Equifax Inc (EFX) — Q1 2017 Earnings Call Transcript

Thanks, and good morning, everyone. Welcome to today's conference call. I'm Jeff Dodge, Investor Relations; and with me today are Rick Smith, Chairman and Chief Executive Officer; and John Gamble, Chief Financial Officer. Today's call is being recorded. An archive of the recording will be available later today in the Investor Relations section of the About Equifax tab 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 business are set forth in filings with the SEC, including our 2016 Form 10-K and subsequent filings. Also, we will be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax and adjusted EBITDA margin, which will be adjusted for certain items that affect the comparability of the underlying operational performance. For the first quarter of 2017, adjusted EPS attributable to Equifax excludes the acquisition-related amortization expense, the transaction and integration expenses associated with our acquisition of Veda, the income tax effects of stock awards recognized upon vesting or settlement and adjustments resulting from the conclusion of tax audits. Adjusted EBITDA margin is defined as net income attributable to Equifax, adding back income tax expense, interest expense, net of interest income, depreciation, amortization and the one-time impact of certain transaction and integration expenses associated with our acquisition of Veda. These non-GAAP financial measures are detailed in reconciliation tables, which are included with our earnings release and are also posted on our website. Please refer to our various investor presentations, which are posted in the Investor Relations section of our website for further details. Now I'd like to turn it over to Rick.

Thanks, Jeff, and good morning, everyone. I appreciate you joining us on this call. We’ve had a very strong start to 2017 with solid first quarter performance across all business units and various global markets. The growth achieved by the team has been widespread. Entering 2017, we carried great momentum from a record-setting 2016, particularly in product innovation and our international expansion through our acquisition of Veda last year. Our management team is leveraging this momentum, and each business unit and center of excellence is executing effectively. Total revenue for the quarter reached $832 million, reflecting a 14% growth on a reported basis and a 15% increase in local-currency terms compared to the first quarter of 2016. Currency fluctuations had an $8 million impact year-over-year. The adjusted EBITDA margin stood at 36%, an increase of 180 basis points from last year, considerably exceeding our guidance for the quarter and the year. Adjusted EPS was $1.44, marking a 17% rise. Now, let’s delve into the individual business units, starting with USIS. The division achieved a solid 5% revenue growth in the quarter, driven by advancements in mortgage lending, new product innovation, and enterprise growth initiatives. USIS recorded strong double-digit growth in mortgage, government, and communications, along with high single-digit growth in areas like Prescreen and Identity and Fraud Solutions. Much of this growth stemmed from robust performance in our enterprise and alliance channels, despite facing a 1.4 percentage point drag from DTC resettle revenues. Remember, we've previously mentioned that this aspect of DTC is included in USIS rather than GCS. EBITDA margins remained robust at 48.6%. In recent quarters, we highlighted the significant strides made with our Cambrian data and analytics platform, which enhances our customer solutions development. Recently, we introduced Equifax Ignite, a suite of data and analytic capabilities designed to empower customers using Cambrian. This solution is designed to provide smart, user-friendly insights that facilitate customer growth. Our portfolio for Ignite includes Cambrian Direct, which offers quick access to our high-speed analytical environment for model development, and Cambrian Marketplace, a user-customizable application that delivers actionable insights typically for business users or analysts. This comprehensive approach enables us to cater to both traditional users and our customers' analytical experts, allowing them to combine Equifax data with other data sources for custom solutions. While still early days for Ignite, we see significant potential given its flexibility and range of analytical tools. In the first quarter, we launched our InstaTouch mobile solution with a major financial partner, streamlining the secure pre-filling of personal information in applications to enhance conversion rates and minimize application fallout. We expect New Product Innovation to remain a primary growth driver for USIS, with substantial opportunities identified in fraud, digital media, mobile, and automotive sectors over the next couple of years. Trended data in mortgage lending was pivotal for USIS last year, with ongoing benefits expected in 2017. Our enterprise growth initiatives are progressing as we assess the benefits of trended data and machine learning across various key sectors. We anticipate completing this analysis within the year, which we believe will reveal further opportunities beyond mortgage lending. Another critical factor for our growth is our enterprise vertical alliance strategy. Both USIS and Workforce Solutions are enhancing sales and marketing efforts and integrated delivery within verticals like mortgage, auto, government, and communications. This strategy will distinctively position us against competitors, bolstered by our integrated offerings in income, credit, and analytics. Our partnerships with leading data and analytics companies further contribute to this expected growth throughout 2017 and beyond. Internationally, we had a remarkable quarter with strong revenue growth and expanding margins, achieving a 41% increase in local-currency terms, and 14% growth when excluding Veda. Adjusted EBITDA margins also improved significantly by 590 basis points. International operations continue to advance their strategic initiatives by leveraging new product innovation and enterprise growth strategies to fuel growth while implementing Lean initiatives to enhance operational efficiency. Since acquiring Veda over a year ago, the integration has exceeded expectations, culminating in a rebranding of Veda to Equifax. We’re also proceeding with plans to deploy our global platforms in Australia and New Zealand, including Cambrian and fraud solutions in the upcoming quarters. Europe experienced exceptional performance with a 15% revenue growth in local currency, driven by advancements in Spain and our U.K. debt management business, which continues to grow strongly. We are now collaborating with eight different government agencies in the U.K. regarding various initiatives. Latin America recorded promising 20% growth in local currency. Our recent trip there reaffirmed the positive economic trends, as governments focus on improving financial inclusion and businesses seek reliable scoring models. We aim to roll out Cambrian in Argentina and maintain an optimistic outlook in markets like Argentina, Chile, and Peru. Canada had a stellar quarter as well, with local currency growth surpassing 10%, and the team is executing on several initiatives including new products and debt management. Workforce Solutions reported an impressive performance with an 11% revenue increase and improved EBITDA margins to 50.2%, with a noteworthy 16% growth in verifier services. The team launched a new consumer employment and income report to enhance verification processes by incorporating credit data, which is expected to contribute to revenue throughout the year. In Employer Services, we launched an automated wage audit compliance solution to alleviate the challenges employers face in fulfilling state wage and employment reporting mandates. Workforce Solutions aims to expand its enterprise-wide government vertical, and efforts to launch a Verification Services business in Canada are progressing well. Global Consumer Solutions posted 13% revenue growth and an expansion in EBITDA margins in the first quarter. The division is enhancing consumer channels served and further strengthening relationships with partners like Credit Karma and LifeLock, while also exploring new markets globally. Before I hand it over to John for the financial details, I'd like to comment on our ongoing enterprise-wide initiatives. The enterprise growth initiatives focused on new product innovation are essential for driving revenue and transforming processes across the company. This year, we are advancing 15 initiatives aimed at creating long-term value, and these are performing ahead of expectations compared to last year. We are also making substantial advancements with our Lean initiatives, with over 400 programs aimed at boosting revenue and profit across the globe. In the first quarter, we surpassed our targets by more than 15%, and we anticipate continued strong performance this year. The innovations our teams are developing are leading the market. We possess unique data resources and deliver value through advanced analytics and technology, empowering our customers to make informed decisions. To reflect this vision, we introduced our new corporate tagline: Powering the world with knowledge, reaffirming our commitment to providing powerful insights globally. We’re off to a strong start this year and remain on track to meet our guidance for 2017, invigorated by strategic initiatives aimed at enhancing data assets, technology, and talent to drive growth. Now, I’ll turn it over to John for the financial overview, and I’ll return later with concluding comments.

