Equifax, Inc. (EFX)

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Equifax (EFX)

Q4 2010 Earnings Call

February 10, 2011 8:30 am ET

Executives

Jeffrey Dodge - Senior Vice President of Investor Relations

Lee Adrean - Chief Financial Officer and Corporate Vice President

Richard Smith - Chairman and Chief Executive Officer

Analysts

Michael Meltz - JP Morgan Chase & Co

Daniel Leben - Robert W. Baird & Co. Incorporated

Julio Quinteros - Goldman Sachs Group Inc.

Carter Malloy - Stephens Inc.

Nathaniel Otis - Keefe, Bruyette, & Woods, Inc.

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

Andrew Jeffrey - SunTrust Robinson Humphrey Capital Markets

Daniel Perlin - RBC Capital Markets, LLC

Eric Boyer - Wells Fargo Securities, LLC

William Warmington - Raymond James & Associates

Georgios Mihalos - BofA Merrill Lynch

Manav Patnaik - Barclays Capital

Presentation

Operator

Good day, and welcome to the Equifax Q4 2010 Earnings Release Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Jeff Dodge. Please go ahead, sir.

Jeffrey 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, our Chairman and Chief Executive Officer; and Lee Adrean, our 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 2009 Form 10-K and subsequent filings.

During the fourth quarter of 2009, we recorded two onetime items: a restructuring charge and a tax credit, which will be excluded from our discussion this morning. Also, we will refer to a non-GAAP financial measure, adjusted diluted EPS from continuing operations attributable to Equifax, which excludes the impact of the onetime items and acquisition-related amortization expense. These items are included in our non-GAAP reconciliation included with our earnings release and posted on our website. Please refer to the non-GAAP reconciliation in our various investor presentations, which are posted in the Investor Relations section under the About Equifax tab on our website for further detail. Now I'd like to turn it over to Rick.

Richard Smith

Thanks, Jeff. Good morning, everyone. Thanks for joining us this morning. The focus and execution of this team enabled us to deliver another strong performance in the fourth quarter. We continue to capitalize on our strategic investments. We execute well on our key enterprise initiatives, and we're benefiting from a modestly improving business environment. Although the headwinds may have abated, they have not yet become strong tailwinds for us. So, our focus, going forward, will continue to be on the execution of our strategic filings and delivering on commitments to our customers and our shareholders.

A quick review of the quarter. Total revenue from continuing ops was $482 million, up 11% from the fourth quarter of 2009 and ahead of the expectations we gave you during our earnings release last October. I'm going to spend some time talking about this next one, which is operating margin. Operating margin was 23%, which is flat when compared to continuing operations from 2009. Couple of key points you need to know. This is a strong focus area for us as a leadership team. We're committed to the stated goals we have given you over the last couple of years, which is our long-term objectives of getting to 24% to 26% operating margin. that is still well within our reach.

If you look at the quarter, it's important you break a few things out. You look at the individual business units. First, commercial, a strong 32.2% of margin. USCIS at 36.3%, up 250 basis points over a year ago; TALX at 24.4%, up 330 basis points year-on-year; PSol, 30.9%, up 280 basis points. The reason we're not getting a lift that maybe some of you have expected is consistent with what we told you in the past. We have made significant investments starting in the fourth quarter and probably continuing through the early part of the second quarter 2011 in our International operations, predominantly in our go-to-market areas. So that's sales, marketing, product management, and I'm convinced that will pay the dividends we want. So that's why you're seeing some compression in margin in International, plus we decided to make some investments, as Lee has talked about in the past, in IT, to position us for long-term growth, as well. So if you look at the underlying business units, strong performance there in margin, we'll get the lift. I'll talk more about the outlook on the end of March 2011 in my concluding comments.

The adjusted EPS from continuing operations was $0.62, up 10% from $0.56 last year. For the year, total revenue from continuing ops was $1.9 billion, up 8% from 2009, and operating margin was 23%, down 60 basis points year-on-year. Adjusted EPS from continuing ops for the year was $2.31, up 6% from $2.17 last year. As always, we have some key business points. During each quarter in 2010, business conditions progressively improved. Consumer credit trends generally improve sequentially and more significantly from their levels a year ago. As a result, major banks have started to release a significant amount of the reserves due to an improving outlook for future credit losses. Our lending activity picked up, albeit gradually, but we're still relatively conservative on underwriting practices. We saw our clients apply much more discipline in their decision activities and intensify their evaluation of new or unique solutions that would significantly improve their confidence in those decisions. We experienced strong demand from many of our newer products as customers are increasingly looking to Equifax for decisioning technology, innovation and thought leadership.

All of our business units strengthened their management teams throughout year as well as strengthening many, many customer relationships. As a result, we're able deliver strong and improving performance each quarter in 2010. Along with this improving pace, we stepped up our investments to ensure that we were well positioned for business opportunities and growth in 2011 and beyond. One of our most strategic priorities is acquiring a diverse array of unique data assets. We've been leaders in developing closed exchanges. And in 2010, we developed one of the most unique data assets to a new closed exchange. This new exchange will include the positive data records on consumers' paying history with all their major telecommunications companies and who are currently contributors to our negative data exchange. This was established in the mid-1990s in the U.S. So we've taken a negative data for telcos and utilities, and we've now added positive data. That started in 2010. The data contributors have provided now over 1 billion positive data records on a 140 million unique consumers. Important thing here is that over 20% of these consumers that we now have are not in our credit database or do not have sufficient credit history to calculate a credit score. Extremely unique, extremely powerful, no one else in the U.S. has this kind of database. We're just beginning to scratch the surface in terms of new products that we can leverage in this unique asset. For example, solutions that improve decisioning for fraud, new account applications for consumers without a credit file, as well as improving lending decisions that combine data from both databases. More to come. And I really see that database as being a game changer in the U.S.

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