Apr 24, 2007
TRANSCRIPT SPONSOR
Executives
Jeff Dodge - IR Rick Smith - Chairman and CEO Lee Adrean - CFO
Analysts
Mark Bacurin - Robert W. Baird Kyle Evans - Stevens Incorporated Andrew Jeffrey - SunTrust Robinson Humphrey Chitra Sundaram - Cardinal Capital Nat Otis - KBW Andrew Ripper - Merrill Lynch Robert Riggs - Credit Suisse Megan Talbott - Lehman Brothers
Operator
Ladies and gentlemen, thank you for standing by. And welcome to the Equifax First Quarter Earnings Release Conference Call.
At this time all participant lines are in a listen-only mode. Later there will be an opportunity for your questions and instructions will be given at that time.
As a reminder today's conference call is being recorded. And I would now like to turn the conference over to Jeff Dodge with Investor Relations.
Please go ahead, sir.
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 reconciling information relating to certain non-GAAP financial measures is included in a press release that we issued yesterday and filed in the Form 8-K.
The press release may also be found in the Investor Center on our website, at www.equifax.com. During this call, we will be making certain forward-looking statements to help you understand Equifax and its business environment.
These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in filings with the SEC, including our 2006 Form 10-K and subsequent filings.
Today's call is being recorded in addition to being webcast 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
Rick Smith
Great, thanks Jeff and good morning everyone. The Equifax team delivered outstanding first quarter performance.
This performance underscores the breadth and diversity of our businesses. Revenue was $405 million, up 8%.
In the US, Online Consumer Information Solutions accelerated their growth in fourth quarter 2006, while International North America Personal Solutions and North America Commercial, all delivered double-digit revenue growth. Net income was $69 million, up 10% and diluted EPS was $0.54 a share, up 13%.
Revenue growth for the quarter was accomplished in the face of challenges created by an eroding credit quality of sub-prime and also in mortgage lending here in the US. We have been observing this increase in risk in sub-prime mortgage lending since early 2006.
Based upon analysis from our database, past two sub-prime loans, 30 plus delinquency rates are up 648 basis points since the first quarter of 2006 and 90 plus delinquency rates are up over 400 basis points for the same period. However, for Equifax, the revenue risk is limited, as consumers take advantage of more products offerings and liquidity in the market.
With increased competition providing consumers with more alternatives, we have experienced an increase in the average number of credit reports sold for every closed loan, growing from approximately 4.15 in 2003 to almost 7.9 in 2006. Demand for our portfolio products has also increased.
Something we've talked to you about routinely. Also the growth in the private label securitization market which represented 34% of originations for the first nine months of 2006, versus only 10% of the market in 2003.
The current environment being all different is not new to the US. Since 1998, there have been five years where the volume of closed mortgage loans declined versus the previous year.
In three of those years, mortgage reporting solutions delivered solid revenue growth. In the current environment, mortgage reporting solutions revenue is down 13% with Ameriquest, which started originating new mortgages to their storefront locations about a year ago, representing 7 points of that decline.
That's a headwind that will go away, obviously as we move to the second quarter and into the third quarter. Although, there have been serious repercussions from these aggressive lending tactics.
The overall market is financially stronger, we believe that the greater breadth of product offerings available to consumers, that's overall financial strength and the availability of capital for investing in financial assets will continue to support an active mortgage lending market. As a result, the recent trends in sub-prime lending are not expected to hurt our ability to grow the US consumer business.
Our core US Consumer Information Solutions online segment, grew volume by 10% in the quarter. This growth was broad-based as we increased penetration in our regional customers and channel partners, while volume from our largest 20 customers in the first quarter of 2007 was up 8% compared to the same period in 2006.
Enabling Technologies, cornerstone to our growth strategy continued to gain traction and contributed to our revenue growth. We ended the quarter with 29% of all online transactions delivered through one of our platforms during this period, up from 26% the same period of 2006.
Recently, a very large US based global financial institution selected Interconnect to automate their risk decisioning processes to capture new cross-selling opportunities, displacing a previous technology provider and strengthening our adjusting relationship with that customer. This solution processed multiple lines of businesses including credit card, consumer real estate, auto and small business.
And this win represents our second major competitive takeaway in as many quarters. A topic I know you all are interested.
And we talked about routinely is VantageScore. And VantageScore is progressing well, and it's in line with our initial expectations.
We currently have over 60 major financial institutions and retail institutions in various stages of evaluation. VantageScore has been recognized as an alternative risk management scorings solution.