Thanks, Rick, and good morning, everyone. I will be discussing the financial results from continuing operations on a GAAP basis. In the first quarter of 2017, we exceeded our expectations, positioning us well for the year. The mortgage and ACA challenges we mentioned in February affected USIS and Workforce Solutions as anticipated. USIS revenue for the first quarter of 2017 was $310 million, reflecting a more than 5% increase compared to the first quarter of 2016, aligning with our expectations. Revenue from Online Information Solutions was $225 million, up 3% year-over-year, driven by growth in mortgage, telecom, government, and fraud sectors. However, direct-to-consumer revenue in USIS, primarily from partnerships with other CRAs, saw a decline this quarter, impacting overall revenue growth by about 1.9 and 1.4 percentage points. Our commercial rich-related revenues, included in OIS, also decreased this quarter. Total mortgage-related revenue for USIS increased by 27%, and when including Workforce Solutions mortgage revenue, Equifax's total mortgage-related revenue rose by 22%. USIS generated $39 million in Mortgage Solutions revenue, a 22% increase year-over-year. In the first quarter, mortgage market volumes aligned with our expectations, and our revenue performance was significantly stronger than the market, thanks to trended data, new products, and deeper market penetration. We anticipate mortgage market volumes to decline by mid-single digits in the second quarter compared to the first quarter, which will hinder Equifax's second-quarter organic growth by more than 1%. We continue to expect mortgage market volumes to decrease by about 15% for the full year and are confident in our ability to outperform the market. Financial Marketing Services revenue was $46 million in the first quarter of 2017, a 2% increase. The adjusted EBITDA margin for USIS was a robust 48.6%, remaining stable compared to last year. We expect USIS's total revenue growth rate to accelerate in the second quarter despite the weaker mortgage market, as other areas within USIS improve. Overall, for 2017, we project USIS revenue growth to be slightly below the long-term range of 5% to 7%, corresponding with the anticipated 15% decrease in mortgage market volumes and approximately 1% headwind from direct-to-consumer revenues. We expect USIS to modestly increase EBITDA margins compared to 2016 for the full year. Workforce Solutions revenue reached $200 million in the quarter, reflecting an 11% increase relative to the first quarter of 2016. Verification Services generated $115 million in revenue, a 16% rise. The growth was widespread, with double-digit increases across various sectors including auto, credit cards, consumer finance, and government. Employer Services revenue reached $85 million, up 5% from the previous year. Our onboarding products saw healthy growth alongside the Workforce Analytics business, which benefited from early tax reporting for 1095s and 1094s compared to 2016. Workforce Solutions achieved 11% growth in line with our expectations. The growth was somewhat affected by the mortgage and ACA challenges we addressed in February. Compared to overall growth rates in 2016, the mortgage volume decline and ACA revenue slowdown accounted for about two-thirds of the change in growth. The remaining third relates to timing with our work opportunity tax credits revenues. We continue to expect that total ACA-related revenue for 2017 will be flat compared to 2016. As anticipated, ACA-related revenue grew in the first quarter of 2017 as tax reporting from 2016 was finalized. However, we expect a decline in ACA-related revenue for the second quarter and the rest of 2017 due to uncertainties surrounding the federal healthcare program's structure. The adjusted EBITDA margin for Workforce Solutions was a solid 50.2% in the first quarter, up from 49.5% a year earlier. For the entire year of 2017, we expect Workforce Solutions revenue growth to meet or exceed the upper end of the long-term growth range of 9% to 11%, despite the projected 15% decrease in the overall mortgage market and uncertainties around ACA. We also anticipate Workforce Solutions to enhance EBITDA margins compared to 2016 levels for the year. International revenue was $260 million in the first quarter, representing a 37% increase on a reported basis and a 41% increase on a local-currency basis. Constant currency growth, excluding Veda, was strong and exceeded our expectations at 14%. By region, Europe reported $62 million in revenue, up 2% in U.S. dollars and 15% in local currency. As mentioned, the U.K. debt management business remains a significant growth factor, with Spain also reporting double-digit growth for the quarter. In Latin America, revenue hit $51 million, showing a 20% increase in both U.S. dollars and local currency, with notable double-digit growth in Argentina, Chile, Uruguay, and Central America. Canada's revenue was $31 million, reflecting a 15% increase in U.S. dollars and 11% in local currency, continuing to show improving growth due to a stronger NPI funnel. The adjusted EBITDA margin for International was 31.2%, up from 25.3% a year prior. We experienced strong EBITDA margins across Latin America and Europe, with Canada maintaining the highest margins in the segment. The first quarter also benefited from Veda being fully included in our results. For the remaining quarters of 2017, we expect strong year-over-year EBITDA margin improvements in International, albeit to a lesser extent than in the first quarter. Overall for 2017, we foresee International revenue growth surpassing the long-term range of 8% to 10% and exceeding previous expectations. We also predict EBITDA margins to remain comfortably above 30% throughout the year. Global Consumer Solutions generated $106 million, which was better than expected in the first quarter, reflecting an 11% increase on a reported basis and a 13% increase on a local-currency basis. The adjusted EBITDA margin stood at 31.7% for the first quarter. The consumer direct business, operated via equifax.com and white label properties, was slightly below our expectations. However, we observed growth in our broader indirect channels. Our reseller business achieved over 25% revenue growth, significantly exceeding our projections. In the second quarter of 2016, GCS as a whole demonstrated strong 22% growth, aided by a new partner who contributed substantially to revenue. In 2017, a similar purchase occurred in the first quarter, positively influencing GCS revenue by more than $5 million or over 5 percentage points. Due to the timing of these transactions, we anticipate second quarter 2017 GCS revenue growth to be negatively affected. We foresee GCS revenue in 2017 aligning with the long-term growth model of 5% to 8%. Our expectation is for first-half 2017 GCS revenue to be at or slightly below the end of the long-term range, anticipating stronger growth in the second half. The first half reflects slightly weaker performance in the consumer direct and white label markets, along with the anniversary of significant direct-to-consumer reseller partnerships from early 2016. Growth will pick up in the second half of 2017 as these partnerships continue to evolve and the indirect channel experiences accelerated growth. In the first quarter, general corporate expense totaled $63 million; excluding integration costs from the recent acquisition, it was $61 million, marking a 3% year-over-year increase and aligning with expectations. Equifax's adjusted EBITDA margin for the first quarter was 36%, representing a substantial increase of 180 basis points from the 34.2% reported in the first quarter of 2016. As previously indicated, we are excluding the income tax impacts of stock awards from our non-GAAP results. Our GAAP effective tax rate stood at 20.6%, boosted by a $14.9 million benefit from stock award tax effects and other discrete items mainly linked to adjustments following tax audits. Adjusting for these factors, our effective tax rate for the first quarter would have been around 32%. We maintain our projected non-GAAP effective tax rate for 2017, which we anticipate to be roughly 32.5%, consistent with our February guidance. In the first quarter of 2017, operating cash flow was $104 million, and free cash flow was $53 million, both aligning with our expectations. We continue to anticipate strong cash flow growth in 2017 compared to 2016. As we suggested in February, first-quarter operating cash flow decreased compared to the same period last year mainly due to working capital adjustments related to the Veda acquisition, increased employee compensation payments following a strong 2016 performance, and changes in other assets such as tax payments and prepaids concerning software investments. Capital expenditures for the quarter amounted to $40 million in 2017, with projections of about 6% of revenue for capital spending. Total debt at the quarter's end was $2.7 billion, and we continued to lower our leverage post-Veda acquisition, which now stands at 2.26 times EBITDA. Now let's return to Rick.

