turn the conference over to your host Mr. Jeff Dodge. Please go ahead, sir.

Jeffrey L. Dodge

Good morning. Welcome to today's conference call. I'm Jeff Dodge, Investor Relations, and with me today are Rick Smith, Chairman and Chief Executive Officer; and Lee Adrean, Chief Financial Officer.

Today's call is being recorded. An archive of the recording will be available later today in the Investor Relations section in the About Equifax tab of our website at www.equifax.com.

During this call, we'll be making certain forward-looking statements to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in the filings with the SEC, including our 2011 Form 10-K and subsequent filings.

We will refer to a non-GAAP financial measure, adjusted diluted EPS attributable to Equifax, which excludes acquisition-related amortization expense and the loss on the deconsolidation of Brazil in 2011. Since our Brazilian operations were merged with Boa Vista on May 31, 2011, we also present revenue growth excluding Brazil to provide a clearer understanding of our revenue growth for those businesses that will continue to be reported in our operating results.

These measures are detailed in our non-GAAP reconciliation tables included with our earnings release and also posted on our website. Please refer to the non-GAAP reconciliation and our investor -- various investor presentations, which are posted in the Investor Relations section under the About Equifax tab on our website for further details.

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

Richard F. Smith

Thanks, Jeff. Good morning, everyone. Thank you for joining us this morning. It's should be no surprise that we are quite pleased with our second quarter performance. We continue to execute well against our strategic initiatives, capturing available opportunities from a cyclically strong mortgage market while continuing to deliver solid non-mortgage organic growth that's consistent with our long-term business model.

Shortly, we'll update you on our full year outlook. But first, let's take a quick look at some high-level financials for the second quarter. Total revenue was $536 million, up 10% from the second quarter when you -- excluding Brazil. Total revenue was up 14% for the quarter and up 15% in constant dollars. Operating margin was 24.8%, up 130 basis points from a year ago and consistent with the model we have laid out for you over the past few quarters. Finally, adjusted EPS was $0.74 a share, up 21% from $0.61 a year ago.

Throughout 2011 and the first half of 2012, we have delivered solid non-mortgage organic performance with little to no help from the macro economy in most of the developed parts of the world. What we've been doing is focusing relentlessly on executing our strategic objectives, attracting and developing a world-class management team and leveraging our fierce determination to drive innovation and growth across the enterprise.

For the past 7 years, we have initiated a number of enterprise-wide programs, which have contributed greatly for a solid financial performance during a period of weak economic and business conditions and to our relatively stronger performance in the most recent quarters when economic and business conditions have been somewhat more stable.

You’ve heard us talk about the following 7 points that I'll go through here in a minute, in the past. But what is important is with each passing quarter, these 7 points become more ingrained into our operating DNA, and we've become an even stronger company. I'll go through the 7 points now that we've been focused on now for a number of years.

Number one is an intense focus throughout the company on innovation and growth. Our NPI process simply gets better every day, and we are now developing new targets after reaching a best-in-class level of revenue contribution in 2011. You've heard us also mention our 4G teams, which draw upon some of our best and most talented individuals to develop strategies for opportunities that could potentially generate significant incremental revenue.

Second is our strategic pricing. Strategic pricing is a proven driver of profitability, growth and stronger customer relationships. Our products typically have a very high ROI for our customers. With our unique data assets, it's very important that we understand this value so we can price our services accordingly. In 2007, we launched this after hiring some of the best talent available to develop our corporate pricing strategy. Over the past 5 years, strategic pricing has driven significant incremental revenue for Equifax. By adopting a revenue management mindset, we've become more effective at pinpointing the right offer at the right time and the right price. Strategic pricing is a -- is driving greater pricing consistency and value for our customers while leading to greater value for Equifax shareholders and our bottom line.

Number three, we've also developed a valuable discipline and structure around getting the voice of our customer into every product offering. Through that process, the intimacy we develop with our customers gives us an edge in the design and development of unique, high-value solutions that will enable our customers to drive incremental revenue growth and profit. We've also become a more highly valued business partner and, oftentimes, are presented with opportunities that we wouldn't normally have because of these unique capabilities.

Another fundamental discipline is how we challenge ourselves to continually drive incremental operating leverage as we grow. This relentless focus keeps us from getting complacent in our thinking. Our global LEAN COE works closely with each business unit to ensure that we operate at peak efficiency. They also identify industry-leading best practices that can be adapted to the environment and integrated into our daily operations. LEAN is but one tool we use. We also have worked with customers and vendors to ensure that our interactions are the best and most cost efficient that they can be.

Next, our strategic M&A is an integral part of our long-term growth model, where our objective is to drive 1 to 2 points of incremental growth from strategic acquisitions. We have developed a very rigorous process of determining the value and understanding the risk of the acquisition, how they fit into our existing strategy, the incremental revenue opportunities and the most effective way to integrate them into our company and business units. We mitigate these risks through in-depth analysis and thought, always challenging ourselves in developing a detailed set of milestones that measure our progress.

Next is in the service business, the quality and depth of your management team is paramount. Our global human resources COE drives the acquisition and development of our talent across the globe. We have developed mentoring programs, identified high potentials who were given out-of-the-box challenges, giving us the opportunity to develop them beyond their current job and devote considerable effort towards rigorous succession planning.

