Equifax Inc (EFX) — Q3 2016 Earnings Call Transcript

Thanks and good morning. 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 at www.equifax.com in the Investor Relations section under the About Equifax tab. 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 businesses are set forth in our filings with the SEC including the 2015 Form 10-K and all subsequent filings. During this call, we will be referring to certain non-GAAP financial measures including adjusted EPS attributable to Equifax and adjusted EBITDA margin, which will be adjusted for certain items that affect the comparability of the underlying operational performance. For the third quarter of 2016, adjusted EPS attributable to Equifax excludes acquisition related amortization expense, as well as the transaction and integration expenses associated with our acquisition of Veda. Adjusted EBITDA margin is defined as net income attributable to Equifax adding back income tax expense, interest expense net of interest income, depreciation, amortization and the impact of certain one-time items, including the transaction and integration expenses associated with our acquisition of Veda. These non-GAAP financial measures are detailed in the reconciliation tables which are included with our earnings release and are also posted on our website. Also, please refer to our 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.

Thanks, Jeff, and good morning, everyone. Thanks as always for joining us. I start with some high-level observations for the quarter for the corporation, then I'll dig into some details at the business unit level. John will go through the financial details and I will come back with some closing comments before questions. The third quarter was just another outstanding broad-based performance by the team, which continues to impress me. The growth we had in the third quarter accelerated from the first half of the year, adding to our strong outperformance year-to-date. Our four business units continue to execute at a very high level, driving impressive expansion in our revenue, adjusted EBITDA margins, and bottom-line results. For the quarter, total revenue was $804 million, up 20% on a reported basis and up 23% on a local currency basis from the third quarter of last year. Organic constant currency revenue growth accelerated from the first half, coming in strongly at 13% year-over-year. In the quarter, FX created a $19 million year-over-year headwind. Adjusted EBITDA margin was 35.9% compared to 34.6% in the third quarter of 2015, representing a very solid year-on-year increase and well above our annual 25 basis point target increase, and well above our 75 basis point expectation for the full year of 2016. Adjusted EPS was $1.44, up 26% from $1.14 in the third quarter last year, and better than our expectations when we provided third quarter guidance back in July of this year. So let me jump into the individual business units as always. I’ll start with USIS. They delivered solid 9% revenue growth, a significant acceleration from the first half, driven by broad-based new product revenue including trended data. We can discuss trended data in a second and we’ll get into it in Q&A as well. Our trended data is now a reality. As expected, Fannie Mae launched its desktop underwriter in late September. Billing for credit data began in August for all mortgage-related inquiries. Revenue for the third quarter largely came in as we had expected. We have a very good relationship with Fannie Mae and initiated discussions on trended data nearly three years ago. We continue to see opportunities to work with Fannie in transforming the mortgage space, including the announcement just this week for the launch of Fannie’s desktop underwriter validation services, which incorporates verified consumer income and pilot information from workforce solutions. We believe that will be a nice catalyst for continued mortgage growth for EWS going forward. Additionally, from our data and analytics team, they continue their efforts to complete a variety of analyses to assess the lift from trended data for other decisioning activities. We’ll talk about that in the future as it's really getting down granular levels by vertical, by sub-vertical, and by unique data asset to understand the lift. Trended data provides approximately a 15% lift in accessing prime accounts for open home equity loans and a 20% lift in assessing prime accounts for default risk on home equity loans. With the advent of Cambrian, which we’re familiar with, we now have an analytical environment containing over 18 months or more of historical data across many of our unique data assets. Today, Cambrian is a non-production environment providing unparalleled ability to deliver compelling customer insights. We are also building analytics and insights on trended data as we have 80 months or more, including the credit file and other unique data assets. In 2017, we’re going to move to 24 months of trended data for the credit file and significantly beyond that in the production environment. I think this outlook brings about a whole new realm of opportunities to work with our customers and solve problems we could not address before. Sticking with USIS, on September 30, we reached a long-term agreement with SBFE to become a certified vendor. We will now be able to combine our CFN commercial financial network data assets with SBFE data to deliver best-in-class solutions for small business information customers. USIS is expected to deliver revenue growth for the fourth quarter at the high end of the targeted range, which has been communicated as 5% to 7%. And EBITDA margins will continue to be above 50% in the fourth quarter and for the full year. Internationally, they continue to make substantial progress on their most important strategic initiatives while delivering third quarter local currency revenue growth of 60%, with organic local currency revenue growth up 10%. In the quarterly report, they reported adjusted EBITDA margins expanding by 200 basis points from the prior year. The Veda integration continues to go well and remains on schedule. Some sub-holes are underway; we spoke previously about our global platform deployment into Veda, which includes connecting to Cambrian for the Cloud platform, and it’s expected to be operational by mid-2017. The NPI process has been