Equifax Inc.
Q4 2015 Earnings Call Transcript

Published: 11 Feb 2016

[Operator:]

Good day and welcome to the Fourth Quarter 2015 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Jeff Dodge. Please go ahead.

[Jeff 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, our 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 of the About Equifax tab of our website at www.equifax.com. In the fourth quarter of 2015, we realigned the reporting structure of our direct-to-consumer reseller business, so that it now reports into our Personal Solutions business. Previously, direct-to-consumer resellers were reported within the USIS and International segments, based on the country of the customer. We have provided the quarterly history for Personal Solutions, USIS and International in the new format for each quarter in 2014 and 2015 in the Q&A section of our earnings release. All discussion of the 2015 business unit performance and their outlook for 2016 will be consistent with the new structure. Earlier this week, the Veda shareholders voted to accept Equifax’s acquisition offer, and we also received subsequent approval from court. Therefore, the 2016 guidance provided today as well as the updated long-term business model for Equifax which is included in the Q&A section of our earnings release both include the impact of the Veda acquisition. However, our for the first quarter of 2016 will not include any impact from Veda including the incremental cost of the debt, given the short amount of time Veda will be part of Equifax in the quarter. During this call, as in previous earnings releases, we will be referring to certain non-GAAP financial measures including adjusted EPS attributable to Equifax and adjusted operating margin, which will be adjusted for certain items, which affect comparability of the underlying operational performance. In 2016, we will be emphasizing adjusted EBITDA margin in discussing our operational performance. Adjusted EBITDA is defined as operating income, adding back depreciation, amortization and the impact of certain one-time items, including the acquisition and integration expenses from Veda, which are also reflected in our calculation of adjusted EPS. These non-GAAP measures are detailed in reconciliation tables posted on our website. 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 2014 Form 10-K and the subsequent filings. 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.

[Rick Smith:]

Thanks Jeff and good morning everyone. Thanks as always for joining us this morning. Execution across all four of our business units continues to be very strong and enabled us to deliver yet another strong quarter in the fourth quarter as well as full year. For the quarter, fourth quarter 2015, total revenue was $666 million, up 7% on reported basis and up 10% on a local currency basis from 2014. For the quarter, FX created $18 million of year-over-year headwind for us. The adjusted operating margin was 27.1%, up from 26.5% in the fourth quarter 2014. Adjusted EPS was $1.14, up 12% from $1.02 in 2014. And just to refresh your memory that exceeded the upper end of our guidance range we provided on the last call, which is $1.10 to $1.12. Finally, given our strong performance in 2015, our Board of Directors approved a 14% increase in our quarterly dividend, up to now $0.33 a quarter. And this is as you probably all know the sixth consecutive double-digit increase in our dividend rate, reflecting the strong performance of the Company. I think you’ll agree on many dimensions, 2015 was an outstanding year for our 117-year old business. And we exceeded our expectations; we have broad-based contributions from each business unit; investor verticals and across the vast majority of our geographies, our tem delivered. We’re well-positioned for strong 2016. We’ll talk about the economic environment in the Q&A. And I’m proud of the team for their continued commitment to innovation, execution, outstanding customer service. For the full year, total revenue was $2.7 billion, up 9% on a reported basis and up 12% on a local currency basis from 2014 and for the year FX created a $76 million year-over-year headwind. Adjusted operating margin was 27.4%, up 90 basis points from 26.5% in 2014, well above the targeted 25 basis points or so increase we guided to in the past. Adjusted EPS was $4.50, up 16% from $3.89 a year ago and just as a reminder that performance in 2015 was all organically driven, as we had no acquisitions in the year. As I always do, I’ll transition to the business units for some brief commentary before John gives you the details. I’ll go through some highlights for the business as well and then we’ll get into more specifics. So, I want to talk first of all, Jeff mentioned in his opening comments, we repositioned PSOL in 2015. You know that this team has been working diligently on our new growth model, which I fully support and it’s yielding benefits. And John will go through some of those numbers. At the same time, I made the decision -- it was important that we have one tem, one leader, one business that would manage our strategy, our product position in the geographies for our consumer business regardless of that business going direct to the consumer or is going through a reseller. So, we made the decision to realign that under Dann Adams who leads our direct-to-consumer businesses globally. I think that this gives us more continuity going forward. Now, on to the businesses themselves

[John Gamble:]