Thanks, John. For the second quarter, we expect revenue to be between $857 million and $862 million, reflecting constant currency growth of 7% to 7.5%, partially offset by 1% of FX headwind. Guidance reflects the shift that John mentioned, of over $5 million in revenues in GCS that we previously expected to hit in the second quarter but delivered in the first quarter, and that negatively impacts the second quarter growth by approximately 0.7 of a percentage point. Adjusted EPS is expected to be between $1.55 and $1.58, excluding a negative $0.01 per share of negative FX. This reflects constant currency EPS growth of 10% to 12%. In the second quarter, our mortgage outlook for the market volumes is down mid-single digits. Compared to the first half of 2016, our outlook reflects first half constant currency revenues up 11% and first half adjusted EPS up 14%, well above our long-term model. Furthermore, our multi-year growth has been very strong, from a perspective compared to the first half of 2014. Our first half of 2017 outlook reflects compounded annual growth for revenues of 12% and for adjusted EPS of 18% over that period of time. On to the full year. Our full year 2017 guidance for Equifax revenue and EPS are solid and are unchanged from our February call. As we discussed on this call, our 2017 revenue expectations for International have increased from our February earnings call. While our expectations for GCS revenue have moderated a bit, it is still within their long-term trends. In total, we continue to expect Equifax revenue for the year to be between $3.375 billion and $3.425 billion, again unchanged from our previous guidance. This reflects constant currency revenue growth of 8% to 9%, partially offset by 1% of FX headwind. Consistent with our February guidance, this assumes total mortgage volumes decline of approximately 15% in the year. We continue to expect adjusted EPS to be between $5.96 and $6.10, up 8% to 10%, excluding slightly over $0.02 per share of negative impact from FX. This is also unchanged from our previous guidance. We continue to expect our adjusted EBITDA margin to expand by a healthy 100 basis points for the full year. So, in summary. For USIS, our outlook is as previously expected and communicated during our February call. We expect that to be slightly below their long-term model of 5% to 7% revenue growth with mortgage headwinds impacting them by approximately 4 points for the year, mostly concentrated in the second half of 2017. For Workforce Solutions, our outlook is also as previously expected. We expect them to be at or above their long-term model of 9% to 11% revenue growth, again, despite 4 percentage points of mortgage headwind, again mostly concentrated in the second half of the year. So, outstanding performance in both those businesses. For GCS, we expect them to be within our long-term model we've communicated to you of 5% to 8% for the year. For International, our outlook is better than previously expected and above their long-term model of 8% to 10% growth. For Equifax's total, again despite approximately 3 percentage points of mortgage headwinds and some additional headwinds from ACA at the company level, we expect to remain confident in our full year outlook with constant currency revenue growth of 8% to 9% for the year. Hopefully, that's helpful. With that, operator, we would like to open up for any questions for John or me.

