易速傳真 (EFX) 2017 Q1 法說會逐字稿

Good day and welcome to the Equifax First Quarter 2017 Earnings Call.

Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Jeff Dodge.

Please go ahead, sir.

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 onetime 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.

As always, thanks for joining us on this call.

Comes off of a really strong start in '17.

A solid first quarter performance across every business unit, every vertical in different geographies around the world.

Once again, the growth that the team has delivered was very broad-based.

We enter 2017 with great momentum from 2016, which I think you'll agree was a record year on so many fronts, including new product innovation and the international expansion with our acquisition of Veda last year.

The management team is building on the momentum from 2016 with each of our business units and COEs executing at a high level.

Total revenue for the quarter was $832 million, up 14% on a reported basis and up 15% on local-currency basis in the first quarter of 2016.

For the quarter, FX created $8 million of year-over-year headwind.

Adjusted EBITDA margin was 36%, up a solid 180 basis points from a year ago and well above the guidance we provided for the quarter and for the year.

Adjusted EPS was $1.44, up 17%.

And I'll now jump into individual BUs as I typically do.

I'll start with USIS.

They delivered a solid 5% revenue growth in the quarter driven by mortgage, new product innovation and enterprise growth initiatives.

In the quarter, USIS had strong double-digit growth across the mortgage, government and communications verticals and high single-digit growth in several areas, including Prescreen and Identity and Fraud Solutions, with much of this growth supported by continued strong growth in our enterprise alliance channels.

USIS delivered this growth in the quarter despite a drag on DTC resettle revenues of 1.4 percentage points.

You remember, we've talked about that before.

That's a piece of DTC that's not in GCS, it resides in USIS.

EBITDA margins remained very strong at 48.6%.

Last several quarters, we've discussed the outstanding progress the teams have made with our Cambrian data and analytics platform and the opportunity to help our customers launch products and solutions with greater speed and insights.

This quarter, we announced Equifax Ignite, a portfolio of data and analytic capabilities and solutions for customers powered by Cambrian, which we've talked about for quite some time.

It is a best-in-class solution that leverages our very unique data assets.

Ignite offers our customers a breadth of tailored approach delivered in a very smart and user-friendly manner to fuel our customers' growth with expanded insights.

Our go-to-market portfolio for Ignite includes Cambrian Direct, which is direct access to our high-speed analytical environment for a rapid model and score development and Cambrian marketplace, which is a user configurable app that deliver actual insights for easy consumption, typically by a -- the business user or an analyst versus the data scientist would more likely use Cambrian Direct.

This comprehensive approach allows us to meet both the needs of the traditional user as well as our customers' analytical experts who will have the ability to combine Equifax data with customer data and third party data to build custom solutions -- the custom models and solutions to solve problems in new and innovative ways.

While it is early, we see tremendous potential with Ignite, which has the flexibility and analytical tools to meet multiple market needs.

In first quarter, we launched our InstaTouch mobile solution, including -- with a major financial partner.

InstaTouch provides a simple way for personal identity information to be securely pre-populated into an application, helping to improve the conversion and reduce fallout -- application fallout, which is typically caused by friction.

We believe this product capability has applications for both customers as well as Global Consumer Solutions and our other consumer support operations around the globe.

NPI, New Product Innovation, will continue to be a powerful driver for USIS as future growth.

We see great opportunities for USIS/NPI efforts in 2017 and 2018 in fraud, digital media, mobile and auto.

Trended data mortgage was a big driver of NPI and USIS in 2016, and we'll continue to realize benefits in 2017.

We continue to make good progress on our enterprise growth initiative to determine the benefit of trended data as well as our machine learning capabilities.

And this focus is across all major verticals, as we've talked about in the past.

We expect to complete this analysis in 2017 and believe it'll be significant opportunities for trended data beyond mortgage in areas such as auto, home equity and card.

Although this will drive revenue growth over the longer term, trended data outside of mortgage we're not assuming will be a big driver for NPI revenue in 2017.

An important driver for future growth is our enterprise vertical alliance strategy.