Thanks Rick and good morning. As before, I will generally be referring to the financial results from continuing operations represented on a GAAP basis. Now, let me turn to the business units’ financial performance for the fourth quarter. As Jeff mentioned at the opening, all BU information is based on the new segments with direct-to-consumer resellers moved to PSOL from USIS and International. Going forward, given the substantial amortization expense related to the Veda acquisition, we will increase our discussion of EBITDA for Equifax and the operating segments. U.S. Information Solutions revenue in 4Q ‘15 was $296 million, up 7% when compared to the fourth quarter of ‘14. For the full year, revenue of $1.2 billion was up 8%. This compares favorably to our long-term expectation for USIS of 5% to 7% growth as both mortgage and automotive were very strong in 2015. Online Information Solutions revenue was $204 million in 4Q ‘15, up 6% year-to-year and $842 million for the full year, up 8% when compared to the prior year. Mortgage Solutions revenue was $28 million in 4Q ‘15, up 10% year-to-year and $124 million for calendar year ‘15, up 17%. Total mortgage related revenue was up 16% and 17% in the quarter for USIS and Equifax, respectively. For calendar year ‘15, mortgage-related revenue was up 25% and 29% for USIS and Equifax, respectively. This compares favorably to the average Mortgage Bankers Application Index, which was up 14% in the fourth quarter and 17% for the calendar year. Financial Marketing Services revenue was $64 million in 4Q ‘15, up 7% year-to-year and up $205 million for calendar year ‘15, up 5% year-to-year. The operating margin for U.S. Information Solutions was 41.6% in 4Q ‘15 and 41.9% for calendar year ‘15, up 50 basis points and 290 basis points, respectively. Adjusted EBITDA margin was 48.5% in 4Q ‘15 and 49.7% in calendar year ‘15. We expect to see continued expansion in USIS EBITDA margins in 2016. International’s revenue was $143 million in 4Q ‘15, down 1% on a reported basis, but up 11% on a local currency basis. Revenue was $569 million for calendar year ‘15, down 1% on reported basis, but up 12% on a local currency basis. By region, Europe’s revenue was $64 million in 4Q ‘15, up 3% in U.S. dollars and up 10% in local currency. For calendar year ‘15, Europe revenue was $247 million, up 2% in U.S. dollars and up 12% in local currency. Latin America’s revenue was $49 million in 4Q ‘15, up 2% in U.S. dollars and 18% in local currency. Revenue was $200 million for calendar year ‘15, up 4% in U.S. dollars and 17% in local currency. Latin America showed outstanding local currency growth throughout ‘15, led by strong growth across Argentina, Uruguay, and Paraguay. Canada revenue was $29 million, down 11% in U.S. dollars but up 5% in local currency. Revenue for calendar year ‘15 was $122 million in U.S. dollars, down 11% in U.S. dollars but up 3% in local currency. Canada’s performance strengthened very nicely in the second half and has momentum going into 2016. International’s operating margin was 20.7% in 4Q ‘15 and 20% in calendar year ‘15. EBITDA margins were 27.2% in 4Q ‘15 and 27% in calendar year ‘15. Both operating and EBITDA margins were down year-to-year in International. However, both showed sequential improvement in the fourth quarter relative to third. In 2016, we expect to see continued margin improvement driven by continued strong local currency growth and the benefits of regionalization as well as from the addition of Veda. We’ll see some margin pressure related to weakened foreign currencies, particularly with the Canadian dollar and the devaluation of the Argentine peso. Workforce Solutions revenue was $144 million in the quarter, up 12% year-to-year and $578 million in calendar year ‘15, up 18% year-to-year. This reflects continued very strong growth in verification services, up 14% in fourth quarter and 25% year-to-year. Employer Services also delivered a very strong performance, up 8% in the fourth quarter and 8% in the calendar year. This was driven by success in their Compliance Center and offerings and their solution for employer’s compliance with the requirements of the ACA. The Workforce Solutions’ operating margin was 36.8% in 4Q, ‘15 and 37.9% in calendar ‘15, up 430 and 510 basis points respectively. Workforce Solutions EBITDA margins were 44.3% in the fourth quarter and 45.1% in the calendar year. We expect continued strong expansion in Workforce Solutions’ EBITDA margins in 2016. Global Personal Solutions revenue was $84 million in 4Q ‘15, up 12% on a reported basis and up 14% on local currency basis. Revenue in Calendar year ‘15 was $346 million, up 18% on reported basis and up 19% on a local currency basis. PSOL’s business has two main areas, credit and identity monitoring services sold through direct and indirect channels that protect and monitor consumer’s ID and enable consumers to gain better access to credit, and credit another data sales sold through our DTC reseller partners. Credit and identity monitoring services sold through the indirect channel represent those circumstances where Equifax provides white label, online credit and identity service through partners. In 2015, ongoing revenue from credit and identity monitoring services grew at the high end of the 4% to 6% guidance range we have previously provided for the PSOL segment, prior to the addition of DTC resellers. DTC resellers’ revenue represents sales of credit and other data to resellers. In these cases, Equifax provides data and analytics but not the web properties with which the customer directly interacts. Examples of this business are our relationships with Credit Karma and LifeLock. DTC reseller revenue showed substantial growth in 2015, driven primarily by our relationship with Credit Karma, which began in 4Q ‘14. Our DTC reseller revenue should continue to grow faster than our direct-to-consumer sales but as Rick mentioned, not at the very high rate we saw in 2015. Looking forward, as previously mentioned, we expect this overall segment to grow 5% to 8%. Operating margin was 27% in 4Q ‘15 and 27.5% for calendar year ‘15, consistent with our expectations. EBITDA margins were 29.7% in 4Q ‘15 and 30.2% in calendar year ‘15. PSOL revenue and operating margin in 4Q ‘14, were very strong, reflecting a large rich deal won in 4Q ‘14. 4Q ‘15 operating margin of 27% was consistent with our expectations and our guidance, and reflects the impact of our decision to invest more in marketing in 2015 as well as the addition of DTC reseller business to PSOL. In the fourth quarter, general corporate expense was $51 million excluding $3.7 million of onetime expenses associated with the Veda acquisition. General corporate expense was up slightly from 3Q consistent with our guidance. For the first quarter of 2016, we expect general corporate expense excluding Veda related acquisition and integration expenses to be in the range of $55 million to $60 million and run at a slightly lower rate throughout the remaining quarters of the year. The adjusted operating margin at 27.1% in 4Q ‘15 and 27.4% in calendar year ‘15 were up 60 and 90 basis points year-to-year respectively. Adjusted EBITDA margins were 34.4% in 4Q ‘15 and 34.8% in calendar year ‘15. We expect to see improvements in our adjusted EBITDA margin in 2016 expanding by about 75 basis points. Our GAAP effective tax rate for the fourth quarter was 32.6%, equal to our expectation and in our guidance. For the full year, our non-GAAP effective tax rate after adjusting for non-GAAP items, the Missouri State tax law change in the second quarter and the TDX escrow adjustment in the third quarter was 33.7%, consistent with our comments during our third quarter release. Looking forward into 2016, our expectation is for a GAAP effective tax rate of about 33%. Operating cash flow was $205 million in 4Q ‘15 and $742 million in calendar year ‘15, both were very strong reflecting strong earnings and working capital performance. Free cash flow equal to operating cash flow less capital expenditures was very strong in 2015 at $596 million, up 12% from 2014. Capital expenditures for the quarter were $53 million and for calendar year ‘15 were $146 million. Consistent with our comments throughout the year, the increase in capital spending versus 2014 reflects the acceleration of our investment in new product innovation, deployment of global platforms including Cambrian and other analytics, InterConnect, fraud and our new PSOL infrastructure. As we look forward to 2016, we expect capital spending including Veda to be in the range of 5% to 6% of revenue. This is consistent with 2015 and reflects a continuation of our current investments as well as some additional spending in the near-term as we integrate Veda. This is slightly higher than our expected long-term rate of capital spending of about 5% of revenue due to the Veda integration. As Rick indicted, we have received Veda shareholder approval and approval from the Australian court to complete the purchase of data. We expect the acquisition to close on about February 25th. Total purchase price including assumed debt and fees is approximately U.S. $1.9 billion. At the close of the Veda transaction, we will have debt outstanding of just under $3.1 billion and debt-to-EBITDA on the trailing basis of just under three times. As indicated previously, we expect to maintain our current credit ratings. In 2016, we will focus on using our very strong cash flow for debt reduction and returning our leverage to a level consistent with our current credit ratings. Therefore, we do not intend to repurchase shares in 2016. We will however continue with acquisitions beyond Veda in 2016 with the goal of delivering on our long-term model of an additional one to two points of revenue growth. Assuming acquisitions consistent with our targets in 2016 and 2017, we would expect to repurchase shares in 2017. As we discussed last quarter, we will exclude Veda transaction and other acquisition expenses and integration expenses incurred in the first year after the Veda acquisition through 1Q ‘17 in calculating adjusted EPS and adjusted operating margin and EBITDA margin. We will provide information regarding transaction and acquisition expenses incurred with the acquisition as well as integration expenses we expect to incur related to the Veda acquisition after the transaction closes at our 1Q ‘16 earnings release conference call. Also, Jeff mentioned at the beginning of the call, given the relatively short time we will own Veda in the quarter, our 1Q ‘16 guidance does not include the impact of Veda, nor the incremental debt costs, including interest expense related to the acquisition. We will provide you details on the impact of Veda on 1Q ‘16 during our 1Q ‘16 earnings call in April. The 2016 full year guidance Rick will provide includes Veda. For 2016, we have assumed Veda will be a part of Equifax for 10 months. Veda revenue for the 10 months is assumed to be U.S. $220 million to $230 million. This includes an estimate of the impact to revenue of U.S. GAAP, which will be updated as we close 1Q ‘16. The benefit to adjusted EPS from Veda, net of acquisition financing cost is about $0.10 to $0.15 per share. As a reminder, adjusted EPS excludes acquisition amortization expense. For modeling purposes, you can assume an average cost of our Veda acquisition debt during 2016 of about 2.5%. Veda’s seasonality of revenue is similar to Equifax with 2Q revenue typically the highest from the seasonality perspective; 1Q generally the lowest revenue; and 3Q and 4Q somewhat similar in terms of revenue. The spread between 2Q and 1Q revenue has recently been in the range of 7% to 10%. Now, let me turn it back to Rick.