Recently, a top-five bank endorsed, they used the VantageScore in their internal risk evaluation procedures and four institutions have already implemented VantageScore into the risk underwriting process including mortgage, credit card and pre-screen decisioning. Cleary, our analytical tools such as VantageScore among others are becoming more widely accepted by customers and are contributing to our growth strategy while no single product will drive overall growth alone we are changing the game through our productive sciences expertise and collectively these analytic risk products represent an important growth contributor.
North American Commercial Solutions completed it first quarter at a separate operating segment with revenue growth of 41%. We now have over 80 million trade lines in the data base with approximately 65% active.
The depth of information we have on individual businesses is also increasing. Today almost 50% of our business folders have five or more trade lines.
We've also exceeded our goal for old and new non-financial data providers by over 30%. The additional trade data will add substantial value to both the database, as well as, the accuracy of our analytics and enabling Technology Solutions.
North American Personal Solutions, marketing strategy continues to reposition this business enabling it to deliver 24% revenue growth for the quarter. Our sales channel is becoming more diverse.
For example, revenue for the quarter generated through online advertising grew 22% and the call center revenue grew by 79%. We now have over 270 customers using our DataBridge services.
During the quarter, DataBridge sales exceeded our expectations by almost 30%. Approximately 62% of revenue during the quarter was subscription based, up from 44% first quarter 2006 and as you'll recall about that time we set a goal to build the subscription business to over 70%, Steve Ely and his team are well on their way.
Monthly subscription customers grew from approximately 550,000, to just over 1 million in 2006 and it jumped another 19%, 1.2 million by the end of the quarter. Finally, we launched Learn at Equifax on our website, where consumers can go and learn by credit and how to become smarter shoppers for the financial service needs.
International realized 14% revenue growth, while simultaneously improving their margins. Canada grew revenue of 5% and improved its operating margin.
Consumer online volume was up 3% and we are accelerating our penetration of Enabling Technologies. Our patented technology in the area of ID authentication delivered year-over-year growth of 26% in Canada.
Europe grew revenue by 21% and the quarter was strong, contributions from both, UK and Iberia. UK’s core consumer volume was up 20% with volume from our top 20 customers, up 19%, driven primarily by financial services, retail and government.
We put new leadership in Iberia and it is already implemented, the value-based pricing strategy used in Latin America, as well as, signing a large customer in the retail sector. Latin America’s operating margin increased by 393 basis points, as they continue to leverage value-based pricing strategies and new product innovation.
Revenue growth of 13% was driven by marketing services, analytics and enabling technologies, which represented 30% of the revenue in Latin America in the first quarter up from 24% in the first quarter of 2006. New product innovation was ahead of our expectations for the quarter, and marketing services in Argentina and Chile enjoyed a particularly strong growth quarter.
During the quarter, in local currency, all six of the major markets had comparable or increased operating margins and five of the six had double-digit revenue growth. The Global Centers of Excellence that we've introduced you to are business support functions, and are all moving aggressively to identify opportunities to facilitate revenue growth or drive out unnecessary expense.
I want to highlight the activities of a couple of our COEs, global operations and global sourcing. Global operations, has set their charter to drive operational efficiencies and achieve exceptional customer satisfaction, superior service, and data quality.
Led by Owen Flynn, this organization has already developed internal service level agreements with each of the business units and has already identified opportunities, which have the potential to reduce our annualized operating expense, as we more efficiently utilize our global resources. Global operations is a critical enabler, first to achieve our goal of growing revenues faster and expense on a sustained basis.
Global sourcing is focused on leveraging our global purchasing power. Recently, the Gartner research firm recognized our outsourcing Centre of Excellence as a leading example.
Our outsourcing operations should be approached and managed, a recognition we are really proud of. The fundamental objective is to reduce our infrastructure cost, sustain or improve our operating margins, and strengthen our competitive position.
Our NPI process, we talked a lot about over the last 18 months, continues to gain traction and create momentum for long-term revenue growth. The team is working aggressively to deliver on our objectives for 2007 revenue from our 2006 class of new product initiatives.
And our pipeline for products in the build and launch phase has never been stronger. They are also increasing their support of our international business.
Our current focus is to develop an integrated strategy for current enabling technology solutions and determine what new platforms or products are needed to support Rudy and his growth strategies outside the US. As many of you know, our corporate development activities are aggressively focused on emerging opportunities.
We are developing international opportunities that will drive long-term revenue growth, with particular emphasis on China, India, Mexico, and Russia. We anticipate that we will be in a position to make a strategic investment sometime in the following few quarters.
Our pending acquisition of TALX Corporation is progressing well. The shareholder vote is scheduled for May 15th, and we expect the transaction to close May 16th.
With that, let me now turn it over to Lee Adrean, and Lee will give you greater insight to our financial details. Thanks.
Lee?
