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Executives

Jeffrey L. Dodge - Senior Vice President of Investor Relations

Richard F. Smith - Chairman and Chief Executive Officer

Lee Adrean - Chief Financial Officer and Corporate Vice President

Analysts

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

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

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

Georgios Mihalos - Crédit Suisse AG, Research Division

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

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

David Togut - Evercore Partners Inc., Research Division

Carter Malloy - Stephens Inc., Research Division

Manav Patnaik - Barclays Capital, Research Division

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

Paul Ginocchio - Deutsche Bank AG, Research Division

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

Equifax (EFX) Q3 2012 Earnings Call October 25, 2012 8:30 AM ET

Operator

Good day, and welcome to the Q3 2012 Equifax Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeff Dodge. Please go ahead, sir.

Jeffrey L. Dodge

Thank you, and good morning, everybody. Welcome to today's conference call. I'm Jeff Dodge with 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 will be making certain forward-looking statements to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our 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. 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 in our various investor presentations 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, and good morning, everyone. Our team posted yet another really strong performance in the third quarter. Our strong performance, again, reflects the breadth and the balance of our business model. Our customers increasingly value unique products and services we offer, and our team is always focused on driving sustainable organic revenue growth in what is a challenging economic times. Strength in the mortgage refinancing activity aided our results as well, but we're also seeing, for the first time, strength across the new home sales in the U.S., which is encouraging and, I think, bodes well going forward.

Even in our mortgage offerings, just as in the rest of the company, we're also gaining market share through introduction of new products and increased share of wallet from enhanced service delivery.

For the quarter, our core organic growth, including growth initiatives, was 7.2%, which is in the middle of our long-term organic growth range that we've communicated for quite some time now, being between 6% and 8%, so solid on the organic growth.

For the quarter, revenue was $544 million, up 11% in the third quarter of 2011. On a constant currency basis, revenue was up 12%, which is above the range we gave during our second quarter call.

Operating margin was 24.3% compared to 24.8% in 2011. When you exclude severance expenses in our International business, which was not anticipated at the time we gave our guidance for the third quarter, the operating margin was 25%. Finally, adjusted EPS was $0.75 a share, up 16% from the $0.65 we delivered last year.

And we transition quickly to each of the business units. Each of the business units continued to successfully address the needs of the markets with high-valued solutions. We've adopted our new product innovation, strengthened our strategic initiatives, streamlined our operation and strengthened our management teams to ensure we meet our commitments to both our customers and our shareholders, and the team continues to execute at very high levels across the board. It's been a constant theme now for the last couple of years.

Strong double-digit growth in USCIS was broad based. In addition to new relationships we developed in leveraging our unique data assets and our proprietary technology. We continue to compete based upon our track record of product innovation to secure long-term relationships and greater penetration, and do customers' business activities.

As an example, continuing our success in the insurance arena, we won a new multi-year deal with over $5 million. We've become more, more bullish in the U.S. around the insurance sector for our long-term growth.

In our traditional financial institution sector, we have been selected by a top bank, top 4 banks in the country, for a multi-year agreement to provide data for an enterprise-wide database platform to support their analytic and modeling development activities. This project will leverage many of our unique data assets, our proprietary data linking technology and many of our Decision 360 product offerings. This is really exciting. This will allow us to get in there and co-develop with our customers new products to solve new problems for them in the future and financially, very, very lucrative for us.

Sticking with USCIS, we continue to have great success with our proprietary ID and fraud management solutions, including Anakam's two-factor authentication solution. We signed 3 different contracts with the U.S. government in the quarter, and these 3 contracts represent over $5.5 million in first year revenue.

Moving onto International. In spite of a challenging economy in Europe, which I think you all are very well aware of, and a modestly declining or slowing economy in Latin America, the International delivered solid growth. 7% organic growth in Europe and 9% organic growth in Latin America. So really troubled economies, as you know, in Europe and to post those kind of growth rates is very encouraging.

Operating margins remain very strong as they continue to systematically leverage a consistent set of operating principles across all of our geographies, introduce new products and enter new markets.

International routinely develops and introduces new high-value solutions into the markets as reflected in their NPI Vitality Index, which was 11% of total revenue for the third quarter. In the U.K., we leverage our InterConnect platform in a head-to-head competition to win a new large telco customer.

Finally, revenue continues to be driven by the growth of over 20% in our high-value Technology and Analytical Services offerings. Our Technology and Analytical Services growth rate in International has been fantastic in the last couple of years and leads the way globally at 20%.

Workforce Solutions continues to make great progress in growing its actively employed Work Number database while broadening its service -- served verification markets and further enhancing relationships with the HR departments who report into The Work Number database.

Active records in The Work Number database were up 6% year-over-year as a result of adding a record 161 new companies and the increased hirings from our existing contributors. Great traction there.

Earlier this year, we launched an enterprise-wide go-to-market initiative, leveraging our USCIS sales force to increase the penetration of all Equifax products with our client base, including The Work Number. To date, this initiative has generated almost 3 times the revenue growth target we set for verification services. So already this team is gaining great traction and leveraging all of our products with a very aggressive focus on The Work Number.

We were recently awarded 2 multi-year contracts to provide Social Services Verifications. The first contract includes verification services for a state's food stamp, welfare and child support enforcement, and Medicaid eligibility services. The other contract provides verification services to an agency of the federal government for disaster loan eligibility. These are both excellent examples to how we enter new markets with new services leveraging our existing data assets and operational infrastructures. In this case, The Work Number.

Finally, the IRS has selected Workforce Solutions as its first pilot vendor to deliver eTranscript. The service is designed to streamline the process of delivering 4506-T information to verifiers in real time at the request of the taxpayer, enhancing the time lists and the value of our services.