Across USIS and Workforce Solutions, we continue to strengthen our sales and marketing efforts, as well as integrated delivery capabilities in our verticals, including mortgage, auto, government and communications.

This will further differentiate the competitive advantage of our integrated income, credit and analytics offering.

Our enterprise alliance strategy, which for us includes partnerships with other leading data and analytics companies, as well as other reseller and connected partners, continues to deliver substantial growth.

As we continue to rapidly expand the credit, fraud and income-related data and analytics assets we share with partners, we expect this to be a continuing growth driver throughout 2017 and beyond.

International.

International delivered an impressive quarter with strong revenue growth and margin expansion.

It delivered 41% local-currency revenue growth.

Excluding Veda, growth was 14%.

Additionally, adjusted EBITDA margins expanded by an impressive 590 basis points.

International continues to make great progress on their strategic initiatives, leveraging NPI and EGI to drive growth and they also executed Lean initiatives and the regional strategies to drive operational efficiencies.

That's really fueling that 590-basis-point margin expansion we just talked about.

It's now just over a year since we closed Veda.

In this quarter, we rebranded Veda to Equifax.

Integration process has been outstanding, with the team executing at a high level on all of our important initiatives.

We're also on track to deploy our global platforms in Australia and New Zealand, including Cambrian and fraud over the next few quarters.

Our management disciplines, such as NPI and Lean, our global technology capabilities are being rapidly adopted and are adding to the strength of a business that was already operating at a very high level.

We now have a very strong presence in management infrastructure in that region as we look forward to opportunities for future growth and expansion.

Europe performed really well in the quarter with 15% local currency revenue growth, driven by growth in Spain and our U.K. debt management business.

The debt management business in the U.K. continues to be a growth driver and is off to a very strong start in 2017.

The U.K. government remains committed to growing the business with us.

We are now working with 8 different government agencies with the addition of the government's child maintenance group.

The total debt placed from the program to date is now up to GBP 2.9 billion and our collection performance with analytics continues to be strong.

Latin America had an impressive quarter with 20% local currency revenue growth.

We just returned from a trip to Latin America and spent time with our management team there, our customers, government officials, economists and some of the very top business leaders in the region; a number of positive trends on the economic front across those regions and within our business.

Governments there are increasingly focused on financial inclusion.

Financial institutions are aggressively looking for new customers and are in need of scoring models and unique data to make their decisions.

We continue to expand our technology capabilities in the region, and in 2017 we expect to deploy Cambrian in Argentina.

We're optimistic about the economic outlook as well as our performance across the region, particularly in Argentina, Chile and Peru.

Canada had an outstanding quarter, with local currency growth exceeding 10%.

The team continues to execute on several key initiatives, including new products, debt management, trended data and Cambrian, which we launched in Canada last quarter.

Workforce Solutions delivered an outstanding performance of 11% revenue growth in the quarter and expansion of EBITDA margins up to 50.2%, up 70 basis points from a year ago.

Verifier grew at a very strong 16% in the quarter.

We saw the highest growth rates in card, consumer finance, government and auto with continued strong growth also in mortgage and pre-employment.

In Verification Services, the team created another innovative solution, the consumer employment and income report.

This report augments employment and income verification data with credit data from the credit reporting database and other unique data assets to help our clients meet their specific verification needs.

This new report can be tailored to any vertical and/or specific need of the verifier.

This is just one example of how we're leveraging our differentiated data assets across the business and combining them with our technological capabilities to deliver high-value insights and solutions to our customers.

That was launched in the second quarter -- or in the first quarter -- and should be a revenue contributor for us throughout the balance of the year.

In Employer Services this quarter, we launched a fully automated wage audit compliance solution, which relieves the growing burden employers face to fulfill state mandates for wage and employment data used to detect unemployment benefit over payments and fraud.

We continue to help our employers with innovative compliance solutions like this that are contemporary to our existing offerings -- top measures for our existing offerings in unfunded claims and other areas.

This also positions us to provide these employers a way to seamlessly contribute their data to The Work Number database.

Workforce Solutions is leading the way for enterprise-wide government vertical.