[Rick Smith:]

Thanks John. Some summary comments before we go to the Q&A. As I have mentioned before to all of you and as many of you had noted in our conversations in the write-ups, the level of execution and the momentum that this team has generated in 2015 is the best in my 10 years here. So, I think it is truly remarkable what they have done. We are well-positioned for growth opportunities that lie ahead and our ability to take on any of the challenges that may confront us. In coming years, the revenue going to be contributed from the class of new products that we just launched and expected to exceed our historical leverage that there is wind at our back. Our enterprise growth initiatives including expanding insights driven Cambrian, healthcare, trended data, and auto will not only enhance our competitive position but also deliver growth opportunities for years to come. All of these efforts are expected in our opinion to offset the rate anticipated slowdown of U.S. mortgage market, which as you know started to decelerate over the course of 2015. While it’s impossible to predict where the mortgage market is going go, especially when I looked this morning, the ten-year treasury is under 1.6. Forecast range from down 20% to up mid single-digits. Our forecast that we’ve given you for 2016 is anticipating that the mortgage market will be down single-digits in 2016. And obviously, our expectation is that team in both Workforce Solutions and USIS, as they have done for many, many years, outperforms that quite significantly. Obviously if rates continue to stay low as they are, there may be some market upside to what occurs in the mortgage market, and we’ll know obviously as we head deeper into the year. 2016 is yet again expected to be another strong year of performance for the Company. For the year, we expect revenue including the impact of Veda to be between $3 billion and $3.1 billion, reflecting constant currency revenue growth of 15% to 19% that’s going to be partially offset by about 2 to 3 points of FX headwind. This is consistent with our comments in October that the organic constant currency growth would be at the high end of our long-term range of 6% to 8%. I’ve got to say it again that’s the high end of the range coming off of constant currency growth last year of 12%. So, it’s I think quite remarkable. As John mentioned, we also expect to add another 1 to 2-point of tuck-in acquisitions throughout the year. These additional acquisitions are obviously beyond Veda, which as he said is not including in the first quarter of 2016 outlook. Adjusted EPS is expected to be between $4.95 and $5.05 which is up 10% to 12% for the year. Excluding approximately $0.13 per share of negative impact from FX, this reflects constant currency organic EPS growth of 14% to 15%. For the first quarter, we expect organic revenue to be between $685 million and $695 million, reflecting constant currency organic revenue growth of 8% to 10% to be partially offset by about 3 points of FX headwind in the quarter. First quarter adjusted EPS is expected to be between $1.14 and $1.16, which is up 7% to 8%. Excluding $0.04 per share of negative impact from FX, this reflects constant currency organic EPS growth of 10% to 12% for the first quarter. Again, we expect to close Veda in the first quarter, but we’re not including it in the estimate. Maybe during Q&A we’ll talk about why it’s going to push forward [ph] for that one month. In 2016, we are also going to shift our focus to adjusted EBITDA margin that we talk about that throughout the call since it better represents the true operating performing of the Company. 2016, we expect our adjusted EBITDA margin to expand by solid 75 basis points over last year’s 34.8% EBITDA margin. In our modified multiyear business model, we expect adjusted EBITDA margins to be in the upper 30% to 40% range with annual acceleration of at least 25 basis points. So, with that operator, if you’d open it up for questions for audience, it’d be great.

