Equifax Inc.
Q3 2015 Earnings Call Transcript

Published: 22 Oct 2015

[Operator:]

Good day and welcome to the Equifax Third Quarter 2015 Earnings 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:]

Thanks and good morning, everyone. 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 John Gamble, 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 core business are set forth in the filings with the SEC, including our 2014 Form 10-K and subsequent filings. During this call, we will be referring to certain non-GAAP financial measures including adjusted EPS attributable to Equifax and adjusted operating margin. It will be adjusted for certain items, which affect the comparability of the underlying operational performance. For the third quarter of 2015, adjusted EPS attributable to Equifax excluded acquisition-related amortization expense, income from the settlement of certain escrow amounts and an accrual for certain legal claims. Adjusted operating margin excludes the accrual for certain legal claims. In fourth quarter of 2015 and 2016, adjusted EPS attributable to Equifax will also exclude due diligence, transaction and integration cost related to the proposed acquisition of Veda Group. These non-GAAP measures are detailed in the reconciliation tables included with our earnings release and also posted on our website. Also please refer to our various investor presentations, which are posted in the Investor Relations section of our website for further details. Now, I'd like to turn it over to Rick.

[Richard F. Smith:]

Thanks, Jeff. Good morning, everyone. As always, thank you for joining us this morning. Our strong first half momentum continued throughout the third quarter with very solid broad-based growth across most of our key market segments and countries. The momentum, combined with solid execution from the team and one of the deepest NPI pipelines we've had in all the past 10 years, positions us well as we move into the fourth quarter and in 2016. And in my comments later on this morning, I'll give you further look at both the fourth quarter as we always do and 2016 as well. The Equifax's strategy is clearly resonating well with our customers. Our core disciplines and new product innovation, LEAN, IT simplification, regulatory compliance and talent assessment are enabling stronger, more consistent execution across all of our initiatives. For the quarter, total revenue was $667 million, up 9% on reported basis and up 12% on local currency basis from the third quarter of 2014. And it was at the high end of our guidance. In the quarter, FX created a $22 million year-over-year headwind, up from the second quarter headwind, which was $19 million. Adjusted operating margin was 27.2%, up nicely from 26.4% in the third quarter of 2014. Adjusted EPS was $1.14, up 13% from $1.01 last year and above the upper end of our guidance range that we provided back a few months ago. As always, before John gives you the financial details, I'd like to briefly cover some of the key highlights for the third quarter. USIS has continued to power forward with 12% revenue growth and had a robust pipeline and opportunities to provide continued unique insights incorporating our multiple data assets. USIS delivered very solid broad-based growth in fraud and identity management solutions and commercial information. Both those business units were up double-digit versus 2014. Mortgage, direct-to-consumer and automotive were also very strong growth drivers for the quarter. And like the rest of the company, USIS is also benefiting from broad-based growth from NPI and our enterprise growth initiatives. Little more on NPI, there are four strategic levers to USIS efforts around new product innovation. They are

[John W. Gamble:]