Yes. Thank you. Good morning, gentlemen. First, just a near-term question. In terms of the guidance you've given, even though there are a bunch of headwinds you called out in USIS, just curious why are there any particular products or pieces that give you confidence that it still improves in the second half?

Manav, specific to the USIS business or in general terms?

Well, I guess general as well, but I think USIS to start off with maybe.

Yes, I'd say USIS is the microcosm of the entire confidence we have for the company, and that is the thing that you know so well that we've been doing now for ten-plus years. It's all the stuff we have in NPI. We've talked about the classifieds last year have been very strong, they're starting to ramp up, in fact the last part's 2017. In fact, USIS' NPI progress at the end of 2016 and in the start of 2017 is as strong as it's ever been. So, specific to USIS is what that comp is, but also, they're leveraging the same things everyone else is leveraging, things like EGI. Over 15 EGIs, USIS participates in those as well. So, there's no magic. But one of the things I love to think about is sitting back here, talking to you guys back in the fourth quarter pre-election, we gave a framework for 2017, which was, we thought was robust and you thought was robust and all of a sudden, the world changed with Trump's election. And we thought, 'My God, the world will change and mortgage rates are going to go up, ACA is going to be repealed.' And yet, because of the continuity of execution and consistency of our initiatives for the past ten years, we're able to maintain that guidance this year. So, I'm as confident now and John is as confident now in USIS' ability to deliver those numbers and the company's ability to deliver those numbers, as I've ever been.