Lee Adrean
Thanks Rick, and good morning everyone. All financial information I'll be discussing is presented 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 you are aware, effective January 1st this year, we completed our organizational realignment, which changed our operating segments.
Therefore, the results for the first quarter of 2006 have been recast to align with our current organizational structure. We have provided you with quarterly history for 2005 and 2006 in our 8-K filing for our year end 2006 earnings release on February 1st.
For the first quarter this year, consolidated revenue was $405 million, up 8% over last year. Net income was $69 million, up 10% and diluted earnings per share was $0.54, up 13%.
Adjusted earnings per share, a non-GAAP measure defined as diluted earnings per share adjusted for acquisition-related amortization expense was $0.58, up 12% from $0.52 in the first quarter of 2006. In our US Consumers Information Solutions business, Online Consumer Information Solutions revenue was $162 million, up 5% when compared to the same quarter last year.
Online volume was up 10% driven primarily by Telco, regional banks and channel partners or resellers. Mortgage Reporting Solutions revenue of $18 million was down 13%.
As we noted earlier Ameriquest represented seven points of that decline. In early May of 2006, Ameriquest closed all of their storefront origination points and our revenue from that significant customer dropped by 80%, hurting year-to-year revenue comparisons since then.
As we anniversary this event in mid-May, the Q2 effect on revenue growth will drop by half compared to Q1 and in the third quarter the year-over-year revenue drag from that decline will disappear. It's important to note that when we include all sources of North American Mortgage revenue both that sold directly to mortgage lenders by our Mortgage Reporting Services unit and that sold to resellers by our Consumer Information Solutions unit.
We estimate that mortgage-related revenues were down only 2% year-to-year. Credit Marketing Services revenue, up $40 million in the quarter represents a gain of 2% over the prior year, although the trend is below our longer term expectations for this business, it reflects lower account acquisition activity from some of our mortgage lending and credit card customers.
During the quarter, our product mix shifted away from pre-screen account acquisition activity to more portfolio reviewed projects, as we would expect in a slightly more challenging credit environment. Our long-term expectations for growth in this business segment remained in the 5% to 8% range that we indicated during our Analyst Day last September.
Direct Marketing Services revenue was $27 million in the quarter, up 5% compared to the first quarter of 2006. North America Commercial Solutions revenue was $14 million, up 41% from the first quarter of 2006.
US commercial transaction volume was $1.1 million, up 64% from the first quarter of 2006. Transaction-based revenue in the US commercial business now represents over 84% of total commercial revenue in the US.
In North America Personal Solutions revenue grew 24% to $38 million. The operating margin was 16.5% for the quarter compared to 2.9% for the same period in 2006, continuing our progress to reposition this business for sustainable growth and profitability.
Our International business grew revenue by 14% in the quarter to $106 million. Revenue was up 9% in constant dollars.
Canada's consumer revenue was $24 million, up 5% in US dollars and 6% in local currency. Europe delivered revenue of $42 million, up 21% in US dollars and 9% in local currency.
This business has shown very good growth performance in 2006 and year-to-date in 2007 after a few previous years with very little growth, reflecting the effect of our growth strategy for Europe. Latin America grew revenue 13% in US dollars to $40 million.
In local currency, revenue growth was 12%, up from 8% in the fourth quarter of 2006. For the corporations as a whole, the operating margin was 28.9% in the quarter.
Operating income was $117 million, up 7%. EBITDA in non-GAAP measure defined as operating income before depreciation and amortization was $138 million, up 6% for the quarter.
We continue to expect our effective tax rate to be in the range of 37% to 38% for the full year. However, during the quarter discreet items related to state and foreign taxes reduced our effective tax rate to 36.3%.
This contributed approximately $0.01 to our earnings per share for the quarter. We did not repurchase Equifax shares during the quarter, due to the pending acquisition of TALX.
So, we applied available free cash flow to reducing outstanding debt by $48 million, bringing debt down to $456 million. As a reminder, we intend to repurchase approximately $700 million in stock over a reasonable period on the completion of the TALX acquisition.
In summary, the diversity of our revenue base and the performance driven culture of our leadership team enabled us to deliver a very solid broad-based performance for the quarter. Now, I'll turn it back to Rick.
Rick Smith
Great, thanks Lee. As I said in the opening comments, the breadth and diversity of our business units enables us to deal more effectively with challenges in the economy and different business environments around the world.
Subject to the approval of TALX’s shareholder and completion of the acquisition, which is expected to occur, as I said earlier, May 16th, we will further diversify our business. And we are excited about the opportunity that these two great companies will have in the coming years.
And look forward to reporting to you, our progress in the coming months. So, thanks for your support and your time.
And now we would like to open up for any questions you might have.