Thanks, Rick. And good morning everyone. As before, I will generally be referring to the financial results from continuing operations represented on a GAAP basis. During the quarter, we recorded income of $12 million from the settlement of certain escrow amounts related to an acquisition outside of the measurement period. We also recorded an expense of $8 million related to the settlement of certain specific legal claims. Consistent with our past practice for treating unusual or infrequent items, we've excluded these items from our adjusted EPS in order to provide investors with a more consistent period-to-period operating comparison. The after-tax effect of these two unusual items was positive $0.05 a share. Now, let me turn to the business units' financial performance for the quarter. U.S. Information Solutions revenue was $312 million, up 12% when compared to the third quarter of 2014, another very strong quarter for USIS. Online Information Solutions revenue was $233 million, up 13% when compared to the year ago period. Mortgage Solutions revenue was $32 million, up 12% compared to Q3 2014. Total mortgage related revenue in USIS was up 20% in the quarter and mortgage related revenue for the total company was up 24%. This compares favorably to the Mortgage Bankers Application Index, which was up 17% in the second quarter. We currently expect total mortgage originations in the fourth quarter to be down year-over-year. For 2016, our current outlook is for mortgage originations to be about flat when compared to the full year of 2015. On to Financial Marketing Services, where revenue was $47 million, up 6% when compared to the year ago quarter. The adjusted operating margin for U.S. Information Solutions was 41.9%, up from 40.3% in the third quarter of 2014. International's revenue was $149 million, flat on a reported basis but up 14% on a local currency basis. By region, Europe's revenue was $64 million, up 5% in U.S. dollars but up 16% in local currency. Latin America's revenue was $52 million, up 5% in U.S. dollars and up 20% in local currency. Canada revenue was $33 million, down 13% in U.S. dollars but up 5% in local currency. For the third quarter, International's operating margin was about 20%, which is flat when compared to the second quarter of 2015. As we mentioned last quarter, we expect International operating margins to remain at about 20% throughout 2015. We expect margins to increase throughout 2016, reflecting continued strong local currency revenue growth including TDX as the UK government contract begins to contribute as well as the benefits of regionalization and other cost actions. Workforce Solutions revenue was $139 million for the quarter, up 13% when compared to the third quarter of 2014. Growth for Workforce Solutions at 13% was very strong and continued to be above our long-term model of 7% to 10%. This reflects continued very strong growth in Verification Services, up 22% year-to-year. The solid growth also reflects the following. Employer Services revenue, principally from unemployment claims, compensation claims, Work Opportunity Tax Credit and other related employer services, declined slightly year-to-year. This reflects the continued very low levels of U.S. unemployment as well as the timing of federal WOTC authorizations in 1Q 2015. Our workforce analytics solution for ACA compliance, which is part of our Employer Services business, continues to perform well ahead of our expectations, as Rick mentioned earlier, and now has 700-plus clients in various stages of boarding, preparing for 2016 ACA reporting. However, as this is a subscription based service in which the boarding services are offered as part of the service, all of the revenue associated with boarding and subscription service fees prior to customer production go live is deferred and amortized over the remaining life of the agreement. As such, despite tremendous growth in customers and activity in the second half of 2015, revenue realization will not begin until very late in 2015, and principally 2016. Long-term, we believe the subscription based model will be greatly beneficial both in terms of customer retention and revenue predictability. It's also additive to our expectations that Workforce Solutions will continue to grow faster than our long-term 7% to 10% model. In the remainder of 2015, it will put pressure on Employer Services growth rates. In 3Q, overall Employer Services activity was more heavily skewed to ACA compliance and that revenue was deferred and, as we indicated, deferred until very late 2015 and predominantly 2016. The Workforce Solutions operating margin was 35.9%, up almost 350 basis points from 3Q 2014. Workforce Solutions continues to make great progress towards achieving margins consistently near 40%. Personal Solutions revenue was $67 million, up 5% on a reported basis and up 6% on a local currency basis. For the third quarter, operating margin was 26.9% consistent with our long-term expectation for operating margins to be in the upper 20%s. The year-over-year decline in operating margin is primarily driven by marketing spend at levels more consistent with our long-term expectations. In the third quarter, general corporate expense at $47 million was slightly over the guidance we gave last quarter. For the fourth quarter, we expect general corporate expense to be up slightly from the $47 million in 3Q 2015. The adjusted operating margin at 27.2% was up from 26.4% in 2014 and in line with our expectations for the quarter. Our GAAP effective tax rate for the third quarter was 30.8%. This was benefited by 1.8 percentage points by the very low tax rate on the income from the settlement of the escrow we discussed earlier. Both the income from the settlement of the escrow and the related tax expense was excluded from our adjusted EPS. Excluding this 1.8 percentage point benefit, our 3Q effective tax rate was slightly higher than our effective tax rate of 32.5% in 3Q 2014, and approximately consistent with the guidance we gave for the third quarter. It was also consistent with the historical pattern of our third quarter effective tax rate being below the effective tax rate for the year. Our current expectation for the effective tax rate for the full year is to be slightly less than 34%. Operating cash flow was very strong in the quarter at $247 million. With pending M&A activity, we reduced our level of stock repurchases in the quarter. Capital expenditures for the quarter were $38 million and year-to-date were $94 million. For the full year, we expect capital spending to be approximately $120 million to $125 million. This is above the approximately $100 million we discussed at the beginning of 2015. To support our continued acceleration and enterprise growth and new product innovation initiatives, we've accelerated our investments in global analytics, decisioning, fraud and exchange platforms and supporting network and data center infrastructure as well as internal systems. We are confident these investments will support both revenue growth and margin enhancement. At this level of investment, our capital spending continues to be at a modest 5% of revenue. Earlier, Rick gave you an update on our proposal to acquire the Veda Group. This would be Equifax's largest acquisition in its history. And given the size of the acquisition and the upfront costs associated with the transaction and its integration, we will be excluding all acquisition-specific transaction and due diligence expense as well as integration expenses incurred in the first 12 months following the closure of the acquisition from our adjusted EPS. Now, let me turn it back to Rick.