So, basically, what you're saying is it's just a broad-based NPI through all those, but you have the visibility? Okay. And then just on a bigger picture, clearly, a lot of good things still going on in the company, sounds like we have been getting better. I'm just thinking more, given you've digested, well, somewhat digested Veda and it's going well, like how should we think about capital return at this point in time to balance between doing the strategic M&A versus picking the buybacks back up?

We're deleveraging as expected. We're thought to be getting our leverage back around 2.25. We'll be there as we exit the second quarter. At that point, John and I will look at both getting back into share repurchase, as well as getting back into M&A. So, everything is performing on track. In fact, then we’ll be leveraging at slightly faster rates than maybe what we’ve anticipated last year.

Absolutely. And we don't feel any constraints with executing M&A. We're continuing to go as fast as we can, and we continue to think we have a nice pipeline, as we look at the rest of this year.

Okay. And then just last one. The commentary you made, I think you had expected that last quarter as well, in the improvement in Latin America. Can you maybe address your latest news on Brazil?

I was just down there, as I mentioned in my prepared comments, in South America. And what we always do is meet with business leaders and economists. Even though we have a small operation in Brazil, as a country, I still remain concerned about Brazil short term. As you know, they had a significant recession last year. I think the outlook this year is for modest improvement with positive GDP but very, very modest. So, short term, I'm still bearish on Brazil. I like our partnership in Brazil. We continue to work close with our Brazilian partners, and I don’t feel that right now is the time to make a decision to be bigger, stronger, better in Brazil at this juncture.

Got it. Thanks a lot, guys.

Thank you.

Great. Good morning, guys and congrats on the nice start to the year. Wanted to start off on the guidance. It looks like, from a revenue perspective, you're talking about a pretty consistent 7 percentage type growth over the remainder of the year. And I'm just wondering, given that the mortgage comparisons will get tougher in the back half and you've lapped the trended data pricing benefit, what do you expect to sort of perk up to maintain that level of 7% constant currency organic growth?

Great question. As we discussed in February, there was considerable concern at that time due to rising mortgage rates and the decline in the mortgage market, along with the repeal of the ACA. We expressed our confidence, based on EGI and NPI, and that confidence still holds today. I mentioned in the February call, and even a couple of times last year, that our performance was exceptional last year, which should benefit us this year, except for the ramp-up in the latter half of the year. Additionally, as I stated in my prepared comments, the class of products we are launching and the product pipeline for 2017 is stronger than ever. If you examine the constant currency growth we anticipate for the second quarter of 2017, and account for the impact from the mortgage sector, it aligns well with our first-quarter results. Moreover, when we look at the overall constant currency growth for the first half, we're seeing 11%. Therefore, considering our performance in both the first and second quarters, along with the entire first half growth rate of 11%, the outlook appears exceptionally positive.

Well said.

Yes, that's great. If I could just sneak in two quick follow-ups. Just John the, when within USIS, the financial marketing line, that's been a little bit more volatile the last couple of quarters. It seems to have a really strong quarter, then the growth rate comes in a little bit, a little bit more volatile than what I think we've been used to seeing historically. Any sort of commentary or insight around that? And then as it relates to the USIS margins, they were pretty much in line with the year ago. We've kind of gotten used to them sort of expanding consistently. Just any color you could provide around that. Thank you.

Sure. Financial marketing line, as you know, can be a little bit lumpy. We're seeing nice growth in prescreen, and we think that's an area where we're probably going to see good performance throughout the rest of this year. But it will be lumpy as you look through the rest of the year as well. In terms of USIS margins, we're very happy with our margins. They were basically flat. We're continuing to expect them to go up. The small movements that you see in any given quarter are really just mix related, and sometimes related to the lumpy revenue that we just talked about. But generally speaking, USIS margins have been outstanding and we're expecting very good performance this year.

The model we provided indicates that USIS's EBITDA margins are projected to be in the low 50s over time. That remains our objective, and you can expect fluctuations from quarter to quarter. There are many variables at play, but the progress towards achieving mid-50s margins over time is on track. We anticipate that the second quarter of 2017 will outperform the first quarter of 2017.

Great. Thank you, guys.

Good morning, guys. Thanks for taking my question. As you look forward to guidance, Rick, I asked you this question in the last call and there's just some concern in the market that you guys usually have some cushion in your guidance that allows you to kind of have some raises through the year, but there is some concern, given you had to absorb the 300-basis-point headwind from mortgage and a little more from ACA. I think before, you said it was kind of a balanced view of guidance. Anything to update us on that given that mortgage seems to be a little bit better maybe than we're expecting, at least it was in first quarter? Maybe a little bit more insight into the NPI drivers in the back half of the year? Any sort of updated thoughts on your take on guidance?

