Equifax Inc (EFX) — Q2 2019 Earnings Call Transcript

Thanks and good morning, welcome to today's conference call. I'm Trevor Burns, Investor Relations. With me today are Mark Begor, CEO, and John Gamble, CFO. Today's call is being recorded. An archive of the recording will be available later today in the Investor Relations section in the About Equifax tab of our website at www.equifax.com. During this call, we will be making certain forward-looking statements including 3Q and full-year 2019 guidance, 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 2018 Form 10-K and subsequent filings. Also, we'll be referring to certain non-GAAP financial measures including adjusted EPS attributable to Equifax and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. For the second quarter of 2019, adjusted EPS attributable to Equifax excludes accrual for legal matters related to the 2017 cybersecurity incident, cost associated with the acquisition-related amortization expense, the income tax effects of stock awards, recognized upon vesting or settlement, certain acquisition costs, and foreign currency losses from remeasuring the Argentinian peso denominated net monetary assets. Adjusted EPS attributable to Equifax also excludes legal and professional fees related to the cybersecurity incident principally fees related to our outstanding litigation and government investigations, as well as the incremental non-recurring project costs designed to enhance our technology and data security. This includes projects to implement systems and processes to enhance our technology and data security infrastructure. As well as projects to replace and substantially consolidate our global networks and systems and the cost to manage these projects. These projects that will transform our technology infrastructure and further enhance our data security were incurred throughout 2018 and are expected to occur in 2019 and 2020. Adjusted EBITDA is defined as net income attributable to Equifax adding back interest expense, net of interest income, income tax expense, depreciation and amortization and it is also the case for adjusted EPS, excluding accruals for legal matters related to the 2017 cybersecurity incident, costs related to the 2017 cybersecurity incident, certain acquisition costs and foreign currency losses from remeasuring the Argentinian peso denominated net monetary assets. These non-GAAP measures are detailed in reconciliation tables which are included with our earnings release and are also posted on our website. Now I'd like to turn it over to Mark.

