Feb 1, 2007
TRANSCRIPT SPONSOR
Executives
Jeff Dodge - IR Rick Smith - Chairman and CEO Lee Adrean - CFO
Analysts
Nat Otis - KBW Brad Eichler - Stephens Inc. Mark Bacurin - Robert W.
Baird Dhruv Chopra - Morgan Stanley Fred Searby - J.P. Morgan Megan Talbott - Lehman Brothers Brandon Dobell - Credit Suisse Michael Meltz - Bear Stearns Bruce Simpson - William Blair & Co.
Operator
Welcome to the Fourth Quarter Earnings Release Conference Call. At this time all participants are in a listen-only mode.
Later we will conduct a question-and-answer session with instructions given at that time. (Operator Instructions).
As a reminder this conference is being recorded, I would now like to turn the conference over Mr. Jeff Dodge.
Please go ahead.
Jeff Dodge
Good morning and welcome to today's conference call, I am Jeff Dodge Investor Relations and with me today are Rick Smith our Chief Executive Officer; Lee Adrean Chief Financial Officer and Nuala King, Corporate Controller. The financial information that will be discussed during this call and the reconciling information relating to certain non-GAAP financial measures is included in a press release that we issued yesterday and filed in Form 8-K.
The press release and the GAAP reconciliation information may also be found on the Investor Center at our website www.equifax.com. During the call, we will be making certain forward-looking statements to help you understand Equifax and its business environment.
The 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 '05 10-K and subsequent filings.
Today's call is also being recorded in addition to being web-cast live over the internet. The replay will be available on our website at www.equifax.com.
Now I would like to turn it over to Rick.
TRANSCRIPT SPONSOR
What if there was a way to promote your company to a perfectly targeted group of potential customers, partners, acquirers and investors? What if you could tailor your pitch to them at the moment of maximum interest? And what if you could do this for a no-brainer price?
Company sponsors its own earnings call transcript
Company sponsors partner's transcript
Company sponsors competitor's transcript
Issuer-sponsored research firm sponsors client's transcript
Investment newsletter sponsors transcripts of successful stock picks
IR firm sponsors transcript of micro-cap company
Consulting company sponsors company's transcript in sector of interest
Your company's name and promotion could have been on this transcript! Learn more, or email Zack Miller for details.
Rick Smith
Thanks Jeff, good morning everyone. Thanks for joining us this morning.
Our fourth quarter performance was solid and broad based, enabled us to close what was yet another successful year for Equifax. During the fourth quarter, we delivered strong revenue and EPS growth along with improved operating margins in our high growth business units.
Revenue was $390 million, up 8%, Marketing Services, Europe, Latin America and Personal Solutions all delivered double-digit growth; while North American Information Services growth was in line with our expectations and up from the third quarter performance. Net income was $63 million driven by improved operating margins in Marketing Services, Latin America and Personal Solutions.
Diluted EPS was $0.50, up 4% excluding $6.4 million severance charge in the quarter, which I'll talk about later for realignment of our organization; adjusted EPS was up 11% to $0.53. For the year, we met or exceeded our guidance in all areas, revenue was $1.55 billion, up 7.1%; net income was $275 million up 11% and diluted EPS was $2.12 up 14% on a non-GAAP basis.
Excluding certain items which are not representative of ongoing earnings trends, EPS was $2.01 a share, consistent with the updated guidance that we gave you at our September Analyst and Investor meeting. Across many dimensions, 2006 represented a very important transition year for this company.
We developed a very powerful roadmap for our future success, which included our Growth Playbook, and which many of you saw at the Analyst and Investor Day in New York. We also created a new set of values and vision for the company, and again we reorganized the company to drive growth going forward.
Throughout this change, the team did not take their eye off the commitments that we made to our shareholders. Revenue growth was delivered across all business units, most of the business units improved their operating margins through leveraging scale and sound cost containment initiatives.
We talked a lot about NPI, New Product Innovation throughout the year, that's accelerated during the year and is providing good momentum as we enter 2007. Our core North American Information Service segment, led by Dann Adams, delivered revenue growth of 3% in the fourth quarter, rebounding from an operating challenge and difficult year-over-year comparison they faced in the third quarter, we talked about that on our last call.
Volume from our largest 20 customers in the fourth quarter was up 12% for the three months ending December, exceeding the overall unit growth -- volume growth of 9%. So, strong contribution, once again from our top clients in North American Information Services.
Commercial Solutions further established leadership position with double digit revenue growth and the acquisition of Austin-Tetra, which is moving along quiet nicely. If you recall, we bought that business back in the late third quarter, early fourth quarter 2006.
Enabling Technologies continues to gain traction; we ended the year on a very-very strong note, with 30% of U.S. online transactions delivered through one of our operating platforms for the fourth quarter.
And we signed a long-term contract with a major telco, making us the premier provider of Decision Technologies for this industry. As expected, and you've been reading about this, the mortgage reporting.
All sectors had a very tough quarter. For us the loss of the Ameriquest volume and the variants versus prior year fourth quarter, we slightly underperformed the mortgage banking index which was virtually flat for the quarter.
Our mortgage business was down about 22% and Ameriquest -- one of our largest accounts accounted for 10 points of that decline. Marketing Services driven by strong performance in credit marketing completed another year of impressive growth and improved operating margins.
Revenue growth occurred across all major sales channels with regional sales and resellers driving significantly above average growth in the quarter. Personal Solutions, we talked a lot about this throughout the year, started slow, finished strong.
They refocused their marketing strategy, its working. We met our targets for double-digit revenue growth for the quarter and 20% operating margins.
For the quarter, revenue grew 18% and operating margins finished at 26.5%, exiting the year with great momentum going into 2007. In 2006, we provided solutions in 235 situations where customers' consumer data files were breached by third parties.