established with the local leadership team, and we will incorporate the Veda NPI revenue into our vitality index beginning in 2017. We’ve also identified several opportunities to export some of Veda’s products to other international geographies. Debt placement from the U.K. government is now up to £1.6 billion, and our performance year-to-date is exceeding the baseline performance we've established. We now have all six founding agencies of the U.K. government boarded and have analytical projects underway with two additional agencies. While some initiatives are still in early status, we’re extremely pleased with both our relationships with U.K. agencies and the financial results we’re producing. Organic revenue in international’s five largest verticals—financial institutions, telecommunications, government, retail, and automotive—aggregate was up 13% for the quarter. International decisioning platforms, analytical services, and debt management services revenue grew 19% in the quarter. These high-value solutions continue to strengthen our relationships with customers and our market position. In the coming quarters, we will be installing more sophisticated technology platforms, i.e., integrating our wholesale platform and Cambrian throughout our international footprint to drive future revenue growth. Canada continued to grow with very good momentum with trended data. In the third quarter, we launched the Cambrian platform which will further enhance our competitive position with best-in-class solutions leveraging trended data. International is expected to deliver organic constant currency revenue growth in the fourth quarter and the full year above the upper end of its long-term model of 8% to 10%. Reported revenue growth for 2016 is expected to approach 55%, and adjusted EBITDA margins should increase sequentially and exit the year approaching 30%. Workforce Solutions showcased strong momentum and delivered another outstanding performance in the third quarter with 23% revenue growth and a 350 basis point expansion in the adjusted EBITDA margin. The total records in the work number database now approaches our short-term goal of 300 million with over 6600 different data contributors. Our initiatives to further penetrate key verticals led to strong double-digit growth in mortgage, automotive, government, and pre-employment areas. Revenue from four healthcare verticals, encompassing income and employment verification for CMS and ACA analytics for employers, grew over 240% in the quarter. In the current quarter, Workforce Solutions completed the acquisition of Barnett/VJS, a small regional provider of employment and income verification and unemployment insurance services, to further accelerate the growth of the work number database. Early feedback indicates that’s going very well. As I indicated earlier this week, Fannie Mae has announced the integration of our full suite of employment and income verification services into their desktop underwriting platform. Employment and income verification services include data from the Workforce Solutions work number database providing instant verification services. With these services, the cycle times will be reduced and lenders' reliance on applicants providing W-2s, pay stubs, or other income-only documentation will be eliminated, giving them protection should a mortgage not perform as expected. That’s a great benefit for EWS. Workforce Solutions has had an outstanding year in 2016. Both organic and reported revenue growth are expected to exceed 15% in the fourth quarter and 20% for 2016, substantially above its long-term range of 9% to 11%. Adjusted EBITDA margins are expected to be nicely over 45% for the fourth quarter of 2016 and in the high 40s for the full year. Global Consumer Solutions continues to make great progress on its strategic initiatives, particularly in building a strong market position in both direct-to-consumer and reseller channels, including partnerships with several very successful companies such as Credit Karma, LifeLock, Harte-Hanks, and others. We’re pleased to announce we have executed a new longer-term partnership with Credit Karma. The new and expanded partnership is focused on growing both of our businesses by leveraging unique data assets, innovation, and analytics, including the use of our Cambrian platform and expanding our partnerships beyond U.S. borders. This quarter, we deployed our new global consumer platform, which is a best-in-class SaaS-based e-commerce platform providing much greater marketing flexibility to serve our partners. During the quarter, we successfully transitioned one of our largest customers to this new platform, and by the end of 2017, we will deploy this platform across all portions of our U.S. business. We are well on our way to deploying it across other geographies in which we operate. Global Consumer Solutions is expected to deliver fourth quarter and full year 2016 constant currency revenue growth exceeding 15%, with fourth quarter and full year adjusted EBITDA margins at approximately 30%. A few high-level points at the corporate level before John dives into the financial details. These are so important to our culture and our results. First are our enterprise growth initiatives, which are our largest and most complex growth initiatives. They are performing excellently in 2016, with revenue generation projected to be over 35% from our expectations earlier this year, and over three times the revenue generated from EGI in 2015. Our overall performance in new product innovations and initiatives in 2016 is also outstanding. The three-year revenue from our 2016 launches is expected to be more than 170% above the expected three-year revenue from our 2015 launches. This is the strongest NPI performance we’ve had since it was built over a decade ago. Our vitality index remains robust, and the pipeline of new products continues to be very healthy. Today, we launched approximately 40 new products and expect to launch another 20 products before year-end. In summary, our strategic initiatives continue to perform well and are ahead of our expectations set at the beginning of the year. With this continued focus on improving the process, we are driving sustained growth. I expect these initiatives will continue to drive and deliver incremental revenue growth in 2017 and beyond. So with that, John.

