Apr 23, 2009
Executives
Jeff Dodge - SVP, IR Rick Smith - Chair and CEO Lee Adrean - Corporate VP and CFO
Analysts
Carter Malloy - Stephens, Inc. Andrew Jeffrey - SunTrust Dan Levine - Robert W.
Baird Dave Lewis - JPMorgan Jaime Brandwood - UBS
Operator
Good day and welcome to the Equifax First Quarter Earnings Release Conference Call. Today's conference is being recorded.
At this time, I would like to turn the conference over to Mr. Jeff Dodge.
Please go ahead, sir.
Jeff Dodge
Good morning, welcome to today's conference call. I'm Jeff Dodge, Investor Relations.
With me today are Rick Smith, our Chairman and Chief Executive Officer; and Lee Adrean, Chief Financial Officer. Today's call is being recorded.
An archive of the recording will be available later today in the Investor Center of our website at www.equifax.com. During this call, we will be making certain forward-looking statements to help you understand Equifax and its business environment.
These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our businesses are set forth in filings with the SEC, including our 2008 Form 10-K and subsequent filings.
We will also refer to several non-GAAP financial measures for Equifax consolidated in the first quarter of 2009. These measures include adjusted net income, adjusted operating income, and adjusted operating margin.
These measures determine net income, operating income, and operating margin by adjusting for certain items indicated in sections A and B of the non-GAAP financial measures reconciliation attachment to our earnings release. We also provide adjusted diluted EPS, which adjusts for acquisition-related amortization in the items just noted.
We will also present operating results excluding the impact of foreign exchange so that you will have a clear understanding of the fundamental business operations. Please see the sections of our earnings release entitled Reconciliation of Non-GAAP Financial Measures to the Comparable GAAP Financial Measures; for further details, and the non-GAAP reconciliations posted in the Investor Center on our website.
Now I would like to turn it over to Rick.
Rick Smith
Thanks, Jeff. Good morning, everyone.
The first quarter results in our opinion were solid. The team did I think a very good job on many fronts and we actually exited the quarter with some good momentum.
I will talk about that momentum and similar highlights in a little bit. Total revenue for the quarter was $452.9 million up 1% on a reported basis, 2% in constant dollars over the fourth quarter of last year and slightly ahead of our expectation when we last reported our earnings.
Adjusted operating margin was 24.5% and the adjusted EPS was $0.58 [a year]. As I traditionally, we will go through some highlights first by business unit and then I will get into some enterprise-wide highlights.
So, I can start with USCIS. They benefited from above average growth in the mortgage refinancing.
Obviously, a nice little boom there in the first quarter. That offset some of the softness we had in other lending activities.
Banks as you might guess are increasingly focused on how our unique data assets can help them in the risk management activities. We recently won a very exciting piece of new business with a top five card issuer.
This card issuer now is integrating the attribute from the Work Number into the monthly portfolio review process. It's a very creative approach where we deliver unique data attributes that will improve their decisioning on existing account holders and deliver solid revenue for Equifax.
This is something that we have been working on now for a number of months. It's exciting for them because we help solve some great new problems they have and it's exciting for us again because it's going to be a nice revenue producer for us going forward.
For another top-five bank we received verbal approval on opportunity that will integrate the Work Number information into an enterprise-wide solution. This unique combination of information will be used for various risk management and collection activities across multiple businesses within that bank.
Both these opportunities underscore a significant and fundamental shift in how these institutions evaluate and manage risk. And it also underscores the powerful value of the Work Number database into the banks.
Analytics enabling technology solutions within USCIS continues to report our operating performance and will become increasingly important when we begin the recovery process. During the quarter, 27.2% of our online revenue was generated through one of our enabling technology platforms up from 26.8% in 2008.
Vantage Score market acceptance continues to increase with three of the top five financial institutions and several top 10 credit card issuers, now Equifax customers. Vantage Score also received endorsement as a risk assessment tool with integration of the Score into S&P and Fitch's rating analysis for residential mortgage loans.
Mortgage settlement services, a part we launched a couple of years ago continues to deliver revenue at an accelerated pace in the first quarter. Revenue was over three times the level of 2008 and outpaced fourth quarter revenue by 49%.