Approximately 63% of revenue during the quarter was subscription based, up from 47% in the fourth quarter 2005, and you will recall we talked about building a business model, shifting the business model to a subscription based business model and they are well on their way. This has given the business a strong foundation for improved growth and profitability in 2007.
Sales channel mix is also becoming more broad-based. Revenue for the quarter generated through online advertising, grew at 63% and the new call center growth strategy delivered 68% growth for the quarter.
This year, Europe has successfully moved, with focus on restoring their operating margins, they are focusing on costs; they are now focusing on growth. The business has delivered many unique solutions and increased business with existing customers.
We completed the development of a secure hosting environment for a largest government customer, to process highly sensitive consumer information. We increased our share as well with new products, including a fraud database and a blended commercial report on our market share gains with our account management scores.
Latin America continued to grow and improved their operating margins. Revenue driven by strong growth in Marketing Services, Analytics and Enabling Technologies, represented 24% of our revenue in 2006, up from 23% in 2005.
During the quarter all six of the country markets had comparable or increased operating margins and five of the six had double-digit revenue growth in local currency, so strong performance from Latin America. In order to deliver on our commitments and to drive consistent, reliable performance, we felt adjustments for the organization were necessary.
Many of you were with us at the New York Stock Exchange, when we unveiled our long-term business strategy, we call the Growth Playbook. As a team, we are absolutely committed to delivering on these goals that we laid out for the next four years.
To achieve more time with decision making, we reduced the number of layers in the organizations significantly. I am very confident; this will make our organization more effective in executing our business objectives.
The new structure will also be built around four distinct market-facing business units and supported by global centers of excellence, designed to support revenue growth and drive greater operating efficiencies. We have experienced with centers of excellence, we call them COEs, that concept in the U.S.
and we'll now execute this concept globally. The realignment also better leverages the skills of Equifax's senior leadership team, as members take on new leadership roles within the organization, I'll walk you through all those changes now.
The four business segments are: U.S. Consumer Information Solutions, which will be led by Dann Adams.
This will include U.S. consumer reporting, mortgage reporting, credit marketing services and direct marketing services.
North American Commercial Solutions, a growth vehicle for us that we have talked about now for the last year, will be led by Michael Shannon, as you know Michael formerly led our European operations. This will include rapidly growing U.S.
Commercial Solutions business along with Austin-Tetra and our Commercial Solutions operations in Canada. International, we'll incorporate the company's operations in 12 countries; including Canada, Latin America and Europe.
Obviously Canada will not include the commercial business we just talked about under Michael's responsibility. So Canada, Latin America and Europe, and that will be led by Rudy Ploder, who previously led our successful operations in Latin America.
North American Personal Solutions, Equifax Consumer Products Company will continue to be led under Steve Ely's leadership. The traditional global Centers of Excellence including HR, finance, corporate development and legal will be complimented with additional global Centers of Excellence in the following areas.
We have created a global operations organization, Center of Excellence, which will be led by Owen Flynn. Owen was formerly the head of our Marketing Services business, prior that he was our Chief Technology Officer.
He has got a vast array of experiences across Equifax over many years. His team will be realigning existing business operation groups throughout the company, including consumer services, business services, product fulfillment, database fulfillment, data operations, process reengineering, and international operations; a significant opportunity there for Owen Flynn to make a big impact on our efficiency and customer service for [software] clients.
You've heard us talk a lot about expanding Enabling Technologies into our international geographies. It's a core part of our Growth Playbook.
Paul McCown previously Senior Vice President of our APPRO product line will lead Enabling Technologies globally, including development and fulfillment of a loan origination and decisioning platforms of all, I should say all loan origination and decisioning platforms, Interconnect and the APPRO product line. Marketing will now become a global effort, was primarily historically a North American effort.
Now a global effort led by Paul Springman, who will have responsibility for all the strategic marketing, marketing communications, public relations, product management, data services, and predictive modeling. Bob Webb will assume the new title of Chief Information Officer, overseeing global technology, strategy, architecture, systems development, technology infrastructure, and datacenter operations.
This realigned structure is an important step as we position the company for sustainable growth and profitability, and to be more competitive in a dynamic market environment. And by the way, what we'll do.
After the call, Jeff will work with you to get an organizational chart that will reflect all those changes, so it's easier for all of you to follow. In 2007, you should expect us to continue our growth focus.
We will continue to innovate with new products, as a core part of our strategy and as I said earlier on we've got great traction already as we exit 2006 and enter 2007. Number two, we will look for opportunities to improve our operating efficiencies.
There is a lot of things we are looking at, ranging from our sourcing organization to embracing new tools internally called [Lean] to leveraging the competencies of Owen Flynn and his group as he looks for efficiencies across our new operating model. And we will also acquire or build new differentiated data assets which we talked about being a cornerstone to our strategy, and we will continue to leverage and invest in our Enabling Technologies and Predictive Sciences capabilities.
We are going to move our entire organization to a new high performance meritocracy-based culture that will enable us to continue delivering the performance we described during our Investor Day. We have spent lot of time redesigning our performance management system, we have cascaded this communication in our Global [Kick-Off] Meeting last week, North American meetings and international meetings over the past week as well.
It will be a new culture for Equifax in 2007 and beyond. And we will be deliberate and decisive as we have always told you in the area of acquisitions, as we focus on technology, data assets, potential market expansion opportunities that will give us broader to longer-term platforms from which to grow and deliver profit.
The global economic outlook for 2007 will have some challenges as did 2006. The countries where we have operations, our objectives for 2007 are in line with a long-term performance targets we detailed during our Investor Day.
We expect revenue growth to be in the range of 6% to 10%. We expect quarterly year-over-year growth to be in the lower portion on this range in the first quarter, and increase over the course of the year as new products and market initiatives yield increasing results with a first quarter growth naturally to lower end of that range.
I also believe that the housing environment will improve in the US, and that the economies will strengthen as we exit in 2007 as well, given this further strength. Diluted EPS is expected to be between $2.15 and $2.23, up 7% to 11% over 2006, EPS on a non-GAAP basis excluding the effects of the one-time charges mentioned previously.