Expanding and growing this vertical is a key enterprise growth initiative.

Team has had several wins in the quarter.

The pipeline of opportunities is strong, and the results are nicely ahead of our expectations.

We also continue to make good progress towards launching a Verification Services business in Canada, and we're in discussions with several partners that will accelerate the record acquisitions.

And to date, the number of records we've added to the database are nicely ahead of our expectations.

Global Consumer Solutions reported 13% local currency revenue growth and expanded EBITDA margins by 90 basis points in the first quarter.

GCS continues to focus on expanding the consumer channels they serve, in addition to continuing to expand our relationship with direct-to-consumer partners like Credit Karma, LifeLock and ClearScore in the U.K. We're also expanding other indirect channels, including expanded solution offerings in the breach, remediation, tax-return, fraud and broadening white label channels.

Working with our key direct-to-consumer and indirect partners, we continue to expand these relationships into Canada and the U.K. as well as looking at other markets around the world.

As I usually do, before I hand over to John for the detailed financials, let me make a few comments on a few of our enterprise-wide -- company-wide initiatives.

Let me start with enterprise growth initiatives, and again, it's NPI.

Enterprise growth initiatives are fundamental drivers to our -- both revenue growth and global process and technology transformation across the company.

This year, we had 15 EGIs designed to drive revenue growth and create long term value.

Year-to-date, these initiatives are running nicely ahead of last year.

We're making very good progress on several EGIs focused on transformation -- transformational initiatives, including global deployment of Cambrian and insights activation through Ignite Direct and Ignite marketplace.

We'll talk about that maybe more in the Q&A.

New Product Innovation, or NPI as we call it, continues to be a driver of both near term and longer term revenue.

Through March, revenue from these initiatives is running 20% ahead of expectations.

Our vitality Index is up from last year and a number of new products in our pipeline is even greater in 2016 pipeline.

And as a reminder, as we've discussed before, 2016 was our strongest NPI class since we launched it back in 2007.

We're driving toward another very strong year in our Lean initiatives, with over 400 initiatives to drive revenue and profit around the world.

On first quarter, our Lean initiatives exceeded the targets by more than 15%, and we expect continued strong execution in 2017 across broad portfolio initiatives.

Our customer Lean activities also continue to deliver increased value and strengthen our relationships with our customers around the world.

The innovation that the teams continue to deliver, I believe, are truly market-leading.

We hold the most unique data in the industry and add value to our data through our leading-edge analytics and technology.

This unparalleled combination provides the knowledge that enables our customers to make even better critical decisions.

To reflect this vision, we recently introduced our new corporate tagline: Powering the World with Knowledge.

This renews our promise to deliver powerful and actionable insights to our customers throughout the world.

Executing on that vision will deliver meaningful results for our customers and our shareholders in the quarters and years to come.

We're off to a strong start this year and continue to have a clear path to deliver on the guidance we provided for 2017.

Team is energized about the strategic initiatives we've made around the world in data assets, technology and talent to power that growth.

And with that, let me turn it over to John for the financials and I'll come back with some closing comments on the quarter and some color for the full year.

Thanks, Rick, and good morning, everyone.

As before, I'll generally be referring to the financial results from continuing operations represented on a GAAP basis.

As Rick discussed, in 1Q '17, we performed ahead of our expectations, putting us nicely on the path for 2017.

The mortgage in ACA headwinds we discussed in our February earnings call impacted us, as expected, in USIS and Workforce Solutions.

USIS revenue in 1Q '17 was $310 million, up over 5% when compared to the first quarter of 2016 and consistent with our expectations.

Online Information Solutions revenue was $225 million, up 3% when compared to the year-ago period.

Online Information Solutions revenue was driven by growth in mortgage, Telco, government and fraud.

USIS direct-to-consumer revenue, principally our revenue with other CRAs, declined in the quarter, negatively impacting 1Q '17 Online Information Solutions and total USIS revenue growth by approximately 1.9 and 1.4 percentage points, respectively.

Our commercial risk-related revenues, which are also included in OIS, were also down in the quarter.