The MBA application index was up 9% in the first quarter, driven by a particularly strong refinancing activity in March, which has continued into April. Let me just wrap on mortgage and say this that the combination of unique services will provide the mortgage marketplace, which includes not only our core competitive data.
But now the Work Number and now [EXS], is allowing us to grow at a rate much faster than the index can actually take market share and mortgage. We are well positioned on the mortgage market not just refinancing but the primary first mortgages rebounds as well in the future.
Wrapping up in USCIS, obviously tight expense management is important. We will continue to leverage numerous lean process activities in our global operations team and the restructuring initiatives they have undertook in prior quarters, resulted in a solid operating margin for the quarter.
For example one thing that we have launched in global operations to improve the process, centers on our consumer dispute activity where we are shifting consumer disputes from a traditional call center to online. We have shifted additional 6% online as you shift it from a traditional phone activity to online.
Our cost goes down ad service level for our customers goes up. Move onto international, international's revenue declined slightly in the first quarter in constant dollars with local currency growth in Latin America offset by declines in Canada and Europe.
[Online volume] in Canada decline 6% driven by the recession, rising unemployment and lower consumer confidence. Revenue from the US and international banks operating in Canada has declined more than revenue from the in-country Canadian banks.
We have implemented our unique syndicate fraud solution called Citadel in Canada with a major Canadian bank and expect several more banks to follow during the next few quarters. In Europe we are intensifying our focus on expense and operating margins as revenue growth remains challenging in the near-term.
UK continues to operate in a very difficult economy although the rate of decline and the availability of secured credit to households has been decelerating. Banks are still very risk averse and continue to tighten their underwriting standards.
As banks' delinquency and loss rates intensified, demand for our suite of collection products resulted in double-digit growth during the quarter and despite a very challenging lending environment, our commercial revenue grew sequentially from the fourth quarter. Spain is a great success story.
In Spain, they are delivering double-digit growth through new product innovation and valued-based pricing, despite operating in one of the worst performing economies in Europe, a significant portion of the growth is coming from our suite of collections products, included 11 new collection scores and a telco [bureau] in Portugal. On to Latin America, Latin America's growth was broad based, with all countries contributing on a local currency basis.
Brazil continues to make good progress. Revenue in the financial and telco sectors delivered strong double-digit revenue growth, as did our marketing and analytical services product suites.
Our strategic partnership with ACSP is driving incremental growth to new and broader product offerings, and we continue to get commitments from banks to add their data into our database. More broadly, our suite of collections products is performing well, particularly in Chile, Peru and Argentina.
Now moving onto TALX, as it did throughout 2008, TALX delivered strong growth in the quarter, continuing to penetrate the market and grow the Work Number, while leveraging the counter cyclical opportunities in the tax management services business. Work Number revenue was up, an amazing 12% from the first quarter of 2008, a strong revenue growth in government agencies and mortgage.
Tax and Talent Management Services revenue was up 9%, driven by Tax Management Services, which was up 25%, due to the increases in tax credit services and unemployment compensation plans. That business, that Tax Management Business is a fantastic counter cyclical business, it's got lot of wind in its sales right now.
For this [12] quarters, we are going to see -- unemployment claims will continue to rise, and we're in an environment of increased tax incentives. So we're well positioned for growth in that business as well.
Back to the Work Number, we added 69 new data contributors in the first quarter, and we also continue to expand and broaden the Work Number's customer base. During the first quarter, 15 cross-sell opportunities with (inaudible) business were closed, and customer interest remains extremely strong, as the pipeline has a little over 100 additional active prospects.
North America Personal Solutions grew 3% from the fourth quarter of 2008, and as new marketing efforts, including TV advertising, offset softness in breach activity, and in individual transactions sales. Our advertising campaign has a [broadly] 7% year-over-year increase in direct-to-consumer subscription sales.
Partly offsetting sales declines in our breach and transaction product lines. In this environment, transaction sales are a discretionary spend.