Capital expenditures are expected to be in the range of $70 million to $100 million, we talked about this at the Investor Day. This will reflect our increased investment in new products and technology infrastructure.
EBITDA, a non-GAAP financial measure, is expected to be between $555 million and $575 million for the year. Thanks for listening.
I will turn it over Lee Adrean, who will give you more specifics on the financials.
Lee Adrean
Thanks Rick and good morning everyone. As usual, I will be presenting all financial information on a GAAP basis, except or otherwise noted.
You should also refer to the Q&A, which is attached to our press release for additional financial information. As Rick mentioned, we are realigning the organization to better support our new strategy.
As a result, we have taken a severance charge in the fourth quarter, amounting to $6.4 million. In addition to reporting segment results as they existed in 2006, we have also included quarterly revenue and operating income for 2005 and 2006 for each of the four newly defined business segments.
Additional revenue detail for certain business units, which we will also be reporting in 2007, is included. This way you can build your estimates for 2007 and beyond, on the new segment basis that we will use for reporting starting in 2007.
For the remainder of my time, I will focus on the financial performance, consistent with the organizational structure in 2006, as we have been reporting in the past. For the quarter, consolidated revenue is $390 million, up 8% over the prior year.
Net income was $63 million, and on a non-GAAP basis, net income was $68 million, up 8% as adjusted for the charge related to the organizational alignment and the adoption of SFAS-123R. Diluted earnings per share was $0.50, up 4%, and on a non-GAAP basis earnings per share was $0.53, up 12% as adjusted for the severance charge and the adoption of SFAS-123R.
In North America, U.S. Consumer and Commercial Information Services revenue was $204 million, up 3% when compared to the same quarter last year.
Online U.S. volume was up 9%, driven primarily by financial services, resellers and telco accounts customers.
During the fourth quarter, approximately 30% of U.S. online transactions were processed through one of our enabling technology platforms, up from 26% in the fourth quarter of 2005.
Our commercial business growth continues with revenue of $11 million, up 84% from the fourth quarter of 2005. Transaction based revenue in the commercial business now represents over 59% of total commercial revenue.
Mortgage reporting services revenue of $15 million was down 22% as Rick mentioned previously. Canada's revenue was $30 million, up 6% in U.S.
dollars and 3% in local currency. Marketing services delivered total revenue of $74 million, up 11%.
Operating margins were 40.3%, up from 37% in 2005, as we've seen strong operating leverage on this level of revenue growth. Credit marketing services revenue of $44 million represents a gain of 17% and direct marketing services revenues is $29 million, up 2% compared to the fourth quarter of '05.
In Personal Solutions, revenue grew 18% to $32 million, and the operating margin is 26.5% for the quarter, compared to 13.9% in 2005. Again showing strong operating leverage on the good revenue growth.
Europe delivered revenue of $41 million up 17% in U.S. dollars and 7% in local currency.
The operating margin was 20.6% for the quarter down from 25.8% in the fourth quarter a year ago. Latin America grew revenue at 10% U.S.
dollars and 8% in local currency to $40 million, operating margin was 32.8% up from 24.7% a year ago. For the company as a whole, the operating margin was 28.2% in the quarter, on a non-GAAP basis the operating margin adjusted for the charge related to the organizational realignment and the adoption of SFAS-123R was 30% as compared to 29.3% in 2005.
As we have shown nice operating margin expansion for the year. During the quarter we repurchased 1.4 million shares of our stock in the open market for a total of $51 million and at quarter end had $133 million remaining under current authorizations.
In summary, our fourth quarter performance was solid and broad-based. For the full year, consolidated revenue was $1.55 billion, up 7%.
Net income was $275 million up 11%. On a non-GAAP basis net income was $266 million up 8% as adjusted for certain items.
Diluted earnings per share was $2.12 up 14% for the year, the incremental affect of SFAS-123R and stock option and equity compensation expense for 2006 was $0.04 per share. EPS adjusted for SFAS-123R as well as the realignment, litigation and tax matters noted previously was $2.05, up 10% from the prior year on a comparable basis.
On a non-GAAP basis, earnings per share adjusted for the charge related to organization realignment in certain litigation and tax matters disclosed in prior quarters was $2.01, that does incorporate or in other words that is after absorbing the expense for SFAS-123R stock option expense. This EPS is on a comparable basis for our 2007 guidance and is the number that we view ourselves growing from as we move into 2007.
In North America, U.S. Consumer and Commercial Information Services revenue was $836 million, up 4% when compared to last year.
Online U.S. volume was up 6% driven primarily by financial services customers throughout the year.
Approximately 27% of our U.S. online transactions were processed through one of our enabling technology platforms up from 23% in 2005 showing good progress in embedding our technologies and added value into our clients.
Our commercial business growth continues with revenue of $26 million, up 66% from 2005. Mortgage Reporting Services revenue of $72 million was down 16% for the year compared to the Mortgage Banker Index down 17%.
Canada's revenue was $118 million, up 7% in US dollars, and flat in local currency. Marketing Services delivered total revenue of $277 million, up 9% showing good growth for this business.
Operating margins moved up to 35.7% from 33.5% in 2005, again showing good margin expansion. Credit Marketing Services revenue of $166 million represents a gain of 10% and Direct Marketing Services revenue of $111 million, was up 8% compared to 2005.
In Personal Solutions, revenue for the year grew 10% to $126 million, again exiting the year at an 18% growth rate showing the progress we made throughout the year with that business. The operating margin was 10.8% on a GAAP basis, and on a non-GAAP basis, excluding the impact of certain litigation matters, Personal Solutions operating margin was 14.8%, up from 11.8% in 2005.
Our European operations delivered record revenue of $154 million, up 8% in U.S. dollars and 7% in local currency, showing good expansion and growth from prior year.