[Richard F. Smith:]

Thanks, John. For the fourth quarter, we expect organic revenue to be between $655 million and $665 million, reflecting constant currency organic revenue growth of 7% to 9%, that's partially offset by 2% of FX headwind. This is consistent with our comments in July that the fourth quarter organic growth would be at the high-end of our long-term range which we've talked about being 6% to 8% growth. Adjusted EPS is expected to be between $1.10 and $1.12, which is up 8% to 10% for the quarter. Excluding $0.02 per share of negative impact from FX, this reflects constant currency organic EPS growth of 10% to 12% for the quarter. Our year-to-date performance results – our strong year-to-date performance resulted in an increase of our full-year guidance, combined with our outlook for the fourth quarter of 2015 represents an outstanding year for our shareholders, our customers, employees and consumers. And for the full-year, we expect 2015 revenue to be somewhere between $2.652 billion and $2.662 billion, consistent with our guidance in July and up nicely from our guidance of $2.55 billion and $2.6 billion at the beginning of the year and reflects constant currency organic revenue growth of a healthy 12% for 2015. This strong revenue growth is partially offset by 3% negative impact from FX. As before – and this is only organic revenue growth and we're talking more about next year, we're getting back into the M&A game. As we expect, the operating margins to be somewhere in the range of 27% to 27.5% for the full year, which is up nice 80 basis points over 2014. 2015 adjusted EPS is now expected to be in the range of $4.46 to $4.48 per share, up from the $4.38 to $4.42 per share we guided in July and up significantly from the $4.20 to $4.30 per share guidance we gave at the beginning of the year. That growth reflects – that reflects a 15% growth in EPS for the year. On a constant currency basis, excluding $0.11 per share of negative impact from FX, at current rates, this reflects a very strong 17% to 18% growth for the year compared to 11% growth in 2014. Now, it's early, but I thought I'd give you some color on how we're thinking about 2016. And as we always do, we'll come back and give you lot more clarity and depth on the February earnings call. As we share today a look at 2016, we fully expect to be towards the upper end of our organic growth target range which is 6% to 8% with additional growth coming from successful completion of our current M&A activities. Our model that we've communicated to you or committed to you is to add over time one point, two points of growth coming from inorganic growth. If you exclude Veda, because of the size of that, our pipeline is strong. We clearly see contributing to our organic growth rate of 6% to 8%, and incremental one point or two points coming from M&A, Veda will be incremental that one point or two points. We also expect operating margins in 2016, when you exclude the impact of acquisitions, to expand nicely given the higher growth expectations we have and this is against the backdrop of an outstanding organic growth rate in 2015. So what – and we're also expecting the challenge that the mortgage market to be relatively flat in 2016. So in summary, I think you'll agree 2015 is shaping up to be yet another outstanding year for the team. And 2016, where we sit today, we're expecting another outstanding year in 2016. So, operator, with that, we'd like to open up to any questions our audience may have.