Moving onto North American PSol. They continue to drive strong revenue growth and above-expected operating margins. PSol has developed a very good operating rhythm with metrics that are reported and evaluated real time every day. They focus intently on growing the subscription -- the subscriber base, increasing ARPU, managing churn and reducing our cost per account acquired. As a result, our subscription-based revenue has now reached 68% of our total revenue and margins continue to be very strong.

North American Commercial Solutions continues to be challenged by weak demand from many of its project-oriented services, particularly in the marketing area. As we indicated last quarter, this trend is likely to continue in the near term as banks and other financial institutions pull back on its small business lending activity. However, the risk side of the business continues to be very strong, which we will get into in a few minutes.

For many years now, we've been executing consistently on our strategic plan, accumulating a diverse portfolio of data assets, mine the mass of data, and extracting relevant insights through sophisticated analytics and delivering our solutions to proprietary decisioning platforms.

Increasingly, our customers are recognizing the true value we can bring to their daily business operations. In short, we are winning market share and growing revenue nicely as a result.

As you've seen over the course of the year, our solid year-to-date performance demonstrates the effectiveness of our business model and our strategy in a more volatile competitive environment and how rigorous operating principles underpin the consistency of our business performance. So in short, another really solid quarter seen in this third quarter.

Lee, if you go to the financials now, that'd be great.

Lee Adrean

Thanks, Rick, and good morning, everyone. This morning, I will 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.

As our customers' environments evolve, we continue to drive revenue growth by addressing their needs with a unique combination of data, analytics and decisioning technology. Our performance this quarter was broad based and ahead of the expectations we set as we entered the quarter.

Compared to the same quarter of 2011, for the third quarter of 2012, consolidated revenue of $544 million was up 11% on a reported basis. Excluding the impact of changes in foreign exchange rates, revenue was up 12%. Operating margins was 24.3% compared to 24.8% for the third quarter in 2011. In the quarter, our International business unit recorded a severance charge, which we had not previously planned, to better align its resources with our future business needs. When you exclude the severance expense, the operating margin is 25.0%.

Diluted earnings per share attributable to Equifax was $0.64 a share. Excluding the impact of acquisition-related intangible amortization, adjusted EPS attributable to Equifax was $0.75, up 16% from $0.65 in the third quarter of 2011.

As I noted, the quarter included $3.7 million before tax or $2.4 million after-tax of severance expense in our International business unit. We also benefited by $3.3 million from income tax benefits. Neither of these 2 items was anticipated at the beginning of the quarter. The net impact of these 2 items added just under $0.01 to earnings per share.

Moving to the individual business units. U.S. Consumer Information Solutions revenue was $233 million, up 15% year-over-year. Online Consumer Information Solutions revenue was up -- was $157 million, up 16%. Third quarter online volume was up 5%, driven primarily by continued growth in credit card, auto and mortgage lending. Average revenue per transaction was up 4% in the quarter, driven by a shift in mix of volume.

Our remaining growth came from services beyond traditional credit reports, including direct-to-consumer monitoring services and new product offerings priced on a subscription basis.

Mortgage Solutions revenue of $43 million was up 35% compared to Q3 2011. Both mortgage reporting and settlement services delivered strong double-digit growth in the quarter.

Consumer Financial Marketing Services revenue was $33 million, down 4%. Credit Marketing Services revenue was up approximately 7%, while IXI declined as revenue -- as financial institutions reduced their use of wealth-based data in select applications due to regulatory uncertainty that we are currently addressing.

The operating margin for U.S. Consumer Information Solutions was 36.9%, up from 36.6% in the third quarter a year ago.

Our International business units revenue was $121 million, up 2% on a reported basis and 6% on a constant dollar basis. By region, Latin America's revenue was $47 million, up 4% in U.S. dollars and 9% in local currency.

Strong double-digit growth in Technology and Analytical Services is offset by softness in marketing services and Personal Solutions.

Chile recently passed legislation that changed the permissible use of consumer information, having a negative short-term impact on our revenue in that country. We are implementing some mitigating initiatives, but the near-term pressure in revenue growth in Chile will continue.

Europe's revenue was $42 million, up 3% in U.S. dollars and up 7% in local currency. Strong double-digit growth in Analytical Services and Personal Solutions helped to offset a decline in our consumer and commercial information segments, which were impacted by the generally weaker economic conditions.

Canada consumer information revenue was $33 million, flat in U.S. dollars and up 1% in local currency. Strength in Technology and Analytical Services, particularly in fraud services, offset weakness in Consumer and Commercial Information Solutions.

International's operating margin was 27.4%, down from 29.3% in 2011. Excluding the severance charge mentioned earlier, the operating margin would have been 30.4% in line with past quarter's performance. For the quarter, Workforce Solutions revenue was $117 million for the quarter, up 14%.

Verification services, with revenue of $69 million was up 33% for the quarter, approximately 80% of our growth was organic and broad based, with strong double-digit growth in mortgage, consumer finance, preemployment and government uses of verification services. The remaining in organic growth resulted from the acquisition of DataVision in August of 2011.

Employer Services revenue was $48 million, down 5% compared to last year, reflecting weakness in both tax management and Talent Assessment Services.

The Workforce Solutions operating margin was 24.4%, up from 23.0% in the third quarter of 2011, once again, due to the strong performance in verification services.

Our North American Personal Solutions revenue was $51 million for the quarter, up 13%. Strong growth in our higher-value products and further penetration in Canada were the major contributors to this performance. Operating margin was 32.1% compared to 32.8% in the third quarter of 2011.