The operating margin was 23.1%, down slightly from 23.5% in 2005 and in about the range that we expect going forward in the near-term. Latin America's record revenue of $154 million was up 21% in U.S.
dollars and 14% in local currency. Operating margin was 29.8%, up strongly from 26.3% in 2005.
For the company as a whole, operating margin was 28.2%. On a non-GAAP basis, the operating margin, adjusted for certain items, was 29.7% compared to 29.2% in 2005, again showing good focus on managing margins even as we grow the business.
Cash from operations was $374 million for the year. We repurchased 6 million shares of our stock on the open market for a total of $213 million during the year, and total debt outstanding declined $52 million from the end of 2005 to end 2006 at $504 million.
Though I have only been here for a few months, it is clear to me that Equifax has delivered solid performance in 2006 and is positioning itself for an even better 2007, with a well thought-out strategy and an organizational realignment that will enhance our success in the years to come. Now I'll turn it back to Rick.
Rick Smith
Thanks Lee. 2006 was a great year for Equifax on many fronts.
Same as I shared with my team over the couple of weeks. They have delivered on the software side, the strategy division, to get processes in places, driving innovation, all in all delivering on the financial commitments and I asked [have seen a lot of] my team in 2006 and I am extremely proud of their ability to deliver and have great confidence that the momentum that we have in this company will continue in 2007 and beyond.
We have delivered against those commitments that we outlined for you in New York in September of 2006. So, with that I'll stop, and operator will turn it over to the audience to answer any questions they might have with Lee and I.
Operator
Are you ready for questions at this time?
Rick Smith
We are.
Operator
(Operator Instructions). And we'll go to the line of Nat Otis with KBW.
Please go ahead.
Nat Otis - KBW
Good morning gentlemen.
Rick Smith
Good morning.
Nat Otis - KBW
Just a couple of quick questions. First, with respect to your '07 guidance, I just wanted to check and see what your share repurchase expectations are that go on with that?
Lee Adrean
Our current expectation is that we will use our available free cash flow for share repurchase. We did not anticipate meaningful further debt reduction from these levels and that would suggest something that's in excess of $200 million likely in share repurchase.
I would note, we do expect as Rick mentioned, capital expenditures will be higher in 2007 than 2006. So, that those factor into the level of free cash flow we'll have, but we'd expect something in excess of $200 million based on current operating plans.
Nat Otis - KBW
Okay, great. And you don't have any expectations for any future charges associated with realignment.
That was just this quarter, correct?
Rick Smith
Well, I hate to say never.
Nat Otis - KBW
Okay.
Rick Smith
We're always looking at ways to optimize organizational structure. This was especially around driving -- as we talked before Nat, around driving growth.
Driving efficiency and growth, and alignment on our customers. We weren't aligned around the customers needs.
But you will always be looking for other ways to optimize efficiency and effectiveness. So, there is nothing contemplated at this point in time.
I don't want to mislead you, but I would never want to say that we will never look at reorganizing our company going forward.
Nat Otis - KBW
Okay, thank you. And just last question.
Any color on the settlement services business as you go into '07, any type of expectations, or how that's going?
Rick Smith
Yes, it's gaining momentum. We've got leadership in place, got an operating model in place, got the plan in place, we are aligning new customers and we added three or four new customers as we exited 2006 fourth quarter.
And I was bullish when we created this venture that it would be another way for us to get to different (inaudible) limit, along with value chain of the mortgage market and I am as bullish today as I was then.
Nat Otis - KBW
All right, great. Thank you.
Congratulations on a nice quarter.
Rick Smith
Thank you.
Operator
Thank you. The next question comes from Brad Eichler with Stephens Inc.
Please go ahead.
Brad Eichler - Stephens Inc.
Hey, good morning Rick and Lee.
Rick Smith
Hi, Brad.
Brad Eichler - Stephens Inc.
A couple of questions. First, just on the revenue growth guidance that you put out of -- 6 to 10.
It sounds like you are going to start the year at the lower end, and then you could finish the year higher. Two part question; one, what would it take to finish out closer to that 10% goal for the year, A; and B, is the way that the year could sort out?
Could we actually see growth in the latter part of the year above the top end of that range?
Rick Smith
Yeah I think there's a couple of things that we would hope would happen. That we guess the closer top end of that range is not above that range.
Internally, things we can control obviously. We've got great traction, we've talked about it in the area of new products and I told you in September, and I gave an update in the third quarter call, that we're on $50 million of new products launched this year -- that we launched last year for revenue in 2007.
That will continue to grow. And number two is we're expanding the pricing, analytics and actions that we started in Latin America, now to rest of the world and that is having tangible benefits for us as we segment our client base, differently and think more strategically about pricing.
So accelerating in that area. Third, is externally, would be things like the economy.
If we get a rate cut of any sort in the U.S. that will obviously help us as we exit the year.
The housing market in fact has bottomed, if that actually rebounds and helps the mortgage business, that will help us in 2007. I expect PSOL to continue to expand at strong double-digit growth rates, if we get a little more lift there.
Obviously that pushes us higher up in the range. And the last point I would leave you with is, in Latin America obviously the equated growth has slowed a bit in Latin America.
That's largely driven by Brazil. We have a new leadership in Brazil; Rudy is the hands-on leader down there, with this new leader.
He started in mid to late fourth quarter. If we can get him hitting on all cylinders and get that growth back to the growth rate we've experienced in the past, again that pushes us up in that range of 6 to 10%.
Brad Eichler - Stephens Inc.
Okay. May be it's a question for Lee, but you've got $330 million in your debt classified as current.
It sounds like you're not going to pay down your debt? It's obviously an opportunity to look at the capital structure of the business.
With $500 millionish in debt and $575 millionish in EBITDA and very consistent cash flow as you obviously could support a much higher level of debt giving you more flexibility. What do you think is the optimal capital structure for the business?