[Operator:]

Thank you. And we'll go first to David Togut from Evercore ISI.

[David Mark Togut:]

Thank you. Good morning, Rick, John and Jeff.

[Richard F. Smith:]

Hi, David.

[David Mark Togut:]

Rick, if I've heard you correctly, you've made a pretty compelling case for higher growth than you've laid out in your mid-term target. I mean, for example, NPI record pipeline, getting a lot of traction with EGI, Workforce Solutions performing above the plan, great traction internationally porting products from U.S., turned around the PSOL business. And it looks like you're on the verge of what looks to be a very accretive acquisition of Veda, at least by our calculations. So am I hearing you correctly? And, if so, how do you think about sort of the mid to long-term organic growth prospects of the business based on the hand of cards that you're looking at now?

[Richard F. Smith:]

Well, thank you for, what I think is a complement to the team. I think you captured that effectively, David. The performance you're seeing in 2013, 2014, 2015 and kind of the early looks of 2016 is a result of the last 10 years of effort of laying a foundation of culture of talent and processes like EGI, NPI and others, and we're now the benefactors of that. The performance continues to be very, very broad-based across many verticals, many countries, many products. And I feel very good, very good, as I sit here today looking out to 2016 that the growth for 2016 will also be good, as I mentioned. And we're assuming, David, in that 2016 early look, GDP growths in the economies we participate in to be relatively in line with what we're seeing this year, which is modest in the struggling economies in South America, modest growth in GDP in UK, Canada, in U.S., in the 2%, 2.5% range. So we're not expecting significant GDP or market-based improvement. As you look at longer-term, to the heart of your question, 2017, 2018, yeah, I hope eventually we do see some rebounding, some help from the economies we operate in, which would be further wind at our back.

[David Mark Togut:]

Got it. And then perhaps just expand a little bit, if you would, on PSOL's growth prospects. You've pivoted in the premium channel, you picked up some nice growth there, turned that business around. What you see longer term in the premium channel for Equifax? How can you capitalize on this high-growth channel long term?

[Richard F. Smith:]

Yeah, I think Trey, now Assad, the interim leader, and as you saw the announcements two weeks ago, Dann Adams will take that business over. I think they've done hell of a job, especially when you compare it to the market as a whole, it's changed at such a rapid pace. I think we'll all agree the free market is here to stay. But we're also of the view, after a lot of work, David, with outside consultants, there always be a place for the paid products that we offer. And we've done a number of interviews through third-party consultants that talk to consumers. And a big cross-section of that consumer base wants to and will buy the pay-for products. Having said that, free is here to stay. It's carved out a nice piece. We're winning, as you know, in the free channel right now through our USIS business, with Trey in his old job. I had a heavy hand working with Rudy on devising a strategy for the Credit Karmas and others in that arena. So simply said, I see the free business is here to stay. I'm convinced the core business can grow in the mid-single digits, with upper 20% margin. I'm convinced our indirect business has got good growth prospects for the next couple years. And lastly, I'm convinced that our International presence will continue to grow stronger.

[David Mark Togut:]

Understood. Congratulations.

[Richard F. Smith:]

Thank you, David.

[Operator:]

And we'll go next to Manav Patnaik from Barclays.

[Manav Shiv Patnaik:]

Yeah, hi. Good morning, gentlemen. Congratulations on the quarter. And obviously, it seems like a lot of your initiatives are working. The first question I had, Rick, was – and I think I've asked this many times before is you've talked about your NPI and now, I guess, EGI doing a lot better than last year and probably above your expectations. I guess, can you give us some color, how do you keep delivering these impressive results? And does that 10% NPI number you had before need to go up now to maintain this level of excellence?