Operator
(Operator Instructions). And our first question is from the line of Mark Bacurin from Robert W.
Baird. Please go ahead.
Mark Bacurin - Robert W. Baird
Good morning everyone.
Rick Smith
Hi Mark.
Mark Bacurin - Robert W. Baird
Couple of questions. Rick, you made an interesting comment about in Consumer Information Services certainly you've seen nice acceleration in growth over last few quarters, which is surprising given the kind of sub-prime issues.
And I think, you said something about, one of the drivers has been an increase in the number of credit reports that have been issued for loan. Can you just comment on what is driving that trend exactly?
And where you are going?
Rick Smith
Yeah. Sure.
What’s happening is the consumers when they are in the marketplace now, have so many more options, than they had a few years ago. So, every time they are exploring a different option be a different lender or a different product, as you know there are multiple products out there now.
Every time that happens, the credit grant is looking for a different piece of information from us. So, the exact stat I recall was 4.1 apps for closed loan in 2003 and Mark that grew to 7.89 or 7.9 in 2006.
So, that's a nice positive trend for us, this enabled us to get a different bite to the apple.
Mark Bacurin - Robert W. Baird
And that is growth coming from the actual resellers or the institutions pulling them not from the consumer themselves pulling their report because of the detail?
Rick Smith
Correct
Mark Bacurin - Robert W. Baird
Perfect. And then, could you also comment on, I don’t know, if there is a way if you actually measure this, but presumably this loan growth slowing you would have also seen an increase related to just overall risk management and I don't know if there is a way that you can specifically measure what volume growth was related to risk management versus loan origination?
Rick Smith
Yes, sure. I think Lee had mentioned in his comments.
We are always seeing a shift from acquisition-related products. So, products we help credit grant were fine and source new loans to a more of a portfolio, you call it risk which is a portfolio review.
We saw a lot of products there. We are starting to see and have seen now for few quarters, a shift towards more portfolio growth products, portfolio review products.
Mark Bacurin - Robert W. Baird
Okay. And then, I know we are still few weeks away from the TALX acquisition closing.
But I am sure you've had lots of discussions about new product opportunities, revenue growth opportunities. Can you share with us any of the stuff you can learn, that you are excited about kind of hitting the ground running here?
Rick Smith
Yeah. I stand firm on what I said before, that I think the assumptions we have contemplated in our initial discussion.
We announced TALX are conservative, as it relates to revenue growth. We have got some of the best and brightest minds locked in a offside meeting, yesterday and today about, I guess 100 miles south of Atlanta.
So, Atlanta can't be much. But they are locked into a facility for two days just putting pen to paper and bringing these plans alive, how we can drive much faster revenue growth?
So stay tuned. At the time of close, Mark we will give you a lot more clarity.
Mark Bacurin - Robert W. Baird
Okay, great. And then you mentioned several good stats about VantageScore.
Are those relationships ones that Equifax specifically has signed with those institutions, or is that VantageScore the JV? They would be together two partners off, so having --?
Rick Smith
That's a great question. The ones I specifically cited, I mean 60 to 5 and the 4 whatever the numbers were, are specific to Equifax relationships not the LLC, but ours.
Mark Bacurin - Robert W. Baird
And those are in place and currently generating revenue for Equifax?
Rick Smith
We're driving revenue at the rate we had contemplated when we launched this thing. It's meeting all of our expectations.
Mark Bacurin - Robert W. Baird
Great, thanks. Great quarter.
Rick Smith
Great, thanks Mark.
Operator
Next question is from the line of Kyle Evans from Stevens Incorporated. Please go ahead.
Kyle Evans - Stevens Incorporated
Hi, good morning guys. Nice quarter.
Rick Smith
Thanks Kyle.
Kyle Evans - Stevens Incorporated
If I look at the accelerated closing process on talks and a close date of the 16th, when do you guys think the earliest you could be in the market buying-back stock?
Lee Adrean
Kyle, I would say a couple of days or a week after the close.
Kyle Evans - Stevens Incorporated
Okay. Have you done any more thinking in terms of accelerated stock repurchase program that's tender, thought any more on that?
Lee Adrean
Yes. There is one important issue here because of the deal structure it would be a tax free deal as to the extent of the stock compensation in the deal.
There are limits on how much stock we can buy in bulk as opposed in typical open market transactions. We are seeking clarity from the IRS on that point.
But we are evaluating both the open market as well as accelerated share repurchase approaches.
Rick Smith
The point Kyle is, I think you know as we plan on being as aggressive as we can, within the guidelines of the tax restructure for TALX, but as aggressive as we can in buying back their shares.