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. As a reminder, following the Veda acquisition, we started focusing on adjusted EBITDA margin to consistently present the operating performance of the segments and the company as a whole. The non-GAAP reconciliation attached to our earnings release provides a more detailed description of what is included in the adjusted EBITDA margin. Now let me turn to the business unit financial performance for the third quarter. U.S. Information Solutions' revenue was $317 million, up 9% when compared to the third quarter of 2015. Online information solutions revenue was $230 million, up 7% compared to the year-ago period. Total mortgage-related revenue in USIS was up 39% in the quarter. The mortgage bankers’ application index growth accelerated significantly to 35% in the third quarter compared to the 20% growth we saw in the second quarter. Given the much stronger mortgage market performance in Q3 2016 and the continued accommodating interest rate environment, we now expect the mortgage market to grow solidly in double digits in 2016. Financial marketing services revenue was $48 million, up 3% compared to the year-ago quarter. Our commercial products grew 8% in Q3. We have made great progress building the Equifax commercial financial network, which includes straight-line data from banking and other financial institutions, similar to SBFE, as well as communications, utilities, wholesale trade, printing, publishing, chemicals, and related products and rental data. When combined with Equifax consumer credit data, we can now offer substantially differentiated data analytics to our U.S. commercial customers. Identity and fraud solutions also continue to grow strongly, up 19% in Q3 and 23% year-to-date. USIS direct-to-consumer revenue, principally revenue with other CRAs, was down over 20% in the quarter, and it was largely in line with the first half. The adjusted EBITDA margin for U.S. Information Solutions in Q3 2016 was 50.6%, up from 49.9% in the third quarter of 2015. Workforce Solutions revenue was $171 million for the quarter, up 23% compared to the third quarter of 2015. Verification services revenue of $115 million was also up 25% and continues to be driven by strong double-digit growth across mortgage, government, automotive, and pre-employment areas. Employer Services revenue of $57 million was up 23% from last year as well. Revenue growth from unemployment insurance, I-9, tax incentives, and other retail services was consistent with the annual model of mid-single-digit growth. ACA analytics revenue significantly increased in the quarter versus Q3 2015, driving much of the growth. As we indicated previously, ACA analytics revenue was down sequentially and from the first half run rate. As expected, given that the ACA business is seasonal with higher revenue in the first half of the year when 1095s are delivered to employees. The Workforce Solutions adjusted EBITDA margin was 47%, up from 43.5% in Q3 2015, and in line with our expectations. Revenue from USIS and Workforce Solutions, our total U.S. B2B revenue amounted to $489 million, representing organic growth of 13%. International revenue was $214 million, up 47% on a reported basis and over 60% on a local currency basis compared to Q3 2015. Organic constant currency revenue growth was approximately 10%. By region, Europe’s revenue was $62 million, up 2% in U.S. dollars and 16% in local currency. We have seen some moderate impact on local currency revenue following the Brexit vote with selected large U.K. financial institutions. Debt Management grew significantly in the quarter as our relationship with the U.K. government continues to perform as expected. The sharp depreciation of the British pound following the Brexit vote in late July significantly impacted U.S. dollar revenue growth in the region for the third quarter. The nearly 7% decline in the British pound in early October will further impact Q4 2016 U.S. dollar revenue growth. Latin America’s revenue was $47 million, down 9% in U.S. dollars but up 9% in local currency. The over 60% depreciation of the Argentinean peso from late December 2015 through March 2016 has negatively affected the U.S. dollar performance of our largest and most profitable country in the region. Asia Pacific revenue was $74 million, which is mostly revenue from Veda. Canada revenue was $32 million, up 4% in U.S. dollars and up 3% in local currency. Canada continues to perform in line with our expectations, including substantial improvements in the new product innovation initiatives, including trended data. For the third quarter, International adjusted EBITDA margin was 28.4%, up from 26.2% in Q3 2015. On a constant currency basis, margins expanded over 300 basis points compared to Q3 2015 and almost 50 basis points sequentially. As Rick indicated, Q4 2016 adjusted EBITDA margins are expected to increase sequentially and approach 30% in Q4 2016. Global Consumer Solutions revenue was $101 million, up 12% on a reported basis and up 14% on a local currency basis. Growth again was driven by our direct-to-consumer reseller customers. For the third quarter, the adjusted EBITDA margin was 30%, in line with our expectations. The adjusted EBITDA margin was down from 38% in Q3 2015 but up significantly from 26.4% in Q2 2016 when we were reporting LifeLock. In the third quarter, general corporate expense was $52 million, consistent with our expectations. For the fourth quarter, total general corporate expense is expected to be slightly above $55 million. The adjusted EBITDA margin was 35.9%, up 130 basis points from 34.6% in 2015, reflecting year-over-year growth in USIS, Workforce Solutions, and International. We expect the full-year 2016 adjusted EBITDA margins to be above Q3 adjusted EBITDA margins, and our full-year 2016 adjusted EBITDA margin to be up more than 100 basis points from the 34.7% we achieved in 2015. As Rick mentioned before, this is nicely above the target for 2016 of a 75 basis point expansion in our adjusted EBITDA margin. Our GAAP effective tax rate for the third quarter at 29.1% was below the anticipated level of 32.5%, which we communicated during our July earnings call. The lower effective tax rate reflects several discrete or one-time items which benefited our effective tax rate by over 3 percentage points and our adjusted EPS by approximately $0.05 a share. Our current expectation is that the Q4 tax rate will be approximately 32.5%. Capital expenditures for the quarter were $48 million, and year-to-date are $131 million. We continue to expect capital expenditures for the year to be about 6% of revenue, which is at the high end of our long-term range as investments are being made related to our integration of Veda. Year-to-date, operating cash flow remained strong at $525 million. Total debt in the quarter was $2.8 billion. We continue to reduce our leverage following the Veda acquisition, which is now down to 2.58 times. Our target is to reduce leverage back to approximately 2.25 times EBITDA, which we expect to occur in 2017. Now, let me turn it back to Rick.