Sure. I and John and I feel as confident today towards the year outlook and guidance as we were when we gave it to you in February, we take that very seriously. As far as mortgage goes, no, as I said in my prepared comments, the mortgage performance for us came in largely as expected in the first quarter. The team continues to significantly outperform the market, but the actual revenue drive for mortgage was in line with our expectations. At this juncture, we continue to stick to our 15% total market down for the year. So, no little change there. So, it's just now a matter of the team continuing to what they've done for years, which is execute on NPI, execute on EGI, execute on Lean and deliver those goals. So, I remain very confident.

That's helpful. In my follow-up, as we consider the future, I understand we're not providing guidance for 2018, which is still some time away, but what factors should we be considering regarding growth as we approach that year? I'm also thinking about the mortgage sector and possibly the stronger 2017 class of NPI products that you have mentioned. Perhaps TDX will improve a bit as well. What are the advantages and disadvantages we should keep in mind for 2018? I believe many investors are curious about what that growth might look like.

Yes, Brett, just off the top of my head because you're right, that is a long way away. One thing you have is you got about 5, 6, 7 weeks of Veda this year we didn't have last year, which we'll anniversary that. We have anniversary that. That goes away. Mortgage, I got to believe that the majority of the mortgage will bottom out this year, maybe some stability next year, that could be a help. Number three, may have improvement with the classifieds. As you know, with the classifieds from '16, we launched extra few years to truly materialize and reach their full inflection points, so that should be a benefit, same with classified '17, so. I also think that if the economists are right and the parts of the world in which we operate, we just got an economic update the other day, that the economies that are important to us should continue to improve. And if they improve, our business improves.

Great. That's what I needed. Thanks for your time guys.

Great. Thank you very much. I wonder if you could just give us a sense. It sounds like trended data in mortgage is the largest opportunity. I'm trying to really frame out what it would be in auto and other areas as you roll that out.

Yes. Thank you, Kevin. We're optimistic. And we've talked about this now for about a year. I think the industry got a little ahead of itself in the optimism on trended data before the analytics was completed. We're largely, as I said in my prepared comments, completing that analysis very, very soon in the U.S. then we'll take it to other parts of the world where we're looking at verticals and the sub-verticals. So, auto versus prime vs sub-prime card, prime versus sub-prime versus neoprime, home equity so on, and so forth. So, this year, you should think of the revenue as far as the guidance goes, including trended data benefit from mortgage only will be the outer years, will get the lift in other verticals, but we're not prepared to frame that up yet.

Got it. Helpful. Just quickly, if we experience these changes in personnel, the corporate aspect will obviously be beneficial, but how would changes in personal income tax rates affect the business, especially TALX? Would this create additional revenue opportunities as we move through 2017 and into 2018, based on the new rates?

All right, by individual tax reform in the U.S., is that your question, Kevin?

Yes, sir.

In theory, when people have more cash available, they are more likely to spend it, which helps to drive economic growth. As the economy improves, our business also benefits.

Awesome. Thank you, guys.

Thank you. Good morning. For my first question, you mentioned the progress of the verification product in Canada. Could you provide an update on the potential timing for when it could be operational? What remains to be completed? Additionally, I understand this is more of a long-term consideration, but how does the potential size compare to what you anticipate seeing in the U.S.?

I missed that last part Andre, if you could…

How big you think that opportunity could be versus the business in the U.S, given what you've seen about, in that vein.

Overall, we're thrilled, as you know, with the overall progress in the context with the EWS in it. It's been an unbelievable home run for us. It's hard to believe it's been 10 years now. And the Work Number is one of the, obviously, the gems within that business. And long term, as you know, it is not just Canada. It's taking you to other developed parts of the world where we have a need. We've got a full-time dedicated team now. We've got dedicated technology platforms, we have strategies beyond Canada. So, expect to wake up in a few years and see us in far more than just Canada as we talked about Australia and other regions. Specific to Canada it's going well, as I alluded in my prepared comments; the contribution of records is exceeding our expectations. I caution everyone to think about that as a multi-year return and not a single return. And once you get into a country with a platform like that, your ability to add different products, to solve different problems for customers in that arena are expanded. So, the opportunity would be beyond just the Work Number and Verification Services in Canada and other parts will augment it with other products as well. But think of it as a nice way of a multiple years to continue to expand the size, the profitability of EWS.

And then on the opportunities for trended data outside mortgage, we understand you're kind of working through the sizing of that and what customers, ultimately, will want from you. Could you maybe talk a little bit about just based on what you're seeing so far, maybe a handicap, which ones you think are likely to become earlier contributors between all autos, cards and home equity?

I would think auto will be #1, followed by card and home equity. If I had a handicap, it seems similar order, and that's in the U.S. and we're still doing work outside U.S. Thank you.

Hey guys. Thank you. I think you mentioned you expected USIS to grow faster in the second quarter compared to the first. There seems to be some improvement in certain areas of the business, aside from mortgage. Can you provide more details on what you anticipate performing better as we head into the second quarter?