[Richard F. Smith:]

Well, thank you, Manav. Truly, we've got a great team. They believe in the culture of growth. They believe in the culture of helping our customers and consumers by building new solutions we couldn't build yesterday. And we've got the great data assets. We've invested in the Foundation, things like (35

[Manav Shiv Patnaik:]

Okay. And then just one follow-up on Veda. Clearly, sounds like a good deal. It's a public company. I guess what I was trying to get is, in your diligence, are there a couple of key things that you guys really need to get at, or is this just making sure you're checking the boxes?

[Richard F. Smith:]

Yes, there are obviously. And by no means would I ever go into a diligence process spending any amount of money, let alone $1.7 billion, $1.8 billion, with a mindset that is check the box. We take acquisitions extremely seriously, thoughtfully. And I would prefer not to disclose the exact list of diligence items that we have highlighted. But, trust me, it will be thorough diligence. We're in the data room now. Teams will be in the country in a week. And we have a very thoughtful, exhaustive list of questions that the board and I along with the business unit leaders and COE leaders have thoroughly vetted. So thorough diligence, nowhere close to a perfunctory check the box.

[Manav Shiv Patnaik:]

All right. Fair enough. Good luck with that. Thanks, guys.

[Richard F. Smith:]

Thank you.

[Operator:]

And we'll take our next question from Andre Benjamin from Goldman Sachs.

[Andre Benjamin:]

Thank you. Good morning.

[Richard F. Smith:]

Good morning.

[Andre Benjamin:]

I first wanted to ask, could you maybe provide a little more insight into how, one, we should be thinking about the magnitude of the contribution from the partnership with Fannie Mae as we do think about our 2016 models for next year? And, two, we've heard a lot of companies looking more at trended data generally. And so maybe you could talk a bit about how you've seen demand for that product evolve and then we should think about it over the medium-term to contribute to growth.

[Jeffrey L. Dodge:]

Okay. (38

[Andre Benjamin:]

And one follow-up. I wanted to make sure I heard something right in the prepared remarks. I thought I heard you say that new product pipeline over the next three years will contribute 50% of 2014 level. I want to make sure I heard that right. And if so, how should we actually interpret that in terms of the revenue and growth in 2017 versus 2014?

[Richard F. Smith:]

Yeah, I believe the comments I made – I can check my notes here. Well, the USIS NPI pipeline is running at a rate of 50% greater than the pipeline we had in 2014, so that revenue that we'll earn out in USIS over the next three years is up 50% over the pipeline from 2014.

[Andre Benjamin:]

Got it. Thank you for clarifying.

[Richard F. Smith:]

Sure. Thanks.

[Operator:]

And we'll take our next question from Paul Ginocchio from Deutsche Bank.

[Paul L. Ginocchio:]

Thanks for taking my question. Rick, the 700 clients you've signed for the ACA compliance platform, I know the revenue hasn't started, but can you – any way to help us size that for 2016 as you roll in? And then second, your International margins, I know you said they'll be up in 2016. They look as high as 20% – almost 29% a few years ago. Is there anything different with the International business today that would keep you from getting back to those numbers and how many years do you think it takes to get back there? Thanks.

[Jeffrey L. Dodge:]