North America Commercial Solutions revenue was $21 million, down 2% on a reported basis and down 1% on a local currency basis. Double-digit growth in U.S. risk activities was offset by a double-digit decline in our U.S. marketing activities, as lenders have continued to be cautious in the small business segment.

The operating margin was 18.8%, down from 23.6% in the year-ago quarter, reflecting continued investment in building our capabilities, despite lack of near-term revenue growth.

Corporate expense was up 18% compared to the third quarter in 2011, largely driven by investment in enterprise-wide infrastructure and capabilities as well as additional incentive compensation resulting from better-than-expected operating results. Our corporate tax rate in the quarter was 33.5%, down from 36.2% in the same quarter of 2011. Excluding the unanticipated discrete tax benefit in the quarter, the corporate tax rate would have been 36.3%, consistent with our recent past.

Now let me turn it back to Rick.

Richard F. Smith

Thanks, Lee. Let me just give you some closing comments, then we'll jump to some Q&A. I'm proud of this team. This team continues to execute at very high levels, allowing us to deliver yet another solid quarter. As you know, I think you agree, we have the broadest array of powerful consumer data assets in our industry. We've invested heavily over the years in linking this data together, as well as linking together second and third-party data. We're also investing in our analytical expertise to ensure we develop an absolute best insight out of that data. And as I stated earlier, our strategy is really resonating well with the customers in every sector in which we serve. We're now operating from a position of real strength to continue driving solid organic revenue growth for the foreseeable future. You'll hear more details about that when we have our Investor Day in December up with at the New York Stock Exchange.

As we enter the fourth quarter, we see the same fundamentals continuing and now expect this momentum to continue into 2013. And again, we'll discuss in great detail the strategy and the outlook for 2013 at the Investor Day. We now expect full year 2012 revenue growth for the company, excluding Brazil, to be at or above the top end of the 11% to 12% range we quoted during the second quarter earnings call. And for adjusted earnings per share growth, additional 3 to 4 points as a result of operating in the financial leverage. This outlook assumes that mortgage marketing continues at its present rate for the remainder of the quarter and, in fact, I expect the mortgage market to continue well into 2013 at this juncture, probably at least through the first 2 quarters of 2013.

For the fourth quarter, assuming current exchange rates at a continuation of the mortgage activity we've experienced, our outlook for revenue growth from continuing operations is expected to be between 8% and 10% adjusted EPS, from continuing operations is expected to be between $0.72 and $0.76 per share for the quarter.

And finally, we are looking forward to visiting with you at our Investor Day on December 6 with the Stock Exchange. Given the strong positive response to date, I'd encourage you to respond RSVP at your earliest convenience so we can be sure to accommodate everyone's interest because we're -- a limited number of people can actually host in the facility. For those of you who don't -- won't be able to attend in personal, we'll be webcasting it and taking questions from our web-based audience during the Q&A session. So again, we hope we can see you there on the 6th of December.

Operator, if you would please open up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Andrew Jeffrey of SunTrust.

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

Lee, there's been a little bit of volatility in the USCIS operating margin. Could you elaborate a bit? You were up above 38% last quarter and right around 37% this quarter. Is there any seasonality, or anything else we can kind of tease out of those results to discern a trend as we go forward here?

Lee Adrean

Andrew, I think a couple of things. The most important is actually the mix of business as we flow quarter-to-quarter. For instance, from Q2, our IXI business unit, because of the way they deliver their services, tend to have the strongest quarters in Q2 and Q4. And when they get -- but their expenses are relatively ratable through the year. So IXI will contribute much more strongly to margin in Q2 and Q4. As we move from Q2 to Q3, IXI revenue fell off as they always do. And we made up some of that with mortgage. But as we increase mortgage revenue, that also drags along with it some direct cost. So simple things like mix quarter-to-quarter, a little bit of seasonality Q2 and Q4 as a result of IXI. There will be some fluctuations when mortgages surging versus moderating some. Those are some of the factors that cause quarter-to-quarter fluctuation. We really don't try to manage quarterly margin at a business unit level. There are too many things that can intervene. Obviously, we do try to drive consistent performance at a total company level, but the business units will tend to fluctuate.

Richard F. Smith

Andrew, Rick here. Just to reinforce Lee's point, I think, if you look at year-to-date trends, so 3 quarters year-to-date, 2011 versus 2012, you'll see a very positive momentum. If you look at third quarter of 2011 versus third quarter of 2012, you'll see positive growth. And to Lee's point, with the IXI and mix changes, you'd expect to see a nice move up in the fourth quarter on the margin as well.

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

Okay. Yes, strong volume cures a lot of ills, doesn't it? It also sounds like, perhaps, there's a shifting mix that is benefiting your overall pricing. Maybe it's a change in contract structure. I know you sort of have a rationalization or a reset of price last year? Could you just talk directionally about how you see your pricing, both specifically for Equifax but also in the context of the overall sort of competitive USCIS environment?

Richard F. Smith

Yes, One thing, Andrew, we've talked about now for years is that we continue to invest heavily in our strategic pricing team and we get great results, an increasing result out of the team each and every quarter. That team is focusing on bundling of our unique data assets to maximize the value we can bring to our customers and the price we can bring to our shareholders and profit to our shareholders. So I'm pleased with what they're doing. I'd say we're still at the early stages, but even though we've been out now for 6 years, I think there's a lot of runway left for us on pricing.