The good news is, we've shifted this business to largely a subscription based business, which is helping, but breach and transaction, are in fact down year-on-year. Finally, the North American Commercial solutions came in about equal to our revenue expectations for the quarter, as lower demand in Canada, determined by the deepening recession, was offset by the modest growth in our US business segments.
Profit remained solid and operating margin improved on a local currency basis. During the quarter, we signed a comprehensive data agreement for a major telco's internal CRM solution, which includes are credit risk, and marketing data.
A custom model for developing scores and our unique ID number to link their customer files. These solutions will use our InterConnect platform to automate their entire decisioning process.
It’s an exciting new win for the commercial team. We continue to expand our database, and have over 100 million trade lines, with almost 50% of the business (inaudible), now having five or more trade lines.
So great progress, over the past few years. Moving on to technology.
We amended our current agreement with IBM to provide for improved service levels, global access and greater flexibility in resourcing our technology infrastructure. This significantly enhances our relationship with a major strategic partner, enabling us to innovate bigger, better and faster, with lower cost and higher quality service levels.
Many of our new product initiatives continue to drive new sources of revenue and strengthen our market franchise in all of our geographies. 14 new products were launched during the quarter, with NPI revenue increasing over 150%, compared to the first quarter of 2008.
We are well on our way to our goal we've talked about, which is a vitality index of $200 million of revenue coming from NPI in the year 2010. Capital markets, we continue to sign customers, in fact at accelerated rate, and we are evaluating additional resource, just given the strong market interest.
Last week, the Reserve Bank of India gave us a formal and principal approval to operate as a credit information company. This is a great opportunity for us and our in-country partners.
Over the last 90 days, I’ve spent a lot of time with customers in most of our geographies around the world. Although business environments indeed differ, there are some very clear trends.
There is little to no focus on acquiring new customers. Delinquencies and loss trends continue to rise, and inherent risk in many lending portfolios has increased, as delinquent accounts move more rapidly to write-off.
As a result, many of our banking customers expect long charge-offs to continue to increase through the remainder of the year. In addition, analysis of our top US consumer and commercial files continuous to reveal the severe business pressure facing many of our customers.
Although existing generic credit risk scores continue to rank order risk, the newer loan vantages have much higher delinquencies and loss rates than prior vantages. More highly leveraged consumers represent a bigger percentage of lending portfolios and drive higher overall portfolio risks.
The general risk scores continue to trend weaker for overall consumer risk. Clearly the business pressures continue for many of our customers.
The need for products and services that expand their ability to more accurately assess risk will be critical as the economy begins to recover. I believe we have that unique ability to address these opportunities.
In the meantime, we will continue to aggressively manage our expense base while investing for the future in new products, new markets, global expansion and strategic acquisitions. Now, Lee will walk you through the details of the financials.
Lee?
Lee Adrean
Thanks, Rick and good morning, everyone. This morning all financial information I will be discussing is presented on a GAAP basis except as otherwise noted.
You should also refer to the Q&A and non-GAAP reconciliations attached to our earnings press release for additional information. Our first quarter performance was solid and exceeded the expectations we had at the time we last reported our earnings.
For the quarter, consolidated revenue of $452.9 million was down 10% compared to the first quarter of 2008. Changes in foreign exchange rate unfavorably impacted revenue by $28.1 million.
Compared to the fourth quarter of 2008, reported revenue was up 1% and constant dollar revenue was up 2% slightly ahead of our expectations. During the quarter, we recorded an $8.4 million restructuring charge to cover severance expense as we took further steps to reduce overall headcount and operating expenses in the current business environment.
Operating income was $102.7 million. Excluding the restructuring charge, operating income for the quarter was a $111.1 million down 4% from the fourth quarter and down 12% from the first quarter of 2008.
Operating margin was 22.7% in the quarter and 24.5% excluding the restructuring charge down slightly from the first quarter of 2008. Net income was $54.4 million down 17% from the first quarter of 2008 driven primarily by the restructuring charge and the impact of foreign currency translation.
Diluted earnings per share for the quarter, was $0.43 down from $0.50 in 2008. Excluding the impact of acquisition related intangible amortization and the restructuring charge, adjusted earnings per share a non-GAAP measure was $0.58 per share down 4% from $0.60 in the first quarter of 2008.