Total mortgage-related revenue for USIS was up 27%.

Total mortgage-related revenue for Equifax, including Workforce Solutions mortgage revenue, was up 22%.

Mortgage Solutions revenue in USIS was $39 million, up 22% year-to-year.

In 1Q '17, mortgage market volumes were generally in line with our expectations.

Our revenue performance was much stronger than the market, reflecting trended data as well as new products and further market penetration.

In 2Q '17, we expect mortgage market volumes to be down mid-single digits year-to-year.

Compared to 1Q '17, this creates a drag on total Equifax 2Q '17 organic growth of over 1%.

For all of 2017, we continue to expect mortgage market volumes to be down about 15%, and we expect continued over-performance versus the market.

Financial Marketing Services revenue was $46 million in 1Q '17, up 2%.

The adjusted EBITDA margin for USIS was a very strong 48.6%, about flat with last year.

For 2Q '17, we expect to see acceleration in USIS total revenue growth rate, despite the expected weaker mortgage market, as other areas within USIS strengthen in 2Q.

For all of 2017, we continue to expect USIS to show revenue growth slightly below their long term range of 5% to 7%, reflecting the expected 15% decline in overall mortgage market volumes for the full year as well as approximately 1% of headwind for the full year from our direct-to-consumer revenues.

We expect -- we continue to expect USIS to modestly expand EBITDA margins versus 2016 levels for the full year.

Workforce Solutions revenue was $200 million in the quarter, up 11% when compared to 1Q 2016.

Verification Services delivered revenue of $115 million, up 16%.

Growth was broad-based with double-digit growth across many verticals, including auto, card, consumer finance and government.

Employer Services revenue of $85 million was up 5% from last year.

Our on-boarding products grew nicely, along with continued growth in our Workforce Analytics business, which benefited from employers completing tax reporting for 1095s and 1094s earlier than in 2016.

Workforce Solutions growth at 11% was strong in the quarter and consistent with our expectation.

Growth was impacted by the headwinds and mortgage and ACA, which we discussed in February.

Compared to overall 2016 growth rates, industry mortgage volumes and the slowdown in ACA revenue account for approximately 2/3 of the change in growth.

The remaining 1/3 reflects timing and our Work Opportunity Tax Credits revenues.

We continue to expect, as we indicated in February, that total ACA-related revenue for 2017 will be about flat versus 2016.

ACA-related revenue, as expected, showed growth in 1Q '17 as 2016 tax reporting was completed.

ACA-related revenue in 2Q '17 and the remainder of 2017 is expected to decline, reflecting uncertainty regarding the structure of the federal healthcare program going forward.

The Workforce Solutions adjusted EBITDA margin was a very strong 50.2% in 1Q '17, up from 49.5% in 1Q '16.

For all of 2017, we expect Workforce Solutions to show revenue growth at or above the high end of their long term 9% to 11% range, despite the expected 15% decline in the overall mortgage market and the uncertainty regarding ACA.

We continue to expect Workforce Solutions to expand EBITDA margins versus 2016 levels for the full year.

International revenue was $260 million in 1Q '17, up 37% on a reported basis and up 41% on a local-currency basis.

Constant currency growth, excluding Veda, was very strong and above our expectations at 14%.

By region, Europe's revenue was $62 million in 1Q '17, up 2% in U.S. dollars and 15% in local currency.

As Rick mentioned earlier, the U.K. debt management business continues to be a growth driver, and Spain also delivered double-digit growth in the quarter.

Latin America's revenue was $51 million in 1Q '17, up 20% in U.S. dollars and up 20% in local currency.

Revenue growth was broad-based with strong double-digit local currency growth in Argentina, Chile, Uruguay and Central America.

Canada's revenue was $31 million, up 15% in U.S. dollars and 11% in local currency.

This continues the trend of improving growth in Canada, reflecting the strengthening of their NPI funnel.

International's adjusted EBITDA margin was 31.2% in 1Q '17, up from 25.3% a year ago.

We saw strong EBITDA margin across Latin America and Europe with Canada continuing to deliver the strongest EBITDA margins in the segment.

