Equifax Inc. (EFX)
December 06, 2012 8:30 am ET
Jeffrey L. Dodge - Senior Vice President of Investor Relations
Richard F. Smith - Chairman and Chief Executive Officer
Rodolfo M. Ploder - President of U.S. Consumer Information Solutions
Lee Adrean - Chief Financial Officer and Corporate Vice President
Alejandro Gonzalez - President of North America Commercial Solutions
Joseph M. Loughran - President of North America Personal Solutions
Paulino R. Barros - President of International Unit
David Togut - Evercore Partners Inc., Research Division
Manav Patnaik - Barclays Capital, Research Division
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
Andrew C. Steinerman - JP Morgan Chase & Co, Research Division
Andrew W. Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division
Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division
William A. Warmington - Raymond James & Associates, Inc., Research Division
Paul Ginocchio - Deutsche Bank AG, Research Division
David M. Lewis - JP Morgan Chase & Co, Research Division
Jeffrey L. Dodge
Previous Statements by EFX
» Equifax Management Discusses Q3 2012 Results - Earnings Call Transcript
» Equifax Management Discusses Q2 2012 Results - Earnings Call Transcript
» Equifax's CEO Discusses Q1 2012 Results - Earnings Call Transcript
Before we get through the agenda, I'd like to introduce the senior leadership team and then some of our high performing individuals who are also in the room.
So I'm going to start with Rick Smith, Chairman and CEO; Lee Adrean, Chief Financial Officer; Rudy Ploder of USCIS; Alex Gonzalez of Commercial; Dann Adams, runs our Workforce Solutions Business; Trey Loughran for Personal Solutions; Paulino Barros for International. And then in addition to that, we have Andy Bodea, who's Global Operations; Paul Springman, our Chief Marketing Officer; Rajib Roy, who runs Technology and Analytical Services; Dave Webb, who runs our Technology Center, and then for those of you who read the news this week, our grand poobah of Corporate Development, John Hartman. A round of applause please. And we have Coretha Rushing, Human Resources; and then Kent Mast, our Chief Legal Counsel, there in the back, who's retiring at the end of this year; and then J Kelley, who's joining us in January, Corporate Counsel.
Let me real quickly go through the agenda. Rick Smith is going to come up and start off and give you an overview of the corporate strategy. And then following that, we're going to have each of the business unit leaders come up and talk to you about some of the initiatives that they've been focused on for the past few months or few years, and then also the initiatives that they're going to be focused on over the coming years. We'll take a break somewhere in the middle there, and then finish up with the business unit leaders.
At the end of each of the business unit leader's presentations, we'll have about 5 minutes for Q&A, and then we'll -- and what I'll ask is we've got some mics around the room, so if you'd wait for the mic to get to you so the folks that are joining us on the web can hear the question, I'd appreciate it. We'll -- as I said, we'll take a break, and then we'll finish up with the business unit leaders, and then Lee Adrean will come up and sort of give you the financial representation of the strategy. Rick will come up with some closing comments, and then we'll have a Q&A with Rick and Lee on the back end the -- of all the presentations as well, okay?
Those of you that are on the web can also submit questions via email, and we'll monitor those and try to get those up to the speakers as appropriate.
At the end of the day, we're going to have box lunches for you to grab on the way out. If you want to take them with you, that's fine. If you want to eat here, you can do that as well. That's your option. The management team will be here as well during lunch so we'll leave that up to you.
So let's get started with the program, and I'd like to introduce our Chairman and CEO, Rick Smith.
Richard F. Smith
Thanks, Jeff. Thanks and good morning, everyone. We've got a great day in store for you, and I thought what I would do is start off and take a look back at where the company has come over the past few years.
Those of you who followed us for a few years, you'll be very familiar with the strategic focus that we've been focused on for the last few years. I'll show you the progress we've made around those initiatives, most importantly, then the financial representation of those initiatives. And then we'll look forward, and we'll look first of all at the kind of the macroeconomic forces that we think we'll face into in the coming years. Those would be regulatory issues, competitive issues, economic issues, and then social trends that we think have the ability to impact our business both as a challenge, as well as an opportunity. And then in that environment, we'll lay out for you the tenants of our growth strategy for the next 3 or 4 years, and we'll end with the financial representation of that.