Yes. Tim, I'll start and John can add to it. But anytime you look at it, a particular quarter, particularly BU, you're going to see lumpiness. And that's probably what you've seen in the second quarter versus the first quarter of USIS is probably some contracts, new product innovation and USIS is ramping up. I talked about InstaTouch that's starting in USIS. Some fraud products that are being launched and will benefit in the second quarter. So, it's a variety of things you'll see in the second quarter that you didn't see in the first quarter. But again, I think the more important thing is to try to get context for the full year. And we gave guidance for USIS the framework for that back in February, and they're going to be in that range for the full year. So slightly maybe below, actually they're in the range in the first quarter. Will be above that range in the second quarter, but full year, solidly within the range.

And the growth is really across multiple segments, right? If you take a look at USIS, we think we're going to see expanded growth, generally speaking, across the bulk other segments, other than mortgage, right?

Okay. I believe you mentioned that the commercial segment was down. Was that just a timing issue for the first quarter?

Yes, John did say that in his prepared comments. And Tim, 2 things. Again, any context is important, commercial, small as you know is slightly down in the first quarter, but we're making a transition, as you know, from this platform exchange called SPFE to a new exchange called CFN. CFN is starting to ramp up. That has some impact for SPFE and you won't fully see CFN fully ramped up until later on this year. And as we exit this year and go into 2018. So that's what you're seeing this lumpiness during SPFE and CFN.

The nice thing about CFN at this point is in terms of the creation of the exchange and the contributors, it's just gone incredibly well. And we, at this point, have garnered the vast majority of the contributors we hoped to achieve, including Telcos, including other top side of the traditional banking industry. So, we think it's a superior exchange, and we're very happy with the way it's been built.

Well said.

Okay. Thank you.

Thanks. Good morning. Rick, could you give us an update on where you stand in Workforce Solutions and in terms of building out the number of work number records? And in connection with that, any insights you have into hit ratio on that business would be appreciated?

Thanks, David. I am excited. I was just in St. Louis last week for a review with Murray and his team, and the progress they are making is incredible. The establishment of partner relationships to solve problems and create a network effect is remarkable. I mentioned in my prepared comments today that we are now linking the credit data in the credit file with the Work Number records to enhance our ability to deliver value to the customer. In the past, I might not have found someone in the Work Number database, but by combining it with the credit file, I can improve that, provide a yes response, and share insights with the customer, which has proven to be extremely valuable and will drive our growth. We launched this product capability late in the first quarter. This integration allows us to augment credit data with the Work Number database, resulting in a better hit rate or positive response for customers compared to before. Everything is functioning smoothly out there.

Got it. And then just as a quick follow-up. On mortgage, we appreciate all the helpful detail. With Equifax's total mortgage revenue up 22% in the quarter against the down U.S. mortgage market, why shouldn't we expect this level of sustained outperformance to continue and perhaps, your expectations overall, for mortgage to turn out to be too conservative for this year?

Let me provide some insights on that. The mortgage market performed as anticipated in the first quarter. Additionally, if you examine the mortgage banker's index, which compares applications to volume, there is typically a delay in application activity compared to volume. We primarily focus on volume, which met our expectations. While we did exceed expectations, we believe we will continue to outperform in the second, third, and fourth quarters of 2018 as well. However, we do anticipate a decline in mortgage volume activity, likely in the mid-single digits for the second quarter and in the double digits for the third and fourth quarters, totaling around 15% for the year.

And keep in mind, right, we get the benefit from trended data pricing in terms of the lift for the first effectively two-and-a-half quarters of the year because we started shipping trended data in August last year.

And Dave, one last thing, we're expecting rate increases. We're expecting 10-year treasuries to go up, obviously, between now and year-end. If they don't go up as strong as we expect them to go, yes, you're right, that would be a tailwind for us. If they go up, or higher than we expect, that'll be more headwind, but right now I think we're in a balanced position.

What assumption do you have for 10-year treasury yields then, by year-end?

We're expecting it, and I'm not sure of the exact number, a couple I think two or three rate increases between now and year-end, David. Similar with what we were talking about, yes.

Okay. Thank you very much.

Thank you.

Good morning, everyone. This is Patrick in for Tony. It sounded like growth from the direct-to-consumer business came in maybe a little bit lighter than you'd previously expected. Do you think you're beginning to see an impact from the rapid growth of your indirect channels and partners like Credit Karma?

No. I think, again, this is lumpy but the thing maybe to frame is this, we gave a multi-year framework a couple of years ago. We have reinforced that framework last year and this year of 5% to 8%, and we do expect direct-to-consumer to be in that 5% to 8% for the year.

Got it. And then one quick follow-up, if I could. I'm wondering if you've begun to see a discernible change in demand for the employment and income inquiries since The Work Number became integrated into the desktop underwriter system late last year.

I don't know that. I don't think I have that trend. That's a great question, Patrick. And obviously, if any of you may, I don't have that answer off the top of my head.