[Operator:]

[Operator Instructions] And we will take our first question from David Togut with Evercore ISI.

[David Togut:]

Thank you. Good morning, Rick and John; and congrats on the strong results. Rick, could you give us your outlook for the health of the consumer by major geographies served? Given some of the trends we’re seeing globally, do you think the consumer will hold up?

[Rick Smith:]

Dave, that’s a great question obviously with the volatility we’ve seen in the first five or six weeks of 2016. John and I spend a lot of time with our teams talking about that. I can’t at this juncture draw a connection between equity market volatility and the health of the consumer in our major markets around the world. As you know, we operate in about 19 different countries and have a great pulse on what’s going on with customer, many cases on a daily basis across different verticals, different industry sectors and combined that with some very smart people internally and externally we leverage on a routine basis, economists that help us think through consumer small business lending trends. And we are not see a slowdown in our markets, maybe exception here or there but nothing material David that gives me concern that the forecast we just gave you for guidance is not very attainable. We’re just not seen that strong correlation. So, at this juncture in our major markets around the world, the consumers continue to be healthy. We described it, I think it was a few quarters ago is in a sweet spot, we still believe that and feel it and we see it in our numbers.

[David Togut:]

Great, thank you. And then could you talk about operating leverage for 2016? Most of your margin comments were more mid to long-term which were very helpful. But, we saw Workforce Solutions’ margin up in the fourth quarter, for example 430 basis points. So, how should we think about sort of margin profile by business segment for this year?

[Rick Smith:]

Let me give you the aggregate, and I’ll ask John to go to the details. But, I did guide at the very end about 75 basis -- we’re talking EBITDA now David. 75 basis points of margin expansion at the corporate level 2016 over 2015, what you can see there is continued margin expansion in businesses that have been expanding now for quite some time that EWS as you alluded and USIS that trend will continue. Number two, we intentionally made investments in PSOL in 2015, positioning them for better growth in 2016 and beyond. That’s kind of the highest now. So, you’ll start to see margin expansion in PSOL from levels you saw in 2015. We also invested in two main areas in International that are behind us now, one was as you’re very aware of, standing up of the UK government contract, which was a yearlong having investments and now the revenue starts to come, because it was virtually no revenue in 2015. Secondly, we talked about kind of regionalization of platforms and people and processes to give us a long-term more cost efficient international model. Those investments were largely made in 2015; those have now been anniversaried. So, you’ll start to see International and PSOL margins expanding this year and obviously International I alluded to, will be -- also their margins will be enhanced with the addition of a very high margin successful business in Veda. Beyond that, do you have any other…

[John Gamble:]

Yes. The only thing I’d add is compliance and security expenses continued to tremendous growth in 2014, 2015, still more substantial investment in ‘16, but we do expect over time those are going to moderate in terms of the increases, although still be substantial. So, we should see some accretion over time related to the moderation of those curves.

[Rick Smith:]

I’ll make a statement here, John, correct me if I am wrong, David, to give you a little more texture, maybe to what you’re looking for. If you look at each individual BU and you look sequentially, ‘16 versus ‘15 every BU’s EBITDA margin will go up from 2015 and 2016’s expectation.

[John Gamble:]

You’ll see much larger expansion in the USIS and EWS, as you’ve seen over the past several years; should see some across PSOL and International; and then overall, we will expand, because you’re just not going to see the degradation from the last two.

[David Togut:]

That’s very helpful, thanks. Just a quick final question. Rick, you called out 280 million Work Number records, which is up pretty substantially. Can you give us a sense of how you’re thinking of the growth of this business, particularly as The Work Number records increase, are seeing a much greater hit rate on searches by clients?

[Rick Smith:]

David, I think this business -- all four businesses are executing high and have great growth opportunities. These guys are in early stages of the growth opportunities. It’s not only going to 280 to 300 increase, hit rate, as you mentioned; it’s also -- we are so early and I gave you some sense of the growth rates by verticals. And it’s amazing; these are very, very high double-digit growth rates in the verification side. We’re such -- we are so rightly penetrated in many of the high growth markets; there are years of growth to go on the verification side in the U.S. alone. Let me add to that which is not the heart of your question, growth from the analytics platform that we’ve built on the employer side. And I gave a little comment, which I didn’t expand upon but I will now, in my prepared comments David. The appetite for customers in geographies around the world for us to take this platform of The Work Number to their geographies is stronger now than it’s ever been. And we have got a team working full speed, couple of main geographies around the world, so I’m not going to get involved in detail on where but to solve the same problems that we are solving here, there. So, long way of saying the growth opportunity is significant, it’s multiyear and it’s not just the U.S.

[Operator:]

And we will take our next question from Paul Ginocchio with Deutsche Bank.