We repurchased 400,000 shares during the quarter for a total of $9.1 million and we reduced debt during the quarter by $18 million. Turning to our business units, our US consumer information solutions revenue was $210 million down 10% from a year ago and slightly ahead of the expectations we communicated during our fourth quarter earnings release in February.
Online consumer information solutions revenue was $137.2 million down 13% compared to 2008. All customer segments, except for telecommunications, were down.
For our core product, total transaction volume was $124.4 million down 15% compared to last year. Revenue per transaction increased about 2% year-over-year, as our mix improved driven by increasing mortgage activity, which typically carries higher average prices and declining activity with large national accounts which tend to have lower average prices.
Mortgage solutions revenue of $25.4 million was up 45% when compared to the first quarter a year ago. Poor mortgage reporting revenue was up 19% for the quarter driven by strong mortgage refinancing activity and increased market share.
Our settlement services business line also contributed to the growth with a threefold increase over last year. Credit marketing services revenue of $27.3 million was down 23% for the quarter.
Prescreening revenue was down 42%, continuing a trend that is now in its 9th consecutive quarter. Cumulatively new account acquisition activity is off over 60% versus where we were three years ago.
Revenue from our portfolio review product line was down 3%. Direct marketing services revenue was $20.1 million down 14% compared to the first quarter of 2008 reflecting lower consumer marketing activity across multiple industry sectors in the current economy.
The operating margin for US consumer information solutions business was 36% down slightly from the fourth quarter of 2008. For the second quarter USCIS is expected to generate revenue in the same range as the first quarter of 2009 to slightly up assuming mortgage refinancing volume continues at current levels through much of the quarter.
International recorded $100.8 million in revenue down 22% from a year ago. In local currency revenue was down 2% from a year ago and inline with our expectations compared to the fourth quarter.
For our total international business, marketing services revenue decreased almost 6% in local currency primarily due to declines in the UK, Canada and Argentina, reflecting economic challenges in those countries, partially offset by growth in Brazil. Enabling technology services revenue grew 10% in local currency, driven by strong performance in Canada and Iberia, in particular.
And finally, analytical services, local currency revenue, grew 4% with strong performance in Brazil, Argentina and Chile. By region, Latin America's revenue was $45.9 million, up 7% in local currency, although down 14% in US dollars, due to the strengthening dollar.
Europe delivered revenue of $33.1 million, down 8% in local currency, and down 31% in US dollars. In UK, market conditions continue to be challenging, as our consumer transaction volumes decreased 13%.
Canada consumer revenue was $21.8 million down 7% in local currency and down 25% in US dollars. Online transaction volume in Canada was down 6%.
International's operating margin was 28.7% for the quarter, down from 34.5% in 2008, but up from 27% in the fourth quarter. In the second quarter, we expect international revenue, excluding any impact of foreign currency translation, to be up slightly when compared to the first quarter.
As of today, we would expect minimal impact from foreign exchange between the first and second quarters this year. TALX revenue was 87.9 million for the quarter, up 10% from the first quarter a year ago, and ahead of our expectations, when compared to our comments three months ago.
The Work Number, as Rick mentioned, delivered broad based growth, with revenue of $40.6 million, up 12% from a year ago. Tax and Talent Management Services delivered $47.3 million in revenue, up 9% compared to last year.
Tax Management Services, where we provide unemployment compensation and tax credit services, was up 25% for the quarter. Our Talent Management revenue declined over 50% from a year ago, due to the higher increase at the TSA, our largest customer, and other government-related clients.
The TALX operating margin was 21.5%, compared to 16% a year ago, showing strong progression. In the second quarter, TALX revenue should be down slightly when compared to the first quarter, due to the first quarter seasonal W2 express revenue, but up in the low double-digit range compared to the second quarter of 2008.
In North America, Personal Solutions revenue was $38.4 million, down 11% from a year ago, but up 3% from the fourth quarter, consistent with the expectations we communicated during our fourth quarter release in February. Direct-to-consumer subscription based revenue grew 7% for the quarter, which partially offset declines in breach activity and single transaction sales.