Lee Adrean
Well we clearly think that overtime we would expect to see the company operate on an average at a debt-to-EBITDA ratio that's above one, not below one. I think over the last couple of years, debt was paid down in part to leave the company with a flexibility for strategic steps such as acquisitions that might make sense.
I think, the way to think about this is -- as I said we're going to apply our free cash flow in the coming year towards share repurchase. If and as we have appropriate opportunities for acquisitions that are consistent with our strategy, you probably ought to think about those as being funded in a way that will push our debt and level of leverage up.
So expect to see overtime that our leverage is increased, most likely due to acquisitions, but I think if we want a substantial without appropriate opportunities, we might drive it up just purely through borrowing and share repurchase.
Brad Eichler - Stephens Inc.
Thanks and then Rick just a final, any update on VantageScore roll out?
Rick Smith
It's going well. Its going -- may be you are mentioning that the Justice Department, I guess it was yesterday, closed its investigation into VantageScore.
Client acceptance is good, the client testing is good, large customers are obviously the first that would be in line to test this. We will expect to see revenue in 2007, well on track.
Brad Eichler - Stephens Inc.
Thank you.
Operator
Thank you the next question comes from Mark Bacurin with Robert W. Baird.
Please go ahead.
Mark Bacurin - Robert W. Baird
Good morning gentlemen and a lady.
Rick Smith
Hi Mark.
Mark Bacurin - Robert W. Baird
Couple of things. First, Lee, could you tell us what -- commercial growth saw nice jump in the quarter in terms of growth rate, but some of that was Austin-Tetra.
Can you tell us what it was?
Rick Smith
Hey Mark, can you repeat that -- you are cutting it up.
Mark Bacurin - Robert W. Baird
Yes, sorry. In the commercial business segment, could you tell us what the growth rate was excluding Austin-Tetra?
Lee Adrean
Excluding Austin-Tetra was I believe about 50%. Austin-Tetra revenue in the quarter was just under, that's full year.
I think the quarter was also about 50%, Austin-Tetra revenue is just a few million dollars.
Rick Smith
As Lee looks that up. Mark, the total year increase in the US Commercial Business, excluding Canada and Austin-Tetra was up 44%, and you will get the fourth quarter specifically report.
But Austin-Tetra was very small.
Mark Bacurin - Robert W. Baird
Did you -- I mean it sounds like you did see a nice acceleration in the quarter even if you back out Austin-Tetra. So is that just gaining traction with that commercial database and starting to see more of that transactional revenue?
Rick Smith
Absolutely, and that's going to continue in 2007 and beyond.
Mark Bacurin - Robert W. Baird
And the margins in that business are surprisingly strong for a company that's early in its lifecycle. I guess the question is, how are you going to manage the margins on that business going forward, given that it's still in its infancy and trying to grow at a --?
Rick Smith
Yeah, I'd say that the margins will continue to expand overtime and that would exceed in the other years may be '08 or '09 that it is a 30 plus kind of margin business.
Mark Bacurin - Robert W. Baird
Great. And then, shifting over to our Personal Solutions, I didn't hear -- I may have just missed it, the breakdown of subscription versus more one-time type revenue and --
Rick Smith
Yeah. I had that somewhere.
It was -- that we -- our goal as we talked about in September, was to get PSOL to about a 70% to 75% subscription overtime, over the planning horizon. We are talking about revamping our entire strategy, look and feel and pushing the subscription product.
They ended the quarter, Mark, I wanted to say, give me a second, at 60 -- you guys. 60 some odd percent?
Lee Adrean
63.
Rick Smith
63% for the quarter, up from 47% in the fourth quarter of 2005. So they are well on their way.
Mark Bacurin - Robert W. Baird
Great and I heard you mention in Personal Solutions your new call center strategy as ell as some of these new channel partners. Can you give us a little more color on the nine month improvement in growth there?
Rick Smith
Yeah. We have created a new call center partner.
We have been proactive as customers are calling in to cancel products, to up-sell, cross-sell, extend, just being very, very proactive in our ability to retain clients and the benefit is retention rate is increasing. So that's what I meant by that and that's really proving to be a great benefit.
On the channel strategy, its being smarter, about who we choose on our online channel partners to partner with, putting our advertising dollars with those who give us great returns.
Mark Bacurin - Robert W. Baird
Great. And you had a very good success in that business.
And then to finally Rick, hopefully, I was hoping could you touch on -- with the organizational realignment and you talked about some efficiency improvements, (inaudible) venture I guess at this point as to order of magnitude what kind of cost savings we might be able to squeeze out of these processes?
Rick Smith
The intent was all along, it was not [fixed] cost. But obviously, doing the restructuring of severance and people did result in cost.
It was more about driving better decisioning, so taking layers of the organization out and powering on people more about having greater spending control for our managers and aligning people around customers to drive growth. So you shouldn't think about the overall cost year-over-year, coming down.
And I will use some of that cost savings to reinvest in faster growth.
Mark Bacurin - Robert W. Baird
Great, thank you very much.
Rick Smith
Sure.
Operator
Thank you. The next question comes from the line of Dhruv Chopra with Morgan Stanley.
Please go ahead.
Dhruv Chopra - Morgan Stanley
Good morning gentlemen.
Rick Smith
Hi, Dhruv.
Dhruv Chopra - Morgan Stanley
Quick question on the Personal Solutions. Can you put -- I mean, obviously very impressive improvement in revenue and operating margins as you guys had suggested.
But can you walk through some of the key drivers there? I mean are there -- is the fraud or consumer fraud driving some of this or can you provide some more detail?
Rick Smith
Sure. I'd simplify them in a couple of main categories.
In April, we talked about, excuse me, after a slow first quarter and slightly improved second quarter, I need to rethink everything. We redesigned the entire webpage, so the usability of the webpage getting to products was better.
We segmented our customers clearly into three main categories and our buying needs were much different as a result. We repositioned from annual subscription in to monthly.