Thanks, Trevor, and good morning everyone. As you know, this was a busy week in the quarter for Equifax with Monday's settlement announcement, and our focus during the quarter on driving growth, operations in the EFX 2020 technology and security transformation. Before I get into a discussion of our second quarter financial results in the business units, let me spend a few minutes discussing the announcement we made on Monday about the legal settlements we made in connection with the 2017 cybersecurity incident. Monday's announcement was a real milestone and pivot for Equifax, which allows us to fully focus on operations, driving growth in our EFX 2020 technology and data security transformation. The comprehensive resolution we announced is comprised of multiple related settlement agreements with the consumer class action plaintiffs and the federal Multi District proceedings, the attorneys general of 48 states, Puerto Rico and the District of Columbia, the Federal Trade Commission, the Consumer Financial Protection Bureau, and the New York State Department of Financial Services and resolves the claims and investigations brought by these parties related to the 2017 cybersecurity incident. As you recall from our first quarter earnings call in May, we recorded an accrual of $690 million for expected losses associated with certain legal proceedings and government investigations related to the 2017 incident. Principally as a result of the comprehensive settlement announced on Monday, we increased the accrual by approximately $11 million in the second quarter of 2019, resulting in total charges of $701 million. This amount excludes the cost we have incurred to date offering free credit monitoring to US consumers in 2017, 2018 and 2019 for which we've already taken charges. Details of the settlement and related costs are available in the 8-K we filed on Monday. Importantly, the settlement program establishes a single consumer restitution fund that will be available to pay consumer benefits and legal fees and expenses, in addition to the protections provided by Equifax immediately following the 2017 cybersecurity incident, including free credit monitoring and our Lock and Alert service. A single consumer fund was a real priority for Equifax and is a win for consumers. The consumer restitution fund will be available to pay for four years of additional three-bureau credit monitoring for consumers whose information was impacted by the 2017 breach, actual out-of-pocket losses related to the breach, and other consumer benefits such as identity restoration services. Equifax will also be providing free single Equifax bureau credit reports for up to an additional six years. There are two circumstances in which Equifax could incur costs in excess of the $300 million consumer restitution fund. First, to the extent that more consumers enroll in credit monitoring than contemplated in the consumer fund, Equifax would have to fund this cost. The fund is structured to cover credit monitoring enrollees of up to seven million. Second, to the extent consumer out-of-pocket losses exceed the amounts available in the fund, Equifax would have to fund the amount of these incremental losses up to $125 million. And as a reminder, we have not identified any instances of data being used for identity theft purposes or the data that was stolen being sold on the Dark Web. Our expected total $701 million accrual does not include any provision for Equifax incurring incremental costs for either of these two items, because we believe that $300 million in the consumer restitution fund will cover the expected costs. The settlement represents resolution of many of the significant legal and regulatory issues facing the Company related to the 2017 cybersecurity incident, including the consumer class action and investigations by state Attorney Generals, New York state DFS, and our principal US regulators CFPB and FTC. There do remain other unresolved claims and litigation related to the 2017 incident; a listing of these claims can be found in our 10-Q which we'll file later today. We intend to work with all the parties to bring these remaining matters to closure as soon as possible while balancing the needs of our company, employees, customers, and shareholders. As you know, we prepared ourselves financially for this settlement by strengthening our balance sheet, including suspending our stock buyback program and freezing our dividend in 2017. Our current plans are to finance the settlement payments with existing borrowing capacity under our revolving credit and securitization facilities. As of the end of the second quarter, we had approximately $1.1 billion of borrowing capacity available to us. John will provide more details on the expected timing of the payments and impact on our second half guidance in a few minutes. This is a very positive step forward for Equifax and for our shareholders. The settlement will not have an impact on our $1.25 billion technology and security program, our internal investment plans, new product introductions, payment of our quarterly dividend at the current rate, or our plans to grow and expand Equifax through acquisition. This resolution allows us to fully focus on the future. Let me move now to our results for the second quarter. We were very pleased with our second quarter financial results as revenue was at the top end of our guidance and adjusted EPS was above the range we provided in May. These financial results are another positive step forward for Equifax. Revenue of $880 million was up 3% in constant dollar currency and up just over 1% on an organic constant currency basis, and the strongest results since the cybersecurity incident in 2017. During the quarter, US mortgage market inquiries were up about 2% compared to the prior year, better than our projection of down 1%, resulting in about $5 million of additional revenue in the quarter versus our May guidance. However, FX further weakened during the quarter relative to our May guidance, impacting revenue negatively by about $2 million. Overall, the strength in the quarter was driven by our US B2B businesses, USIS, and Workforce Solutions. In the quarter, both USIS and EWS performed better than we expected. Both businesses performed extremely well online with USIS online up 10% in total and 6% organically. And Workforce Solutions verifier revenue was up a very strong 15%; both businesses grew their non-mortgage online business stronger than we expected. In addition to benefiting from the stronger US mortgage market. In total, our US online business, which includes USIS online, EWS verifier, and the GCS partner business represents half of our total revenue and is expected to grow about 10%. International was weaker than we expected in the quarter, particularly in the UK, I'll provide some more details on that in a minute. Adjusted EPS of $1.40 a share was above the top end of the guidance we provided in May, given lower than expected corporate expenses and slightly better than expected business unit margins from the stronger revenue growth. In the second quarter, total non-recurring or one-time costs related to the cybersecurity incident and our transformation exclusive of any accruals for legal matters related to the 2017 cybersecurity incident, which I discussed a few minutes ago were $82 million and consistent with our expectations. This includes $70 million of technology and security spending and $12 million for legal and investigative fees. We expect 2019 one-time costs related to the cybersecurity incident in our EFX 2020 technology and data security cloud transformation, exclusive of any legal accruals to be just over $350 million. To the extent we are able to provide to further accelerate data exchange or Cambrian Ignite deployments into our cloud data fabric at Google or customer transitions to our interconnect API decisioning engines at AWS or Google, spending could exceed these levels. Shifting now to USIS. USIS revenue was up 2.5% on a reported basis, and down slightly on an organic basis compared to last year, but better than we expected. With USIS revenue, organic revenue up 1% excluding over 1 percentage point negative impact from the mix shift in our mortgage business in the mortgage market. Importantly, we saw solid single-digit organic revenue growth in our USIS segment for the first time since the cyber incident. This is a very positive sign for USIS. Sid Singh and his USIS team are back in growth mode and are showing some positive commercial traction in activity. USIS online revenue was up almost 10% on a reported basis and up almost 6% on an organic basis, reflecting solid growth in our government and insurance verticals and double-digit growth in identity and fraud solutions aided by new product sales. This is a very positive sign of USIS recovery in the marketplace. Online organic revenue growth, excluding the favorable impact of the mortgage market mix shift, was still up over 3% compared to last year. This was the first quarter of positive online organic revenue growth since prior to the breach. A very positive sign as we return USIS to a growth mode. Mortgage Solutions was down 22% in the quarter due to the mix shift we have discussed previously with mortgage resellers, which occurred in the fourth quarter of 2018. Mix shift had a negative 2% impact on USIS revenue growth in the second quarter, while the USIS operating profit was not materially impacted. We expect the revenue headwind from this mortgage mix shift to continue for the remainder of 2019. Financial marketing services was down 7% compared to last year and was weaker than we expected. As we indicated consistently in our May discussion, our financial marketing services revenue is choppy, as the timing of closing deals is still not as predictable as it was prior to the cybersecurity incident. In the first quarter, FMS