Kyle Evans - Stevens Incorporated
Okay. On the general corporate expense in the quarter up about 27%, is there some impact of the TALX deal in those numbers?
Lee Adrean
No, there isn't. I think what that really reflects is that over the last year, we have done a number of things to build a stronger platform for growth across the entire company.
In fact, Rick referenced a couple of them. We have significantly enhanced our strategic marketing capability in support of new product innovation.
We've built up our global sourcing capability. We've added some human resource programs.
And importantly, we are adding certain activities within our IT area to expand our capabilities in development as well as our platforms and processes for managing the size of IT spend we have across the company, which you look at last year's first quarter was the lowest quarter last year by a fairly wide margin and we fairly quickly jumped up into the mid-20 range, starting in the second quarter and we kind of operated that level, since then. And I would anticipate that through this year, we would continue to operate at that rate, so the year-over-year when comparing to the last quarter before we added some of these programs that we think are important to the growth strategy we have and are starting to see the results in the revenue line.
Rick Smith
I think Kyle I remained committed to the point we made at the Analyst Meeting in September of '06 and I reiterated here. And that is to build the model that is driving growth at a faster rate than expenses.
We had to make some investments to get us to that point and the least points have been relatively flat for four quarters now. You should start to expect to see us bring more leverage to the bottom line.
Kyle Evans - Stevens Incorporated
Great. Last question dig a little bit deeper on the mortgage side.
It sounds like, if mortgage reporting solutions on the standalone basis was down 13%. Could you say that as the company as a whole including the online piece where you sell direct, you are only down 2%?
Lee Adrean
That is correct. I do want to point out that because our products find their way into the mortgage market through multiple customers and channels.
The Mortgage Reporting Solutions is a very firm number. We do work fairly hard to understand what other sales to our US CIS unit, online CIS unit also find their way to the same place, but that is an estimate, but it should be reasonably close and is certainly reflective.
We did see volume in our reseller market increased nicely this quarter and a fair portion of reseller volume does go into the market.
Kyle Evans - Stevens Incorporated
And is that. I am sorry.
Go ahead.
Lee Adrean
I said, we're very confident directionally that we're more in the 2% range than the 10% plus range in terms of what we experienced in the mortgage market.
Kyle Evans - Stevens Incorporated
And is that lower decline, that 2% number, is that a function of what Rick was talking earlier about more apps per loan event?
Lee Adrean
Yes. And it's a function of the diversity of mortgage lenders, the larger lenders we tend to reach directly, but there are a lot of smaller lenders, particularly as you get into some of them are more arcane product offerings, where our primary revenue is coming through the reseller channel.
Kyle Evans - Stevens Incorporated
And when I look at the mid-teen decline that you have in '06 in mortgage reporting, how much of that was the Ameriquest shutting down job?
Rick Smith
You are saying from '07 versus '06.
Kyle Evans - Stevens Incorporated
'06 versus '05, that full year '06.
Rick Smith
I don't recall off the top on my head, but if we can't get it to you here, Kyle, we can get it to you through Jeff offline.
Lee Adrean
The ballpark number, I think at the time we are seeing about half of that decline is due to Ameriquest shutting down their retail origination.
Rick Smith
Again, if you want follow-up with Jeff, he will give you the exact number, I think you sounds definitely correct.
Kyle Evans - Stevens Incorporated
Great. I will do that.
Thanks guys.
Rick Smith
Thanks.
Operator
And our next question is from Andrew Jeffrey from Robinson Humphrey. Please go ahead.
Andrew Jeffrey - SunTrust Robinson Humphrey
Hi. Good morning guys.
Rick Smith
Hi, Andrew.
Andrew Jeffrey - SunTrust Robinson Humphrey
Question, Rick, along the lines of market share in your US consumer business, you had mentioned a couple of notable wins, it sounds like. Could you just characterize those for us as being based on price or functionality or a function of both [since I] noticed that the revenue per transaction was down a little bit this quarter.
And I'm wondering how much of that has to do with market share gains, and how much of that has to do with mix or anything else in the market. So, a couple of questions, one, characterize the market share and two, what's going on in pricing?
Lee Adrean
Sure. First the two market share wins, we clearly view is based upon functionality.
We think Interconnect offers significant advantages for the marketplace that others do not have before the stock about or some of the rewards and the commissions we’ve gotten over the past years. So, in areas of technology and that’s coming to bear some fruit for us.
So, two very-very large names and hopefully shortly, we will actually release those names, when you see the marquee nature of those companies. It will impress you I promise.
So, clearly, based upon functionality, as always, North America pricing decline, the volume versus price decline is a battle we expect, we talk about price decline that 2%, 4% a year offset by Predictive Science, is offset by Enabling Technologies that’s what you saw in the first quarter in North America. Still, when you pull out you get a very-very healthy margins are online US Information Services margin, for the quarter of over 47% still a very-very strong healthy business.
