Equifax, Inc. (EFX)

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Equifax (EFX)

Q3 2011 Earnings Call

October 27, 2011 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

Manav Patnaik - Barclays Capital, Research Division

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

Carter Malloy - Stephens Inc., Research Division

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

Bethany Caster

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

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

Jaime Brandwood - UBS Investment Bank, Research Division

David Togut - Evercore Partners Inc., Research Division

Presentation

Operator

Good day, everyone, and welcome to the Q3 2011 Equifax Earnings Release Conference Call. Today's call 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

Good morning, and 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 filings with the SEC, including our 2010 Form 10-K and subsequent filings. We will refer to a non-GAAP financial measure adjusted diluted EPS from continuing operations attributable to Equifax, which excludes acquisition-related amortization expense and the loss on the merger of our Brazilian operations with Boa Vista Servi├žos.

Since our Brazil operations will merge with Boa Vista on June 1, we will also present revenue growth excluding Brazil from Q3 of 2010 to Q3 of 2011, provide a clearer understanding of our revenue growth for the businesses that will continue to be reported in our operating results. These measures are detailed in our non-GAAP reconciliation included with our earnings release and posted on our website. Please refer to the non-GAAP reconciliation and our Investor Relations presentations, which are posted in the Investor Relations section under the About Equifax tab on our website at www.equifax.com.

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

Richard F. Smith

Great. Thanks, Jeff. Good morning, everyone. Thanks for joining us today.

We delivered what I call another very solid performance in the third quarter, a performance that is broad-based and the contribution of our organic growth initiatives continues to accelerate. All 5 business units delivered revenue growth in the quarter: 3 business units comfortably exceeded, and 2 met the expectations we outlined for you during the last quarter's earnings release.

We also expanded our operating margin beyond the upper end of the range that we had targeted for the quarter. It's clear, I think you'll agree, that product innovation is an important contributor to our revenue growth. Our new products are gaining meaningful share with our customers and traction in all the markets where we serve. As a result, our core non-mortgage organic revenue growth has accelerated each quarter this year, reaching 7% in the third quarter, up from 6% in the second quarter and 4% in the first quarter.

This consistent and strong performance provided a healthy level of cash flow, which we've allocated in a very balanced manner. To date, in 2011, we have invested $59 million in CapEx, $116 million on strategic acquisitions and investments, and in addition to returning $134 million to shareholders through dividends and stock buyback.

For the quarter, total revenue from continuing operations was $490.4 million, up 4% from the third quarter a year ago. When you exclude Brazil, total revenue was up 8%, which is our fastest-growing quarter this year. Operating margin was 24.8%, up significantly from a year ago, driven by broad-based improvements in operating leverage and the merger we talked about many times now of our Brazilian operations into Boa Vista. Finally, adjusted EPS from continuing operations was $0.65, up 8% from $0.60 a year ago.

And now as I usually do, I'm going to just -- I'll jump into some highlights. Business unit by business unit, I'll give you a quick outlook for the fourth quarter, and then Lee will give you the financial details.

I'll start with USCIS. They continue to make great progress on their Decision 360 initiative, which we've talked about now for a couple of years. Couple of highlights there: we have significantly strengthened our revenue position with a large bank, as their primary credit reporting partner signed a 2 -- a new 2-year agreement, representing over $20 million in contract revenue. In addition, this client signed a 2-year multi-million dollar agreement for our IXI Wealth Complete Solution. They also signed an exclusive VOE VOI contract with TALX. That offering gives you a clear example how our differentiated data assets differentiate us from our competition.

Also during the quarter, we completed the migration of a large credit card issuer from a competitor to our platform of consumer credit information products. This competitive takeaway is a great opportunity for us, and we expect it will generate over $25 million in incremental revenue over 3 years.

Despite sluggish bank lending activity, our Online Information Services continued to deliver strong growth. Year-over-year volume was up 9%, continuing to reflect strong customer demand for our core product offerings. As uncertainty in the environment and competition increases, our customers' need for more accurate decisioning tools has intensified. And we expect that to continue for this foreseeable future and position us well due to our unique data assets.

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