Finally, Equifax has a strong commitment to its shareholders. Just in the last 2 years, through dividends and share repurchase, we have given back over 50% of our cash from operations to our shareholders. These disciplines are fundamental to how each of our business units operate and, coupled with our strategic initiatives, a large part of why we have been able to deliver consistent and strong operating performance in these uncertain times.

Now as I always do, I'll go through some highlights for each of the 5 business units, then turn it over to Lee for the financials.

In the second quarter, each one of our business units continued to capitalize on their respective opportunities. In USCIS, they, again, delivered impressive double-digit revenue growth while expanding their operating margin.

With some major contract wins in the government sector, Technology and Analytical Services delivered strong double-digit revenue growth in the quarter. We continue to be very optimistic about the opportunities in this sector and believe we have the technology expertise to capture significant market share in ID management solutions.

We also had strong double-digit growth in telco, auto and insurance, further demonstrate the broad-based appeal of our solutions. We continue to deepen relationships with many of our financial institution customers by appending unique work number information to their portfolio reviews, particularly with credit card lenders. That's a trend we've seen now developing the past few quarters, driving great new incremental revenue for the work number and value for our customers. We're making great progress with our key account groups. We call them KCP. They are the 4 largest banks in the U.S. It's an organizational structure we put in a few years ago, and it's paying great dividends. That group is now driving double-digit revenue growth year-to-date and deepening our relationships through cross-selling products and services across the enterprise.

International continues to drive broad-based revenue growth, as both Europe and Latin America deliver double-digit local currency revenue growth in the quarter. New product innovation continues to be a key growth driver, with year-to-date revenues from new products launched in the prior 3 years coming in above our expectations. In the U.K., the team continues to win against the competition by focusing on customer -- on the customer and delivering high-value solutions to meet their business needs. We're also driving stronger market and client penetration with our Analytical Services offerings. During the second quarter, revenue from all product offerings that embedded our analytical capabilities grew strong double digits.

Workforce Solutions delivered record revenue and profit, driven by very broad-based growth across multiple market segments, continuing strength in the mortgage market and the acquisition of a year ago, DataVision.

Double-digit organic revenue growth in the government, auto and pre-employment sectors, in addition to mortgage, underscores the strength of our year-to-date growth in Verification revenue.

Year-to-date, DataVision is ahead of our expectations, benefiting from strong mortgage activity but also through new customers and expanding relationships with existing customers.

Finally, we are aggressively leveraging our strong market penetration by cross-selling additional products and services, which will further strengthen our customer relationships, particularly for those who contribute data to the work number database.

North American Personal Solutions had a record quarter and continues to improve its operating rhythm, growing its subscriber base, minimizing churn and launching high-value products. ARPU growth continues, driven primarily by the new Equifax Complete product suite. This suite of products provides such features as credit scores from all 3 bureaus, unlimited Equifax credit reports and scores, identity theft monitoring and debt repayment calculators. And this year, we finally introduced -- or we introduced a family plan version, which combines all 3 features for 2 adults and up to 4 minor children. Launched in the fourth quarter of 2012, customers for -- on the Equifax Complete Family products now account for nearly 50% of our subscriber base.

North American Commercial Solutions revenue was approximately flat in local currency for the quarter. In this uncertain economic environment, a number of key financial institutions demonstrated caution in taking on new customers by reducing new lending activity in the small business sector, causing overall transaction-driven revenue to flatten. In addition, project-driven revenue most often related to marketing campaigns for customer -- new customer product initiatives were also flat to prior year, as business clients generally are exercising caution in their discretionary spend. It's a trend that we’ve seen now for 2 quarters in a row.

Again, another quarterly performance, executing against our strategic vision, which we fundamentally believe is right for this company, the markets we serve and the investors who depend on us to perform.

And now as always, Lee will give you the detailed financials.

Lee Adrean

Thanks, Rick, and good morning, everyone. This morning, I'll be referring to the financial results 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.

Overall, business execution continued to be strong in the second quarter, and mortgage activity continued at an elevated level throughout the quarter. Three of our business units grew at double-digit rates, those being USCIS, Workforce Solutions and Personal Solutions. And our international business, excluding Brazil in the prior year, grew 9% in constant dollars.

Compared to the same quarter in 2011, for the second quarter of 2012, consolidated revenue of $536 million was up 10% on a reported basis and 14% when Brazil was excluded from 2011 revenue. Excluding the impact of changes in foreign exchange rates, constant dollar revenue was up 11% or 15% excluding Brazil.

Our operating margin was 24.8% compared to 23.5% for the second quarter in 2011, and diluted earnings per share attributable to Equifax was $0.62 a share. Excluding the impact of acquisition-related intangible amortization and the 2011 loss on the deconsolidation of Brazil, adjusted EPS attributable to Equifax was $0.74 a share, up 21% from $0.61 in the second quarter of 2011.

Moving to the individual business units. U.S. Consumer Information Solutions revenue was $230 million, up 19%. Online Consumer Information Solutions revenue was $153 million, up 20%. Over 50% of the growth was broad-based organic growth, driven by new products, overall growth in transaction volume from existing customers and certain pricing actions implemented in the second quarter of 2011. The remaining growth came from the mortgage sector.

Second quarter online volume was up 9%, driven primarily by double-digit growth in our key client program and channel partners who resell our products primarily into the auto and mortgage markets. Average revenue per transaction was up 4% in the quarter.