Subscription based revenue now represents 77% of total revenue, up from 71% a year ago. Operating margin decreased to 15.5% from the quarter, compared to 25.7% for the same period in 2008, largely driven by our increase in TV advertising during the quarter.
We expect Personal Solutions' second quarter revenue to be flat to up slightly, compared to the first quarter's reported revenues. North America Commercial Solutions revenue was $15.8 million, down 8% on a reported basis, and down 1% in local currency.
The operating margin was 14.4%, compared to 15.3% in the first quarter a year ago with our ongoing investment in building the database, with new sources of data, as all as new products. Commercial Solutions second quarter revenue, should be comparable to the first quarter, excluding any possible impact of the foreign currency translation.
In summary, the first quarter was difficult, but each of our business units met its challenges and continued to deliver, not only on the short-term commitments, but their long-term obligations as well. Now, let me turn it back to Rick.
Rick Smith, Chief Executive Officer
Thanks Lee. Well, the first quarter, continued with many of the same challenges we experienced towards the middle to latter half of last year, while the environment has generally not improved, I believe it's starting to stabilize.
We will continue to address the challenges we face, but also to keep our eye on the future, and its business opportunities. If you’ll agree, we've got a strong and resilient business model, with a strong balance sheet.
We are also making important investments in new products that will create new sources of revenue growth, and further diversify our revenue base. The power of our unique data assets, including the Work Number, along with our analytical and decisioning platforms, will help our customer solve more business problems, and further benefit our shareholders.
For the second quarter 2009, assuming the current levels of domestic and international business activity and current exchange rates, our consolidated revenue is expected to be comparable to slightly up, when compared to the first quarter of 2009, and at the current exchange rates, a negative estimated impact of the weakening dollar on revenues, when compared to the second quarter of 2008, is expected to be between 28 million and 29 million, and our adjusted EPS for the second quarter is expected to be between $0.55 and $0.60 a share. And as we always do, now, operator, we'd like to open it up for questions.
Operator
(Operator Instructions). We'll go first to Carter Malloy, Stephens, Inc.
Carter Malloy - Stephens, Inc.
Thanks for taking my questions. First, just quickly on PSOL margins being down so much in the quarter.
You said it was because of TV ads, so should we expect the margins to stay down in this range going forward?
Rick Smith
Carter, this is Rick. I think I get the essence of your question kind of cutting it out.
If the question was should you expect PSOL margin to continue these levels throughout the year, no. We tend to have advertising in PSOL in general terms, not just TV advertising but the heavier piece of advertising is front-end loaded.
So you get the benefit throughout the year. So our margins are lowest in the first quarter they ramp up throughout the year.
Carter Malloy - Stephens, Inc.
And then on the Work Number, great quarter there, happy to see that the number upward is. You are talking about the new wins, is the upside from those new wins and it sound like they weren't yet in the numbers?
So I just wanted to understand where the strength came from specifically this quarter and if those new wins were in there help big maybe, if you had a –
Rick Smith
I am not going to quantify them. They are going to be big but I am not going to give you the numbers.
I had look at this, the Work Number is broad based. The growth is broad based.
The Work Number is during everything we expect it. On a score growth we pose I think I said 15 cross sell opportunities, we were close to 10 at cross sell last year.
So the things we closed last year give you revenue this year, the thing you close in the first quarter give you incremental revenue in the first quarter that will bill throughout the year.
Carter Malloy - Stephens, Inc.
Do you guys see that as a competitive advantage for the (inaudible) do adopt Work Number?
Rick Smith
Absolutely. I see it as a competitive advantage on many fronts.
I talked about it briefly as a differentiator in the mortgage base. It is a clear [trader] in the portfolio review.
So yes, we are looking at this as a massive differentiator versus the core credit there.
Carter Malloy - Stephens, Inc.
I guess the better question I should have asked is, will the other competitors see it in the same way, sp that it drives more rapid adoption from the rest of the guys out there?
Rick Smith
Again you cut out a little bit, Carter. Please repeat that question again.
Carter Malloy - Stephens, Inc.