revenue was up 6% as we closed some large transactions. For the six months of 2019, FMS revenue will be down about 1%; this six-month view has been relatively consistent for the past several quarters at about flat and much better than we saw in the six months through the third quarter of 2018, where revenue was down about 6%. Looking forward to the second half of 2019, we expect growth in FMS as our strength in sales efforts drive growth off the relatively stable and flat base we have seen over the past nine months. In terms of customers, the USIS team is back on their front feet with growing new deal and new product pipelines, as we saw with strong online growth this quarter. USIS new deal pipelines are up 2X from January 2018 and up over 30% from December 2019, which is a very positive sign for the second half in 2020. We continue to believe that our differentiated data assets coupled with our technology investments will return USIS to its traditional growth mode, but we do remain cautious on the pace of the recovery. USIS adjusted EBITDA margins of 45.6% were down about 200 basis points from second quarter '18, primarily driven by increased royalty costs as well as the continued investments in security and data analytics to drive new product sales. USIS continues to very effectively manage SG&A costs while at the same time increasing the percentage of resources dedicated to sales DNA and NPI and product development to drive growth. Shifting now to Workforce Solutions, they had another very strong quarter with revenue up almost 11% compared to last year and better than our expectations. Verification services delivered extremely strong results with revenue up 15% driven by strong double-digit growth across healthcare, talent solutions, mortgage, and government. The strong verification services revenue growth reflects the continued growth in Work Number active records as well as the new products and further penetration into key markets. EWS has a deep and growing pipeline of new twin contributors that they expect to add to their growing database in the second half of 2019. As you know, twin records are monetized virtually immediately as they are added to our database and increased hit rates on our twin file. Employer services declined in the quarter less than 1%, consistent with our expectations, driven principally by workforce analytics, our ACA business as well as our unemployment claims business. This was as expected with the strong employment market in the US. Offsetting the decline in workforce analytics, we saw slight growth in our I-9 and onboarding business. As we indicated last quarter, we expect employer services revenue to be down low single-digit percentage for the full year. The strong verifier growth resulted in very strong adjusted EBITDA margins of 49.3%, an expansion in the quarter of 170 basis points. We expect EWS EBITDA margins to continue to be very strong in the second half. EWS continues to perform very well and is a franchise business for Equifax. Shifting now to international, where revenue was flat in local currency and down 8.5% on a reported basis and below our expectations. Canada continued to perform well, consistent with our expectations. Australia declined in the quarter as we expected and we are seeing signs of stabilization in that market. However, the UK performance was much weaker than we expected and although Latin America showed improved growth, the improvement was less than expected. Asia Pacific, which is predominantly Australia, declined and expected 5% in local currency in the quarter, principally related to the weakening we began to see in the third quarter of '18 in Australia, consumer lending, particularly mortgage and other consumer and commercial credit markets in Australia. We are beginning to see stabilization in the Australian market following their election, a few months ago, but we expect market growth to remain weak through the bulk of 2019, although the revenue growth impacts will begin to lessen in the second half as we approach the period of their initial decline in the third quarter of 2018. As I mentioned, we are seeing some positive signs in the Australian marketplace including lower interest rates and regulatory actions that have been taken that we believe may stimulate consumer and commercial credit demand in the second half. We are also making very good progress on positive data in Australia and by the end of this year, we expect to have in excess of 80% of positive data from contributors. Shifting now to Europe, our European business declined 3% in local currency in the quarter, a much weaker performance than we expected. The UK debt management business drove the largest portion of the decline, principally due to the deferral of debt placements by the UK government, which were not received until late June. As these debt placements were received late in the quarter, they did not generate the expected revenue from collection activity in the second quarter, but will deliver revenue in the second half. Our European credit business was down 1%, much weaker than the mid-to-high single-digit revenue growth we have seen over the last year. Online, which represents about half of credit revenue, grew about 5%, which although reasonable growth was down from stronger growth we've seen over the past year. Project revenue also declined in the quarter due to timing of some deals that shifted into the third quarter as well as some customer delays we're starting to see as a result of the Brexit uncertainty. Absent substantial weakening in the UK economy in the second half, and as the Brexit approaches and hopefully gets resolved, we're expecting to see a recovery in the growth of our European business, and UK business. Debt management is expected to see growth due to the debt placements from the UK government received in late June and expected growth over the remainder of 2019. And our credit business is expected to recover in the second half of 2019 due to solid deal pipelines and a much stronger leadership focus on improved execution. Shifting now to Latin America, our business grew about 7.5% in local currency in the quarter. This has improved from first quarter growth of 5% but weaker than expected, principally in Chile. While we saw high single-digit growth in Chile this quarter, a couple of deals in NPI launches were delayed into the third quarter. We did see double-digit constant currency growth in Argentina and Ecuador and high single-digit constant currency growth in Paraguay and Chile, which was positive. We expect growth to accelerate in the second half as our Latin America businesses benefit from the expansion of Ignite and InterConnect SaaS rollouts and strong NPI rollouts in both 2017, 2018 and the first half of 2019, shifting now to Canada, which grew almost 9% in local currency in the quarter, reflecting a continued focus on customer innovation and new products and we expect this growth to continue through the rest of the year. We recently announced that our Canadian leader Lisa Nelson will be transitioning to take over our Australia business in about a week. Lisa has done an outstanding job bringing our Canadian business to market leadership through an intense focus on the customer. We're excited to bring this customer-focused leadership to Australia. International adjusted EBITDA margins at 28.6% were down about 190 basis points in the quarter, principally reflecting lower revenue and margins in Australia and the UK and slower growth in Latin America, partially offset by margin expansion in Canada. Importantly, EBITDA margins were up sequentially 330 basis points, reflecting strong revenue growth in Canada and improved sequential margin in Australia from the fourth quarter and first quarter cost actions. We expect revenue growth in international to improve significantly in the second half, driven by continued good revenue growth in Canada, accelerated growth in Latin America and a return to revenue growth in the UK and Australia. We believe this improved revenue growth along with the full benefit of the cost reductions taken in the fourth quarter of last year and first half of this year will significantly improve margins in the second half of 2019. We're watching our international business closely, particularly the Australian economy and the UK Brexit impact. Shifting now to Global Consumer Solutions revenue declined 6.5% on a reported basis and 6% on a local currency basis in the second quarter, which was slightly better than our expectations. Our global consumer direct business was down about 6.5% and it was just under half of our total GCS revenue. Our US consumer direct business saw revenue declines of 8% versus 2018 in the quarter as a result of the suspension of US consumer advertising in the fourth quarter of 2017 after the cybersecurity incident. As you know, GCS began limited direct marketing to US consumers in late 2018. And we are starting to see subscriber growth from our restarted marketing and importantly US consumer direct revenue was up 3% sequentially. We expect to see US subscriber growth increase as we continue advertising in the year unfolds. In our Canadian and UK direct businesses, both also saw sequential revenue growth. Our GCS partner business, which is about half of total GCS revenue, declined 4.5% in the quarter through the timing of some project-related revenue with customers that occurred in the first quarter. We expect partner revenue to return to growth in the third quarter. We expect GCS revenue to be up slightly in the second half as we lap the periods where consumer direct revenue began to stabilize in 2018. Adjusted GCS EBITDA margins declined as expected in the quarter as we saw the effective revenue loss and an increase in advertising. We expect margins to increase in the second half as we see the benefit from stable and growing revenue as well