Lee Adrean

Yes, and Andrew, I'd add a couple of things first. Certainly, pricing has been important, and we've talked in the last couple of quarters about some pricing initiatives from last year, which we're seeing flowing in, in our results this year. Second, there is a mix issue. When mortgage is particularly strong, our pricing into the mortgage sector tends to be more attractive than, for instance, into the credit card sector. So you can get some mix effects. The third thing, again, a different element of our strategy is we introduce additional products and services. Some of those are add-ons to the credit report revenue we already have, and that causes our combined average price to rise. And whether that's in what I've described as some of the services outside of pure traditional credit reports but flow-through USCIS, you see that addition to revenue growth on top of just pure unit price. We're actually working to come up with a little better way of measuring our average revenue per transaction, but you're seeing the effects of all 3: Pricing, the mortgage mix tends to help us when it's quite strong, but also product initiatives that we've been driving for several years.

Operator

We'll go next to Dan Perlin at RBC Capital Markets.

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

Rick, you called out strength across new home sales, the post refinancings, and there's a lot of, obviously, questions around mix in mortgage. Can you just -- can you help us understand a little bit what the dynamics might look like if we saw that trend in new home sales versus refinancings accelerate, both in terms of absolute dollars of revenues per those types of transactions and then the margin implications?

Richard F. Smith

Yes, Dan, one of the things that's important to note that the new home sales are, in fact, strengthening. It's on even -- depends on where you are in the country, but overall it's strengthening from a very low base. We still have a long way to go. So again, I think, it's an encouraging thing if you think about mortgage. We have a long way to go before we get back to the historical levels of 2004, '05, '06 and even '07. And then we expect that to continue to improve at a modest rate in 2013. We expect refinancing, as I mentioned before, to continue to improve -- to continue at good levels for the first -- at least first 2 quarters of 2013. The point I'll make there is, I said in my opening comments, we are innovating at very, very high levels across the company, including mortgage. We have a team in the mortgage business that has got great domain expertise, and their ability to build new products and new solutions in the mortgage market is helping us grow, regardless what the mortgage market itself does, is encouraging. As I think about margins, I don't see a significant difference in margins for refinancing versus that of original home sales. Those tend to be about the same. There are some nuances there, but generically about the same. And the margins for the new price, obviously, tend to be a little low as you start off and grow over time.

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

Okay. And then as we think about kind of setting the business up from -- we look at your incremental margins, you guys have been producing, and we adjust them this quarter, they've been pretty consistent. A little bit below 30%, a couple of points. Is that, you think, a sustainable level? And I guess, what I'm trying to get at is, you've had a lot of moving parts in this year when we kind of compared margins and try to adjust them as investments. There's Brazil, there's mortgage, hyperactivity. And I'm just trying to make sure I understand the trajectory as you think about the business going forward, not to steal any thunder at the Analyst Day, but is the incremental margin at, call it, 25% to 30%, is that a sustainable level?

Richard F. Smith

Let's see if I can answer your question this way. We made a commitment that we see a path of continuing to grow year-on-year on margins about 25 basis points a year while continuing to grow or investing organic growth. If that's the heart of your question, yes. I see the trajectory line continuing at that 25 basis points for 2013 and beyond.

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

Okay. And let me just ask 2 other quick ones. You called out insurance becoming more important. I would be interested to hear a little more detail around that. And then also, you called out kind of these co-development deals, which sounds pretty interesting and pretty good for margins. So I'd be interested to hear a little more about that, if you could, please.

Richard F. Smith

Sure. On insurance, I think, we've mentioned that -- boy, you're testing my memory now. I think it's been a few years ago, we had a large win then. We've really pulled back in the insurance sector post the divestiture of ChoicePoint with our unique 360 data assets. We looked at that marketplace a couple of years ago, became intrigued, won a couple of nice pieces of business. So it's a continuation of what we announced then, Dan, it's just really leveraging the data 360 assets to add value and solve problems that others in the industry cannot solve. We're hiring some very good people and learning here as you get people really understand the verticals -- in this case, insurance. They bring great value and immediate value to us there. So the combination of good expertise and unique data assets is proving valuable in insurance. As it relates to the co-development, yes, that is encouraging. I mentioned to you there, it's allowing banks to co-develop with us to develop insights from their data and our data to build new solutions. That alone is manifesting itself in immediate revenue. But the most exciting thing is, as our customers get into our data assets and co-work with us, we are convinced that can lead to future new products down the road. So the incremental revenue as we look forward 2013 and '14 with these large banks. I think it's very, very encouraging, and we're leading the way there with these large banks, which is neat.

Operator

And we'll go next to Julio Quinteros at Goldman Sachs.

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

Can you just touch on 2 things? One on the government opportunities. I think this is the first time, I think, I've heard you guys talk a little more directly about Anakam and some of the multi-factor authentication capabilities there. So I was hoping to see a little more color on that front and then -- let me just stop there and then I can follow up with the second one.

Richard F. Smith

It is -- you're right, we really ramped up our efforts in the government sector when we bought Anakam maybe 2 years ago. They brought not only product capabilities that could help us solve identity fraud issues with different arms of the government -- and I'm not going to go into a lot of details which arms they are -- but number two, it brought the context and the ability for us to actually open the way towards the combination of the Anakam two-factor authentication with our -- of our data assets and a product we called eID kind of bundling of those 3 products together is really gaining great traction across a multitude of government entities, which is really encouraging.

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

Is there any way to take that to the commercial marketplace,, or is there a sense there that that can be ported over to commercial enterprises as well?

Richard F. Smith

Yes, great question. Yes, the answer is yes. If I think about the traction we're getting with the combination of those 3 efforts again, two-factor authentication, knowledge-based decisioning off of our database and then eID, it's -- we are going to take it to government, health care and the FIs . There's a clear need in all 3.