No worries. Thanks Rick.

Thank you.

Hey guys. Good morning. I guess given the mortgage in ACA drag this year that you've talked about and what was obviously a benefit from mortgage last year, is it reasonable to say that your underlying organic revenue growth without that is actually accelerating solidly this year? Is that a fair assessment just from all the NPI success?

Can you ask that one more time to make sure we're clear on what you're parsing there?

If we consider the previous year's benefits from mortgage market volumes while also overlooking this year's negative impacts, and acknowledge that Veda contributed to growth last year, is the underlying growth excluding those factors accelerating? Given the recent NPI commentary over the last two-and-a-half years, it suggests that it should be, and I believe it is. Could you confirm that?

Last year's organic growth was quite high at around 12%. The mortgage market provided a benefit, and we also saw significant growth from ACA last year. When you analyze this, it's important to consider both factors to understand the outcome. The growth from mortgage and ACA contributed positively to last year's performance, but we won't see either of those benefits this year. Therefore, if you're excluding the mortgage impact, it could make for a challenging comparison.

So, the only thing with that is backing out mortgage and ACA, you'd expect to see organic constant currency growth rate well above, nicely above the long-term range in this year again.

Yes. Yes. It just seems to me if it was several points benefit last year, several points drag this year. You're actually doing better this year without those cyclical market factors from your organic underlying performance, but that's fine. That's good. I'll move on. On the Ignite product, the product launch, what's the revenue model? And can you help us understand how that works with customers? Is this more just increasing the stickiness by giving them more functionality in how they're using the product? And over time if they build new models themselves using it, that's an incremental revenue? Or is there actually going to be a charge associated with the two parts of that offering?

Thanks, Gary. Regarding Ignite, there are two distinct areas to consider. One is direct sales and the other is the marketplace. Direct sales have established an environment where both our data and customer data reside in the cloud. This allows more customers to access the data, and they pay for what they use, which also aids in developing new products for the marketplace. You can think of it like mobile apps that our business customers can download and use. There are generally two revenue streams: one involves a setup fee for creating the environment for customers, and the other is the payment they make when accessing the data. Financially, the model closely resembles what you see throughout the rest of the business, which revolves around utilizing our unique data assets.

Okay. Thank you.

Hi. Good morning, guys. Rick, your enterprise initiatives seem to be proving out really nicely. Can you sort of characterize the contribution from enterprise spending or enterprise clients in your current revenue composition? What it might tell us about where we are in the credit cycle or if that's even sort of relevant to the growth you've laid out?

Yes, I believe it is strategically important. Our goal is to integrate technical, analytical, and data aspects into our go-to-market strategy across various sectors to address customer challenges. For instance, if we take a piece of our USIS product and combine it with an EWS product, we can offer a bundled solution that no competitor can match. This comprehensive enterprise solution sets us apart in the market, allowing us to capture market share, adjust pricing, and increase revenue. While I don’t provide specific revenue breakdowns, I am confident that this approach is the right strategy. Most of the vertical markets we have pursued have been driven by USIS. As I mentioned earlier, we also have a government vertical where we possess greater expertise and stronger channels through EWS. EWS is now enhancing our capabilities to tackle these challenges. Therefore, it serves as a strategic advantage, and we do not disclose the exact revenue impact.

Okay. And with regard to auto in particular, what is the risk as you look forward in the back half of '17, maybe '18, if we are indeed at peaks are. What might that mean for revenue growth? Is that a call out, potentially the way mortgage in ACA are?

No, I don't think so for a couple of reasons. First, it's not nearly as significant. Second, our assumption is that we peak, particularly in the U.S. The guidance we provided last year, the framework we outlined in February, and what we are reaffirming today all assume new vehicle sales in the U.S. peaking around 17-something. I can't recall the exact number, but I don't anticipate that going up at all. That's already a new high for us. However, I do expect us to keep finding ways to partner with others who have connections and relationships with the channel partners we've talked about for a while, to help drive growth. In our prepared comments, we mentioned that auto and EWS were growth drivers for them, and I expect that trend to continue. So, to put it into context, it's nowhere near the size of the mortgage for us; the outcome will help with penetration; and these channel partners are crucial to us and a good source of growth.

Okay. Perfect. Thanks.

Hi John, could you just give us the Veda revenues for the first quarter and just give us some sense generally how you expect to do for the year?

Yes. We think for the first quarter, we gave it in the script, right? So those revenues, Asia-Pacific is virtually all Veda revenues. There's almost nothing that was there before. The performance of Veda was pretty much as we expected in 2016. I think we indicated when we acquired them long term, we're expecting them to grow kind of consistent with our growth rates, and we're very, very happy with the way they're performing and we expect them to perform on about that basis, as we look at '17 and beyond.

Okay. Thank you.

Okay. I want to thank everybody for their time and their interest in Equifax. And with that, operator, we will conclude the call. Have a great day.