Mortgage Solutions revenue of $41 million was up 51% compared to the second quarter a year ago, both mortgage reporting through new products and for transaction volume. And Settlement Services delivered strong growth in the quarter. Consumer Financial Marketing Services revenue was $36 million, down 9%. Revenue suffered in both Credit Marketing Services and IXI as some large projects were canceled or moved to later in the year. Our market tracking indicates that bank card new account openings are only up modestly over 2011, following strong growth last year, as financial institutions evidenced some caution in their new account marketing given macroeconomic uncertainty.

The operating margin for U.S. Consumer Information Solutions was 38.3% in the quarter, up 36.5% from a year ago.

Equifax international's revenue was $119 million in the quarter. Excluding Brazil, following its deconsolidation in the second quarter of 2011, reported revenue grew 4%, and local currency revenue growth was 9%.

By region, Latin America's revenue was $46 million. Excluding Brazil from the prior year comparison, reported revenue grew 7% in U.S. dollars and 12% in local currency. Growth, again, was broad-based across product categories, as Consumer and Commercial Information delivered high single-digit growth, and Technology and Analytical Services and Marketing Services delivered strong double-digit growth.

Europe's revenue was $41 million, up 6% in U.S. dollars and up 11% in local currency. Strong double-digit growth in Analytical Services, Personal Solutions and Workload, an acquisition we made a year ago, offset some weakness in our Information and Marketing Services segments.

Canada Consumer Information revenue was $32 million, down 2% in U.S. dollars and up 2% in local currency. And international's overall operating margin was 29.2%, up from 26.1% in 2011, reflecting primarily the deconsolidation of Brazil in the second quarter of 2011 and margin expansion in the U.K.

For the quarter, Workforce Solutions revenue was $115 million, up 20%. Verification Services, with revenue of $63 million, was up 42% for the quarter. Approximately 60% of our growth was organic and broad-based, with strong double-digit growth in mortgage, pre-employment and government uses. The remaining 40% of our growth came from the acquisition of DataVision in August of 2011.

Employer Services revenue was $52 million, flat compared to last year, as strength in our automated transaction services offset weakness in Talent Assessment and Tax Management Services, primarily due to lighter unemployment compensation claims activity. The Workforce Solutions operating margin was 23.4%, up from 21.6% in the second quarter of 2011, largely due to the strong performance of Verification Services.

North America Personal Solutions revenue was $51 million for the quarter, up 12%. Continued double-digit growth in U.S. B2C subscription revenue and in Canada resulted primarily from greater penetration of our higher-value, higher-priced product offerings as well as from growth of subscribers.

Operating margin for PSol was 29.8%, up from 27.7% in the second quarter of 2011.

North America Commercial Solutions revenue was $20 million, down 2% on a reported basis and down 1% on a local currency basis.

Transaction-based revenue was essentially flat when compared to the prior year, as telecom and manufacturing sectors continued to perform well, but financial institutions pulled back on new lending in the small business sector.

As with the 2 prior quarters, project-related revenue declined, reflecting the weakening conditions for small business operators. The limited availability of qualified applicants, a lower rate of spend on capital equipment and a lower inventory level in anticipation of fewer future sales were major contributors to a significant decline in the Small Business Optimism Index reported in June, and right now, we're seeing the impact of that in corporate marketing efforts to small businesses remaining cautious.

The operating margin was 14%, down from 20.9% in the year-ago quarter, as the anticipated pickup in revenue did not occur as expected. Corporate expenses were up 25% compared to the second quarter in 2011 due to investment in enterprise-wide infrastructure and growth initiatives and additional incentive compensation resulting from better-than-expected revenue and profit performance.

And our corporate tax rate of 35% was modestly better than expected as a result of the slightly lower foreign tax rate and contributed $0.01 to company earnings per share versus our expectation expressed in the end of the first quarter.

Now let me turn it back over to Rick.

Richard F. Smith

Thanks, Lee. Let me close briefly -- by briefly recapping the first half of the year and then share our general outlook for the second half, and I'll discuss some expectations specifically for the third quarter.

By any measure, we had an outstanding first half of 2012, with 15% revenue growth and 21% adjusted earnings per share growth. This performance was well above our long-term growth targets, aided by, obviously, a strong mortgage refinancing market in the U.S. and strategic pricing initiatives, some operating leverage initiatives in the first half and obviously continued great execution against our growth strategies across all business units.

As I kind of frame up the second half of the year for you, let me do this. Let's go back to our last earnings call. In the last earnings call, we talked about the total year coming in between 10% and 12% top line, with EPS growing at 2 to 3 points faster than that. Where are we today? We're now saying that our total year growth is slightly higher than that. Total year growth will be between 11% and 12%, with that same earnings per share acceleration of 2 to 3 points faster than the 11 to 12 points. So largely in line with what we talked about in the first quarter earnings call with slightly higher revenue. Why is that? As we sit here today, we now expect the mortgage refinancing market in the U.S. to be slightly stronger in the third quarter than we had anticipated on the last call. That'll give us a little more growth in the third quarter.

Now also, as you look the balance of the year -- and by the way, we expect the mortgage market, as we did on the last earnings call, to start to decline in the fourth quarter of this year, getting more in line with our expectation of our budget, which is double-digit decline year-on-year. Also, as you think about the balance of the year, we're going to be comparing our revenue in the mortgage sector to a much stronger third and fourth quarter a year ago. So we expect the mortgage market to be, obviously, growing at a slower rate in the second half of the year than it did in the first half of the year.