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

Switching gears over to the International front. At least, relative to our numbers a little bit lighter in terms of the revenue performance, some puts and takes, as you think about the rest of this year and maybe even next year, where would you sort of highlight any key risks, obviously, Europe? But is there anything in particular that you would point to where there could still be some risks on the International revenue growth front?

Richard F. Smith

Let's see if I can answer by putting some color on what's occurring in our International. Again, I think it's important to your baseline the fact that, in Latin America, we're still growing 9%; I think it's very, very encouraging. Number two, growing 7% on a local currency basis in a very troubled European market is encouraging. I didn't mention Russia. Russia, we have just great, great success in Russia and great success in India as well, as you think about International. Go to specifically, maybe some themes that are occurring in the International footprints. There's some regulatory uncertainty in a couple of places in Latin America and in Canada that the team is now working through. But that regulatory uncertainty caused a slowdown, a temporary slowdown in a couple of markets. So while the underlying market might have been a little stronger, the regulatory uncertainty caused a slowdown for a few quarters. And we're going to work through that, and the team's done a great job of that. And we'll hope to get through that uncertainty as we exit 2012, moving to 2013.

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

Got it. Presumably the severance charges and some of the things you try to do to realign the business will help protect the margins as we go forward through that?

Richard F. Smith

Yes.

Operator

And we'll go next to Georgios Mihalos at Crédit Suisse.

Georgios Mihalos - Crédit Suisse AG, Research Division

Just wanted to start off a sort of a housekeeping item. On the 12% constant currency growth, is it about 500 or 600 basis points that came from mortgage -- is the math right there?

Richard F. Smith

It's about -- we'll look at Jeff is here. Is that about right, Jeff?

Jeffrey L. Dodge

It's about 1% acquisition, about 4% mortgage. Actually a little less than 4% and a little over 7% core and initiative growth.

Georgios Mihalos - Crédit Suisse AG, Research Division

Okay, okay. Got you. And then, Lee, you were talking about some of the regulatory issues in Chile. Is there a way to think about how much that impacted growth in the LatAm region? Was it significant?

Richard F. Smith

I don't have the exact calculation, but for Chile, it's obviously important. For LatAm and for the company as a whole, it's relatively de minimis. And we haven't broken that out. And again, I think, the most important thing to think about there is we've got a great team working with the different branches of the government in Chile -- in fact, in all parts of the world -- to get through these regulatory uncertainties. So I'm confident we'll do so.

Georgios Mihalos - Crédit Suisse AG, Research Division

Okay. And then you mentioned the subscription portion of PSol going up to 68%. How much higher do you think you can really go from this level?

Richard F. Smith

Yes, it's a pretty good level there. I think 68% to 75% seems to be a reasonable target for us, and a target we're comfortable with.

Operator

And we'll move next to Eric Boyer at Wells Fargo.

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

Rick, you talked about the revenue growth within mortgage not just being about volume increases but the product innovation that you guys have been doing over the last couple of years. Do you have a rough sense of the revenue growth from those new products versus the mortgage market strength you're seeing?

Richard F. Smith

I don't think we break that out. Lee, do you have those numbers by chance or directional?

Lee Adrean

Yes. If I look at the total of USCIS, it growing at about 15%, about 7% or so is mortgage market, about 2 points are some of the major pricing initiatives from a year ago, but we're looking at 5% or 6% just pure organic initiative growth.

Richard F. Smith

Looking specifically, I think, mortgage growth is from new products.

Lee Adrean

Out of the mortgage, sorry.

Richard F. Smith

I don't think -- we don't break that out. I don't have it off the top of my head. But here's what you should note. I said a little earlier that we have a really solid team in mortgage. They've got deep domain expertise. They are churning out new products in an unbelievable rate, leveraging all the different unique data assets we have. And I can tell you this: For the mortgage business in the U.S., it's a nice piece of growth. I don't remember the exact numbers.

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

And then just as on the revelatory issues, they're different than the IXI regulatory issues that you've been talking about. Is that correct?

Richard F. Smith

When we talk International, correct. There's stuff going on in Chile or Canada -- is much different under than the IXI issue. And the IXI issue is worth just spending a second on. It is being driven around uncertainty, not a regulatory decision at this juncture. It's uncertainty around where regulation might go, specific to a couple of attributes within the database, specifically age and location. So we're working with our customers to modify models that are as predictive to take some of the areas where they're concerned or where regulation might go out of the equation. And we're very hopeful that we get that resolved very soon.

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

Okay. So I mean you really don't have to reposition IXI in any type of major way?

Richard F. Smith

No. We've already proven statistically that if we modify the model to exclude the attributes that they're concerned about, it is as predictable as the old model.

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

Okay, great. And then just finally, can you give us a little more detail around the severance charge you took in the quarter?

Richard F. Smith

It's nothing significant. It's nits and nats as a number of people across Latin America just trying to reposition the company for the future needs a little bit in the U.K. Nothing -- no one thing is significant and no one thing is really strategic. It's a small number relative to our size of the business, $3.7 million.

Operator

And next, we'll go to Andrew Steinerman at JPMorgan.

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

2 quick questions. One, the 8% to 10% for the fourth quarter, what would be the constant currency number? And the second, you talked about regulatory uncertainty in Latin America; you called out Chile. Wasn't there a very recent positive data change in the law in Brazil? Do you consider this a very monumental change for the consumer credit reporting industry in Brazil, and when do you think the kind of uptake will occur?