I'm sorry. I guess the better way I should have asked that question is do you think the competitors will see it as the same type of competitive advantage and that'll drive them towards more rapid adoption?
Lee Adrean
Carter, you're breaking up. We're having difficulty understanding your question.
Carter Malloy - Stephens, Inc.
I'm sorry guys, I'm not sure if I'm talking through my headset here. I'm just thinking about it from a competitor's perspective.
If I'm one of the other four big card issuers and I see another guy adopt it. Do you think that's going to drive?
Rick Smith
Yes, absolutely. We have got activities going on with all the banks, all the card issuers and there is high level of interest across the board.
It's just that the ones I mentioned today were the first two to fall in the first quarter of this year.
Operator
We'll take our next question from Andrew Jeffrey, SunTrust.
Andrew Jeffrey - SunTrust
If I look at your corporate expense line, I mean it looks to me as though, I mean if we get the subset of SG&A, which is [corporate]. If I just look at adjust for the charge you took, I mean looks like you've continued to take a tremendous amount of expense out of the business more than I would have anticipated.
Can you talk a little bit about the sources of some of those cost savings and just your overall comfort that as the market assuming it stays depressed ex-mortgage. As you continue to strip out costs, how can you be confident that you're not sort of cutting through fat and end up muscle and bone a little bit too?
Rick Smith
Let me jump quickly on the first response, Andrew. Then I will have Lee, at my thoughts.
Number one, specifically on the first quarter, we had a delay in equity grants out of the first quarter into the second quarter which reduced the corporate expense rate below its normal natural run rate. Lee can quantify that for you in a second.
Number two is we'll continue to invest in growth at all times but I am convinced there is a lot more things we can do with lean, Andrew, specifically to take cost out drive efficiency across this company. We are ramping up.
Lean, I think I told you before we launched about a year and half ago, great benefits in 2008. We are increasing our investment in lean more resources.
We are bringing it to all parts of the company, all parts of the globe. So we are at the very early stages of reaping the financial benefits, the cost benefits, the process benefits out of lean.
So that's a way of saying I don't think this, we are not close to the end yet on our ability to optimize this company's expense base. And number two, we will continue to invest in growth though.
So, Lee, do you want to add to that?
Lee Adrean
I just said expectations at least. About a year ago we were running kind of $28 million to $30 million a quarter on the corporate line, brought that down.
The fourth quarter was unusually low which we come in on at a time and the first quarter's probably unusually low for reasons that Rick mentioned. Our average for the next three quarters is probably in the $25 million or $26 million a quarter range down from what had been $28 million to $30 million a year ago.
So we definitely have taken cost out but the fourth quarter and first quarter probably unusually low. And I think to your point about, obviously we are working to streamline where we can.
We are working to be as efficient as we can. We don’t want to go so deep as to the concern you boys deserve.
We are stripping too much such that we hurt ourselves in the longer run. We are trying to be very conscious of that and to continue to invest in the right things for future growth.
Andrew Jeffrey - SunTrust
Then specifically on the USCIS operating margin, the margin declines seemed to have moderated a little bit sequentially. Assuming we see comparable level of volume declines in the second quarter, and then let's just, extrapolate out through the rest of the year, do you think you can hold the margin around this 36% level, or does it continue to decline with the falloff in volume?
Rick Smith
Andrew, this is Rick. Yes, we've said all along that our plan is to hold the companywide margin, 24% to 26%, that goal remains.
The only way we do that, is to make sure we hold USCIS in that 36% to 38% range.
Andrew Jeffrey - SunTrust
So that's when you start to think about consolidated profitability, you continue to view the key lever as USCIS?
Rick Smith
Correct.
Operator
We'll go next to Dan Levine with Robert W. Baird.
Dan Levine - Robert W. Baird
Great, thanks. Could you talk a little bit about the Work Number wins?
Were those, the two big wins, were those already significant customers or is that a place where you are really significantly gaining share versus one of your competitors?
Rick Smith
That's a great question. They are customers of Dann Adams, as USCIS business, they are brand new customers to Bill Canfield's Work Number team.
So, as we said all along, we're looking at cross-sales, leveraging the customer base and Dann know so well to bring the Work Number in. So it's new for TALX, it's new for the Work Number, but they are existing customers for Dann.