Thank you, Paul. I think I've tried to give some color and text around ACA on past earnings calls. One, the caveat I'll give you is, we've always said it will be very meaningful for EWS, very meaningful, and it exceeds my expectations. So far beyond the expectations we had a year ago, John mentioned, I mentioned, over 700 plus accounts, strong interest level already brewing for 2016. If you follow the ACA dynamics to – in the level of fines and how those increased over the years and the appeal process, that's going to have a tail that's for many years, as we sit here today and look out. Secondly, and I alluded to it, is getting into this ACA, it can open up other doors and avenues of opportunity we didn't thought about yet, and then the IRS, appeals process, so on and so forth. So I'm not going to give you a number, Paul, but it is meaningful. And very, very – very important to us long-term, and, again, I think that I mentioned in my comments, probably the most impactful, largest, meaningful NPI we had in my 10 years here. As far as margins on International, yes, I clearly see 2015 is being the trough, if you will, on margins that was intentional. We are integrating a big acquisition for that BU, investing heavily in the UK business unit, the UK government opportunity we talked about. We're also, as John alluded to in our comments, investing heavily in technology, in analytics and platforms around the International operations to fuel growth short-, medium- and long-term. So we clearly expect 2015 to be the trough and margins to start to ramp up nicely in 2016 and beyond. Will they get back to 29%? There's one caveat for that. I think they can over time. I can't tell you what period of time, is the team is working diligently now to regionalize big pockets of costs within International and that requires technology investments to take things from countries to regions and so on and so forth. That will be a big benefactor. If we are fortunate enough to close the acquisition of Veda, we clearly expect that on EBITDA margin basis, that also be a nice lift to the EBITDA margins of International.

[John W. Gamble:]

Excluding Veda, right, as Jeff – I think Jeff was taking you through model for International long-term. In mid-term, what we said is mid-20%s is where we are expecting the margins to end up. Yeah.

[Paul L. Ginocchio:]

Thank you.

[Operator:]

And we'll go next to Andrew Steinerman from JPMorgan.

[Andrew Charles Steinerman:]

Hi. Rick, I wanted to ask you about peer-to-peer lenders, this was a subject that came up recently when I hosted a industry research conference call with the outsell. And I just wanted to know when you look at these peer-to-peer lenders, I know they are using Equifax products today, but I wanted to look further out, do you think these peer-to-peer lending systems will lead to an increase of demand of Equifax products or decrease when it comes to peer-to-peer lenders?

[Richard F. Smith:]

Yeah. Thank you, Andrew. That's a good question. We spend a lot of time thinking about that strategically. And many do refer to that ecosystem as evolving as you have is peer-to-peer. I'd like to think of as more kind of remote lending, unsecured remote lending rather than peer-to-peer because it tend to be a bank involved in many cases, if you're looking at Lending Club or GreenSky or Biz2Credit or others. Point one, I think that that is a marketplace that will exist. I think it – disrupt the marketplace for the traditional banking sector, the banks now choose to participate themselves. But I think it's here to stay. I think it's got good momentum, good legs. As you mentioned before, they are a user of our data today. They use both the verification of employment and income database many times as well as the core credit file and credit scores. We expect that to continue going forward. So right now I view that as being yet another – if that sector can allow maybe other people to get access to credit who couldn't get credit in normal system, it's incremental to us. If it's just displacement, the bank would underwrite today, I see it as a non-event for us. The bigger question we're thinking about strategically is how else can we play in that ecosystem. That is truly in five years, 10 years is a big robust part of the market, how do we participate in that market? And that's something we're kicking around right now.

[Andrew Charles Steinerman:]

Okay. Thank you.

[Richard F. Smith:]

Thank you.

[Operator:]

And we'll take our next question from Gary Bisbee with RBC Capital Markets.

[Gary E. Bisbee:]

Hey, guys. Good morning. On the Workforce Solution business, I guess, I wondered if you could give us some color on how much of a drag on margins the ACA compliance offering revenues being deferred, but yet you footing the bill for sales and onboarding customers, et cetera. Is this a big drag and would you expect that investment sort of flattens out at the same time revenue comes and that really helps margins starting Jan 1?

[Richard F. Smith:]

Yeah, you don't really see like (46

[John W. Gamble:]

That was – it's very small, right, because, as you know, you defer expense with revenue, right? So it's just very small negative impact on margin. But again, should be accretive to both revenue and margins in 2016.