International is also seeing the benefits of their restructuring programs, which began in 4Q '16 and their ongoing regionalization efforts.

1Q '17 is also benefited by having Veda for the entire quarter.

For the remaining quarters of 2017, we continue to expect strong year-over-year EBITDA margin expansion in International, but to a lesser degree than what we realized in the first quarter.

For all of 2017, we expect revenue growth for International to be above their long term 8% to 10% range and above our previous expectations.

We also continue to expect EBITDA margins to be nicely above 30% for all of 2017.

Global Consumer Solutions revenue at $106 million was stronger-than-expected in 1Q '17, up 11% on a reported basis and up 13% on a local-currency basis.

Adjusted EBITDA margin was 31.7% in 1Q '17.

The consumer direct business executed through both equifax.com and our white label properties was slightly weaker than we had expected.

We did see growth in our broader indirect channels, which Rick referenced earlier.

Our reseller business delivered revenue growth of over 25%, much stronger than we had expected.

As you remember, in 2Q '16, GCS in total showed very strong 22% growth with our indirect and reseller businesses up over 70%, as we added a new partner in 1Q '16.

As we discussed at the time, revenue in 2Q '16 was particularly benefited as this new partner made an initial purchase of a substantial amount of tri-bureau credit data.

In 2017, this purchase occurred in 1Q '17.

Although it did not have a substantial impact on income, it did positively impact GCS Q1 revenue by over $5 million or more than 5 percentage points.

Given the timing of this project, our 2Q '17 GCS revenue growth will be negatively impacted.

For 2017, we expect GCS revenue to be in their long term model of 5% to 8% revenue growth.

We also expect first half '17 GCS revenue to be at or slightly below the end of the long term range, with stronger growth in the second half.

First half '17 reflects slightly weaker consumer direct in white label markets as well as the anniversary of large direct to consumer reseller partner wins in early 2016.

Growth accelerates in second half '17 as these partner relationships continue to expand and the indirect channel's growth accelerates.

In the first quarter, general corporate expense was $63 million.

Excluding the integration expenses associated with the Veda acquisition, general corporate expense was $61 million, up 3% year-to-year and consistent with expectations.

For Equifax, adjusted EBITDA margin was 36% in 1Q '17, up a strong 180 basis points from 34.2% in 1Q '16.

As we indicated on our February earnings call, we are excluding from our non-GAAP results the income tax effects of stock awards recognized upon vesting our settlement.

Our GAAP effective tax rate of 20.6% includes a $14.9 million benefit from the income tax effect of stock awards as well as the benefit from discrete items principally related to adjustments resulting from the conclusion of tax audits.

Excluding these items, our 1Q '17 effective tax rate would have been approximately 32%.

We continue to expect our full year 2017 non-GAAP effective tax rate to be consistent with our February guidance at approximately 32.5%.

In 1Q '17, operating cash flow was $104 million and free cash flow was $53 million, both consistent with our expectations.

We continue to expect strong growth in cash flow in 2017, relative to 2016.

As we indicated was our expectation in February, 1Q '17 operating cash flow was down versus 1Q '16, principally reflecting working capital, including the Veda acquisition-related items, which positively impacted 1Q '16 working capital; increased employee variable and other compensation payments in 1Q '17 following our very strong performance in 2016; and changes in other assets, principally tax payments, timing and prepaids related to software investments.

Capital spending incurred in the quarter was $40 million for 2017.

We continue to expect capital spending to be approximately 6% of revenue.

Total debt at the end of the quarter was $2.7 billion.

We continued to reduce our leverage following the Veda acquisition, which is now at 2.26x EBITDA.

Now let me turn it back 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 dollar -- $0.01 a 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, I think you'll agree.

For perspective, compared to the first half of 2014, our first half of 2017 outlook reflects compounded annual growth for revenues of 12% compound annual growth 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 has increased from our February earnings call.

While our expectations for GCS revenue has moderated a bit, but still within their long-term range.

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% slightly -- 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 them 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.