as cost actions taken in the fourth quarter of 2018 and first quarter. Our GCS business is making solid progress recovering from a challenging 2018. Now for an update on our EFX 2020 technology transformation plans. As you remember, there are five significant pillars to the cloud transformation and I'll give you a brief update on each of them. First, we're moving our credit and other data exchanges to a standard data fabric at GCP. In the second quarter, we saw a significant milestone, as our data fabric pattern based on GCP native tooling and including our full security stack was completed in the new GCP cloud format and made available to our business units to begin migrating their data exchanges to this new cloud environment. Our USIS and EWS teams as well as our Canadian and corporate teams are actively working on migrating critical data exchanges to our new GCP cloud-based data fabric. Although data fabric was made available slightly behind schedule, we remain on track to migrate several of our US and EWS exchanges including replicas of the US consumer credit exchange or ACRO, the Work Number exchange, NCTUE exchange, I-9 and unemployment claims databases to the common data fabric in the third and fourth quarters of this year. Also, beginning in July, any new datasets will be able to be directly ingested into our new cloud-based data fabric. We are at a place where our migrations are now beginning to be tied to new customer workloads, so we will continue to update our delivery to align to near-term customer projects. As we discussed, moving from siloed databases, in the US, for example, we have close to 50 siloed databases, to a single data fabric in the cloud will enhance the speed and ease of accessing our differentiated data assets for our customers. It will also allow us to add more differentiated alternative data assets to enhance decisioning for our customers. Second, we made very good progress and continued the integration of our Ignite analytics environment and InterConnect interfaces and decisioning production platforms at EWS and soon in the Google Cloud. We've completed initial implementation of attribute services in Ignite with open-source production languages so that clients and customers can develop attributes in open-source language and seamlessly deploy into Equifax platforms. We are well on our way to having both online and offline seamless integration completed in the fourth quarter. The integration of Ignite and InterConnect will give Equifax a market advantage around speed and ease of moving from modeling directly to production. Third, we are continuing to migrate customers from legacy decisioning and interface systems onto our cloud-native Ignite, InterConnect SaaS product suite. Progress on this effort is now accelerating. For example, USIS continues to deploy the new cloud-native products on to which they will migrate existing customers. Although we were slightly behind schedule on completing these standard patterns and migrating customers, we still expect to complete the migration of a significant majority of our customers by the end of this year and continuing into 2020. Fourth is our network migration. In the second quarter, we achieved another significant milestone enabling dual redundant high-speed cloud integrations in the US, which will allow us to move traffic securely and directly between our cloud vendors and from our cloud vendors to Equifax to substantially improve network performance and strengthen security. This is a critical step in taking full advantage of the virtual private cloud strategy, enabling us to begin to eliminate our legacy technical debt. We will expand the use of this capability in the US over the rest of the year and into 2020, as well as deploying this capability in Canada, Europe, Latin America, and Asia Pacific in the second half. And last, our global consumer systems and customer and consumer support system migrations continue to progress as planned. While many of the support applications that are customer-facing, they are expected to significantly enhance the efficiency of our sales organization as well as the operational effectiveness of our client delivery and call center teams. In the fourth quarter, we launched the myEquifax consumer portal and we are quickly adding consumer accounts to this new database. The new capabilities will enhance our customer service and allow for low-cost cross-sell of Equifax or partner products to consumers. Last quarter, we started to discuss some of the benefits we expect from the EFX 2020 technology transformation to the cloud. We continue to find our view of the top and line benefits and John will update you on our current thinking. But we continue to be energized about the benefits that will be delivered by the cloud transformation to both our top and bottom lines. I hope this gives you a sense of the positive progress we are making in our technology transformation that will deliver new cloud-based technology to our customers. We remain committed to strong progress against our milestones in the second half. I also want to give you a quick update on our progress with FICO on the commercial and technology partnership we announced in March called Data Decisions Cloud. Our teams are working extremely well together and making great progress both on the technical integration of our capabilities and the commercial discussions with our joint customers. The first three joint product launches include number one, connected platform which integrates FICO's Decision Management Solution with Equifax's Ignite decisioning sandbox, InterConnect and Equifax data in a cloud environment. We believe this combined solution will deliver functionality that is not available in the marketplace today. Second, AML Connect will integrate Equifax's differentiated data with FICO's AML and KYC platform to offer a full-service end-to-end compliance offering that we believe will offer best-in-class search match capabilities and insights to the marketplace. And number 3, Pre-Screen Central integrates FICO's marketing solutions suite with Equifax's differentiated consumer data to deliver a current turnkey direct marketing solution through our joint customers. We're making great progress on these three new product collaborations and expect to identify additional ways to leverage our joint capabilities in our FICO partnership for new product offerings in the future. Shifting the new product innovation, this remains a key component of our strategy and a long-term muscle for Equifax. We have an active pipeline of over 80 NPIs and new products at various stages in the funnel and we expect to launch about 60 new products in 2019, which is a similar pace from the past three years. While new product introductions primarily came from international markets last year, about 40% of the new products introduced this year are from our US businesses. This is a good sign as we collaborate with customers to bring new products to market. On the M&A front, in May, we announced the acquisition of PayNet, a leader in unique commercial lending data and insights. Customer feedback on the PayNet assets is very strong, and integration activities with USIS are proceeding very well. Our USIS data acquisition from July 2018, which brought a unique set of US near and subprime consumer data is also performing well and ahead of plan. M&A is an important growth lever for Equifax and we continue to look for new opportunities to expand our data sets around the globe through M&A. So wrapping up, this was a pivotal quarter for Equifax, during which we delivered several important steps forward toward our goal of returning Equifax to market leadership and growth. Number one, Monday's legal and regulatory settlements was a big step forward for Equifax by resolving significant issues including the consumer class action, state Attorneys General, FTC, CFPB and New York Department of Financial Services facing us following the 2017 cyber event. This resolution allows us to more fully focus on operating and growing Equifax and driving our technology and data security transformation. Second, the second quarter was a solid performance for Equifax operationally. EWS delivered very strong top-line verification growth with expanding margins and it's a clear franchise business for Equifax. USIS took another big step toward recovery with 2.5% growth and 10% online results. We are focused on second-half execution in International after disappointing second quarter results with some macro headwinds in Australia, Argentina, and the UK. Third, we continue to execute on our EFX 2020 cloud technology and data security investments. As we discussed last quarter, we are convinced that our move to the cloud will differentiate Equifax from competition and deliver always-on capabilities, bring speed of new products to market, allow us the ability to move products and technology more quickly across our global platform, and we expect the investment to enhance our revenue growth and deliver double-digit savings to our technology spend and capitalized development costs. And last, we continue to execute on our strategy of adding strategic acquisitions. PayNet is a great example of the kind of bolt-on acquisitions we will look to add to the Equifax portfolio. And looking for ways to leverage our differentiated assets and decisioning capabilities through partnerships like FICO. We know we still have a lot of work to do, but we are energized about the momentum behind our EFX 2020 initiatives and we expect continued positive operating progress through the balance of 2019. I'm more excited than ever about our future as a market-leading data analytics and technology company. John will share more detail, but we remain committed to our prior 2019 guidance, adjusted for the financing costs from the settlement payments. With that, let me turn it over to John.