In addition, as we've mentioned before, we have now anniversary-ed some of our strategic pricing and operating initiatives that I've mentioned a few times. Consistent with this view and incorporating our second quarter actual results, our constant dollar full year outlook for individual business units has improved modestly. I'll go through those one by one now.

We expect USCIS to deliver double-digit revenue growth at a slightly higher level than we thought previously. Workforce Solutions is now expected to deliver double-digit growth for the year versus our last call where we said upper single digit. Personal Solutions is also expected to deliver double-digit revenue growth for 2012. Commercial Solutions, where we've encountered a much tougher business environment than we originally anticipated, will likely be in the low single-digit range for the full year. International, when you exclude Brazil, should continue to deliver low double-digit growth in constant dollar growth for the year. And again, for the full year, we expect the company, when excluding Brazil, to grow top line between 11% and 12% and for adjusted earnings per share to grow the additional 2 to 3 points that we talked about. And again, this outlook assumes mortgage remains stronger and in the third quarter returns to the budget levels, which is down double-digit for the fourth quarter.

For the third quarter, assuming current exchange rates and the continuation of the mortgage activity we experienced this past quarter, our outlook for revenue growth from continuing operations is between 9% and 11%, and adjusted EPS from continuing operations is expected to be between $0.71 and $0.74 for the quarter.

Finally, an important scheduling note is on December 6, we're going to be hosting an Investor Day. We’d love to have all of you come. We'll be at the New York Stock Exchange, as we did, hosted a few years ago, back in 2006 and '07. A lot more details to be forthcoming, but I wanted to give you a heads up now, so you can get this date on your calendar.

So with that, operator, we'd like to open it up for questions for Lee and I.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from George Mihalos with Crédit Suisse.

Georgios Mihalos - Crédit Suisse AG, Research Division

I was hoping you guys could break out for us what the overall contribution revenue was from mortgage. And how much of the 14% growth specifically came from that?

Richard F. Smith

Yes. The -- remember the long-term goal and range we've for mortgage has been somewhere between, say, 14% and 20%. We're in that range. It's somewhere over 19% for the quarter, and of the total growth, over 6% of it comes from mortgage.

Georgios Mihalos - Crédit Suisse AG, Research Division

Okay, great. And then, can you guys talk a little bit about the operating leverage that we saw in USCIS? I think, sequentially, your operating margins there were up something like 180 basis points. And you had contribution from mortgage, which should be...

Richard F. Smith

George, I'll let Lee address that. Let me go back to one point I think it's important for those on the phone to really understand. There is no doubt that the mortgage refinancing market is a benefit to us. It's important to understand, though, it's not just the market environment itself. And you've seen the story from us for a number of years. We're out there developing a lot of new products in the mortgage market, products we never had before. Dann Adams over at the TALX team at Workforce Solutions is taking his team and penetrating new mortgage customers that we've never sold to before, gaining more share of new customers where he had lower penetration in the past. So it's not just the market itself. It's things we're doing to become a bigger, better player in the mortgage market. So it's a combination of market and us. It’s important that everyone understands that. Lee, you may want to address the leverage in USCIS.

Lee Adrean

Yes, George. In USCIS mortgage products, there's really 2 classes of products. One is we do sell credit reports through resellers to other providers who provide tri-merge reports. So when we get mortgage activity in that part, it’s high margin. We also have the tri-merge reporting and our settlement services where we have third-party expenses in our cost structure. Those are relative to our average lower margin. The average of those 2 runs about 50% incremental margins on mortgage, so part -- one of the reasons you're seeing good leverage even though a portion of our growth is mortgage-driven is we do get a slight pickup relative to our average margin when we're growing in mortgage. Obviously, the pickup is stronger when it comes in some of our other pure information offerings.

Georgios Mihalos - Crédit Suisse AG, Research Division

Okay. Got you. And just last question for me. Lee, maybe you can talk a little bit -- the corporate expense line was higher than what I was looking for at least. How should we think about that expense line over the back half of the year?

Lee Adrean

Yes. I think what you've seen is that our corporate expenses are up -- they're actually up quite a bit in the first quarter, and some of that was a timing consideration. We're up about $7 million year-over-year in the second quarter. Some of the same factors are going to play through the rest of the year. I think if you think of it as being up $5 million to $7 million a quarter over prior year, you're going to be in the right range.

Operator

Our next question will come from Dan Perlin with RBC Capital Markets.

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

So I was just trying to back in -- you said mortgage was 6%. I think acquisitions were around 2% contributors, and then we had a constant x Brazil revenue number of 15%, so that would imply you back all that out, you're running around a 7% non-mortgage constant organic number. First of all, is that right?

Lee Adrean

Dan, if I refined it just slightly, it's probably about equally 6.5% mortgage, 6.5% core and 2% acquisition. But yes, you're in the ballpark.

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

Okay. So if I look at that 6.5%, I think last quarter you're running at 9%. Prior to that was 8%. Prior to that was 7%. Prior to that was 6%. Prior to that was 4%. So this is kind of the first quarter where we’ve seen this broken-up trend that you guys have had. And I'm just wondering what you would call out as -- that calls for that.

Lee Adrean

Well, one thing we've talked about in prior quarters is one of the drivers of our year-over-year growth were some pricing and operating steps we took in the second quarter last year and that were greater than the typical. I mean, we're always pursuing those kinds of opportunities, but these were a couple of things that were greater than the usual scale and that we would be anniversary-ing those largely in the second quarter. And that is probably the biggest single impact.