Richard F. Smith

Andrew, this is Rick. I'll let Lee get the constant currency growth rate for the fourth quarter in a second as it relates to Brazil and the positive data ruling. It's important you look back in time and you go back 5 years ago. We and others were very bullish at the time that positive data would be forthcoming and will be a catalyst to revenue. Here we are 5, 6 years later, and we're still muddling around and trying to determine what that really means and when the revenue might be forthcoming. Strategically, there's no doubt about it. When the country moves to positive data, it is a good thing. It helps them with risk-based pricing and that has proven to be a catalyst for growth in our industry. At this juncture, I'm still in the sidelines. And my view is it's probably 2 years or so, maybe 3 years away, before you actually start to see revenue traction from positive data in Brazil. It's a number of years beyond that before you see significant revenue. Lee, you got...

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

And is that because it takes the consumer credit reporting companies time to use that data? Is that the 2- to 3-year lag?

Richard F. Smith

It's more than that. It's also getting the government to determine if it's opt in versus opt out, what are the policies and rules behind it. Just declaring you're going to have positive data doesn't mean much. It's getting underneath that and understanding what that really is. And right now, they're leaning towards a opt-in. So in other words, the consumer has to prove you're using the positive data, that's number one. Number two, it does take time for us and others to build the database, so you can actually use the database on positive data. Lee, you have the constant currency?

Lee Adrean

Andrew, based on our current view on FX rates, we think the constant currency growth is probably going to be about 0.5 point lower than the nominal. So if we're saying 8% to 10% reported revenue growth in the fourth quarter, constant currency will be 7.5% to 9.5%.

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

Right. And we anniversary-ed all the acquisitions, so that's also the organic number, right?

Lee Adrean

That is correct.

Richard F. Smith

Correct.

Operator

And we'll go next to David Togut at Evercore Partners.

David Togut - Evercore Partners Inc., Research Division

Could you give us an update on the status of your discussions with computer sciences with respect to the possible exercise of the right to put the credit services joint venture back to you?

Richard F. Smith

Dave, as you know we don't talk about acquisitions. But I mentioned, I think, it was last -- a number of times with you and others that their CEO, Mike Lowry, has made a statement a number of times in the public domain that he is interested in disposing of noncore assets, and we hope that he would see this franchise in the middle part of the country as noncore. And if he does, we stand prepared to work with him, and hope we negotiate a deal. Nothing more than that.

David Togut - Evercore Partners Inc., Research Division

Yes. Then just as a follow-up, Rick, can you bring us up-to-date with respect to the financial performance of Boa Vista? And in particular, related question, will there be any impact in your view of Experian's buyout of the remaining 30% of Serasa in Brazil?

Richard F. Smith

Our team, which is down in Brazil this week -- in fact, they're still there and come back tonight. We have -- we have a board meeting down there this week and we'll make -- continue to make really good strides on all fronts. So as far as operational integration, product development, systems, platforms, pricing, strategy, so on and so forth, building the NPI process down there, all those things are working well. We've got a really good working relationship with ACSP, TMG and Boa Vista along with Equifax. We still remain very interested in making that platform a success going forward. As it relates to Experian buying out now up to 99.6% of Serasa, no, that has no bearing on our strategy or our optimism for the market going forward.

David Togut - Evercore Partners Inc., Research Division

Can you give us a sense of what Boa Vista's revenue growth was in the quarter?

Richard F. Smith

It's no -- we don't consolidate, so I can't. But it's growing nicely, we leave it at that.

Operator

And our next question comes from Carter Malloy at Stephens.

Carter Malloy - Stephens Inc., Research Division

On the CMS business, you talked about IXI. But can you strip out the core credit marketing business and tell us about trends within that? And then what sort of a leading indicator, that is or that it provides you guys for OCIS? Maybe you could even tease out how important cards is to OCIS as well.

Richard F. Smith

I think we've mentioned somewhere in either Mike's question to Lee is the core credit marketing business, what we used to call CMS, so excluding IXI, had good growth in the quarter with a solid 7% for fourth quarter. Carter, I missed the last part of your question.

Carter Malloy - Stephens Inc., Research Division

So first of all, sorry to repeat that, you said that the core CMS -- or IXI declined and the core CMS actually grew really nicely.

Richard F. Smith

Correct.

Carter Malloy - Stephens Inc., Research Division

And is that a change from last quarter? If so, does that provide you a good leading indicator on the card piece of OCIS?

Richard F. Smith

Well, again, we answer it in 2 ways. One is that you got fluctuation seasonality in IXI throughout the year. You have a very strong fourth quarter, relatively strong second quarter, and modest performance in first and second. So yes, there was a change in marketing in IXI in the third quarter versus second quarter that will be driven the natural fluctuations you see in IXI. As far as card, card is okay. Our prescreened is up solidly. Portfolio Management is up solidly. But the overall card market still remains a little sluggish.

Carter Malloy - Stephens Inc., Research Division

Okay. And can you tease out how important cards is to the overall OCIS segment?

Richard F. Smith

I don't have that off the top of my head.

Carter Malloy - Stephens Inc., Research Division

Okay. Is it safe to say it's the majority of revenues there or approaching 50% maybe?

Richard F. Smith

No, I think it's less than 50% -- I don't know. I don't have a number.

Carter Malloy - Stephens Inc., Research Division

Okay. And then also on the mortgage business to go back to that again, you guys are very much outperforming the rest of the market there. So as we step into next year, even with a strong first half, we're looking at all the forecast calling for down 20%, 25% year-over-year next year. How much do you expect to outperform that market, right? So if we use existing forecast today of down 20%, does that imply for you guys a 2- or 3-point headwind next year overall?