So, no surprises at all there, Andrew.
Andrew Jeffrey - SunTrust Robinson Humphrey
Okay, I appreciate that. In the Personal Solutions business, its seems like you are finding your stride here a little bit, from a revenue growth standpoint and some of the big data breach incidence probably doesn’t hurt since you are getting your fair share.
Can you talk a little bit about the channel growth there and customer acquisition cost. It looks like the margin came down quite a bit over where you were in the second half, and again just a volume versus cost tradeoff question in that business and what we might expect perspectively here?
Rick Smith
Yeah. Good, good question.
First of all, the growth is broad-based, as you've mentioned it's across the lot of different channels. And we invested heavily last year in this call center.
So, it helps us save more clients and attract more clients. So, that grew at a phenomenal rate in the first quarter.
Indirect channel, is growing at a very strong rate. Our online advertising 22% so broad-based growth as you had mentioned.
Specific to the margin, a margin year-over-year is actually up quite significantly from like 2% last year, 3% last year to 16%, 17% in the first quarter here. As far as this margin and the first quarter versus the latter half of last year.
Our advertising spend is bumpy throughout the year. So, I wouldn't really compare quarter-over-quarter trends.
What I have always talked about is PSOL being a strong double-digit growth business and a 20% margin business, and I am still as committed to that vision today, as I was back in September of 2006.
Andrew Jeffrey - SunTrust Robinson Humphrey
So, can we think about maybe pushing toward 20% on a full year basis then in '07?
Rick Smith
Yes.
Lee Adrean
Yes. I think, so Andrew, the key point on last year’s fourth quarter margin was 26% or 27% and that's a function of in the December quarter where you've got a lot of competition from holiday advertisers, for advertising space, which both pushes up the cost of that ad space, as well as, makes it hard to get the prime space.
We tend to cut back on advertising in the fourth quarter. So, you'll typically see a strong quarter in the fourth quarter.
But the average in the first quarter will typically tend to be a little below average because it is a good advertising quarter. So, we have higher advertising spend.
So, a little bit of seasonality in the way the margins play out due to the timing of our advertising spend.
Rick Smith
So, yes you should take 20% when you think about PSOL, that has been our goal.
Andrew Jeffrey - SunTrust Robinson Humphrey
Thank you very much.
Rick Smith
Thank you.
Operator
Next question is from line of Chitra Sundaram from Cardinal Capital. Please go ahead.
Chitra Sundaram - Cardinal Capital
Thank you. My question is on the Commercial Solutions business.
Can you comment on the drivers of the operating margin decline 12.2% to 9.4% and what that indicates for the range going forward, both '07 and beyond that?
Lee Adrean
Yes. The margin is down a little bit year-to-year, and it predominantly represents as we added Austin-Tetra, right now including the amortization of acquisition intangibles.
Austin-Tetra is around a break-even, when you add that in, that pulls the margin of that business down. As Austin-Tetra grows, you are going to see very good leverage there.
You would actually see that each of Canada and our US commercial product areas showed some margin improvement year-to-year, just when you add in Austin-Tetra at this early stage of its development with the burden of acquisition, amortization that pulls the total down. But the individual progressions are all good and we would expect those margins to be expanding over the course of the year.
Chitra Sundaram - Cardinal Capital
So pretty much we could, just based on the footnotes to the press release, the net of tax $5 million amortization expense a good chunk of that would be Austin-Tetra. So, just if you look at the core operating margins for the business it had a growth better?
Lee Adrean
Yeah, actually Austin-Tetra was a fairly smaller acquisition. Its amortization in the quarter is into the ballpark of $0.5 million.
Chitra Sundaram - Cardinal Capital
Okay.
Lee Adrean
That by itself on a small business is several points of margin.
Chitra Sundaram - Cardinal Capital
Yeah
Lee Adrean
The $5 million after tax which is about $8 million pre-tax represents the sum total of acquisition-related amortization that Equifax as a company has.
Chitra Sundaram - Cardinal Capital
Got you. Thank you so much.
Lee Adrean
Sure.
Operator
Our next question is from Nat Otis from KBW. Please go ahead.
Nat Otis - KBW
Good morning gentlemen. Nice quarter.
Rick Smith
Thanks Nat.
Nat Otis - KBW
A lot of my questions have been answered, but just the one question I had is more on the international front. Any comment on the talks between Experian and Serasa?
And then just also going in can you talk about a possible acquisition in the near future in maybe China, Mexico, India or Russia? Where a focus might be because in the past I think last quarter you talked a little less about Russia, but now they seem to be back in the mix if you could just have any additional comments, that would be great?