Richard F. Smith

But Dan, I think it's also important to put it into context with the kind of -- we've given, which is our long-term models at the core non-mortgage organic growth to be between 6% and 8%. You can have fluctuations quarter-to-quarter. I see no alarming trends anywhere. At 6.5%, that's clearly in the range we had expected, and I think you'll continue to expect to see that range going forward between 6% and 8% in the balance of this year and next.

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

Okay. That's a good number. The -- I just wanted a little more clarity on the SG&A number. I know you talked about, I guess, sales commissions being up, but it was definitely a much higher number than I had anticipated. What else is driving that in the current quarter? And is that an elevated level that we need to be thinking about for the remainder of the year?

Lee Adrean

Yes. We have stepped up our investment spending in a number of corporate initiatives, particularly infrastructure investments. We have just recently done a worldwide conversion in our HR information system to one common system. We are in the process of investing in upgraded billing and financial reporting systems and are continuing to make some investments in reducing the overall risk profile through some IT investments to strengthen our overall infrastructure. So...

Richard F. Smith

And Dan, these are consistent investments we've been making and talking about now for a few quarters. It's always important to put this into context, too. These are not a massive enterprise-wide, best-of-business kind of investments. They’re very targeted projects that will make us a better, more efficient business going forward.

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

Okay. And then just 2 quick ones. The -- we've been hearing recently a little bit that some of the auto finance guys were moving downstream into subprime. I know that's very good typically for kind of the velocity of the applications that you guys get pooled. Is that something that you're seeing? Would you call that out? Or is that kind of one-off on some of the people we're talking with?

Richard F. Smith

No, we’re seeing it. Auto is strong for us across the board, and going down market is a part of that contributor.

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

Okay. And then just lastly, Rick, could you just comment on the congressional letters that were -- in the New York Times, they were all talking about it. Your thoughts about what they're asking for?

Richard F. Smith

Yes. It's -- it was old news. I love reading it so many times, so many different periodicals. It emanated, yes, I think maybe a month ago out of the, I think it was called the Columbus Dispatch, where it was first written. And what you see now is a number of different newspapers regurgitating the same story. It's nothing new.

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

Okay. So this wasn't incremental. I got it.

Richard F. Smith

Yes.

Operator

We'll go to Carter Malloy with Stephens next.

Carter Malloy - Stephens Inc., Research Division

So first off on the mortgage questions from earlier, how much of that mortgage growth is in your 3Q guidance? Just trying to get a sense of the delta between this quarter and next. If you could maybe split out, one, the mortgage growth and, two, the deceleration headwind from inorganic from DataVision?

Lee Adrean

Yes, Carter, I'll deal with the first part of that. The -- we are expecting roughly similar mortgage activity in the third quarter. But if you think back to last year, the third quarter was when mortgage activity really picked up. So the first half last year was very soft. The second half is very strong. So the key comparison in the third quarter is relatively consistent mortgage activity but a much more challenging comparable. That means the comp -- the contribution of growth will drop by, I would say, 1/3 to 1/2. In other words, instead of contributing a little over 6%, it's -- in a growth for the company in the second quarter, it'll be probably 3% to 4%. But that's one of the reasons, when you think about the step-down in revenue that we have led people to over the course of this year, some of it's because of the pattern of revenue growth last year.

Richard F. Smith

Carter, repeat your question on DataVision. I missed that.

Carter Malloy - Stephens Inc., Research Division

Sure, just that comes -- that rolls into organic growth this quarter as well in August, I believe you said, so what's the pointage [ph] headwind of that?

Lee Adrean

Contribution of acquisitions in the third quarter, I think, is probably going to be closer to 1% than the 2% we reported.

Carter Malloy - Stephens Inc., Research Division

Okay, got it. And then on the PSol side of the house, continuing to see acceleration there and really good performance in that business. Can you give us some more color as to why you guys are continuously outperforming in that market and if we should expect that to sustain?

Richard F. Smith

Yes. In the latter part, yes, we expect that to continue as I [indiscernible] on the guidance for the balance of the year. Trey and his team have done a marvelous job of understanding ARPU, positioning new products, building new products, understanding churn, reducing churn. They have got great operating metrics to run that business. Subs are on the rise, so it's a -- done a great job, and we expect it to continue.

Carter Malloy - Stephens Inc., Research Division

Okay. And lastly on the commercial side. Looks like we're expecting somewhat of a pickup in the back half. Are you guys anticipating improved small business lending on the transaction side? Or are there just some projects that you're expecting to actually flow through?

Richard F. Smith

Yes. I don't expect any significant market-based improvement. I expect a little bit of execution, some more benefits from new products, some projects that we didn't get in the first half of the year to come in the second half of the year. So it's going to be a modest improvement, but the expectation is we get back to low single digits, mid-single digits in the second half of the year.

Operator

We'll go next to Andrew Steinerman with JPMorgan.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Lee, you like to speak about 25 basis points of margin expansion a year, eventually reaching a goal of 25 to 26 kind of in your long-term plan. Obviously, huge success in the quarter. We're at 24.8. So we're essentially at 25. Do we have to revisit this? Or is that still the expectation, that maybe we'll go from 25 to 26, 25 basis points a year? Or is that conservative now, given where we are?