And for Equifax as a total, again despite approximately 3 percentage points of mortgage headwinds and some additional headwinds from ACA at the company level, we expect to remain -- we expect that we 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'd like to open up for any questions for John or I.

(Operator Instructions)

And we're going to take our first question from Manav Patnaik with Barclays.

First, just a near-term question.

I mean, in terms of the guidance you've given, even though there are a bunch of headwinds you called out in USIS, I mean just curious why -- are there any particular products or pieces that gives you confidence that it still improves in the second half?

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

Well, I mean -- 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 10-plus years.

It's all the stuff we have in NPI.

We talked about the class of products last year being very strong, they're starting to ramp up; we talked about the class of products for 2017.

In fact, USIS's NPI progress at the end of 2016 and in -- starting in 2017 is as strong as it's ever been.

So specific that USIS is what that confidence, 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 fourth quarter pre-election, we gave a framework for 2017, which was, we thought robust, you thought 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 10 years, we're able to maintain that guidance this year.

So I'm as confident now and John is as confident now in USIS's 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?

Yes.

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've talked about getting our leverage back around 2.25.

We'll be there as we exit the second quarter.

At that point in time, John and I will look at both getting back into share repurchase as well as getting back in M&A.

So everything is performing on track.

In fact, then we'll be [levering] a slightly faster rate time than we would have 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 meet with economists.

And 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 closely with our Brazilian partners, and I don't feel 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.

We'll take our next question from George Mihalos from Cowen and Company.

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.

The same thing we talked about -- remember -- if you remember the call in February where there was significant concern at that time because of the mortgage market rates going up and mortgage market declining, the ACA being repealed.

And we talked then about our confidence levels driven by EGI and NPI, that remains the case today.

I alluded to, in the February call, I think even a couple of times last year, George, that our classified last year was an unbelievable classifieds that will bode well throughout year; many of those ramp up at the back half of the year.

Secondly, as I said in my prepared comments, the class of products that we're launching, the pipeline of products in 2017, is as strong as ever.

And if you look at the constant currency growth we're talking about in 2Q '17, if you add back the drag from mortgage, it really looks pretty consistent what we delivered in the first quarter.

And then if you take a look at total constant currency growth for the first half, we're looking at 11%, right?

So I think the performance overall in the first quarter and the second quarter and when you take a look at the entire first half growth at 11%, it looks very, very good.

Well said.

Yes, that's great.

If I could just sneak in 2 quick follow-ups.

Just, John, the -- 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.

Sure.

Financial marketing line, as you know, that can be a little bit lumpy.

We're seeing nice growth in prescreen, and we think that's an area 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.

George, the model we gave, if I could just add on, is for USIS's margin to be -- EBITDA margins to be in the low 50s over time.

That's still the goal and you'll see movement throughout any 1 quarter.

As you know, there's just a lot of moving parts and -- but they're still well on track to make that mid-50s over time and I -- we expect to -- the second quarter 2017 to be better than first quarter 2017.

We'll take our next question from Brett Huff with Stephens Incorporated.

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 1Q?

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 in total 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 continue to do 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.

And then just my follow-up is, as we look, I know we're not talking about guidance for '18 and that's a long way away, but what are the puts and takes on growth that we should be thinking about as we move into '18?

And I guess, just thinking out loud, mortgage as well as maybe the even better '17 class of NPI products that you've been talking about.

Maybe TDX gets a little bit better.

What kind of the -- what are the pros and the cons we need to think about as we think about '18?

I think many investors are thinking about what does that growth 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 anniversaried that.

That goes away.

Mortgage, I got to believe that 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 class of products.

As you know, with the class of products in '16 launched, it takes a few years to truly materialize and reach their full inflection points, so that should be a benefit, same with class of '17, so.

I also think that if the economists are right in 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.

We'll take our next question from Kevin McVeigh with Deutsche Bank.

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, we'll complete 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 versus sub-prime card, prime versus sub-prime versus near-prime 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.

And then just real quick.

If we do get these changes in terms of personal, obviously the corporate will -- is beneficial, but personal income tax rate changes.

How does that impact the business, particularly TALX?