[Paul Ginocchio:]

Hey Rick, just couple of questions on the trended data. I was just wondering first, if you want to -- probably too sensitive but if you want to talk about maybe the price premium or the ASP for trended data versus credit snapshot. Also wanted to know what percentage of mortgages currently use or kind of pull The Work Number and where you think that’s going to be at sort of -- what is this currently; what could be it at year-end and maybe what you think could be out two to three years from now? Thank you.

[Rick Smith:]

Thanks Paul. Yes, your comments were right; I am not going to the level of pricing increase we get from trended data. But the way to look at it is the value derived on an ROI basis from the mortgage underwriters from looking at data over multiple years versus a short time, is significant, as a result of willing to pay more for trended data. The other point I alluded to in my prepared comments, Paul, was we are going trend more than just the credit file and take our really unique data assets that no one else has and start trending those. Think about the value of trending income data versus taking a snapshot in time, and then you take the utility data. So, the trending -- I really mean this is sort of the trending of data especially the unique data assets we have I think creates innovative products and solutions for the years to come. As far as the mortgage market on Workforce Solutions, again, we don’t disclose that level of detail. I’ll leave it at this though there is still significant room. And David Togut kind of alluded this. At the database grows, the hit rate goes up; it benefits all verticals including mortgage but we still have penetration opportunities, not just on hit rate but by account in the mortgage arena in EWS, much like we do in auto, insurance, credit card, government, and others for The Work Number.

[Paul Ginocchio:]

If I could just ask a follow-up, I think you left guidance for USIS relatively stable under the new system versus the old. I am just wondering with the opportunity the trended presents to you, why would you have kind of not set up a little bit?

[Rick Smith:]

There is a couple of things, one is short term, as we look at ‘16 and then I’ll go to multiyear, two. For ‘16, there is one primary thing going on there. You’ve got significant headwinds, specifically in the first half of the year in USIS for mortgage. Mortgage’s biggest quarters were the first and second quarter and as we said before, it starts to decelerate in second half. So, that’s why I left that model consistent for ‘16 Paul. In fact I think, it would be at the lower end of that range in ‘16, to be very clear with you. And then as far as the multiyear model, I’d not ratchet [ph] that up; I’d rather do that once I have success under our belt and we see just how big this is going to be. So, I think it’s a little premature business. But at the right time, once we see the success and traction, as you know there is lives in mid-year and will be a lot smarter at the end of the year and if model justifies being changed at that time, we will.

[Paul Ginocchio:]

Great. Thanks Rick and congratulations on the Social Security Administration contract. If I could just really quickly ask for the my online social security accounts, how many times a year do you think they’ll verify each of those 22 million accounts on average? Thanks.

[Rick Smith:]

Great question, I have no idea.

[Paul Ginocchio:]

Okay.

[Rick Smith:]

Good question, Paul.

[Paul Ginocchio:]

Thanks.

[Rick Smith:]

Thank you.

[Operator:]

We will take our next question from Manav Patnaik with Barclays.

[Manav Patnaik:]

Yes, good morning gentlemen. Rick, nice to hear, as always, a lot of progress, but it sounds like at least with all of your initiatives, you guys have taken that up one notch like level there. And I think you still have your NPI target of 10%; I know I have asked this many times before. It doesn’t sound like you need to motivate people by taking it up, but at what point do you do sort of push yourselves even further to the target up?

[Rick Smith:]

I think of it this way, I did mention that the revitalization in NPI that we launched in late ‘14 benefited in the ‘15 class, one of the strongest classes ever and that bode will well for next three years. So, it’s moving in the right direction. Two, you always have, as you think about the vitality index, Manav, you get big chunks of product roll off every once in a while. So, making up big chunks of products is harder than it sounds, just to stay at 10%. But three, maybe most importantly, you’ve heard us now talk for about two years around EGI. It’s not about innovation it is taking large complicated growth initiatives across multiple geographies and making sure we sustain the kind of growth we need there. And that was I think 20% growth I alluded to in my earnings call. So look at it totally, and the contributions from NPI and EGI, it is significant. So I don’t feel compelled at this juncture to ratchet up 10%, beyond 10%.

[Manav Patnaik:]

Okay. And then, in terms of the margins, the 25 basis points still, I mean -- I guess this clearly sounds like an element of conservatism to that. Like what are the puts and takes that go through your planning when you still stick with 25 as opposed to maybe 50?

[Rick Smith:]

I think you know us well enough by now; we tend to be thoughtful and maybe little conservative in our guidance. We guided 25 basis points for 2015, what was the -- operating margin was up 90 basis points and guiding 2016 with EBITDA margin up 75 basis points. So, I don’t want to starve the business and you heard John talk about investment and CapEx, while was higher than we have historically, the standardized platforms to bring Cambrian, global to facilitate faster more profitable growth. So, Manav, I think it’s Rubik’s Cube and I think that combination of really strong organic growth that we’ve talked to you about combined with margin expansion of 25 basis points. If we can get this business to do that year in and year out and get to our aspiration of goals, we alluded to 40% EBITDA margin, I think that’s pretty damn good. I hope you agree.

[Manav Patnaik:]

That’s fair. And then just one last one from me, I mean I know you said it and your guidance obviously implies as well where you don’t expect a consumer recession. But just trying to understand, like if equity markets operators drag and we do get there, like obviously Equifax today is much different than what it was in 2008, 2009. So, any high level comments on which areas should hold up and which areas would be a hit?