Lee Adrean

No. I think one thing to keep in mind is that when we deconsolidated Brazil last year, we got a significant pop. So I think our outlook for this year reflects the fact that very strong margin improvement in the first half of the year is a result of those compares that still included the lower-margin Brazil business. And then I think we're really on trend over the next few years for that roughly 25-basis-point expansion. And one thing I'd point out, and you can really see it, we've had a couple of questions already this morning on the corporate line. We are making the kind of investments to create a platform as a company to support the kind of growth we think we can drive. Some of those investments are to drive that growth itself. Some of those investments are to create the foundation to support that growth. And to grow at the rate we think, we think the investment level we need is such that a margin expansion objective in the range of 25 basis points is the right objective.

Richard F. Smith

And Andrew, as we've said a number of times, I think it's always -- context is always important. At 25% margin, we're in the top quartile of the S&P 500 already. So it’s a balance of doing margin expansion and top line growth. And I think it's a good mix, good balance.

Operator

We'll go to Julio Quinteros with Goldman Sachs.

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

Maybe just to pick up on that thought about margins and the ability to continue to drive the expansion there. I was kind of thinking of it more from the other side, if things were to get materially worse from here, what levers would you guys have left to continue to protect the earnings per share growth from here?

Richard F. Smith

Yes, I think we have a proven capability as we experienced back in 2007, '08, and '09 to cut costs rapidly and leverage tools like LEAN. We truly have a world-class LEAN operation here, Julio, and there's a lot more juice to be had in LEAN across business units and COEs across the world. So God forbid, if we go back into a significant meltdown like we did in 2008, this team has proven they know how to cut costs, and they know how to deploy LEAN across the company. So we would do that again.

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

Okay. And then maybe just sort of on that more entire thought process here. Thinking about balancing some of the cyclical headwinds against those long-term targets that you guys have set. It sounds like there are definitely some drivers in your model that are sort of, I guess I’m thinking of it more as countercyclical, maybe even secular in the way that they're contributing. Can you sort of parse out maybe the issues that you think will allow you to kind of power through from a top line perspective any cyclicality as we go forward from here, so pricing and the KPIs, for example?

Richard F. Smith

Yes. Actually, that's a great question. I think the key and the thing that's helped us thrive the last couple of years and to get through the recession before that is innovation. Our team is innovating. I think I mentioned in my opening comments, innovating extremely high level now on the NPI and the 4G, strategic pricing, bundling products. That's at an all-time high. And the challenge I gave the team now is now that you’re at kind of that best-in-class threshold, let’s recalibrate. And if 10% of revenue goes -- coming from products that didn't exist 4 years ago, is today's result, what should tomorrow’s goal be? And it's got to be something higher than 10%. So continuing that level of innovation and strategic pricing and bundling is key for us. The other thing, too, is to think about is we do have the benefit of having a diverse mix of customers, products, business units and geographies. And there's no doubt that's an advantage to us today and will be an advantage in the future as well.

Lee Adrean

And one thing specific, Julio, you may recall that our Employer Services or Tax -- particularly Tax Management component of our Employer Services business and Workforce Solutions grew at double-digit rates in the last downturn. It is very directly countercyclical. Obviously, the big drivers -- the strategic things we would do, but it certainly helps to have a $200-million line of business that's going to actually report stronger growth in that environment.

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

Yes. We hate to see it moving up, but we understand it's on your model [ph] .

Lee Adrean

It's certainly not what I go home and hope for.

Operator

We'll go to Bill Warmington with Raymond James.

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

I wanted to ask a couple of questions about the online CIS. You mentioned that the revenue per unit, I think, was up 4%. I just wanted to ask for some color there in terms of unit volume and mix.

Lee Adrean

Yes. The unit volume and mix, well, the volume's up 9%, and our revenue per transaction on the specifically measured volumes was up 4%. We also had some benefits that get us up to the total 20% growth due to -- and some of the subscription revenue, some newer products that are priced on subscription basis, which are showing nice growth as well as some of our pricing shows up below the measured volume level.

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

Got you. Okay. And then I wanted to ask also if you could talk a little bit about the dynamic you're seeing in the consumer financial products market in terms of what's happening on the demand side that you referenced around the consumer side and then also from the bank's point of view, the supply side in terms of wanting to put out those products in this environment.

Richard F. Smith

Yes, good question. I'll take that one. If you look at the core credit Marketing Services suite of products that we have and you exclude one particular customer, I’ll come back to that in a second, they actually displayed good core growth in the upper single digits for the quarter. We have one customer, who's been a good customer of ours for a number of years, who's taking a step back financially and trying to reassess their financial capability and where they want to deploy capital, and it slowed down dramatically their purchase of products. And I think that's going to probably last through the balance of this year as they get their financial house in order, Bill, and then they'll come back in 2013. So the core CMS business is actually doing quite well. We're seeing an uptick in card as an example when you think of acquisitions. So it's really focused on this one particular client who stepped back.

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

Got you. And then I just wanted to ask how the NCTUE+ database was doing, how those sales were going.

Richard F. Smith

Great. Very well.

Operator

We'll go next to Eric Boyer with Wells Fargo.

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

You talked some about the pricing efforts anniversary-ing this quarter, putting some pressure on the growth rate. When you think of the long-term revenue framework of the 6% to 8% non-mortgage growth, how many points of that are you expecting to come from future pricing initiatives on an annual basis?