So the whole goal is, you get the foot in the door by selling the Work Number, providing value, generate immediate revenue, immediate profit and use that differentiated product as a way to gain core credit share. The example I gave you, is working already, is in mortgage.
Dan Levine - Robert W. Baird
And could you just talk about the revenue from those deals, will it all show up in the Work Number or will there be some split between USCIS and the Work Number?
Rick Smith
That's a great question, Dan. It is some we're debating internally, because both teams make those sales happen.
And I think what you will find out at the time, is both have a operational component to it as well. We will probably [exploit] that revenue in some capacity between USCIS and Bill's Work Number team.
Dan Levine - Robert W. Baird
Then just a follow-up on the previous question, Rick. You mentioned the equity grants delay, could you give us the actual number on that, for how much was pushed out of the first quarter that will show up in the second quarter?
Lee Adrean
Between $2.5 million and $3 million.
Dan Levine - Robert W. Baird
Then just last question, can you talk historically about the seasonality of expenses, what you see in terms of bump-up in 1Q related to payroll and so forth, and how we should think about that in the context of what you just did?
Rick Smith
Say it one more time Dan, you cut out.
Dan Levine - Robert W. Baird
Just some natural seasonality with payroll expenses and so forth taking up in the first quarter, there is some natural uptick in expenses. Could you give us a sense of what -- the just pure seasonal aspect to that was, versus continued improvements on lean and so forth in terms of what happened in the quarter with expenses?
Rick Smith
I guess we're trying to get to Dann. If we had a normalized first quarter corporate expense rate, is that what you are saying?
Dan Levine - Robert W. Baird
Yeah. Seasonally, there is a natural kind of uptick in dollars from the fourth quarter to the first quarter.
Could you just talk about what the size of that uptick is, and just kind of progress sequentially in terms of getting costs out of the business?
Lee Adrean
Yes. The key elements of the seasonal uptick are total, and I tend to look at constant dollars.
Although, it's probably pretty close, even reported operating expense was up $11 million from Q4 to Q1. 8 million of that was in Personal Solutions, which reflects -- in the fourth quarter, we cut way back on our advertising, because consumers have shown they are not very responsive to our product offerings during the holiday season.
It's after the holiday season, we see that pick up, so we pull back in our advertising. The bulk, if not all of that, step up in expense from Q4 to Q1 is advertising (inaudible).
The other area, where you tend to see a pickup in expense is in the TALX business unit, operating expense up about $8 million, Q4 to Q1. And the biggest piece of that is our W-2 business, which is a seasonal business, predominantly in the first quarter, and it includes a reasonable amount of print mail cost.
So it’s very direct expense. Those are the two key drivers of operating expense.
If I wash those two out, I actually think our operating expense was down sequentially, reflecting many of the steps that we’ve taken with headcount and other efficiencies.
Operator
(Operator Instructions). We will go next to Michael Meltz, JPMorgan.
Dave Lewis - JPMorgan
This is Dave Lewis for Michael. Just a couple of quick questions.
On the expanded IBM deal, can you just provide a little color on the incremental cost savings in 2009 and 2010?
Rick Smith
Well, I will start there, Dave. The contract renegotiation was far more than just cost.
It was a strategic realignment to leverage far more, the resources they have globally, to add flexibility, speed, so we can innovate and bring new products to market at a much faster rate than we could in the past. So that was the heart of the deal.
Yes, there was absolutely some cost savings, not just from the contract itself, but we actually brought more resources that were outsourced at one point in time, back in-house and the cost savings is largely a result of us leveraging their global resourcing capabilities in India. Lee, I’m not sure we want to actually quantify that benefit.
So, Dave I will leave it at that.
Dave Lewis - JPMorgan
The second question is for Lee, can you just give is your thoughts on [extra cases] for share buybacks going forward.
Lee Adrean
Yes, we said at the year end earnings release in the near-term we are going to focus the majority of free cash flow on debt reduction. Given obviously, the markets in the last 90 days seem to have stabilized.