[Rick Smith:]

We’re not anticipating a global recession at this juncture. If it does occur, I look today versus how we were positioned as a company in 2007 has been dramatically different, LEAN as an example. And our ability to operate global platforms and take global processes and improve them, take cost out, and act and react to recessionary environment is far greater today than it was. We were in our infancy stage of understanding, globalizing the platform, globalizing the process and deploying LEAN around the world, so we could rack much fast if we had to in that environment. Two, just the overall pipeline of products, we have much stronger now. We are in early days of NPI; back then EGI did not exist; and so, just the ability to grind out organic growth didn’t exist then. And lastly, we have built some counter -- two other points, countercyclical products that are bigger now; we do well -- think unemployment [ph] as an example, EWS that we do well in a recessionary environment. And we’re more global today, especially with the addition of Veda and their platform. If the entire globe hits a recession, that doesn’t really help you. But if it’s isolated to a few of the developed markets, the fact that we’re bigger global enterprise may help us as well.

[Operator:]

We will take our next question from Andrew Steinerman with JP Morgan.

[Andrew Steinerman:]

Hi Rick. I would like to ask you about the Veda revenue and EPS assumptions that you highlighted for the 10 months included in Equifax. On kind of a like-for-like basis, what type of revenue growth does that assume and when you talk about the EPS accretion, are you counting on core synergies?

[Rick Smith:]

Yes. I’ll take a crack at it, and John, you can jump in. Think about Veda as a business that kind of fits right into our organic growth model, which is 6% to 8% and maybe the upper end of that, upper part of that range versus the lower part of that range. So, nicely in our organic growth target, not just for ‘16 but year in and year out, and much like the rest of the world and there is opportunity for tuck-in acquisitions in the geographies that are exciting to us in these early days. On the -- what was the second question?

[Andrew Steinerman:]

Core synergies.

[John Gamble:]

It does not include synergies. So, we didn’t assume any meaningful synergies in 2016.

[Rick Smith:]

Yes. I said on cost side. Yes, there really aren’t many cost synergies. In fact it’d be just the opposite. We’re adding to cost Veda to brings things like Cambrian and InterConnect and other things to help link data, and grow faster.

[John Gamble:]

Andrew, if you look at the last reported revenue of Veda, and then take a look at what we have just indicated, growth rate for 18 months for that to be in the high single, it’s near 10%.

[Andrew Steinerman:]

Okay. And just more on that. Rick, are you counting a lot on comprehensive data being a meaningful impact to the Australian market over the next couple of years when thinking about the Veda acquisition?

[Rick Smith:]

The model did not contemplate that Andrew. I’d tell you what I walked away on my last visit with the team down there more impressed with the way in which contributors have been contributing data, positive I should say. So, it’s not right now in our guidance, it’s not in the model we use to justifying buying the company. But I’m more hopeful and impressed now than I was in early days that it will be a meaningful change down the road.

[Operator:]

We will take our next question from Gary Bisbee with RBC Capital Markets.

[Gary Bisbee:]

Hi, good morning. You already commented on USIS maybe being towards the lower end of the long-term targets but how about the other businesses; are any of them in position to be above the high end this year or do we think those targets by segment are good places to be for 2016?

[Rick Smith:]

Look, the ranges are there for a reason; we think they’re pretty solid ranges. And you’re going to see nuances and noise quarter-to-quarter, as you guys know and maybe even year-to-year but over multiple years, those ranges are still pretty good. The one -- again, one business that’s really clicking on all cylinders and probably has more runway to exceed would be EWS. Their sandbox is just -- it’s a bigger sandbox and there less mature business and they’ve got early days of growth. If there is one that you’ve got to say maybe has more opportunity to outperform, it’s that one.

[Gary Bisbee:]

And would that include your commentary about mortgage being much tougher comps still able to be where you are?

[Rick Smith:]

Absolutely. And the other thing I’d say maybe too is -- so, yes, that’s including the mortgage environment I just alluded to down single-digits and we’ll have to outperform it. Obviously if mortgage is stronger and we expect that benefits EWS as well as USIS. But then the other business maybe short term in 2016 I think about having maybe more runway then that long-term model would be PSOL because they’ve got some pretty good things going on as they redefine their model as well.

[Gary Bisbee:]

And then question on within International on Latin America, a two-part question I guess. It seems like there is a lot weaker economic activity in a bunch of those markets, and you face a really tough comp. So, how are you thinking about that? And then specifically, can you comment on how much inflation in Argentina is driving the growth of that segment versus volume or unit sales of your offerings? Thank you.

[Rick Smith:]

Yes, I don’t think we break that. That’s second part. But the first part is and I think I alluded to in my comments, what’s allowing International to continue to grow at the rates growing in spite of difficulty economic environments in Latin America and other parts of the world too, is innovation. I mentioned that the majority of their -- two-thirds of their revenue in these large geographies are generating vitality indexes from new product innovation above 10%. So, if it weren’t for that and they are also benefactor of EGI obviously as well. But if it weren’t for those innovative approaches, to products and EGI, they would not be performing like they’re performing.

[Gary Bisbee:]

Great. And then, just one last clean up one. Do you have -- I know it’s early but do you have a sense for what we might expect the amortization and depreciation from Veda to be? Thank you.

[John Gamble:]

It’s early. And obviously as the transaction closes, these numbers will be updated. But acquisition amortization right now, we’re assuming it somewhere in the neighborhood of $95 million.

[Operator:]

We’ll take our next question from Jeff Meuler with Baird.

[Nick Nikitas:]

Thanks. This is Nick Nikitas on for Jeff. Just switching back to Veda and maybe talking more about some revenue, potential synergies; you mentioned TDX has seen some positive signs in Australia. Do you guys really see that as an opportunity to leverage Veda’s presence throughout the region or if any potential avenues you see to drive additional growth into the future?