Richard F. Smith

We don't break that out, but it's important to make sure you understand, we talk about -- we're very proud what the team has done on pricing. And we always get better -- we talk about it being in millions of dollars significant every year. What we had this last year was a series of efforts, was very unique. And that unique large chunks of revenue that came through, I don't see that repeating, but we're always going to be out there thinking of bundling products, segmenting and ROI for our clients to make sure we maximize the price. We'll always get some but just not what you saw in the first half of this year and the second half of last year. So -- but we don't break that out specifically, Eric.

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

Okay. And then it looks like the constant currency growth rates moderated a bit across geographies in your international segment. Is that being impacted by the pricing initiatives anniversary-ing as well? Or is that mostly due to the macro conditions?

Richard F. Smith

No, the pricing initiatives that I referred to that were kind of unique, if you will, that were anniversary-ed are the U.S. Just what you're just seeing is a slight moderation in the macroeconomic environment around the world. But it’s still very healthy.

Eric J. Boyer - Wells Fargo Securities, LLC, Research Division

And then could you just remind us again about that appending unique work number trend that you're seeing?

Richard F. Smith

Yes, what we’re doing with the work number is we’re working with the large banks and taking attributes off of the work number file or records and appending those to the credit file or the card issuers, and it's helping them make better decisions. So it's not entire work number that's appended. It attributes off of the work number file appended to the credit file, and then the card issuers are using that to make better decisions. It's really exciting.

Operator

We'll go to David Togut with Evercore Partners.

David Togut - Evercore Partners Inc., Research Division

Can you give us an update, Rick, on the progress with the Boa Vista merger? I guess specifically, where does the joint business stand financially? And when do you expect to reach profitability in Brazil?

Richard F. Smith

We're spending a lot of time with that group, with or partner TMG, with Boa Vista, with ACSP down there, up here. We're doing best practices sharing, trying to now build the product capability we built here, NPI, integrating systems, and getting out in the marketplace, making sure the marketplace understands the value of the 2, getting the data assets. So across the board, it's going well. Culturally, as you know, it's a long process to get a new culture up and running. But I’d say at this juncture, it's at our expectations from an integration perspective. As far as profitability -- let me back up. As far being received in the marketplace, David, the marketplace loves the idea of having a bigger, better, stronger, more viable competitor than we were separately. As far as financials and profitability, obviously, we don't consolidate that, so it's not fair for me to talk about their financials at this juncture.

David Togut - Evercore Partners Inc., Research Division

Well, just in terms of understanding the financial impact of the business on Equifax, do you have a sense of when that business make start contributing to the profitability of your company?

Richard F. Smith

Well, there’s obviously an opportunity at some juncture to dividend back, and we own, as you know, 15% of the company. So I think at any case -- and Lee you can jump in. It’s a de minimis impact over the next -- where you're going to get the real impact is when we have the opportunity to increase our ownership from 15% to something far larger. But at 15%, a dividend back to us would be de minimis.

Lee Adrean

Yes, the comment on dividend, of course, with the 15% ownership, we're accounting for that using the cost method. The only revenue or profit we would recognize is our share of dividends. And we don't anticipate material dividends in the near term. They have some continuing investment opportunities in the business, so we would expect probably likely until we buy up in our position that the contribution to P&L is de minimis.

David Togut - Evercore Partners Inc., Research Division

When can you buy up from 15% and to what level?

Richard F. Smith

Well, there's -- as you remember, there's no magical structure to it. It's our desire. It's their desire, they being TMG, to exit and our desire to enter. So there's no mathematical formula, there’s no predetermined timeline. When we think it's the right time and integration is fully complete and they think it's the right time from value, those negotiations will begin.

David Togut - Evercore Partners Inc., Research Division

Just final question. How much of the operating margin expansion in the quarter year-over-year was driven by the Brazilian deconsolidation?

Richard F. Smith

We talked last year. That would be about 100 basis points.

Lee Adrean

A little less because there was just 2 months in the quarter, so 70 or 80 basis points probably.

Operator

We'll go next to Jaime Brandwood with UBS.

Jaime Brandwood - UBS Investment Bank, Research Division

Wanted to start by going back to an earlier question relating to your use of work number data to enhance credit files in USCIS. Just so I understand it, when you’re enhancing credit files in that way and then selling them to credit card lenders, are you booking all of that revenue in USCIS? Or does some of that revenue get booked in the Workforce Solutions division?

Richard F. Smith

Yes. No, when we append a work number, a series of attributes to the credit file, that revenue is recognized back at Workforce Solutions and Dann Adams’ business, not USCIS.

Jaime Brandwood - UBS Investment Bank, Research Division

Okay. So that forms part of the kind of cross-selling benefits that the Workforce Solutions division is seeing, I guess?

Richard F. Smith

Yes.

Jaime Brandwood - UBS Investment Bank, Research Division

Okay. And then just looking again at the underlying drivers to the Online Consumer Information Solutions division, looking more at the kind of change from Q1 to Q2, so I think in Q1 you've said your OCIS volume was up 16%, and now it's up 9% in Q2. And likewise I think your average revenue per transaction was basically flat in Q1, and now it's up 4% in Q2. Can you help us understand the changes from Q1 to Q2 that drove those changes?

Lee Adrean

I'm not sure there was any particular factor. I think we did see a little bit of a moderation in lending activity in the quarter. It is still -- obviously, still positive to last year but not quite as strong as the momentum we had coming into the year.