In fact for most of the last six weeks the sentiments have been pretty positive. We have all seen over the last year and half periods of positive sentiment followed by periods of extreme negative sentiment.
We are still being very careful to manage our capital structure to ensure strategic flexibility going forward. So the bulk of our free cash flow will go to debt reduction.
We will probably be looking at a minimum to offset the dilutive effect of share creep that does come from equity compensation programs. But in the near-term may not do much more than that.
And I think that the first quarter is consistent with that. We may be upward down from that but it's a smallish number compared to it.
But it's typically been a historic purchase rate.
Jeff Dodge
Operator, we have time for one more line of questions.
Operator
We will take our final question from Jaime Brandwood with UBS.
Jaime Brandwood - UBS
Just a few questions if I may. I want to pick apart a little bit in more detail the other CIS division.
First of all on the OCIS division, I guess you have now seen a quarter-on-quarter stability in terms of revenue. In terms of your other commentary OCIS hosting hopefully similar revenue in the coming quarter, would that expand to the online consumer information solution subdivision?
Rick Smith
Yes.
Jaime Brandwood - UBS
I mean in terms of drivers for that is it surely about mortgage or you are seeing visibility in any other kind of contributors to the online consumer information solutions subdivision?
Rick Smith
I'd say right now it's primarily mortgage. It's also Telco.
Telco is not only stable, but growing.
Jaime Brandwood - UBS
Turning to your credit marketing services division, can you talk a little bit I think you gave the split there in terms of prescreen down 42%, portfolio review down 3%. With prescreen, do you feel you are [now] getting to a point where you're still seeing some sequential stability?
I think you said you were down more than 60% from three years ago.
Rick Smith
Yes. The short answer is yes, Jamie.
I think that the prescreen business is kind of bottomed up.
Jaime Brandwood - UBS
On the portfolio review, why do you think you stopped seeing growth there. Is it just like you are lapping past year-on-year comps or is there something else going on there driving that revenue into year-on-year decline?
Rick Smith
Say that again, Jamie.
Jaime Brandwood - UBS
The portfolio review piece I think you said was down 3% year-over-year. What's driven the decline there?
Lee Adrean
We have been up most quarters usually in the low-to-mid single digit rate of portfolio management. I'm not sure we see any particular trend that this quarter happens to be down 3% that's not a large number.
I don't know that we pulled apart exactly what's driving it. I think we continue to expect that to be kind of modestly up in the [period] of time when acquisition activity continues to be declining.
Jaime Brandwood - UBS
Then just turning to the UK, quickly. I think you said that in the UK your volumes were down 13%, so, not far of the 15% volume decline which you saw in your core product in the US Are you starting to see any kind of beneficial pricing impact, as you've seen in the US, where I think you said your average revenue per transaction was up 2%?
Lee Adrean
We are not seeing the same effect at this point, and as I said one of the effects of our business in the US is the strength of our mortgage business and the refinancing activity. We are not as strong a player in the mortgage market in the UK, and have not seen that same level of mortgage refinancing activity either.
Rick Smith
Let me just add to that Jaime, just in general terms, looking at the online UK. In general terms, the (inaudible) pricing of the UK has been relatively stable, a slight uptick in the first quarter 2009 sequentially, versus the fourth quarter 2008.
Jaime Brandwood - UBS
But your revenue in the UK then is broadly also down about 13% year-over-year?
Rick Smith
Yes.
Jaime Brandwood - UBS
Okay. And then very lastly, I missed your commentary on Brazil.
I am just wondering if you can just go over Brazil again, the growth that you saw there and how you see that business going forward?
Rick Smith
My comment was on Brazil, it was good growth. We didn’t break the exact numbers out; we had good growth, continue to get more data from the banks into our database.
Good growth in telcos. So overall, good performance.
We remain bullish, Jaime, long term on Brazil.
Jaime Brandwood - UBS
Okay. Thanks very much Rick.
Rick Smith
I would like to thank everybody for participating on the call, and if you have any additional questions we will be around to answer. Thanks again, and we will conclude the call.
Operator
Ladies and gentlemen that does conclude today’s conference. We appreciate your participation.
You may disconnect at this time.