[Rick Smith:]

Yes. We’ve got a small team down the south in Australia and New Zealand that represents the debt management analytics platforms. So yes, having access to a much larger sales organization with people, longer standing relationships will help our debt management growth. But beyond that, one, we’re getting a business that’s got great organic growth opportunities; alluded the fact there is inorganic opportunities. And then the others are bringing things like The Work Number to Australia, bringing Cambrian to Australia, bringing InterConnect to Australia, bringing our global fraud platform to Australia. It’s hard, you can’t underestimate the relationship these guys have in Australia and New Zealand and the market presence they have with all major verticals is significant. And they build out, much like Equifax has in Australia and New Zealand, a very wide array of unique data assets. And if we can bring our knowhow to bear there, to build products, that is a great growth driver. And then, as someone -- I think that Andrew asked a second ago, eventually when comprehensive as he referred to or positive data as many referred to it, when that becomes mainstream, guess what, we know how to manage positive data and build platform on positive data really well. And that in years to come there is another growth driver for us.

[Nick Nikitas:]

And just within the UK, was TDX a sizable contribution to 4Q or is that still thinking about ‘16 more of a strong contributor there and if we are looking at growth rates similar low double-digit European growth rate is possible?

[John Gamble:]

Yes. We saw very nice growth rates in the core UK business. TDX continued to provide growth. But we saw very nice growth rates in the core UK business as well. And just to make sure everyone understands my answer. The $95 million for Veda acquisition amortization is an annualized number; it’s not the ‘16 number, it’s an annualized number.

[Operator:]

We will take our next question from Andrew Jeffrey with SunTrust.

[Andrew Jeffrey:]

Hi. Thanks, good morning. Rick, it’s interesting the way the way the PSOL business has evolved generally and direct-to-consumer in particular and obviously Credit Karma was a big win. Can you frame up perhaps the additional opportunities in DTC; is Credit Karma probably the biggest single opportunity you see out there recognizing that the market’s changing pretty quickly and you have some new entrants or are there other large potential targets too that could be callouts, the way Credit Karma was?

[Rick Smith:]

No doubt that Credit Karma in the U.S. marketplace for the reseller side or the indirect channels we call is uniquely large piece of business. So, might there be a larger U.S. piece of that? Might be; I don’t see it as probable. The LifeLock is going to be a very good add to us expanding was PSOL does. And also think about -- well you’ve got -- there is two other things that are important. You’ve got now taking that same concept of Credit Karma to other geographies, which we operate, taking it to Australia, taking to Canada, taking to UK. And also you’ve got Dann Adams. Now, one of beauties Andrew of moving leaders around the different businesses is they have a different perspective than the predecessor. And Dann is looking at this business now saying kind of look at the breach market differently. He is looking at saying how do I combine some of the assets we have from EWS where he was for five and half years, into the global PSOL channel. So, it’s not just the large indirect resellers who give me hope for long-term growth in PSOL, it’s the four levers we talked about plus taking other data assets into PSOL.

[Andrew Jeffrey:]

And, I’ll ask you I guess the same question around Workforce Solutions. It seems like every year there is another wrinkle, another innovation, another customer; has this been an exceptional period given developments like ACA where you’d say hey that this was just a remarkable time, or are we looking at the pace of change and an opportunity set that is structurally bigger than you might have thought it was two or three years ago?

[Rick Smith:]

It’s the latter and it’s by far the latter. I can see a day where this businesses so dramatically bigger than it is today, not just in U.S. but global. Andrew we are going wake up ex number of years, and it’s going to be a couple of more geographies that are really important to us. I talked about trended data. We are just now in early days with trended data; we’re building the capabilities for trended data. So, I would be remiss if I would say the leadership that was there was outstanding; they did a hell of a job and I am sure -- and Dann has done a hell of a job out there as you know and we’ve seen the financials. We’ll continue that progress and take this business to next level. And it’s not farfetched to see at some juncture EWS being bigger than our core 117-year old credit business at margins equal to if not higher than USIS. So that’s kind of how we think about that.

[John Gamble:]

If regulation continues to extend, the opportunities to expand the compliance business, so it’s not just verifiers, it’s in employer as well, both side of the business.

[Andrew Jeffrey:]

Okay, that’s pretty ambitious and pretty exciting. Thanks.

[Operator:]

We’ll take our next question with Andre Benjamin with Goldman Sachs.

[Andre Benjamin:]

Thank you. I think most of my questions have been answered. I guess on the back of the question that was just asked about the EWS, it’s clear that there is a lot of demand for these solutions globally. I guess in the U.S., is there any place that you can call out as a major area of focus beyond -- I think most of us clearly get the case in autos, mortgage, and government, but are there very obvious large areas that you should be going after that you are not today?

[Rick Smith:]

No, I think we’ve got our toes into everything but it’s all relative, it’s -- I hate this baseball analogy but again, are we in the bottom half of first inning or the top half of the ninth inning. In most cases, we are very early stages. So, the credit card is important to us, the insurance is important to us, prescreening is important to us. So, thinking about anywhere we are having affirmation that someone is employed and the confirmation how much someone makes across almost every vertical, there is a need to that. So, we are into virtually all of them Andre, but there are some, we’re very, very early days where penetration has got years to go.

[Andre Benjamin:]

And on PSOL -- I apologize if you covered this before I jumped on. But, I know you took up the growth rate longer term. And was there anything in particular about the re-org that should drive a material change in the strategy or is it really just getting everyone on the same page, seeing the same numbers and having unified goals?

[Rick Smith:]

Good question. It’s the latter. Structure does not necessarily always facilitates faster growth or in fact growth to be slower. This is -- it just intellectually makes sense to have one team manage every aspect of the strategy for consumer regardless of how the consumer buys that product, directly from us or through a partner of our. So that’s why we did that. I don’t think that in itself changes the growth profile. It’s executing against the four-pronged strategy we laid out last year that gives us confidence that the growth of PSOL multiyear model is slightly higher than past.