Thanks, John. I trust you agree that 2016 has been an outstanding year for the company. Strong and consistent execution throughout the company has resulted in broad-based performance significantly exceeding our expectations for the beginning of the year. We firmly believe this positions us well for growth in 2017. For the fourth quarter, currency exchange rates, we expect revenue to be between $797 million and $801 million, reflecting constant currency revenue growth of just over 22%, partially offset by about 2% of FX headwind, which reflects organic growth of over 12%. The nearly 7% depreciation in the U.K. pound in early October, which John just referenced, resulted in a majority of the incremental $6 million of FX headwind versus our expectations for the fourth quarter we provided guidance back in July. Adjusted EPS is expected to be between $1.35 and $1.38, which is up 18% to 21% for the fourth quarter, excluding $0.03 per share of negative FX. This reflects constant currency adjusted EPS growth of 21% to 24%. With this outlook, our second half organic constant currency growth is approximately 12% and is in line with the outlook we provided in the second half revenue growth during our second quarter earnings call, which we guided as being 11% to 13%. For the year now, we expect revenue to be approximately $3.145 billion, reflecting constant currency revenue growth of approximately 21%, partially offset by a 3% FX headwind adjusting for the significant depreciation in the principal U.K. pound. This impressive performance by the team is stacked against the guidance we provided at the beginning of the year of more than $3 billion and $3.1 billion in revenue. Adjusted EPS for the year is expected to be between $5.45 and $5.48, which is up 21% to 22%, excluding approximately $0.14 per share full-year negative impact from FX. This reflects constant currency adjusted EPS growth of 24% to 25%. This is up significantly from the guidance we provided in July and compares favorably to the guidance we provided at the beginning of the year, which we remember was $4.95 to $5.05. For the year, we expect adjusted EBITDA margins to expand by over 100 basis points, up from the previous expectations, which were 75 basis points. As we look forward, we remain confident in our ability to deliver on a long-term constant currency financial model of total revenue growth of 7% to 10% per year with organic revenue growth of 6% to 8%. As we look to 2017, considering only the acquisitions closed to date, I want to refresh your memory regarding the small Barnett acquisition. We expect to achieve revenue growth at the high end of our total growth model. As this is too early to make a call on the U.S. mortgage market, we anticipate that the U.S. mortgage market will be largely flat in 2017. As always, we’ll provide you with more detail on our outlook for 2017 during our February call, but at this point in time, with the way the team is executing on the growth initiatives of EGI and NPI, we remain very bullish regarding activities in 2017. So operator, with that, John and I’d like to open up the questions for our participants.

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

Hi, David.

Workforce Solutions continues to outperform my model both in the third quarter and indeed really year-to-date. Could you comment a little bit about the hit ratio you're seeing as you approach the $300 million work number records in the U.S?

Yeah, I mean just talking generically and then getting into specifics, you heard before we talked about the perspective in growth that started slowly again years ago and are just now phenomenal. Everything is broad-based. If you think about it, the penetration, which is one way to think about the hit rate in each vertical continues to go up. We continue to expand the size of the database and continue to do analytics on the data. The growth opportunity is strong, and our long term model is very bullish, think double digits. There are specific projects going on right now and continue to find ways to build the hit rate at work number records. So generally speaking it is a long-term growth opportunity business we have, and we remain very bullish.

And combined with that, your EBITDA margin at 47% is up 350 basis points year-on-year, now actually approaching USCIS EBITDA margin. How do you think about the margin expansion opportunity of this business over the next 12 to 24 months?

Yes, as we’ve mentioned in the past, this business has great leverage just like the core USIS business. We expect it over multiple years to be approaching 50% plus our EBITDA margins.

Yes, our long term model has been directed in the low 50s, and we fully expect to get there.

Got it. And then shifting gears to USCIS, mortgage continues to outperform, and I thought your comment about next year being conservatively expecting flat mortgage market. How do you think about what the Fed might do in the next couple of months and how that might impact mortgage, which has benefited from an incredibly positive environment with rates as low as they are?