Thanks, Mark, and good morning, everyone. I will generally be referring to the financial results from continuing operations represented on a GAAP basis, but will refer to non-GAAP results, as well. As Mark covered our overall results and the business unit details, I'll cover some corporate items overall margins, free cash flow, and our guidance. The finalization of the Consumer Settlement was a significant step forward for Equifax and we now have a clear view of the timing of near-term payments including to the MSAG, CFPB, and NYDFS and the initial $25 million contribution to the consumer restitution fund. In total, we expect to make about $350 million in payments in 3Q'19 against the $701 million in charges taken in the first half of '19. We intend to fund this initially with commercial paper issuance and have included related interest expense of about $0.03 per share in second-half '19 in our guidance. The timing of the remaining approximately $350 million payment to the consumer restitution fund is uncertain, but not expected to be made before 1Q '20, and we therefore have not included any interest costs related to this payment in our guidance. As Mark mentioned, we continue to make good progress with our technology transformation. This includes progress in estimating cost savings, we hope to achieve, when we have fully executed the transformation and the incremental capital to execute the transformation is fully depreciated. There are two areas in which we initially see savings. First, we have estimated the savings we hope to achieve in the technology portion of our cost of goods sold. Based on analysis of cost to operate our US consumer credit exchange at GCP in a virtual private cloud versus our current premise-based system. This analysis was done both working with our technology partner GCP and compared to general studies from industry consultants. Based on this analysis, we hope to achieve savings in the technology portion of our cost of goods sold of 15 plus percent. For perspective, our technology costs represent just over half of our total cost of goods sold excluding any one-time costs related to the technology and data security transformation. Second is development capital and expense. The move to dramatically more standard cloud-native offerings should substantially reduce our cost to develop and deploy new products and applications. Our belief is, on the order of 25%, this impacts both development capital and expense. We will continue to refine our view on cost savings in the second half when we cost our EWS twin database on the data fabric. We remain energized about the top and bottom line benefits of our technology transformation. For all of 2019, US mortgage market inquiries are expected to decline slightly versus 2018, which is stronger than the down 2% we had expected in May. 2Q '19 inquiries were up 2% versus the down 1% we had expected in May; increases in 3Q '19 and 4Q '19 are expected to be up 3% and 4%, respectively. We are on track to deliver the savings from the resource realignment we executed in 4Q '18 and first half of '19. Total savings from the two combined actions are expected to exceed $60 million in 2019 with second half savings exceeding first half by about $10 million. Savings were generated across FX, but were most substantial in corporate international and at Workforce Solutions. In the second quarter, general corporate expense was $135 million excluding the non-recurring costs associated with the 2017 cybersecurity incident and technology transformation; the adjusted general corporate expense for the quarter was $68 million, up $5 million from 2Q '18, but better than we had expected. The increase versus 2Q '18 predominantly reflects the increased investment in security and transformation and related technology, as we ramped up those costs in first half '18 and increased variable compensation given the timing of hiring certain executives last year. This was partially offset by savings from our 4Q '18 and 1Q '19 restructuring plans. We expect 3Q '19 and 4Q '19 corporate expenses on average to be at the levels similar to 1Q '19. Adjusted EBITDA margin was 33.7% in 2Q '19 down 130 basis points from 2Q '18 and better than our expectations. As we discussed in May and as is covered in Mark's results comments, the decline in overall adjusted EBITDA margins year-to-year is principally driven by global consumer, principally due to the reduced consumer direct revenue and a return to marketing spend in 2019. We expect substantially improved margins at GCS in second half of '19 as revenue begins to recover and they benefit from cost containment actions taken in the first half. International and USIS also saw margins decline, but to a much less extent than GCS. Strong growth in margins at Workforce Solutions partially offset these declines. For 2Q '19, the effective tax rate used in calculating adjusted EPS was 24.6% in line with our guidance. We expect our calendar year '19 tax rate used for adjusted EPS to be just under 24.5%; 3Q '19 tax rate should be below 23%. In 2Q '19 and first-half '19 operating cash flow of $217 million and $248 million were down $18 million and $107 million, respectively, from 2018. For both periods, these declines were more than driven by the following non-recurring items. In 2Q '18 and first half '18, Equifax received $45 million and $80 million respectively of insurance proceeds offsetting costs incurred related to the cybersecurity incident. Equifax received no proceeds in 2019. 2Q '19 and first half '19 investments in security and transformation of $82 million and $179 million were up $10 million and $28 million respectively from 2018. Payments in 2Q '19 and the first half of '19 related to the $57 million of charges taken in 4Q '18 and 1Q '19 for cost reductions were $10 million and $21 million respectively. Capital spending or the incurred cost of capital projects in 2Q '19 and first half of '19 were $103 million and $98 million, up $11 million and $49 million respectively from 2018. We expect capital spending to be about $385 million for the full year, higher than our original guidance of $365 million reflecting incremental spend on our technology transformation. Excluding payments related to settlements of litigation or regulatory actions, as we look forward, we expect to deliver positive free cash flow in the second half of '19 and for the full year 2019 free cash flow should exceed $200 million. Now turning to our guidance for 3Q '19 and full year 2019. For 3Q '19, we expect revenue to be $865 million to $880 million, up 4.5% to 6% in constant currency. Mortgage inquiries are expected to be up 3% and FX is expected to negatively impact revenue by about 1.5%. Adjusted EPS is expected to be $1.41 to $1.46 per share. FX is expected to impact adjusted EPS negatively by $0.02 per share and lower tax benefits in 3Q '19 versus 3Q '18 are expected to negatively impact adjusted EPS by about $0.06 per share. Our improved revenue growth in 3Q reflects growth acceleration at USIS, continued strong growth at Workforce, international moving back toward more normal growth levels, and GCS moving back toward flat revenue. Adjusted EPS also returns to growth in 3Q. This despite tax is representing about a $0.06 per share or 4 percentage point headwind versus 3Q '18. 3Q '18 had a low tax rate of below 19% due to discrete benefits that will not be repeated in 3Q '19. We are seeing nice growth in operating income in the quarter. The full year 2019 guidance we provided in March and May of this year excluded the impact of any significant settlement charges. This quarter, we are including in our guidance, the financing cost of funding the Consumer Settlement. Our 2019 guidance ranges for Equifax revenue is unchanged from the previous guidance we provided in May with revenue between $3.425 billion and $3.525 billion. Our adjusted EPS guidance range is being adjusted by the $0.03 per share for the cost of financing the Consumer Settlement, and is now between $5.57 and $5.77 per share. We expect revenue to be above the midpoint of the range and adjusted EPS to be toward the bottom of the range. Our guidance for 3Q '19 and 2019 implies a strong 4Q with better than seasonal sequential growth in revenue and operating profit. Looking at 4Q revenue, we expect strong sequential growth to be seen in USIS reflecting the normal seasonal growth in financial marketing services and a better than normal sequential performance in online. Workforce will continue to show strong growth, better than their seasonal pattern, particularly in verifier, and international should show sequential growth in 4Q, but consistent with seasonal patterns. GCS revenue is expected to strengthen as we move through 2019. In terms of operating profit, we expect the 4Q '19 stronger than seasonal sequential revenue growth to deliver stronger than normal sequential BU operating profit growth. This, along with the cost reductions announced in 4Q '19 and first half '19, and cost containment actions being executed will further benefit sequential margins in International, GCS, and Workforce as well as corporate. Delivering our second half performance requires strong execution across our commercial teams as well as a continued focus on firmly managing costs throughout 2019.