We emphasized subscription versus transaction. So it's a massive revamp.
It literally has resulted in a higher conversion rate, a higher retention rate. We talked with the call center, which improved retention rate.
And then also on top of all the things we did there, a thing that helped us on the outside were Data Breaches. I mentioned 230 plus Data Breaches in the calendar year 2006 and that trend is accelerating not declining, and that has obviously been a help as well.
But I give great credit to Steve Ely and his team for taking the challenge head-on and revamping their strategy and approach, and it's paying dividends.
Lee Adrean
One thing we should probably note; the margins in the fourth quarter were at almost 27% and up very strongly from the prior year. There is a seasonal pattern to that business, where we tend to have less advertising in the fourth quarter, because it's not as effective competing with all the other holiday advertising going on.
We tend to have more advertising in the first half of the year. So the 27% -- I don't want anyone to think the 27% is representative of a go-forward margin quarter-by-quarter.
The margins for the year were up from 12% to 15%, and we expect further margin progress in 2007, and think this business has the potential to get into the low 20s overtime. So don't run with 27% and carry it forward to Q1-Q2, but the margin trend is absolutely established and will continue.
Dhruv Chopra - Morgan Stanley
Okay, great. And then just quickly on the guidance comment and when -- particularly on the quarterly side, what assumptions have you got in their in terms of FX, it was clearly -- the British Pound and the Brazilian Real are favorable this quarter so far?
Lee Adrean
FX added about $18 million to revenue in 2006. Our current outlook is that we will see a lesser benefit, a third or a half of that level in '07.
Obviously, if I could forecast FX, I would be running a hedge fund, but we do expect some pick-up but not to the same degree as in '06.
Dhruv Chopra - Morgan Stanley
Okay, great. And then last question on -- can you talk about potential expansion strategy internationally outside of the 12 markets today?
Rick Smith
Yes, we talked about, Dhruv, in New York and [West Side] since then it’s -- we are moving all of our energy in planning and have been for months now around a few key countries China, Mexico, and India, and we have done a lot of planning specifically in China and Mexico at this juncture. And, I would expect that towards the latter of 2007, Dhruv, that that strategy will crystallize into some action.
Dhruv Chopra - Morgan Stanley
Okay, great. Thank you.
Rick Smith
Thank you.
Operator
Thank you. The next question comes from Megan Talbott with Lehman Brothers.
Please go ahead.
Megan Talbott - Lehman Brothers
Hi, good morning.
Rick Smith
Hi.
Megan Talbott - Lehman Brothers
First question on the rework, you talked a lot about its impact at the levels of management, could you give any color on impact on the grounds, to the sales force, have you made any changes there in terms of compensation, et cetera.
Rick Smith
Yeah, that’s a great question. First, on the structure, the answers is, yes, we have realigned primarily in the U.S., where we have multiple products’ team calling on the same customers, and what we call customer focus team.
So we are bringing DMS, DBS, CMS, Information Solutions, Predictive Sciences, Enabling Technologies, all focused on a customer and the profitable growth of a customers. So that organization, yes, has impacted all the way down to the individual sales rep.
Secondly to your question, we hired in mid-2006 the consultant working with Coretha Rushing, our new HR leader, whom I think we have talked about in the past, who came to us from Coca-Cola. And we have re-ramped the entire global sales compensation plan, and aligned towards profitable growth, we have a standardization of plans now around the world, again all aligned towards profitable growth.
We are also -- we are launching this new Performance Management System, which is brand new to Equifax. It’s very contemporary, a way to differentiate the performance of the great people from those who are averaging poor performance.
So a lot on the soft side, as well as the structural side of the drive growth.
Megan Talbott - Lehman Brothers
Great, thanks. And in terms of 2007, a quick follow-up to your guidance, for the first-half coming in at the lower end of the range is obviously a bit of a deceleration from what you've seen this quarter.
Anything specific going on there, specific segment you think might slow down in the first half of the year versus 4Q?
Rick Smith
No, it’s just -- if you look at any of the global macroeconomic trends, they weren't the same. In the first half of the 2007, we will have little more headwind than 2006 did.
And that said -- and it’s really our guidance in the first quarter we will come in potentially at the lower end of that range and accelerate as new products, pricing, all other things I talked about take great traction.
Megan Talbott - Lehman Brothers
Great. And then just one quick sort of current events questions, there has been a lot of press lately about an increase in folks trying to freeze their credit.
Does that have any impact on you? Help you?
Hurt you in any way?
Rick Smith
Yeah, it has an impact. There were 25, 26 different states, roughly 26 in the United States, who have different levels of legislation, different standards of legislations around file freeze and with different time periods for implementation.
We are prepared to execute that and have been for sometime. We are also actively working with Federal Government to enact a preemptive federal standard, and to-date though, Megan, across the board the take-up rate of a file freeze is extremely well.
California was the first state to enact it years ago and it's insignificant in its usage right now, but we are prepared and ready to act at the state level if we need.
Megan Talbott - Lehman Brothers
Great, thanks a lot.
Rick Smith
Sure.
Operator
Thank you. The next question comes from Fred Searby with J.P.
Morgan. Please go ahead.
Fred Searby - J.P. Morgan
Hi. Thank you.
Couple of questions; one, I enjoyed your Analyst Day and you argued or you laid out a roadmap with the adjacencies and kind of emerging. Can you talk about with CapEx going up, which -- what we should expect in terms of healthcare and obviously on the commercial side you are seeing some nice growth.
Where is the area of emphasis in terms of trying to accelerate growth in investment? And then secondly, just looking at -- your European margins were down, and what are you thinking in terms of 2007 as a target in Europe on the margin front?
Rick Smith
Let me start with CapEx generally and we -- I’ll give a view and let Lee jump in. CapEx in general, if I understood your question correctly, Fred, if you bifurcate the investment CapEx in the two primary areas, CapEx for software development, which is a new product, which is revenue growth, and then infrastructure, the vast majority of the CapEx is going into new product introductions of the software.