Jaime Brandwood - UBS Investment Bank, Research Division

But any credit reports that you would be selling to resellers that would then be selling those credit reports onto mortgage lenders, you would be booking that volume growth within that 9%. Is that correct?

Lee Adrean

Yes.

Jaime Brandwood - UBS Investment Bank, Research Division

Okay. All right. And then just turning to your balance sheet. I mean, you're delevering pretty rapidly. Certainly, wouldn't expect you to comment on anything specific, but I'm just wondering generally as you think about your M&A pipeline, is there anything on a kind of 6- to 12-month horizon that might require a slightly greater level of investment that could see you relever that balance sheet up? Or is the M&A pipeline pretty empty at the moment?

Richard F. Smith

No. The -- we always talk about trying to deliver 1 to 2 points of revenue growth coming from M&A strategic acquisitions. That's currently our look as well, so I -- no need to deviate from that. Our pipeline is strong around the world.

Operator

We'll go next to Shlomo Rosenbaum with Stifel, Nicolaus.

Steven Shui - Stifel, Nicolaus & Co., Inc., Research Division

This is Steven Shui in for Shlomo. Just to get back to OCIS, can you break out how much of that growth was from mortgage and maybe how much of it was from NPI and a cyclical tailwind?

Lee Adrean

Mortgage is about 9% of online growth. Online was 20%. 9 points were mortgage. We -- as I said, some of the pricing and operational improvements that contributed were in the low single digit. What I would describe as kind of core growth was around 7%, and that's kind of a combination, roughly half and half between some new products and new customers versus just market growth.

Richard F. Smith

And Steven, as I mentioned earlier, maybe you heard it's -- when you think of mortgage, you can't just think of mortgage as the market dynamics itself. USCIS is a great example. We're going to be launching new products routinely in the mortgage space that didn’t exist a couple of years ago, and that’s fueling a lot of the growth as well. So it's not just the market itself.

Steven Shui - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then also to the commercial credit business, that didn't improve as expected, and it sounds like macro is a huge factor there. But were there any signs of intensifying competitive pressure or additional pricing pressure at all?

Richard F. Smith

No, not at all. There's -- as you might guess, we routinely look at market share, one business, lost business, price compression, price acceleration. No, it's just an overall more sluggish segment of our business than we had anticipated. But again, as I mentioned earlier, we expect that business for the total year to end up in the low single-digit growth. So we expect a better second half than we've seen in the first half.

Operator

And our last question will be from Andrew Jeffrey with SunTrust.

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

Rick, you talk about, this year, EPS growing 2 to 3 points faster than revenue. When we look at all the puts and takes for the long term of tax rate, share repurchase, et cetera, do you think that relationship is sustainable? I mean, if you're putting up the 6% to 8% revenue growth that you talk about core, that earnings should be growing 2, 3 points faster than that.

Richard F. Smith

Absolutely. That's the financial model that we've thought through and built here and we communicated to our investors and to the sell-side guys. That's a -- through the combination of capital leverage and operating leverage that we get as a business, we should expect that 2% to 3% to continue for as far as the eye can see.

Lee Adrean

Andrew, one thing I would point out. You phrased the question in terms of 6% to 8% core growth, or organic growth, and 2 to 3 points of leverage on top of it. Of course, our model is 6% to 8% organic, on average, 1 to 2 of acquisition, plus 2 to 3 points on top of it. If we didn't do any acquisition, we'd get a greater -- we'd add that same growth through share repurchases instead of acquisition.

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

Okay, yes. I'm just thinking about all the factors that can affect EPS in aggregate, just trying to triangulate to the sustainability of that. And tax rate was a bit of a tailwind in the second quarter. Should we think about the full year as still being around that 37% rate? I mean, the guidance maybe implies that the tax rate bumps back up in the second half.

Lee Adrean

I would say the tax rate for the year is probably between 36% and 37% but not the 35% of the second quarter.

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

Sure. So that's -- and that's probably the go-forward tax rate, somewhere between 36% and 37% as we look out into future periods as well.

Lee Adrean

Right now, I would say that I would tell you, if anything, the pressure on tax rate is probably slightly upward. States are looking for ways to add revenue, and many times, it's not major legislation and changes in tax rates but things they allow, disallow. And frankly, we're seeing the same from our friends in Washington. There's not been any major tax legislation but, boy, are they trying to disallow certain things that have been done in the past.

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

Okay. And Rick, how would you characterize the contribution from NPI, rest of world, I guess Europe in particular? Is the momentum that you referred to in the first quarter continuing? And what are some of the things you can do to -- that can potentially maintain double-digit constant currency revenue growth, especially if the economic environment continues to deteriorate over there?

Richard F. Smith

Yes. I meant what I said. The -- I said a few quarters in a row now that the contributions of NPI are extremely broad based. It is not just every business unit. But specific to it -- to your question on international, it's every country. And international is running above 10%. You remember our goal was to get to 10% of revenue coming from products that didn't exist over the last 3 years. They're above that, so they're at the higher end and doing a great job. And that's why you're seeing growth in really tough economies like Iberia and the U.K. It's because of NPI, and the expectation is that continues.

Operator

And we have no...

Jeffrey L. Dodge

I appreciate everybody's time on the call. We'll be available throughout the day if you’ve got any other questions. Thanks again.

Operator

Thank you. Ladies and gentlemen, this does conclude today's presentation. We appreciate your participation, and you may now disconnect.

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