Thank you, good morning, everyone. Mark, in your prepared remarks, you mentioned that you are still a bit cautious. Could you elaborate on that? Is the recovery or the improved results you're observing more of a catch-up from previous losses? Additionally, could you provide more insights into the competitive environment and any improvements in your visibility?

It's a great question, Manav. We're still being cautious. We've had three quarters from USIS where performance has met or exceeded our expectations, including the second quarter, which showed strong online growth. The growing pipeline in USIS is also encouraging, and we're pleased with our new leader. However, looking at some of our businesses, such as the financial marketing services, we saw a strong first quarter which exceeded our expectations due to a couple of large deals. Yet, in the second quarter, they fell below our expectations, and that business is still recovering. Overall, the second quarter was a solid step forward for USIS. We're competitive in the marketplace with our yield pipelines up 30% from the end of last year and double what they were 18 months ago. We're glad to be back in the market. Our leader is experienced and bringing strong commercial leadership, but rebuilding relationships takes time. While we're seeing some progress in our deal closing pipeline, it hasn't returned to historical levels, which we continue to monitor. We've provided our guidance for the second half, expecting that this business will keep growing and recovering as we move forward.

Got it. And then just another one from me. Just on the tax savings you talked about or at least referred to, just to clarify, like, maybe some color on the timing around which, do you think you can get there? Is that the end state or is that kind of what the project should deliver without the other costs along the way where we might not see the absolute 16% and 25% that you guys referred to.

We are aiming to provide clarity on the expected outcomes of our cloud transformation. Over the last 90 days, we've begun sharing with you and other investors the potential cost advantages we anticipate, which are quite significant. When discussing these cost benefits, we've referenced reductions of 15 to 20 percent in our tech costs and 25 percent in our development costs on a run rate basis once the project is fully completed. While we are not ready to share details beyond 2019, we anticipate these benefits will extend into 2019 and 2020 as we continue the full implementation of this technology transformation. However, we cannot yet specify when these benefits will positively impact our bottom line. We are also evaluating the anticipated topline benefits, such as our always-on capability, faster market entry, and global product mobility, which should also enhance our topline. There will be additional costs associated with this transformation, reflected in our guidance for both 2019 and 2020. We expect to see benefits as we phase out legacy systems this year and next, and we will provide guidance on the overall transformation once we are prepared. We believe this will have a notably positive impact on Equifax. Thank you. Thanks, Manav.

Hi, thank you for taking my question. First one is just about guidance for EPS for the year. I just wanted to make sure I understood that the total change to guidance was simply because of the interest expense related to the settlement or is there any other shifting of costs, perhaps an acceleration of the tech, tech spending, as you mentioned the 350?

The guidance that John shared is we're sticking to our prior guidance with only the change of the financing cost we have from the settlement payments in the second half. That's the only change we are making.

Okay, perfect. And then my other question was just around USIS margins, you had a lot of helpful color on margins in the other segments as well as revenues. I was just wondering if you could help us think through more specifically USIS margin expectations for the back half of '19.

Yeah. So our expectation is I think we've mentioned in the script is we're expecting USIS margins to also improve as we get through the back half of '19. As their revenue continues to grow, since we're seeing nice growth in online, the expectation is, we'll see continued improvement in margins as the online variable margins are very high.