Lee Adrean

Well, one, I think you're going to see a changing perspective on the mortgage market as time passes. The old data, you're correct, talked about a 20%-ish decline, 21% decline. I think as you exit this year, you're going to see the economists, MBA and most importantly, the top underwriters of mortgages take a different and more optimistic stance. You've already heard a few of them in their earnings call talk about that. So I think what you're going to see is far less than a 20% to 25% decline next year. I think you'll see a strong first half of the year in mortgage, and you'll see a weaker second half of the year. And whatever that number is, and as we get maybe to Investor Day, we'll have some greater transparency for you, Carter. Whatever that number is, yes, we would expect our team to perform at a significantly better rate than that market decline, and that's because of our innovation. So if you'd bear with me, wait till we get to the December Investor Day, we'll frame up for you the stake in the ground that we're putting for mortgage market, and that what we expect for our mortgage business.

Operator

We'll move next to Manav Patnaik at Barclays.

Manav Patnaik - Barclays Capital, Research Division

Some quick questions. First thing, could you elaborate a little bit more about what the regulatory uncertainty is in Canada? And also I guess, the CFPB has been in the press quite a bit, just wondering what your latest discussions with them have led you to believe what's going on there?

Richard F. Smith

Let me start with the latter and come back to Canada. CFPB, obviously, we're in very close contact and communication with them. Their whole focus now, as it relates to us and our industry, is that governance and ensuring that we have a proper governance structure in place to comply with any potential new regulations that would be forthcoming. So we're spending some time and energy just making sure that our governance process, governance structured, governance communication, governance cadence is proper, and the team is making really, really good strides there. So that's where a lot of our energy is right now with CFPB. There has been no clear mandate or new regulations imposed at this juncture. Stay tuned. As we learn, obviously, we will use this vehicle and others to communicate to you. But I think the team's done a great job. We'll continue to do a good job of responding to and reacting to CFPB. As it relates to Canada, it's always important to put it in perspective, too, because the regulatory impact there, when you look at the entire company, was de minimis. It focused on the mortgage market and regulatory change in the mortgage market, which did impact the mortgage business in Canada. The mortgage business in Canada is small relative to the total business. I think, Lee, it's 15%-ish, 20% in that range. And the specific regulation that came out in Canada, I don't remember exactly what it was. Lee, you might.

Lee Adrean

The issue in Canada did not -- actually has nothing to do with our services to the mortgage market. The Canadian financial authorities are trying to reduce -- has reduced the bubble or any risk of a mortgage bubble and they have increased required down payments and made some other changes to deflate the real estate market a bit. The amortization schedules on mortgages have now been brought in from 30 years to 25 years, so payments were up a little. And they're just trying to make sure that they don't get a mortgage bubble. But what that's done very short term is slow the demand in mortgages. So it really is actions by the government to avoid the bubble, but it has weakened mortgage demand.

Manav Patnaik - Barclays Capital, Research Division

Got it. And I guess, in terms of the free cash flow guidance, I guess, you had given earlier and CapEx as well, can you maybe update us? Is there some seasonality you expect in the fourth quarter with those in issue? I think you had said $240 million to $260 million, and CapEx, $75 million to $95 million, all those end up being below what you guys come up with.

Lee Adrean

I think the CapEx is probably heading to a lower number than $95 million. I don't actually remember the number, but it's probably pretty linear through the year. CapEx to date is about $50 million, that would project out to about $70 million for the year. The -- I'll be honest, free cash flow, I haven't focused on it as much on. Our cash flow has been strong this year. And...

Manav Patnaik - Barclays Capital, Research Division

I guess, is there any seasonality in the fourth quarter that would maybe have a drop from the last 2 quarters that you've been pretty strong?

Lee Adrean

No. The seasonality of our cash flow is first quarter is low because of the timing of certain payments and the other 3 quarters tend to be roughly equivalent. We've had actually very good working capital management in the last couple of quarters. We probably can't keep doing that and making gains every quarter, but I would expect fourth quarter cash flow to be good.

Operator

We'll go next to Bill Warmington at Raymond James.

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

So a couple of questions for you. First, just wanted to ask what NPI was running in the quarter. And then the second was to ask about the Commercial Solutions business, just whether if there's anything going on in the competitive dynamics there with D&B that's either hurting or helping the situation.

Richard F. Smith

Yes, NPI continues to run strong. We have a targeted number of 10% for vitality and you always have swings quarter-to-quarter. But the trajectory continues to be on that same pace. So it's doing well.

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

So to say, how is it swinging in this quarter?

Richard F. Smith

That was a good quarter, solid, yes. And broad-based, too. Again, it's every business unit, every geography. We're still in that 10% range as far as vitality goes. As far as the market dynamics for Commercial, there's no real change there. It's less about what Experian or D&B are doing in the marketplace. It's more about the marketing side of our commercial business being slow. Our core U.S. risk business in the U.S. continues to operate well, and I'm hopeful. We gave a guidance, it was last quarter, but it was the total year commercial would grow in the low single digit. I'm still committed to that low single-digit number, which by default means you have that growth in the fourth quarter.

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

And then, I also want to ask you, if I could, on NCTUE+. Just to ask about how customers are using that data and what kind of growth you're seeing there. And then also to ask about the M&A pipeline; you've anniversary-ed DataVision now. What are your thoughts there?

Richard F. Smith

As far as NCTUE+, it is growing extremely well. It is over twice the size of what the business was last year, and we expect it to continue to grow in the future. Most of the growth initially starts with those building solutions for those companies that provide the data, so in the telco utility arena. We're now taking that database, working with our board of NCTUE+ and taking it into other verticals such as FI and insurance. So if you look long term, there's 2 things that happen: we continue to grow the database, which adds value. We continue to diversify away from just the contributors of data to new verticals, and that will be propel growth, I'm convinced, for a number of years to come. So it is doing extremely well, Bill, to answer your question. As far as M&A pipeline, the M&A pipeline continues to be very, very strong. It centers all the things we had traditionally looked at, which is data sources, tuck-in acquisitions around the world, geographical expansions, analytics. So it's a strong pipeline, strategic pipeline, and so it's going well, all linked back to our strategy.