We are making some investments in 2007 into our infrastructure. We just need to update our infrastructure.
We are expected to have very, very high system reliability or system uptime, as our customers' measure, and to do so, we need to make sure continue enhancing our infrastructure capabilities. Specific to Europe, there are a couple of anomalies in Europe.
For the quarter, we had some vendor credits. That’s unsaid.
You had the onboarding of the -- I mentioned in my earlier talk, a very large customer within the British Government and that started off. It’s a very good product, very good pricing, but the margins were little dilutive to our overall business.
We also have a little bit of mix, product mix. Put those all together, you saw the drop to 21%.
On average, I would expect, as we look at 2007 and beyond, that they should be some more in the low to mid-20s for operating margin.
Lee Adrean
Yeah, I would reinforce, I mean, the margin was 23.5% in 2005. It was 23.1 or 23.2% in 2006 and our go-forward view is kind of right in -- kind of roughly in that range of 22, 23, 24%.
It may fluctuate quarter-to-quarter, but that range is probably the right range.
Fred Searby - J.P. Morgan
And just on your international expansion, you have talked -- you mentioned China, Mexico, and India. I think in the past you had said, you were looking at China, Mexico, and Russia, and I gave you kind of added -- I assume this means small bolt-on acquisitions as opposed to Greenfield organic type, trying to build a toehold or a foothold in this market.
Rick Smith
Yeah, I agree with you. Small acquisitions, maybe not -- probably more ventures.
De novos are tough for Greenfield, as you recall, large acquisitions are in some cases impossible. You may have small acquisitions in countries like Mexico and more likely to have small partnerships or ventures in countries like China, much like we have in our experience across Latin America and even Europe.
Fred Searby - J.P. Morgan
Curiosity, what happened to Russia?
Rick Smith
Yeah, that was just privatization. There is only so much you can do, and right now China, Mexico, and India have won the day over Russia short-term.
Fred Searby - J.P. Morgan
Thank you, guys.
Rick Smith
Thank you.
Operator
Thank you. The next question comes from Brandon Dobell with Credit Suisse.
Please go ahead.
Brandon Dobell - Credit Suisse
Good morning, guys.
Rick Smith
Hi, Brandon.
Brandon Dobell - Credit Suisse
Couple of kind of broader strategy questions, I guess. If you look at '07, what do you think are the main kind of top 2, 3 or 4 differences between what you're expecting to see in '07 versus the last couple of years in terms of sales strategies, sales alignment, pricing perspectives, or strategy?
I am trying to get a feel for how you guys get comfortable around the new initiatives or new products going forward versus what's been the case historically?
Rick Smith
Yeah, I'd say simply. I mean I'll start with 10,000 full-level and come down.
Simply what is different is we spent 2006 developing our strategy and starting to execute against that strategy at the back end of the year. 2007 is all by delivering on all those initiatives we laid out for you in New York and I center on things like embedding more technology into our clients, and betting more predictive science into our clients, who gave the data, as we excited last year.
North American out to 30%, a goal we thought was unattainable just a few years ago. Now, we are on our way to gain to 50%.
That is a big difference. On the value proposition, we offer clients in their growth rate, into our growth rate, in our margins.
So that will always be a strategy. Number two, we talked about becoming smarter in our segmentation.
I used Personal Solutions as an example. We're doing the same level of customer segmentation across all clients around the world.
I’m thinking more intelligently about product offerings for those customers and pricing for those customers. That's been a great success for us in Latin America.
It's starting to deliver for us in U.S. and Europe as well.
The new product innovation, we’re really just getting going. We built the process, built the system, built the innovation.
We got the team right on innovating in the first quarter of 2006. That pipeline is now full.
We have 90 products that we've launched or are launching new products over the last 9 to 10 months. That will deliver great momentum.
And then lastly, we talked about the restructuring of the organization. So, we are one team, one face, one voice to the customer to deliver profitable growth.
So there is a lot of momentum Brandon that was created in ’06 that will differentiate us and make us feel better about 2007.
Brandon Dobell - Credit Suisse
Great. As you think about the sources of money that you guys are going after, or the acceleration in growth that you expect, is it driven by more you think share gains, is it because the budgets for what you're going after are now accelerating because people are shifting from more acquisitions to more retention?
I am just trying to get a feel on the financial side from the customer's perspective. Why do you think it's going to be easy for them or not easy them; but why do you think they are going to be giving you money versus somebody else?
Rick Smith
Sure, I'd say -- simply put, it’s two things. One is by offering new product solutions, be it enabling technology, analytics to predictive sciences, or just new NPI like the ESS Settlement Services.
That allows us to penetrate the market, provide products where no one provides those today. Okay, so that’s unnecessary share gain.
It’s penetration of the marketplace, allowing the customers to grow at faster rate, providing solutions and its income for us that didn't exist before. And secondly, yeah, I do believe that things we're doing will allow us to differentiate ourselves from competition and take share a lot, one of the key metric we measure routinely.
Brandon Dobell - Credit Suisse
Okay. And then finally, may be some kind of 30,000-foot perspective on trends in spending from, let’s say, customer acquisition versus retention versus fraud management, those kind of, let’s call it back-end analytics, kind of segment in market in those three categories, how do you think those things play out the next year or so?
Rick Smith
Are you talking generically or you talking PSOL or what's your?
Brandon Dobell - Credit Suisse
More generically, yes, are you guys focused on the Consumer Information Services business for you guys?
Rick Smith
Yeah, I would say a customer acquisition obviously in a growing economy is -- customer acquisition in a growing economy is a big growth product for us and we saw that as amplified in 2005 and early 2006, as we talked last year though we saw a shift towards more retention, portfolio management, risk management, as the economy slows, and the interesting thing is we actually saw in the fourth quarter 2006 that our customer acquisition product line was actually growing, which was -- it gives us some hope that consumer behavior, consumer spending, in fact and may have bottomed to be more stronger than we expect in 2007.