Great. Thanks so much. Hey, really helpful color on the TTI initiative around the expense. I know it's early in terms of quantifying what the revenue could be, but is there a way to kind of frame it relative to kind of NPI where you'd expect it to be above that? And then just within the context to the FICO partnership, when should we start to see the revenue associated with that kind of start to come into the numbers, and I don't think there's anything in the guide for that, is that right?

Yeah. Thanks, Kevin. On your first one, we're not ready to talk about what our expectations are around the revenue. And we tried to give some color on the expense benefits from our cloud transformation. So, I guess, stay tuned. As we work to refine that, we want to share that with you as we bring it forward. But we clearly believe it's going to be positive for Equifax on the top line and that's as far as we've gotten on that. On the FICO partnership, we're in the marketplace, we've got joint deal pipelines, we haven't landed any revenue yet, nor have we given any revenue guidance on that, and my guess is it we won't give specific guidance on that revenue. It will be a part of Equifax's revenue and of course FICO is going to benefit from it too as part of our joint revenue sharing in that. But I just wanted to give an update to you and other investors that that project is continuing, there is great momentum with it and there's really positive customer reaction to it, particularly around the Data Decisions Cloud where we're combining FICO's decisioning software with Equifax's Ignite, InterConnect, and Hardline piping in our data. And we believe that there'll be a set of customers that are going to really be attracted to that turnkey solution as well as the other products that we're working to bring to the marketplace.

Hey, good morning, guys. Wanted to ask on the international side, specifically for APAC now, as the comps see in the back half of the year, it sounds like you're expecting a return to modest growth over the back half, but then as we start going into 2020 and all the progress you've made related to positive data, would you expect positive data initiative to benefit APAC growth in as early as 2020?

We are not ready to provide guidance for 2020 just yet, but we have consistently stated that we believe positive data will be beneficial for our business in Australia, and we anticipate some advantages in the second half of the year. As we approach 2020, we will offer more insights on that, but it fundamentally relates to the idea that more data will be appealing for us, as well as for our customers, leading to increased revenue opportunities.

Okay. John, just to clarify, the USIS revenue growth is at 2.5% as you mentioned, but if we examine that organically, it's slightly down, perhaps around 50 basis points or so. Adjusting for the impact from mortgage solutions due to the mixed shift, which is somewhat voluntary, and considering the benefits you've received from mortgage during the quarter, can we conclude that on a normalized basis, USIS is relatively flat?

Now, it's up about one, right. I think we try to put that in the script. I think it's up about one. And again, as you look forward, right, so we're seeing nice progress in online as Mark talked about quite completely and then the financial marketing services was down in the quarter and we expect to see growth in financial marketing services when we get into the back half. So when you think about why are we getting comfortable that we're going to see some improved growth out of USIS? It's really the momentum in online and then financial marketing services starting to grow again. And those two pieces that we need to deliver on, clearly, it requires execution. As Mark said, lots of execution for that to be true, but that's the basis on which we're getting comfortable we're going to see improved performance in the back half.

Okay, thank you.

Thank you. I'm still not completely clear on the EPS guidance. You mentioned you lowered it by $0.03 due to interest expense, but you exceeded expectations this quarter by about $0.05, and now you're indicating you'll be at the lower end of the range. I'm trying to understand this as being about $0.15 lower than expected, and I'm not quite grasping what is causing that change.

Our full-year guidance, as we said, was only adjusted for the $0.03. Yes, we had a good quarter and as we talked about last quarter, right. For us to deliver the full year, we needed to have very strong execution as we were expecting substantial improvement in USIS and then across the business broadly. And I think what you saw in the second quarter is good direction toward the improvement that was necessary for us to be able to deliver the full year that we talked about in May. And that's why we repeated the guide here that we did in July. So, the execution to continue to show the improvement that's necessary for us to deliver the year, I think is what you're seeing in our guidance and hopefully improve confidence in our ability to deliver it. And that's very important to us and that's where we're focused.

Okay. And then on M&A, from your comments, it sounded like acquisitions contributed over 250 basis points or roughly to USIS a little higher than what I was thinking, should that continue? Is that the main driver of the revenue guide being above the mid-point now? Thank you.

No, no. You need to remember that DataX was acquired in July of last year. Like most companies, we consider the acquisition to be incremental for its first year in our organic calculation. Now that we have a comparable period starting in July, it will shift to organic. This improvement is not solely due to acquisitions; you're witnessing better overall performance. Additionally, you can see a significant increase, hopefully year-over-year in FMS.

Hi, thanks for taking my question. Just a quick question on the FMS improvement going forward, is that related to the timing of closing the deals, which got pushed out from the second to the third quarter?

No, I think as Mark talked about, we closed some large deals in 1Q that just didn't repeat in 2Q. I don't think we made any comment about anything pushing out. I think the comfort we have is that if you take a look over some longer periods, we said it's choppy. Right. So if you want to kind of watch the choppiness out of the results, you will look over slightly longer periods and over those longer periods basically, we've been performing kind of flat over the past nine months. So we feel we are getting comfortable that we've stabilized at that flat level and we're starting to see funnels grow and our expectation is better performance as we get into the back half. So, that's really what it is. If you go back to last year, we'd said, well, you'll start to see improvement in our sales execution as we got into the back half of '19 based on the fact that we had a year to sell once we were free to sell again, following the cybersecurity incident. And effectively our forecast for USIS represent success at that model. So again, as we said, we need to execute, and it is a substantial effort for us to do but that's what's built into our forecast. Our forecast assumes success in that selling effort and therefore growth in those businesses.

I want to add that we provided some insight into the USIS new deal pipeline, which significantly includes FMS and has increased considerably from a year ago, as well as from the start of this year. This ongoing development gives us confidence that our teams are engaged in genuine commercial transactions that will positively impact the second half of the year. John also noted that FMS typically experiences stronger performance in the second half, and last year we were still addressing the aftermath of the cyber incident. We believe we are now in a more typical commercial state compared to a year ago.