[Gary E. Bisbee:]

Okay. Great. And then just to help us frame your commentary on 2016, I know you have not – have declined to break out the total revenue impact from – or your estimate from the mortgage market activity. But is it safe to say that in 2015 year-to-date the core – as you used to call it, the core revenue ex-mortgage market changes would be growing in excess to the high-end of the 8% organic growth. And I guess if that's right, are there any headwinds we should think about as to why that might flow somewhat next year outside of mortgage? Or should we just think that the initial commentary is early and possibly somewhat conservative? Thanks.

[Richard F. Smith:]

Let me correct that, and John, will jump in. As you think about 2015, I won't to 2016. There's a lot of numbers out there on the NPI Index, growing, I think, Jeff, roughly 17% in 2015. And as it has been in the past for us, you should expect and we are delivering performance that is greater than the index. John Gamble mentioned that the expectations as we sit here today in mid-October looking at 2016, is that market will be relatively flat and that might mean 2 points, 3 points, 4 points, 5 points down, a couple of points up, in that flattish range for 2016. So as we gave an early look at revenue of 6% to 8% organically next year it is with the expectation of the mortgage being in that range and, once again, our team, that being EWS and USIS, performing at levels greater than that by market penetration and new product introduction in the mortgage market. So that's how we think about 2016. John, do you want to add to that?

[John W. Gamble:]

No. As Rick indicated right, we just guided fourth quarter as well as next year at the very high-end of our long-term growth rate, so up towards the 8%. And in both of those cases, we've indicated we expect mortgage to be flat or down with the market. So I think that should cover most of the question right there.

[Richard F. Smith:]

Thanks.

[Gary E. Bisbee:]

Okay. Thank you.

[Richard F. Smith:]

Sure.

[Operator:]

And we'll take our next question from Shlomo Rosenbaum from Stifel.

[Shlomo Rosenbaum:]

Hi. Good morning. Thank you for taking my questions. Hey, Rick, I just wanted to know if you wanted to comment a little bit more on Veda. That company is doing very well. It actually looks more like a mini Equifax. And you touched on it a little bit in your comments. I wanted to know if you could maybe expand a little bit on this. What is it that you bring to them and what is it that they bring to you beyond the geographic diversification?

[Richard F. Smith:]

Great. Thank you, Shlomo. One note is, Shlomo, we've known each other now for a number of years and you know our philosophy on acquisitions, so this won't surprise maybe the rest of you or you. We have been talking with Veda now, boy, it dates back maybe four years. So it's not like this thing just dropped out of the sky one day and we said this is going to be an interesting acquisition. It's been an organization that we're trying to get to know each other for a quite some time. Two, philosophically, it's important to know that when we think of acquisitions, in Equifax, we are driven by a view of what we can bring to that company that makes that company even better rather than what does that company bring to us that makes Equifax better. I think studies will show, and there's been many studies with many consultants, when you take the path of how they help you as a core business, you oftentimes fail. So having said that, other than the geographical footprint, I think what we can bring there is some of the processes and capabilities that have made Equifax successful the last 10 years in the countries we operate now, things like our Lean process, things like Lean at the customer, things like NPI, things like EGI, Enterprise Growth Initiatives, our Cambrian technology platform, which is fabulous. And as you know, and we have been investing in that for a number of years, bringing that platform to the countries in which Veda operates to link together unstructured internet data, if you will, third-party customer data and our data and build more products than we could build in the past, I think that's a great capability. So it's really deploying some of the things you know so well, Shlomo, that we can play here into their footprint. I do think that over time and one of the things we'll have to determine, it is clearly not baked into any pro forma assumptions that we have now, but over time, if we have a really good business in that part of the world and we've got really good people, which they do, our ability to think about expanding into other geographies now that the two businesses are much bigger business throwing off a lot more EBITDA, make some investments organically and inorganically. I think when you're closer to those geographies, I'm willing to make those bets. Sitting here in Atlanta, Georgia trying to think about making investments in mid-size countries around Southeast Asia as the hub is a risk I'm not willing to take. But if we've got a good footprint in Australia, New Zealand and a few other countries, that's a risk we're willing to take as a company and that would evolve over the next few years.