Rick Smith
Yes, great, Nat. First on Serasa it's obviously public information that they are talking.
My view is it's a very complex transaction. I think it's far from done.
So, it's hard to predict what the outcome might be. If there would be a deal consummated Serasa and Experian, I don't think the landscape for us or [our] strategy changes.
Serasa is a very formidable competitor today and Experian would be a very formidable competitor tomorrow. So, we've got a clear strategy in all Latin America including Brazil and I don't think that changes one bit with or without Experian entering into Brazil.
As it relates to other markets, I am really excited. We have had teams since we've last talked as a group traveling, studying, doing a lot of work specifically in China, I'll come back to that Russia and Mexico.
So, I am excited with what I see in those three, India will be the fourth in sequential timing for us. Russia is exciting, it's a maturing market.
It has got mainly the same characteristics that China and India have, which is a growing middle-class population, again growing use of consumer credit. So, as I said in my talks there, I am bullish about all four of those and I remain bullish that in the coming quarters, you are going to see us, you refer to it, Nat as an acquisition, it may be an acquisition, it may be a partnership with somebody or multiple partners.
But you should expect us to make some sort of investment in one, two or three of those countries over the coming quarters.
Nat Otis - KBW
That's very helpful. Thank you.
Rick Smith
Sure.
Operator
The next question is from Andrew Ripper from Merrill Lynch. Please go ahead.
Andrew Ripper - Merrill Lynch
Hi good morning chaps. I've got question on, I'm going to question on Personal Solutions.
Just on Brazil, I understand the Congress is looking at various forms of legislation including the use of positive data for their credit bureau. How do you think that could impact the market?
And is there any other precedent in other credit markets, where that has happened? So, give us a sense of the potential or positive impact it could have upon you?
Rick Smith
Sure. The answer to your second question is there a precedent where countries will start off with negative data, only and eventually use positive data?
The answer is yes. And the benefit is profound.
The credit grant towards ability to truly underwrite and individual is improved when they have transparency into both negative and positive data. So, every country we're in, we are asking Andrew for the credit grant towards opening up their door, provide more data, look at both and regularly as well.
Look at both positive and negative data. As you might guess every country has their own legislation, privacy issues that we have to navigate, but where countries and grant towards in general can provide both negative and positive data, their underwriting accuracies enhanced.
Andrew Ripper - Merrill Lynch
And do you think this is likely in Brazil and how bigger benefit could it be to your business there?
Rick Smith
Too early to tell, we're hopeful but too early to tell.
Andrew Ripper - Merrill Lynch
Okay. And second question on Personal Solutions.
I think you mentioned an increase in the subscribers and they are doubling from 550,000 to 1 million, which is a pretty massive jump. Was that a year-on-year figure?
And if it was, why didn't your sales growth in the quarter grow faster?
Rick Smith
The number I think I referred to it went from 550,000 at the beginning of '06 to 1 million at the end of '06 and then jump to 1.2 million in the first quarter of '07.
Andrew Ripper - Merrill Lynch
Yeah.
Rick Smith
And which is a 19% increase in the revenue growth for the business I think it probably was 23%, 24% growth. So, it is in line with what we expect.
Andrew Ripper - Merrill Lynch
Okay. You basically, you're taking end of Q1 '07 versus January '06.
The subscribers have more than doubled. So, why is the revenue per subscriber coming down, are they --?
Rick Smith
There is an accounting treatment for selling the subscription versus transaction-based product that --.
Lee Adrean
Yeah. There is two effects in there, one, is as we have shifted our model from a transaction model, which was a substantial portion of our revenue last year to a subscription model.
Thus the subscriber count is only relatively the subscription portion of our revenue with the transaction revenue going the other the direction. That's the primary factor.
Andrew Ripper - Merrill Lynch
Yes. Okay and just a quick one to finish off on VantageScore, I guess all these started to generate sales, you're not going to quantify the numbers for us.
The rollout of VantageScore got us pace. Do you see us having an impact upon returns for the business?
Do you think it will be margin enhancing, and the customers for the using here at the moment, presumably, they are using VantageScore alongside FICO rather than instead of FICO. Can you comment on that, please?
Rick Smith
Yeah. I will expect.
Again, we haven’t disclosed the financial as you had noted. I would definitely not expect VantageScore to be dilutive in any fashion to our margins.
It would be either balance for the current margin, if not enhancing. But as I said, all along VantageScore is all about providing customers option.
It's all about leveraging our analytical capabilities, and which is so important to us is not going to materially change the financial picture of Equifax over the coming years, either, from margin perspective or from a revenue perspective.