Brandon Dobell - Credit Suisse
Okay, great, thanks a lot.
Rick Smith
Sure.
Operator
Thank you. We’ll go to line of Michael Meltz with Bear Stearns.
Please go ahead.
Michael Meltz - Bear Stearns
Hey, thank you very much. I think I have three questions, regarding the charge, can you tell us how many positions are impacted?
Rick Smith
Yeah, it was about -- I think it is roundabout -- it think it is 169 Michael.
Michael Meltz - Bear Stearns
Okay, thank you.
Rick Smith
And most of those were managerial level, a lot of more, as we took out layers in the organization.
Michael Meltz - Bear Stearns
Okay. Second, on the mortgage in the quarter, I know we are talking mostly '07 here, but in the quarter you – for the first time I can think of in a while you actually underperformed the index.
Can you just talk about if the index was flat and you are saying Ameriquest took you down, I guess a 1,000 basis points. Why do you think you underperformed --?
Rick Smith
One primary reason, Michael. We had some customer consolidation that resulted in lost revenue.
Michael Meltz - Bear Stearns
Can you give anymore detail on that?
Rick Smith
We had some customer consolidation and some lost revenue. No, overall, for the entire year, I think we gave you numbers.
We actually did outperform the index. I don't spend a lot of time overly concerned or analyzing one particular quarter, and I'm comfortable that was really driven by some consolidation, and I think we'll see a -- and hopefully, you'll see some momentum rebounding in mortgages, as we into the first quarter of 2007, as refinancing improves.
Michael Meltz - Bear Stearns
Yeah, okay. And Lee or Rick, just one last clarification on the guidance, so you are saying 6 to 10% and you are saying lower growth, the press release reads a little bit differently than what you are saying on the call.
Are you saying at least 6% growth in every quarter this year?
Lee Adrean
We didn’t say that, but I think the -- what we are saying is we'll be in the lower portion of that range and we should move up. So unless there is something really unexpected, I think that's a fair interpretation.
Michael Meltz - Bear Stearns
Okay, thank you.
Operator
Thank you. And our last question comes from the line of Bruce Simpson with William Blair.
Please go ahead.
Bruce Simpson - William Blair & Co.
Good morning.
Rick Smith
Hi, Bruce.
Bruce Simpson - William Blair & Co.
Two questions; one is just more general and gets back to the notion of guidance. I guess I am a little surprised in -- at the Investor Day, the sense was kind of an 11% bottom-line target and yet you positioned yourself with that at the top end of a fairly broad range, and I think I hear you saying that that's because kind of global macro-targets are a little bit softer.
And you are also saying some pretty enthusiastic things about kind of rate of rebound in mortgage. So, if you could just kind of summarize why your targeted EPS range is 7 to 11 instead of let’s say 9 to 13 for next year?
Lee Adrean
Yeah, I think very importantly, a key portion of the outlook -- of the kind of multi-year outlook of 7 to 10% revenue growth and 11% bottom-line growth is ramping up new product innovation. We have invested meaningfully in it in '06, are further expanding our investment in '07.
In '07, we are seeing the kind of initial wave of products. We've seen a couple of them starting in late '06.
It is treacherous to try to project exact ramp-up rates on new products. And I think what you will see, and one of the key things Rick mentioned is to, what was going to drive us potentially and relatively higher in the revenue growth range was the success of those new product introductions.
But the point we are today is just seeing those hitting the market and starting to ramp-up. As we get greater visibility, we'll have a better ability to project tighter targets and presumably little higher targets.
Rick Smith
Hey, Bruce, one thing I would add is -- this is Rick. In September, the guidance we gave was EPS of 7 to 10 plus over time.
Some years it would be 7, some years it would be over 10, but on average over that four-year period time, 7 to 10 plus. So I see this guidance being very much in that line, if not in fact we are saying it may be at the top end of that 11%.
Bruce Simpson - William Blair & Co.
Okay. And then I have a specific question with respect to Latin America.
Just as we see in the year-on-year growth rates decelerate in the second half and now Rudy has got a bigger sear, a bigger backyard that he's got to watch over.
Rick Smith
Yeah.
Bruce Simpson - William Blair & Co.
What would do you think about Latin American growth rates going forward? Have we reached sort of a more mature and slower growth phase or is this just kind of a temporary slowdown?
Rick Smith
I think that the slowdown you saw in the fourth quarter was driven by Brazil. As I mentioned in my opening comments, we have a new leader there, he is a very seasoned leader that will help Rudy play in a larger backyard, as you said, including Canada and U.K., and Continental Europe.
You -- we told you -- told the team in New York that we expect Latin America to be a double-digit growth business in a range of 10 to 12% over the next four years. I stand committed to that, as does Rudy.
Bruce Simpson - William Blair & Co.
Okay. Thank you.
Jeff Dodge
Great. I would like to thank everybody for the call, for participating.
And with that, operator, we will conclude the call.
Operator
Thank you, ladies and gentlemen. This conference will be available for replay after noon today through midnight February 15, 2007.
You may access the AT&T Teleconference Replay System at any time by dialing 1-800-475-6701 and entering the access code 856333. International participants, dial 320-365-3844.
Those numbers again are, 1-800-475-6701 and 320-365-3844, and enter the access code 856333. That does conclude our conference for today.
Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.
TRANSCRIPT SPONSOR
Company sponsors its own earnings call transcript
Company sponsors partner's transcript
Company sponsors competitor's transcript
Issuer-sponsored research firm sponsors client's transcript
Investment newsletter sponsors transcripts of successful stock picks
IR firm sponsors transcript of micro-cap company
Consulting company sponsors company's transcript in sector of interest
Your company's name and promotion could have been on this transcript! Learn more, or email Zack Miller for details.