Yes, I expect the financing to issue, and when they do get there they are all over the board as we said in February. We'll give you a better look at that juncture. You're saying rates from one rate increase to two to three rate increases up to 75 basis points, as well as 25 basis points next year, still historically low rates. You may see some softening in refinancing, but there's still strength in home equity and home sales. The thing we'll keep our eye on in general terms is the pricing—the affordability index. Beyond that, there are so many great things we’ve talked about that the team has done over the years, outperforming whatever the index does through penetration and innovation. For example, trended data for Fannie Mae for USIS. We're trying to grow alongside the market.

Understood. And just final question on trended data, trying to assess competitively where you stand versus your Chicago-based competitor, which has also been pretty aggressive here; you seem to have a very deep offering. They may have a little bit of a time lead if that’s an accurate perception, but it seems like you have a deeper range of services coming to market in the next 12 to 18 months?

I think we've been very consistent regarding trended data. We were the first out there with batch trended data years ago. We have continued to embrace trended data proactively across all of our geographies. We have the most unique data assets; it’s not just the credit file. We talk about how we have over 18 months of trended data in Cambrian or in a local environment that now contains many different data assets. We’re moving towards dramatically increasing beyond the 24 months of credit data that’s trended in a production environment in 2017, well beyond even 30 months, which I think is a benchmark out in the marketplace today. So we're not handicapped in any way; in fact, I believe we’re leading.

Understood. Thank you very much.

Thank you, David.

Good morning, Rick. You mentioned that 2017 is shaping up to be at the long-term constant currency revenue growth range of 7% to 10%. I just want to check my math there; that would be about two points of closed acquisition, right? So we’re talking 5% to 8% organic? And the second question is, at that level of revenue growth, how does margin expansion fit into the long-term plan for 2017?

Yes, we’re trying to say my word is there in total will be at the upper end of our 7% to 10%; about the organic growth must then fall in that range of 6% to 8%. We've got a strong pipeline of strategic M&A things we can do with tuck-in acquisitions that create sense for us.

Okay. Thank you.

Thank you.

Thank you. Good morning, gentlemen. Firstly congratulations on another broad-based quarter. I’m sure we’ll keep asking for updates in trended data and the contracts, but I wanted to ask you about these 60 new products that you’re scheduled to launch this year. Looking into 2017 and 2018, what are some of the other products or initiatives we should be focusing on outside of just trended data? It sounded like the fraud platform we discussed might be one of those; I was hoping you could give us a sneak preview at other stuff we should be looking out for?

Thanks for that, Manav, for your kind words. NPI is ingrained in everything we do. When you think about launching 50 to 75 products a year, in this case, 60 products, it varies by geography. Most of our NPI has tended to be singles and doubles in terms of analogy; we have hit some big ones like trended data. Fraud is a significant growth opportunity for us in the international environment too. We’re doing a lot around the mobile world now, finding ways to participate in that environment. I could give you far more examples, but it tends to be many singles and doubles; that’s how we win in NPI.

Okay, that’s fair enough. And then on the Credit Karma contracts, you previously gave us revenue contribution from them. I was hoping you could do that; it does sound like this contract is much broader than what you previously indicated. I wanted to confirm that I heard that correctly. In terms of expanding internationally, when we heard from Credit Karma at the Money 2020 conference, they mentioned Canada, is there anything more than that you are referring to?

Yes, thank you. We don’t disclose specifics on Credit Karma revenue. But it has been a great partnership, a win-win for the past two years. We've now signed a multi-year contract that is longer term. We are utilizing our environment Cambrian, which is different from the past. This will focus on innovation, so we’re building products within Cambrian together. We’ll also expand our partnerships internationally beyond Canada, where there’s a very significant interest in and good market positions with our data assets.

Got it. And just one last question from me. When you start talking about the active M&A pipeline, I've been curious about the size of the deals you are looking at. I think the one that you have rumored to be looking at in Australia seems a little bigger than a tuck-in, and I was curious if you could give any color there?

Yes, known for about three years, if you think about the three large deals we did nine and a half or ten years ago, we did CSC and Veda. The vast majority of anything else we’ve done is small tuck-ins. You should expect us to be looking for strategic M&A that makes sense to our growth and align with our long-term revenue trajectory.

Okay, thanks a lot, guys.

Thank you.

Great. Let me add my congratulations on another strong quarter, guys. Wanted to start off—I’m sure you’re not going to size the impact in the quarter of the trended data mortgage contribution, but is it safe to say it came in somewhere ballpark in a little bit below a percentage point of overall revenue growth? And then John, your comments on the margins for USIS, being at least 50% for Q4, should we expect a little bit of a step up from the Q3 levels given the full quarter of trended data and then just seasonal trends?

It’s tough to break out the trended data as a specific line item. But think of it this way: when we set guidance back in July for the second half of the year, the trended data contribution for USIS came in largely as expected. Almost no material deviation from what we’d forecasted; it was very predictable for us. As for margins, there’ll always be fluctuations quarter-to-quarter depending on mixed changes and seasonality. For example, mortgage is typically lower volume in Q4 compared to another quarter. I don’t worry about minor quarterly fluctuations, it’s really the long-term trends in USIS that matter and they are trending very high.