If you look back, I think you know the story. This team has been very focused on these 6 tenants the past few years.
First and foremost is the expansion of our unique data assets, and by the way, I'll come back and go through each one of these in detail in a moment.
Second is the creation of an innovative process we call NPI. We are now on our sixth year of NPI. It truly is changing our culture, more importantly, it's changing the growth profile of Equifax.
Next is through the support of our marketing team, continue to find new ways to expand the markets in which we serve, so it's new markets with existing products and new markets with new products, and I'll show you how that's driving growth for us as well.
I think you all know the grand poobah, we built a great process over here in M&A years ago, actually, with the leadership of Trey Loughran and now we have John Hartman. Very disciplined, very thoughtful, as we think about M&A. I'll give you some insight as to how far we've come in M&A and where that might go in the future.
Next is to ingrain world-class operating disciplines. Those of you who worked with Jeff and Lee and I over the past couple of years, you've heard me say this, one of the reasons we're growing like we're growing today's is we're executing at a level I've never seen before in Equifax. And that's very intentional. I'll give you some different examples of how we built world-class execution processes on the operations side but also on the growth side, and none of this would be possible without the last point, which is continuing to bring in great new talent into the company, as well as building leadership capabilities to train and develop and enhance our current workforce.
So a quick look at each one of them. This is a chart you've seen from us before, I'm very proud of this chart. If you look at the chart, the yellow diagrams show you the core credit-based data we had back in 2005.
Again, we have intentionally tried to expand that database beyond just core credit into 2 different areas. The red circles show you data assets that we think are valuable but not necessarily unique just to Equifax. Property data is a great example.
The green are unique data assets that no one else has access to. Things like wealth data, $14 trillion of wealth data, income data, employment data. And you heard us talk last year about the creation of our NCTUE+ database, our telco exchange positive -- telco exchange database.
This is the core to our strategy over the last few years, really been a huge enabler for us to facilitate this.
It's one thing to build the NPI process, which we have done, and it is a great process. It's a toll gated process. It's a disciplined and thoughtful process. It is truly ingrained in every facet of our business.
You can go to any country in the world which we operate, you can go to any BU in which we operate, and they all understand and are engaged in NPI.
If you look at NPI, we're launching 65 to 75 products every single year. And early on, we talked about NPI, we talked about it kind of in the future perspective. And it was uncertain for you how important that really was and how much income it would actually generate. I think you now know after following us for a number of years, this is real, it's tangible, and we get 3 points of our growth now coming from new products.
I think that's fabulous for any company and very successful for us.
The other area I mentioned is how do we continue to innovate in thinking about new markets. This is a typical diagram you've seen in companies that are focused on market expansion. Again, it's taking current products, and I'll give you some examples, into new markets. It's taking new products into existing markets, and in some cases, it's new products to new markets.
So for example, on the right-hand side, mortgage as you know has always been a core part of our business especially in the U.S. Well, to help offset some of the cyclicality of the mortgage market, we are developing new products to solve problems for our existing customer base. One great example is undisclosed debt monitoring, you're familiar with that. From the time you go into mortgage underwriting, you apply for a loan, they approve that loan, to the time you actually get the money, they now want to know have you accumulated additional debt. And hence, has that additional debt going to impede your ability to pay off your mortgage obligation, we have the product to solve that problem. Core customer, new product, market expansion.
Another example, insurance. We were a big player in insurance through 1998 when we spun off ChoicePoint. We've done very little insurance since then. We have unique data assets, you've heard Rudy talk about them, DATA360. Our ability to take the DATA360 assets to a market we have not served since 1998 has fueled significant growth in insurance for Rudy.
HR solutions is a great example, or HR Analytics, of taking new products to new markets. And Dann will talk about how he's transforming our business, EWS, with HR Analytics.
So great growth on 3 different vectors there for us. M&A is -- will always be an important part of our business. We talked about the financial model you saw back in 2006 and 2007. Lee and Jeff and I talk about it every time we meet. It will add about 1 to 2 points of growth per year over long periods of time.