Does that provide incremental revenue opportunities as we work our way through '17 into '18, based on just new rates?

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

Yes, sir.

In theory, any time that we get more cash in the pockets, they're more likely to spend the cash, which will fuel economic growth.

So -- and again, as the economy grows, our business grows better.

We'll take the next question from Andre Benjamin with Goldman Sachs.

For my first question, you talked a little bit about the progress of the verification product in Canada.

I was just wondering if you can maybe give us an update on -- or a little more detail on potential timing of when that could be up and running.

What's left to get it across the finish line?

And then maybe, I know it's a little long term, but how that size is versus what you're thinking -- what will you see in the U.S.?

I missed that last part, Andre, if you could just (inaudible)?

How -- I know it's long term, but how big you think that opportunity could be versus the business in the U.S, given what you've seen about, in [the bank].

Overall, we're thrilled, as you know, with the overall progress and you need to put in context what EWS did.

It's been an unbelievable home run for us.

But I 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 is an interest to us, U.K. and other places.

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 -- we'll augment it with other products as well.

But think of it as a nice way over 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 autos, cards and home equity?

I would think auto will be #1, followed by card and home equity.

If I had to handicap, it's similar, and that's in the U.S. and we're still doing work outside U.S.

We'll take our next question from Tim McHugh with William Blair.

I just want to -- I think you mentioned you thought USIS would grow faster in the second quarter than the first, this is some improvement in some parts of the business, besides mortgage, I guess.

Can you elaborate on what you see performing better as we move into the second quarter?

Yes.

Tim, I'll start and John can add (inaudible) to it.

But anytime you look at a particular quarter, particular 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 that 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 a framework for them 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 of their segments, other than mortgage.

Okay.

And -- I think you said commercial was down.

Is there any change in -- or was that just timing as well for Q1?

Yes, we did -- John did say that in his prepared comments.

And, Tim, 2 things -- again, and context is important -- commercial is small.

As you know, it was slightly down in the first quarter, but we're making a transition, as you know, from this platform exchange called SBFE to a new exchange called CFN.

CFN is starting to ramp up.

That has some impact for SBFE and you won't fully see CFN fully ramp up until later on this year, and as we exit this year and go in 2018.

So that's what you're seeing, this little lumpiness in SBFE 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 others outside 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.

We'll take our next question from David Togut with Evercore ISI.

Rick, could you give us an update on where you stand in Workforce Solutions 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 thrilled.

I was just out in St.

Louis, I think it was last week, for a review with Rudy and his team.

And the progress they are making is unbelievable.

On active records, total records, partner relationships was established to solve problems and create a network effect is unbelievable.

And I gave you some comments there in -- my comments -- in my prepared comments today, which is now we are linking together the credit, the data in the credit file with The Work Number records to augment and expand our ability to deliver value back to the customer.

So in the past, if I couldn't find someone on The Work Number database, if I can combine it with the credit file, I can enhance that, deliver a yes, where some insight back to the customers is proving to be hugely valuable to our customers, which will accelerate revenue growth for us.

We just launched that capability -- that product late in the first quarter.

So that's a way to think about -- when you augment the credit data with The Work Number database, it's a way to, as you call it, records, get a hit rate or a yes back to a customer at a far higher rate than we could in the past.

So they are -- they're clicking on all cylinders out there.

Got it.

And then just as a quick follow-up.

On mortgage, appreciate all of 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?

It very well could be, but let me give you some color on that.

The mortgage market was as expected in the first quarter.

And by the way, when you look at the -- what they call the mortgage banker's index, that's an application look versus the volume look, there's always a lag in application of volume; we tend to look at volumes.

So the volume performed about as expected.

You are correct we did outperform, but clearly expect us to continue to outperform in the second quarter, third quarter, fourth quarter in '18 as well.

However, we do expect the volume activity in mortgage, if 10-year target's is doing we're talking about to decline to mid-single digit in the second quarter and strong double-digit in the third and fourth quarter, for a total of 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 2.5 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 far 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 -- and I'm not sure of the exact number -- a couple I think 2 or 3 rate increases between now and year-end, David.