And you see really nice growth in that margin, obviously, with good performance in Q2 as well. I think you should expect to see a very positive margin in Q4.

Okay, great. Thanks for the color, guys. And then just last question from me, as it relates to the Credit Karma expansion, is there anything we should be mindful of from a pricing perspective as we model the Consumer Services division heading into 2017?

Not specifically; I’d describe it as apples and oranges compared to the previous contract. The old contract involved one geography, one basic product, but now we are talking about multiple geographies, multi-products, and innovation. So it could be a growth driver for us long-term.

Okay, thanks, guys.

Thank you.

Good morning, guys. As my first question, lenders as we listen to commentary from large banks have been largely talking a lot about prime and super-prime consumers, but I was wondering as you compare the roll out of deeper analytics, how much are your conversations focusing on the ability to use Cambrian trended data client data to feel more comfortable lending to weaker credit consumers? I know when you frame trended data, you also talked about the uplift to prime loans—what does that look like for subprime as well?

Yes. It is a good question. We are actively engaged in leveraging our unique data assets to give underwriters a more holistic view of risk. This could be leveraging income data that we have—not just model data but actual consumer income data. For many markets in Latin America, we are leveraging alternative data assets to help bring more consumers into the credit market. That's an active part of our strategy and has been for quite some time and will continue into the future.

And more directly, is it fair to say that the uplift you observe while analyzing some of those lower quality credits is the same, higher, or lower relative to the prime bucket?

It really depends on the vertical and geography you’re looking at. For example, the work you do in a credit card offering versus auto loan will differ across various parts of the country, as well as how you wish to segment subprime from super-prime. There’s no one generic answer; the data and analysis teams are deeply engaged with our customers looking for smarter underwriting decisions strategically, including for subprime.

We launched using alternative data to bring a substantial number of additional consumers into the market where we can actually score them.

My last question would be if I didn’t miss it—where do you stand on launching some of the verification processes internationally and how should that impact margins over the next couple of years?

Yes, it's going aggressively. All the enterprise growth initiatives are a systematic way to manage our complicated growth initiatives. The international work number is being managed through that initiative, which is critically important to us.

Thank you.

Thank you.

Hi, this is actually Kristin Dahlberg standing in for Ramsey. Thanks for taking my questions. USIS had very good acceleration from the first half. Is your expectation still for the segment to be at the lower end of the 5% to 7% range? It seems like with the new products and with such a robust mortgage market there could be some risk to the upside?

You're referring to the full year, right? Yes, so for the fourth quarter we indicated we expect to be in the high end of the range. For the full year, it will be within the range absolutely. For the first half starting slightly below the range, we’re seeing strong performance in the third quarter, and we’re expecting the high end of the range in the fourth quarter, averaging those out, we’ll be nicely within the range for the full year.

Right. So I think last quarter you guys said that it would be at the low end of the range, but now it's just going to be somewhere inside the range. Is that correct?

Yes.

Yes.

Okay. And my second question is there any way to parse out how much ACA has contributed to the robust growth within Workforce Solutions?

Well, I mentioned in my first comments that this has been a contribution of broad-based efforts across EWS but ACA is part of our healthcare offering that contributes to the strong growth—the 240% year-on-year increase is impressive. But there are many other factors driving growth across different verticals.

We provide verification and an indication under growth of the other portions of employer, so we provide plenty of analytics for you to assess that.

And then my last question is if you have been any surprises on the data integration so far, and are your expectations still for EPS accretion of $0.20?

Yes, we have not had any surprises—not anything material. It’s going extremely well, and we will get numbers and review the team. Your cultural integration always takes longer than process integration. The acceptance from customers of the integrated offerings has been very strong, so overall we’re pleased.

Great, thank you very much, guys.

Thank you.

Hi, good morning.

Good morning.

You mentioned the Fannie rollout of desktop underwriter integrating the employment and income verification. When should we expect to see an impact from that in results, and how should you frame the lift we should expect from that? Thanks.

That announcement was made early this week; it just takes time for these systems to communicate and adjust to changes in behavior. There are multiple opportunities for penetration across the mortgage underwriting market. While we have not disclosed the financial impact, it is clearly an important part of what the banks do and is expected to be a growth driver starting late 2016 into 2017.

Great. And then in terms of overall margins, in the past you’ve given guidance targeting about 25 basis points a year; this year you'll be far above that as you've mentioned in the earlier remarks and just what we've seen. Should we view 2017 as sort of a more normal year, or would that still be elevated due to some of the large home-run products still rolling through?

We’ll give you more insights into margins in our 2017 remarks in February. Remember, our overall goal is to achieve 40% EBITDA margins over the coming years, so we’ll provide more color and specifics then. I’d expect 25 basis points or so next year.

Again, first to deliver on our long-term model over the strategic period is kind of have to grow faster than that. We are expecting another very good year next year.

Thanks a lot, guys, congrats on the quarter.

Thank you.