Operator

And our next question comes from Paul Ginocchio at Deutsche Bank.

Paul Ginocchio - Deutsche Bank AG, Research Division

Personal Solutions. You had accelerating growth on a tougher comp. I'm just wondering if you've seen any pickup in the competitive landscape. Is there more marketing spend out there for potential subscribers and what's the outlook?

Richard F. Smith

Yes, it's a very competitive marketplace, and we are outspending. If you just look at the marketing spend of our team versus other very large competitors out there, we're outspent, multiples what we spent, which is remarkable. When you look at the performance that Trey and his team have continued to deliver by becoming very sophisticated in how they measure churn, how they develop new products, and the repositioning of the pricing of the products, looking at ARPU -- just has done a very good job. As far as the future, yes, I continue to see our business, as we always said, as a double-digit growth business with a 25% plus margins and the teams have deliver that. We told you that was the goal for our business for a number of years, and I see that same kind of performance going forward.

Paul Ginocchio - Deutsche Bank AG, Research Division

Let me sneak one more in on -- I know it's a small region, Iberia, relative to the U.K. Is there a wide diversions to the growth rate between those 2 European regions?

Richard F. Smith

Yes, I don't remember. The answer is yes. We find U.K. growing at a slightly faster rate, but they're both in the single digits. It's not like you've got Iberia in a flat or negative growth rate. They're both growing at single-digit rates.

Operator

And next we'll go to Shlomo Rosenbaum at Stifel.

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

Just a number of questions, just tying up some loose ends from previous quarters. Last quarter, you guys noted that there was a downward trend through the quarter on credit card openings. Has that stabilized through the third quarter, or what did you guys see over there?

Richard F. Smith

Jeff, you know what? Jeff, I'm with you. Is it stabilized?

Jeffrey L. Dodge

Yes, it's pretty stable. It's up a little.

Richard F. Smith

We're just looking to Jeff for exact number. He said yes, it's stable versus second quarter, and maybe a slight upward trend, but nothing dramatic.

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

So we saw kind of a downward trend through the second quarter and the third quarter, it stabilized maybe up a little bit. That's the way to think about it and that's what you're seeing now?

Richard F. Smith

Correct.

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

Okay. Then where are you guys in India in terms of investment versus profits? I mean, you've guys had historically given out some metrics in terms of numbers and contributors. How should we think of that business in general and vis-à-vis the competition over there?

Richard F. Smith

Yes Shlomo, I will profess I don't remember the exact numbers. We just had a review on India recently. Let me give you some color on it, and Lee, if you remember the exact numbers, you can jump in. If not, we'll address it in detail on December 6 at the Investor Day. Across every operational metric you can think of as far as adding new contributors of data, number of records to file, companies to file, hit rate against the file, number of customers testing products, all those things are going extremely well and giving us the foundation for which to start building products and actually monetizing it. As far as financially at this juncture, we're still in the phase of investing and building and not yet at the point of breakeven. Financial breakeven probably comes 1 or 2 years down the road.

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

Okay. And then what percentage -- I guess, this is a metric-based question, what percentage of the total company is mortgaged, what percentage of USCIS is mortgaged and what percentage of verification services is mortgaged?

Richard F. Smith

I'll start with the first and look at my friend to my right, Lee, to get the others if we, in fact, break those out, if we're not, just respond that way, Lee. But as far as the company, the company has historically, since I've been here, been in the range of the teens up to as high as, I think, 22% of the total company revenue as a percent of mortgage. Obviously, with refinancing being a little stronger now than it was in the past, we're around 20%, just under -- just over 20% this particular quarter. So over a multi-year period of time, clearly within the range, you would expect versus maybe the last few years, up a bit.

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

And do you guys break it out for the other verticals, USCIS and verification?

Richard F. Smith

We have not.

Lee Adrean

Broad numbers, I think it's between 25% and 30% for USCIS, and it's about 30% of Workforce Solutions.

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

And then my last question. Leverage has been going down not because you guys are necessarily paying it off, but you guys are growing. But still, Lee, I remember asking you what you were comfortable about in terms of your leverage ratio. And you said 1.7 to 2.25, 1.75 to 2.25. You are now about 1. Is that kind of you guys teeing up for a big acquisition? Or just -- can you talk about that a little bit because, I mean, you could take on more debt and buy back stock if you weren't looking for flexibility in a different way.

Richard F. Smith

Yes, I'll jump in, and Lee can talk specifically about the capital structure we're thinking. But you're right, I think we said 1.75 to 2.2 or 2.25. We're at the low end of that range. And it's always going to go up and down over a period of time, as you know. Someone asked the question earlier, how do I feel about -- I think it was Bill, feel about the M&A pipeline. The M&A pipeline is strong, and we'll continue to look at, obviously, paying a strong dividend, buying back shares where shares make sense, investing on organic growth and M&A. And at this juncture, there is some strong M&A pipeline. We'd, as always, like to continue execute against. So you're going to see it drop from 1.9%, 2% down to the 1%. And you'll see it for a time go back up. We'll continue to operate within that range and over a short period of time, you may have some anomalies like you see now.

Lee Adrean

I'll just have 2 things. I think what we've said over the last couple of years has been 1.75 to 2x, and my calculation on our current position is about 1.4x. But that's where it will tend to float from time to time.

Jeffrey L. Dodge

Okay. I want to thank everybody for participating on the call today. And operator with that, we'll conclude the call.

Operator

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

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