[Operator:]

We’ll take our next question from Brett Huff with Stephens.

[Brett Huff:]

Good morning, Rick, John and Jeff; and congrats on a nice job.

[Rick Smith:]

Thank you

[Brett Huff:]

Two questions; one, just focusing on EWS; you talked about the geographic expansion opportunity. The way I understand that business works, you need a database of numbers in order to really start having a product to sell. And you mentioned you had teams on the ground in several geographies. Are they just there constructing that database and kind of how long does it take to get to a scalable product in those geos? And then I have one follow-up.

[Rick Smith:]

It’s going to take a while. This is -- when I think about the multiyear model we communicated earlier, it does not contemplate internationally, and I would never do that. So, it’s going to take a while to build that database. But we’re good at it; we know how to do it; we get funds invested into it; we’ve got people invested into it; we’ve got customers we know very well; we’ve got the technology; we’ve got the platforms; we know how to do. We think it’s a lot of good. This is something you look at over a five-year period of time and say got it, now it’s growing revenue versus fourth quarter 2016.

[Brett Huff:]

And then just a bigger picture question; I’m trying to check off all I think are the major growth opportunities; wondered if you could just rank them in terms of your excitement? I guess the categories are trended data, Cambrian, the NPI/EGI and maybe talking about Work Number going International; maybe there is another one or two I’m missing. But as you think about the three-year opportunity in those, which ones are -- kind of how do you rank them?

[Rick Smith:]

We’re so good at, we’ve done for so long is NPI and EGI. So that’s something that obviously is investor or analyst thinking about it. So, we have a level of confidence and continuing it the way, just continue it if not higher. You alluded to the core EWS which was talked about quite a bit this morning, continue to grow international EWS obviously is one. Cambrian, you can’t underestimate Cambrian. Cambrian will not only allow us to link to different data assets together but build product s you could not never build before but build them faster. So, time to revenue would be faster with Cambrian. Obviously small tuck-in acquisitions that were so good at, but hopefully we’ll continue to be really good. So, we know how to do it. That will be a vehicle for profitable growth going forward. So, the cool thing is I think you’d agree is it’s not just one, two or three things we’re counting on for growth. The foundation has been built by these -- our teams that have got so many levers to pull, it gives you a pretty good confidence.

[Operator:]

We’ll take our next question from Shlomo Rosenbaum with Stifel.

[Shlomo Rosenbaum:]

John, just one, could you verify for me? As I do my calculation on organic constant currency growth implied for 2016 revenue, it seems to me that the range is 7% to 10% with the midpoint to around 8.5%. Is that correct?

[John Gamble:]

That’s what we got to.

[Shlomo Rosenbaum:]

Okay. And then Rick, how concerned are you about the Australian economy and their tries to China and then impact of Veda or are you just really excited about all the opportunities to bring value over there and that’s going to overwhelm that concerns that you might have from economic perspective over there?

[Rick Smith:]

Good question. Yes, we spend a lot of time trying to understand and deconstruct the economic drivers of the Australian economy, dependency on exports to China. We engage some of -- I think the best economic minds on a global basis as well as local basis in Australia to think about that and have locked away with a couple of thoughts, Shlomo. One is for 2016, unless there is an implosion that no one has ever contemplated in China, they have diversified their and their economy as such that in fact the consensus even today is the stronger GDP in Australia than 2015. The second thought I have is, they’re going to have a session eventually. You can’t define odds. I think they’re the second longest running economy in history of modern time in the world, the China had a last recession; they are going to have one eventually. The third, we’re making investment like this, we don’t make any investment for a quarter, for a year, for two to three time. This is a part of the world we want to be in. We have great partner down there now with Veda. They give us lens into so many more geographies down there beyond just Australia and New Zealand. So, it’s a generational bet, not to stay a quarter or a year bet.

[John Gamble:]

Shlomo, just a reminder, what we actually guided to on organic constant currency growth is high-end of the 6% to 8% range, so…

[Rick Smith:]

For the Company.

[John Gamble:]

For the Company. So that’s -- it’s within that range you indicated but the guidance was high end of 6% to 8%.

[Operator:]

We’ll take our next question Bill Warmington with Wells Fargo.

[William A. Warmington:]

So on the direct-to-consumer business, you’ve talked in the past about your four-pronged strategy, indirect; International; Equifax.com; the freemium market. And you’ve had some success there, especially on the direct-to-consumer resellers, Credit Karma and LifeLock. So, I wanted to ask how sensitive is -- or economically sensitive is this business. And then, if it is economically sensitive, how strong are the trends towards credit literacy and other demands in terms of ID, theft protection and other drivers on the secular side that could potentially offset it?

[Rick Smith:]

Yes. it’s an interesting question. I’ve not done a statistical correlation analysis between the GDP and PSOL business. So, if I gave you an answer, it would be wrong. But, I think about drivers mostly likely help individuals want to buy a PSOL product or products, it’s am I employed; am I experiencing some wage stability if not inflation; am I in the market for something, those are tied together, right, helpful in the auto industry, if I’m employed, home purchase and so on and so forth. So, I am not sure how to answer that. I’ve not done a strong correlation analysis between what economic drivers and sensitivities drive PSOL up or down.

[William A. Warmington:]

Okay. Well, thanks.

[Operator:]

And we have no further questions in queue at this. I would now like to turn the conference back over to our moderator for any additional or closing remarks.

[Jeff Dodge:]

Okay. I’d like to thank everybody for their time and their interest in Equifax and with that we’ll conclude the call. Thanks everybody.

[Operator:]

This does conclude today’s conference call. Thank you all for your participation. You may now disconnect.