[Shlomo Rosenbaum:]

Okay. Great. Thank you for that color. And could you also talk about how much, either qualitatively, quantitatively, how much of the growth in OCIS was due to the fact that you have significant reseller revenue that is helpful to you this year with some of your initiatives over there?

[Richard F. Smith:]

Yeah, I tried to allude to that in my comments that I had talked about NPI being very diverse with the core credit business there. I've talked about auto being strong, financial services being strong, resellers being strong, mortgage being strong. So that's power forward with 12% growth. And USIS is delivering good strong broad-based growth. There's no doubt, and we've been very open about this, the mortgage market has helped USIS and they've helped themselves, by the way, by outperforming in mortgage, as has the indirect reseller channel for DTC. But their performance, there's no other way to categorize it other than being broad-based.

[Shlomo Rosenbaum:]

Okay. Then lastly, hey, John, this one is for you. How should I think of the tax rate as I model out the next several years? As you go more international, should I expect the general trend downward? And, if so, how should I think about it?

[John W. Gamble:]

Yeah, in general, we would expect that tax – we've seen a nice trend in the tax rate the last few years down. And we would expect to see the tax rate to probably continue to move positively in the future in terms of positive to us, maybe not at the pace that you've seen over the past several years. But our expectation is you should see some continued improvement over time. We'll talk specifically about 2016, as Rick said, in February.

[Richard F. Smith:]

Shlomo, John, and Lee before him, have kind of helped build a foundation around tax and additional deeper looks at tax over the last X number of years. And that's starting to pay some dividends, paid dividends last year again this year. One last thought I'd say maybe to add to John's comment is go back to if we're fortunate enough to get Veda, the Australian corporate tax rate is a lower tax rate than the U.S. tax rate and many other countries we operate in. It's about 30%, 30% tax rate, so that would benefit lowering the tax rate as well.

[Shlomo Rosenbaum:]

Great. Thank you so much.

[Richard F. Smith:]

Sure.

[Operator:]

And we'll take our next question from Bill Warmington with Wells Fargo.

[William A. Warmington:]

Good morning, everyone.

[Richard F. Smith:]

Good morning, Bill.

[William A. Warmington:]

So one follow-up question for you on Veda. You mentioned you've been talking with Veda for four years. So my question is why now? Why Australia? Why now?

[Richard F. Smith:]

I think it's a great question. I think, as we've got to know the company more in-depth over the past few years, we're little more comfortable. Two, I think it's an opportunistic time as well and, Bill, there has been some articles written, maybe you probably read them. By the way, I think Manav had a very good write up, that's worth reading as well. The Australian stock market has obviously taken a beating. Foreign exchange has gone from roughly $1.1, $1-point-something to A$1, to $0.68 to $0.72, $0.73 to A$1. There is the legislation that is passed into law (57

[William A. Warmington:]

Perfect. And then a follow-up for John on Employer Services. Just trying to understand the timeline of the contract in terms of the ACA compliance analytics work, how many months you're looking at typically for implementation during which you're deferring and then typically the length of the contract over which you're going to recognize the revenue?

[John W. Gamble:]

Yes. So the implementation can happen over one quarter to two quarters generally speaking. And then you're looking at contracts that are often times a year but can be longer than a year, right? So generally, probably, rarely shorter than a year and rarely probably longer than three years, but predominantly closer to a year.

[William A. Warmington:]

Great. Thank you very much.

[Richard F. Smith:]

Thank you, Bill.

[Jeffrey L. Dodge:]

With that, I think we will conclude the call. Appreciate everybody's time and support. Have a good day. Thanks.

[Operator:]

This does conclude today's conference. We thank you for your participation.