Similar with what we were talking about, yes.

We'll take our next question from Toni Kaplan with Morgan Stanley.

This is Patrick in for Tony.

It sounded like growth in 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, there is some lumpiness in it, but the thing maybe to frame is this, we gave a multi-year framework a couple of years ago.

We 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 become 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, Fannie Mae, I don't have that answer off the top of my head.

We'll take our next question from Gary Bisbee with RBC Capital Markets.

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 here?

Yes, if we just -- if we backed out, right, the benefit you had last year for mortgage market volumes but also ignored the negative hit this year and, obviously, the fact that Veda helped growth last year, is the underlying growth ex that accelerating?

I mean, just given the commentary in NPI in the last 2.5 years, it would suggest that it should be, and I think it is, I just wondered if you'd confirm that?

In terms of the math, right, last year's organic was very high at around 12%.

And yes, mortgage was a benefit we also had a really nice benefit from ACA growth last year, right?

So as you do that analysis, you just need to make sure you take both of those things into account and -- to determine where you think that shakes out.

But the growth related to mortgage in ACA were a nice contributor to growth last year, and we're not really going to see either of those this year.

So if you're just backing out mortgage, that might be a tough comparison.

Yes, so another way to think about 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 2 parts of that offering?

Thanks, Gary.

To think about Ignite and, again, 2 different buckets.

One is direct, one is marketplace, direct has created this environment, [the cloud has] our data, their data and these -- the data scientists, more customers can access that.

Anytime they access it, they pay for the data that they're accessing, and also it helps us facilitate the building of new products in the marketplace.

You think of an app -- like an app on your phone where they will get configurable apps that the business community where our customers can download those, use those.

So there's typically -- there are 2 ways you make money.

One is there tends to be, in some cases, a fee for setting up the environment for our customers; number two, is obviously they pay if they access the data.

So financially the model is very much -- majority of the model will be very much like you've seen across the rest of the business, which is accessing our unique data assets.

We'll take our next question from Andrew Jeffrey with SunTrust.

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 and 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 think strategically it's relevant.

What we're trying to do is combine technically, analytically data and then our go-to-market strategy across multiple -- be used to solve problems for customers.

So we get into it.

If you could take a PSOL product, or more likely, a USIS product and a EWS product, bundle those product offerings technically and analytically together, delivering a single solution to a customer that no one else can deliver, that enterprise solution is a differentiation versus others in the marketplace, enables us to take share and drive pricing and drive revenue.

So I don't break it out that way.

I just know it's the right thing to do.

And we've done the vast majority of the vertical alliance or verticals we've attacked have been driven by USIS.

I alluded to in my comments that we still have this government vertical where we had more expertise, bigger channels and pipes through EWS.

EWS is now dragging along all of the capabilities we have to solve these problems.

So it's a strategic differentiator is the way to think about it, we don't break out the actual revenue contribution.

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 peak SAAR.

What might that mean for revenue growth?

Is that a call out, potentially the way mortgage and ACA are?

No, I don't think so, for a couple of reasons.

It's not nearly as big, number one.

Number two, is our assumption is that we (inaudible) peak, so the guidance within the industry.

And this is the U.S. The guidance we gave -- the framework we gave last year and the guidance we gave in February and the guidance we're reaffirming today is assuming new sales of vehicles in the U.S. and a peak at 17-point-something.

I can't remember what the number is, 17-something for the year.

I don't expect that to go up at all.

You kind of asked if that's a new high for us.

However, I do expect us to continue to find ways to partner with others that have pipes and relationships with channel partners we talked about, Andrew, for quite some time, to continue to help us fuel growth.

So I think in the prepared comments, we talked about auto and EWS was a growth driver for them.

I expect that to continue to happen.

So one, you've got to make sure we're putting in context is nowhere near the size of the mortgage for us; two, [the result] will likely penetrate; three, these channel partners are vital to us and a good source of growth.

We'll take the next question from Andrew Steinerman with JPMorgan.

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.

And 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.

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.

This concludes today's call.

Thank you for your participation.

You may now disconnect.