Hi, guys. Good morning. I guess I just wanted to ask about the breadth of the various factors that are contributing to the EGI and NPI success this year. I mean, obviously trended data has been an outsized contributor relative to the singles and doubles—but if you were to look at what you've done without trended data, has the momentum been in line with what it's been the last couple of years? Has it picked up? How do we think about the breadth of it? Thank you.

The matter of fact is you mentioned one product, trended data. The EGI financial and NPI financial benefit has been beyond expectation this year. The efficiency and performance of our NPI products over the last two years has been impressive, and the 2016 class in products is also showing impact. The previous year, we saw an average financial performance across expectations, but in 2016, we will be adding several products to our NPI pipeline that will further drive and fuel our growth.

And if you think about it, every unit has shown substantial EGI contributing to their growth, which you see in ACA as an example. There are also tremendous opportunities being delivered through Workforce Solutions and in the entire direct-to-consumer initiatives we’ve heard about in GCS, including the rollout of our Renaissance platform.

Okay great. And then just a follow-up question, given how strong and broad the results momentum has been this year, are there any points this early in the process that you’d point out as really tough comps or anything for next year? I want to think about the phasing of the U.K. contract to do we see Europe slow towards how you've described the longer term—and in employer services, is there an ability to comment on those to grow on top of such strong growth with ACA this year and anything else you can think of?

There are several factors that could affect results, including interest rates and expectations around other products contributions to our revenue growth. We’ve shared that mortgage growth has been strong, and thus, we should not expect that same level going into next year. With the U.K. contract, we have a ramp-up in activities that are expected next year. And as we continue to execute well with various projects across the business, I expect those to all contribute positively moving forward.

And we’ve conveyed that in Workforce Solutions and personal solutions have been growing dramatically higher than their long-term model. While they are expected to pull back some, we still anticipate strong growth overall.

Great, thank you.

Thanks for taking my questions. You guys have pointed out the strength you’ve seen within Workforce Solutions coming from your healthcare or ACA compliance software this year. Just as we think about going forward, how much runway do we really have left as we consider 2017? Are you likely to see the same kind of first-half seasonality we saw this year?

Yes, when I say broadly there’s plenty of room left in EWS to grow; there are many levers we can pull for growth. ACA is one component of that. My expectation is ACA tends to moderate a bit going forward after two strong years, but it doesn't mean it goes negative. The same holds for EWS generally; you should expect it continues to be in growth mode.

Seasonality comes into play. There’s a higher revenue recognition in the first half versus the second half due to timing and recognition of 1095s delivered to employees, creating natural differences in revenue recognition.

Great, thanks. And you mentioned that now you have £1.6 billion already processed through that U.K. government contract, and you're looking at onboarding two more government agencies. Can you discuss what that’s going to do to the overall pipeline for the amount of debt you’re going to be placing of the contract and where you are, and what you're already looking at?

We’re in the early days; our primary focus is ensuring we deliver the value proposition expected by the government on that £1.6 billion. We are performing against expectations from both our perspective and theirs, which bodes well for future expansion.

Just remember HMRC is one of the largest agencies, and they collect a significant portion of those debts themselves.

Great, thanks. And lastly, just looking at your comments regarding the fourth quarter—I may have misheard this—but I think you said that there is a £6 million incremental revenue headwind due to the depreciation in the British pound. Is that relative to what your expectations were when you last gave guidance in July, or how should I frame that £6 million relative to your Q4 guidance?

The £6 million FX headwind is specific to the fourth quarter versus the guidance we provided in July.

Got it. Okay, great. Thank you. And that's all from me.

Thank you.

Hi, good morning. Thanks for squeezing me in. Lots of good information on the call as usual, Rick. I wanted to ask about Veda, just in terms of what it seems year-to-date that perhaps it's outperforming the expectations you had when you closed the transaction; could you characterize that? And then as you think about Cambrian, NPI, and enterprise investments in the region next year, what’s the sort of ballpark organic revenue growth we should consider for Veda?

As you mentioned, Cambrian has largely met or even exceeded our expectations thus far. Increased discretion is one measure of that outperformance. We expect that Cambrian will drive multi-year benefit, and while recognizing that its full financial impact will not be visible in 2017. Veda we expect to be within our long-term growth range of 6% to 8%.

Okay. And if I can dig in just a little bit more on the U.K. government contract quickly, can you talk about how much of the total debt you might be able to eventually address over time, given that some of it is uncollectible?

We’re not really modeling the total opportunities of £22 billion since there's a lot to verify first before we get there. Our focus is firmly on proving value through a successful relationship with the U.K. government, which should foster continued growth opportunities.

Okay, all right. Thank you.

Thank you.