Andrew Ripper - Merrill Lynch
Okay. Thanks for your answers, guys.
Rick Smith
Sure. Thank you.
Operator
And next we go to the line of Robert Riggs from Credit Suisse. Please go ahead.
Robert Riggs - Credit Suisse
Good morning. I just had one quick question.
I was hoping you could kind of walk through, how you think about the trade-off between driving margin expansion but at the same time investing for growth over the coming quarters?
Rick Smith
I think it has got to do both. And that's all about is, I’ve said, it sounds like a broken record, but if you go back to September.
In New York, our long-term vision is to get the margins at 30% to 31% and have sustainable growth in the 7% to 10% plus range, and you can do that. I am a big believer investing in growth and NPI is our main vehicle for organic growth.
There are other things we are doing, but we'll continue to invest in growth. But, if you think about things, I gave two examples today and I'll mention the third verbally here.
In my opening comments, I talked about this creation of this global center of excellence in operations under own front kind of aggregating or carving together all of our operating activities under one leader, one COE will drive efficiency. There is no doubt about it, it would lower our operating cost.
Secondly, we talked about the creation of global sourcing, having global sourcing standards that's all about lowering cost like an investment in growth. We are also as a company now deep into the flows of learning about the pros of lien that many of your six sigma and lien.
But applying lien here as a vehicle to make a processes more efficient. So, I am always saying that things we can do in different areas, in different parts of the company take expense out, enabling us to grow top-line.
So, I think we can get that path to 7% to 10% plus top-line and 30% to 31% margin over the coming years.
Robert Riggs - Credit Suisse
Great. Thanks.
Rick Smith
Sure.
Operator
And our final question is from Megan Talbott from Lehman Brothers. Please go ahead.
Megan Talbott - Lehman Brothers
Good morning.
Rick Smith
Hi Megan.
Megan Talbott - Lehman Brothers
Just a couple of quick ones, Rick I was wondering if you could just comment on your, that's another area where you seems to be gaining share really nicely. So, if you could just sort of talk about what you think its making you successful there in the market, especially, the UK where it seems to be growing too much organically.
And also if you could just comment on what margins look like in the quarter and where we should think about those going forward?
Rick Smith
Sure. As far as what's driving the growth is the same thing as driving growth everyone else in our company.
We restructured the organization over there, buy the new sales talent; restructured the sales organization, new sales compensation scheme. And then lastly, we’ve been driving NPI aggressively, new product innovation, Megan in the UK, which is helping us gain share and grow the market itself.
So, same things we are doing there, that we are doing in Iberia, we do in Latin America, we do in Canada and the US and Santa and her team have done a real nice job in the UK this quarter as well as you know few quarters last year. As it relates to margin, Lee you may want to address this if there is any doubt.
Lee Adrean
Yes, last year for the year the margins in the UK were in the 22% to 23% range for the full year. We would expect those to be comparable or actually a little bit up this year with good growth.
We are making some investments to drive that growth, but net-net, we would expect some margin expansion.
Megan Talbott - Lehman Brothers
Okay, great. And Lee, just a quick follow-up, on the gross margin for the quarter, did you see some compression there, I know you had a tough compare, could you talk a little bit about what drove that and is there any thing we need to be aware of going forward?
Lee Adrean
Yeah. There are couple of things, one we had noted last year in the UK that we had a vendor credit in the first quarter and also repeated in the second quarter that did not continue in the latter part of the year and it caused the decline in UK margins from the first half to the second half, that is an item that is in cost of services.
So, it does affect this year's Q1 over Q1 compare that cost about little under a point of margin contraction. Second, with the changing mix of business in Personal Solutions with a greater level of subscription revenue and a greater amount of breach activity, those revenues streams tend to have a higher access on average, a slightly lower sales and marketing cost to acquire that business particularly on the breach side, about a higher cost of service because there is more service activity including call center activity.
That contributed again probably between half a point and a point. The rest is predominantly something I mentioned it shows up and you think about the metrics of what business it shows up in and what line it shows up in.
A lot of it we capture in our corporate expense but we have our spending in the IT area to enhance processes, increase the robustness of certain platforms, and expand the capability of our development group and capability. And those expenses while they show up incorporate are considered cost of service.
And so that's contributing. Last year, interestingly cost of service grew notably less than revenue and SG&A grew faster.
This year, you are seeing a little bit of a reverse. And really what focused people on the total margins rather than in one or the other of those components.
Megan Talbott - Lehman Brothers
Okay. That's really helpful.
Thanks a lot.
Lee Adrean
Thanks Megan.
Jeff Dodge
I would like to thank everybody for their participation and support. And operator with that, we will conclude the call.
Operator
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