Yes, thanks. Just wanted to add a higher level talk about maybe the technology transformation. This may be too high of a summary. But I think you talked a little bit about some small parts of the projects that are maybe started or a little bit delayed relative to the original plan, you also talked about spending more than you had originally planned this year. I guess. I think the spending was conveyed in a sense of strength in terms of opportunities to do this, but I think just to address the question, I'm sure I'll get questions from people who will take those other two data point and try and talk about the difficulty of the project. So can you just in that context maybe talk about how you're progressing and I guess the confidence in the kind of the pathway that you've laid out to achieve the overall technology transformation?

Yeah, first off on the spend. I think we tried to be clear Tim that our current forecast is to spend what we've already committed to you, so no change in that. We did give the caveat that, if we see some opportunities to accelerate migrations in particular, we might spend a little bit more. But it's going to be in that same framework. We're not having overruns or things like that, we didn't want to give that impression, because that's not the case. The one area that was a bit more complex than I think we anticipated over the last 90 days with the build-out of the data fabric at Google Cloud, that's now complete. We had hoped to complete that maybe 30 to 45 days earlier. But it was completed a month ago and it's in the hands of all the business teams. But we're just trying to be transparent. This is a big project. There's a lot of pieces to it. One of the ways we try to derisk is, it was breaking it down into pieces and we're attempting to just be transparent and what you know where we're going on it and how it's progressing. Overall, we're very pleased with the progress, the teams are embracing it. Customers are very excited about it. Our dialogs with customers about the overall investment, where we're going to take it, and the benefits they're going to get, as well as the migrations of things like InterConnect and Ignite to the cloud environment are very, very positive.

And, Tim, capital is up a bit. We did say capital would be up a bit in the year. And I think the way you should think about that is, capital is more driven by build than migration. Right. So I think as Mark talked about, data fabric is built and moving InterConnect built and moving, we made some commitments around and are executing against things we're doing very nicely with Ignite and integrating Ignite and InterConnect, that's all build. Right. And then also quite honestly, when we gave the guidance in the beginning of the year, the investments we are going to need to make to do important partnerships like FICO weren't necessarily in our guidance at the time. So you're seeing increasing spend around some of those things, but it's more around the build activity, which is upfront and then the migration activity. So I think you should view it as good progress and in the context of the $700 million to spend or just over $700 million to spend, we're talking about we still think we're in a pretty narrow band with an adjustment during the year of about $20 million. So we're not feeling like there's big overruns, as Mark indicated, and the capital is really around the build segment, which we think is progressing, and some things have been added that weren't in the original guidance that we gave you back in February.

Hi, good morning and thanks for the commentary on how you're thinking about savings over time from the technology program. I guess one area of that, that we haven't heard a lot about is how you're thinking about potential reinvestment for a portion of those savings? Would it be right to think that a lot of that falls to the bottom line or are you more likely to reinvest a significant portion of that as you continue to drive innovation and trying to drive the top line?

Yeah, it's a great question, Gary. And as you might imagine, that's one that we're thinking a lot about and we're not at this stage to talk about it. And of course, we're not at the stage where we're ready to put our financial framework back in place. But there is no question we expect there to be benefits. We're going to look hard at what portion of those benefits that we plowed into more new products, into more growth and what portion do we bring to the bottom line to increase our margins and we'll have some clarity on that as time progresses and share it with you.

Okay. As a follow-up, I noticed in your recent public appearances that you suggested the completion of the program might extend beyond the initial December 31, 2020 timeline. Can you share your current perspective on this? Is mid-2021 a more realistic target based on what you know right now? Thank you.

Yeah. What we tried to do, Gary, in all of our discussions is to be clear with you that our intent is that the incremental spend that we have in '18, '19 and '20 will end in the end of next year and then anything that's left to be done, and there certainly will be elements of this cloud transformation that is going to flow into 2021. It's not going to be 100% complete. We do expect to complete a lot of the work between now and the end of next year and then anything that's required after that, our intention is that that would go into our normal operating expenses and normal capitalized costs as opposed to the incremental spend that we've been doing for the last 18 months and then we plan to continue for the next 18 months. That was the kind of boundary we put around it and we're still sticking to that.

Great, thank you.

Good morning, everyone. It feels like it's been a while since we've had an update on the commercial business. It was its own division until a few years ago, but now we've acquired PayNet, which provides B2B data related to commercial lending and leasing. You also mentioned the strength in the USIS B2B business. I wanted to ask what's changed there and how you're approaching the B2B business moving forward.

Yeah, it's still an important business for us. As you know, that's why we made the PayNet acquisition, because we knew we'd enhance our position commercially. In the earlier comments when we talked about B2B, that was really referring to our online business with our normal customers versus the commercial business.

The commercial business called Ex-PayNet has performed very well this year, and with PayNet, we expect that growth to continue. As you remember, we made significant investments in developing the CFM, which is showing improvements. We've integrated SBFE, and we believe we have a strong partnership. Earlier this year, we announced that we have received outstanding risk scores in the commercial sector and have acquired some important new customers. This business has been progressing on its own, and we anticipate that PayNet will accelerate this growth. We mentioned on the May call that we were highly impressed with the leader from PayNet, who is now overseeing our US commercial business. This role merges our core commercial operations with the new PayNet assets and ventures. We're very enthusiastic about the developments over the last 60 days as he actively promotes the business in the market.

And then, a housekeeping question. You didn't explicitly give the organic revenue growth for the 3rd quarter, I just wanted to check that it looks like it's probably about 2.5% to 3% by just need to run that by you.

Yeah, we didn't give guidance on organic growth in the 3rd quarter. So you are correct. We did not. But again, please remember right that DataX is no longer inorganic starting in July. Right, so because we acquired them a year ago to this month, so the amount of acquisition revenue actually declines.

Got it. Okay.

All right. well thank you very much.

Thanks everybody for joining the call and I'll be around today if anybody has any questions. Thank you.