Under the time wire, thank you very much. Congratulations on the strong organic growth. So one question for you, on mortgage-related revenue—it looks like it was about 18% of total revenue; just wanted to confirm that first. And then I think in your comments you mentioned that you view the mortgage market, your assumption for 2017 was that the mortgage market was going to be flat. So the MBA forecast that came out on Tuesday is projecting the 2017 market down 14% on a dollar basis, so assuming price appreciation on houses of maybe 6%, I get it to around 20% down in terms of unit volumes. So I guess my question is, is the expectation that the higher revenue per unit on trended data and the Fannie Mae validation services is going to be able to offset that expected decline in unit volume? Is that the rationale?

Well, we don’t—we said that mortgage business in the U.S. is significant for our customers and for us. We’ve indicated previously that we’re in the range of 15% to 20% of revenue coming from mortgage-related activities; we’re still within that range and expect to stay within it. This market is historically very volatile and forecasting mortgage lending, it’s never simple. We'll provide guidance later in February regarding the pricing and other products expected to contribute toward our revenue growth.

Okay, fair point on the MBA forecast. Thanks very much, and again congratulations on the strong quarter.

Thank you.

Hey, good morning. How are verification services evolving over time? I know you’ve taken new attributes collected and are getting more tightly on analytics; maybe better leveraging the historical records. Could you talk about innovations in that segment specifically, and how much of the growth is driven by that? Thank you.

Yes, it’s critical. We continue to increase the number of records in the work number database and expand to more verticals. We’ve seen tremendous penetration in the automotive sector and other areas, but the mortgage market is also showing potential for additional penetration moving forward. The international rollout of the verification business will certainly pay dividends in the years to come.

We've also been focusing on building partnerships to obtain more records faster and enhance technology to allow smaller employers to onboard their records with minimal friction. This is all about reducing costs while increasing effectiveness.

Okay, thank you. And then finally, John, can you comment on year-to-date free cash flow and the full-year expectation?

Sure, so year-to-date free cash flow continues to be strong. We expect to have a very strong fourth quarter. Overall for the full year, our free cash flow will be solid. It may be a little below last year due to the strong earnings in the previous year, but we are optimistic in the recovery of working capital in the coming quarters.

Thank you.

Hi, good morning; thank you for taking my questions. Rick, can you provide a little more update on Europe? It looks to me, if I normalize for the FX headwinds in the quarter on a sequential basis, the European business seems flat sequentially despite good year-over-year growth. But I would have expected that the U.K. government contract would have provided some work growth there. Can you talk about some of the dynamics going on because of Brexit outside of FX in Europe?

Yes, I have not disclosed numbers yet; maybe John can help. But overall, Europe continues to perform well year-on-year, but we're seeing Brexit create some uncertainty for the U.K. market, somewhat pulling back some activity we expected. We’ll provide more insights on that in the future, but overall, the performance remains positive.

And the pattern of our revenue sequentially has appeared fairly normal compared to what you’d typically see in Europe. While we’re seeing growth with the U.K. government contract, it is not the largest piece of revenue for us in Europe.

Right; while Spain continues to show strong performance and NPI opportunities designed for growth.

Okay, that's good color. And then, where do you stand in terms of getting some of your existing ACA clients to contribute their income data to the Work Number database?

Yes, they’ve done a great job, and systematic advances have helped. A technology that allows easier onboarding for ACA platform users has been launched, allowing us to contribute records to the database, which is why we’re seeing growth.

Okay, great, thank you.

Thank you.

Yes, thanks. Most of my questions have been asked, but just one, Latin America—if I missed it, the growth has kind of gradually slowed a little bit the last few quarters. Anything happening there that we should be mindful of, and do you expect that to accelerate on a constant currency basis?

Argentina continues to be our largest country in the region; obviously, Argentina’s GDP growth is negative this year. That has impacted our performance slightly, but despite those economic issues, we still see opportunities for growth.

Absolutely; there will be a turnaround, and we expect to see some positive changes in Argentina. The new government is taking steps to ensure economic recovery, and we anticipate our performance in Argentina will grow once stability returns.

Can you give us an indication of how much in Latin America is comprised of Argentina’s business?

It represents a significant share, but the specifics are proprietary.

Okay, thank you.

Thank you.

Good morning, thanks for taking my question. So, just two; one, first of all, you’ve called the season in the high end of your long-term revenue growth range next year, but given that break— is there any product or segment that you feel particularly hopeful about that if there’s upside to that outlook, where might that come from?

I don’t think there’s any one lever that stands out. EWS has the longest growth potential. EWS will continue to show growth in 2017, but we’re committed to a lot of initiatives that are providing broad-based growth on many products.

Okay, and then the second question, again all bigger picture, you’ve done a good job of building proprietary databases to differentiate your products. What is the next phase of that? Is there a particular type of data or database you're looking to build or acquire next? Any thoughts there?

Yes, discussions and strategy have been ongoing at the data analytics team level for each country and each vertical. We’re aligned on looking for the right growth opportunities. It's a mixture of investments, partnerships, and potentially acquisitions that we can better provide data and analytics to our customers.

Great, thanks for the time.

Thank you. Jeff Dodge?

Yes, I'd like to thank everybody for their time and their support and interest in Equifax. And with that, operator, we'll terminate the call.