If you can see this chart here, it's an important chart, a couple of things to note. Number one, if you look at the size of the circles, that denotes the size -- relative size of the acquisition itself. And if you look on the one axis, which is level familiarity, on the top, top left-hand side, what you'll see is the majority of the acquisitions we spent time on are high level of familiarity, hence low-risk. Very few do we spend time on the long-term payback, which is low right-hand side, and unfamiliar. We'll make a few of those bets, but they're going to be small bets.
The right-hand side tells you what we're focused on, very consistent now for the past 5 years. Unique data assets, geographical expansion, analytics, a decisioning [ph] technology and continue to find ways to add scale, drive scale across our current footprint.
Growth is important. There's no doubt about it. And I think you'll agree that the team with no real economic help over the past few years has done a nice job growing. Becoming a more efficient organization is also critical. If you want to get the kind of leverage we always talk about on operating margins, it's one thing to grow the top line, it's another to be more efficient in how you run your company. And I don't use this term lightly, I think we have world-class operating performance now across the company.
To start, I'll give you a few highlights here. Upper right-hand side, cost optimization. Under Kent Mast's leadership years ago, we created a very, very sophisticated, talented, centralized sourcing organization that now drives standardization of our sourcing operations around the world to drive cost down.
Bottom right-hand side, labor optimization. We've done a great job in not just operations, but also in all COEs and IT, finding low cost countries that makes sense for us to move resources to. And we now have almost 3,000 resources in low-cost countries, either with third-party partners or with captive, but offshore, low-cost to drive our overall cost down.
Lower left-hand side, Andy Bodea has done a marvelous job in creating a LEAN operations, improve processes across the globe. We started off in just the operations role itself, it now touches every single function we have in every country in the world. And in our talking early -- earlier, we have about 100 LEAN initiatives per year around the world. And we are now in our fifth year of LEAN.
100 programs a year to drive efficiency cost out and improve customer service. If you think about LEAN, the core to LEAN is what we call PMO. It's being able to manage complex projects effectively. It's a competency that you have to have in LEAN. Well that competency helps elsewhere as well. So we'd asked the BUs and Andy to deploy PMO capabilities across the organization to drive efficiency in their projects. If you go to the very top, the most exciting thing is we have large complex growth initiatives, we call them enterprise growth initiatives, that might transcend multiple businesses. We now have -- Andy, I think it's 10 -- 14 major enterprise growth initiatives that we run through a PMO office. You put that all together, it is making a significant difference just -- on the bottom we say, just on the process improvement alone. So not only growth side, on the process improvement, we're delivering $25 million to $30 million of incremental profit every year by becoming a better operating machine. Real money.
None of these would be possible without investing in talent, and we have done a fabulous job here, and I always put in the context on the talent side. Many of you know I spent 22 years at GE, and I have stated many times that the level of talent we have in this company is better than any team I had in my 22 years at GE. At GE, many of the businesses were multiples of the size of this business, is a fantastic team.
Two dimensions that are important to understand. One is bringing new talent in. We have some great new talent, just look across my staff and some of the high potentials we have with you here today, who we didn't introduce earlier but I hope you have the chance to meet.
Secondly, Coretha Rushing, our head of HR, who is head of HR for Coca-Cola before she came to us some 6 years ago, has developed very effective leadership development capabilities to take our current talent we have to a new level.
The last is culture. Those of you who study cultural transformations understand it takes about 8 years to truly transform a culture. Well, we together are now in our eighth year of transforming the culture of Equifax. And I'd say it's gone from a culture of maybe entitlement, a lack of innovation and tenure-based to one of innovation meritocracy and one that's hugely accountable to for their goals and objectives.
So when you put it all together, I think it's a pretty powerful story. And this is an environment with no real economic help.
If you look at this graph here, over the past few years, growing at a compounded annual growth rate of 9% on the top line and 11% on the bottom line. That's partially operating leverage you get in the efficiency we just talked about. And it delivers margins that we're extremely proud of.
I know it's been a topic of conversation for our sell side guys and investors over the year, but you see now, a continual step up in operating margin, this is EBITDA margin, over the past few years. And those of you that we've talked to in the past, on the right-hand side, now we're very proud of this, that the current level of EBITDA margin, we're in the top quartile of the S&P 500. And we're not going to stop there. We think there's continued room for even more operating leverage performance going forward.