易速傳真 (EFX) 2017 Q2 法說會逐字稿

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

Today's conference is being recorded.

And at this time, I would like to turn the conference over to Mr. Jeff Dodge.

Please go ahead.

Thanks, and good morning.

Welcome to today's conference call.

I'm Jeff Dodge with Investor Relations; and with me today are Rick Smith, Chairman and Chief Executive Officer; and John Gamble, Chief Financial Officer; and Doug Brandberg with Investor Relations.

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's 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 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 and the underlying operational performance.

For the second quarter of 2017, adjusted EPS attributable to Equifax excludes acquisition-related amortization expense and the income tax effects of stock awards recognized upon vesting or settlement.

Adjusted EBITDA margin is defined as net income attributable to Equifax, adding back income tax expense, interest expense, net of interest income and depreciation and amortization.

These non-GAAP measures are detailed in reconciliation tables, which are included with our earnings release and are also posted on our website.

Please also 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.

Thanks again for joining us for our call.

The second quarter was another solid, broad-based performance by the team.

Revenue performance at USIS, Workforce Solutions and International was very strong in the quarter with all 3 units meeting or exceeding our expectations.

Global Consumer revenue was weaker-than-expected, which I'll discuss later.

Overall revenue performance for the quarter was strong and within our expectations, even though the FX headwind was stronger-than-expected.

Adjusted EBITDA margin and adjusted EPS performance were both very strong in the quarter.

Both were better than our expectations.

Strong revenue growth and very high margin, USIS and EWS Verifier and in Canada and Argentina led to the strong margin and profit performance.

The performance we have coming out of the second quarter positions us very well for the second half of 2017.

Total revenue for the quarter was $857 million, up 6% on a reported basis and up 7% on a local-currency basis when compared to second quarter 2016.

For the quarter, FX created about almost approximately $10 million of year-over-year headwind, which is more than we had expected.

Revenue for the quarter adjusted for the higher FX impact, again, was within our expectations.

The adjusted EBITDA margin was very strong at 39.1%, which is up 250 basis points over a year ago with very good expansion across all of our business units.

Adjusted EPS was also very strong at $1.60, up 12% year-over-year.

As I always do, I'll jump into some BU activities and come back to some corporate highlights and then turn it over to John.

Let me start with USIS.

They delivered a strong 8% revenue growth in the quarter, up from 5% in the first quarter.

We delivered a stronger growth despite a weaker mortgage market in the second quarter.

The growth was broad-based in the Marketing Services business at 15% growth was very strong.

This reflects both new products and our expanding capabilities driven by Cambrian analytics, and the new delivery platforms we've talked to you about in the past.

Adjusted EBITDA margin performance was very good, up over 100 basis points from 2016 coming in at 51.5%.

Last quarter, we announced Ignite, our portfolio of data and analytics solutions powered by our Cambrian platform.

Customer reception of our Ignite portfolio of solutions has been extremely positive.

Ignite's capabilities are comprehensive and enable a full range of offerings from predefined to configurable to highly customized solutions that again leverage Equifax's broad and unique data assets, including trended data.

We're incorporating trended data and other unique data into additional scores and insights for multiple verticals within our Ignite portfolio.

Combination of Equifax Ignite and trended data in one platform is powerful in many ways, including allowing our customers to create their own trended attributes and use those along with our unique data in their custom models.

Our solutions enable customers to create unique analysis through simple configuration of an extremely wide range of parameters, including things like data assets utilized, risk score type, peer group period, update frequency and segmentation.

Ignite is used not only to develop new models, but also to continually validate predictiveness of existing models.

Both our Ignite Direct and Marketplace solutions are resonating with our customers.

Ignite will be deployed everywhere we deploy Cambrian.

By the end of next year, we'll be in Australia, New Zealand, Europe, Argentina, Chile, Peru, U.S. and Canada.

It's still early days, but Ignite is ramping up nicely and being very well received.

We're excited about the meaningful medium- and long-term opportunity for our Cambrian platform and our Ignite portfolio solutions.

Staying in USIS.

Last quarter, we discussed our launch of InstaTouch mobile solution.

InstaTouch provides a simple method to verify the identity of the user of a mobile device and for the user to access Equifax data assets easily and securely pre-populate personal identity and payment information into an application or complete a purchase, improving the conversion rate and reducing the abandonment rate because the friction has been reduced.

We're deployed with a major financial institution and expect significant expansion opportunities and new customers over the remainder of 2017 and 2018.

While this product is led by USIS, this also has tremendous application in Workforce Solutions employer services, also in Global Consumer and International.

So said another way, InstaTouch will be a platform we're deploying around the world.

As InstaTouch leverages our global decision platform InterConnect, which you're familiar with, it can be deployed globally, taking advantage of that infrastructure.

A great example of leveraging the NPI process and our global IT infrastructure to accelerate product development and revenue.

Onto Workforce Solutions.

They continue to deliver strong performance with 10% revenue growth in the quarter.

The team continues to make great progress penetrating key verticals, introducing innovative new solutions and expanding the business model beyond the U.S.

Adjusted EBITDA margins continue to expand, up 100 basis points to over 51%.

Verifier grew a very strong 19% in the second quarter despite weaker mortgage activity for the quarter.

The strategy is hitting on all cylinders as the team executes on a number of initiatives, which are driving a record level of additions to The Work Number database.

Performance in the second quarter was very broad-based with strong growth across government, card, preemployment screening, auto and mortgage.

Last quarter, we told you about our progress towards launching a Workforce Solutions business in Canada.

In May, we launched our verification of income, verification of employment and record of employment solutions in Canada.

We have a growing list of clients across multiple verticals, including government, consumer finance, mortgage, auto and background screening.

Just like in the U.S., the strategic focus in Canada is on record acquisition, adding verifiers and a network effect that, that creates.

We're now receiving records from several large employers, and we're making very good progress in adding more employers and more records.

As some of you know, lending practices in Canada, particularly in mortgage, have come under increased scrutiny recently.

We're furthering our market leadership position with the launch of our income and employment solutions in Canada.

It's come to a good time for us and for our customers.

We're more focused now -- more focused now than ever on improving the quality of their underwriting decisions and minimizing fraud.

Speaking of Workforce Solutions, beyond the U.S. is a great example of our enterprise growth initiative process that we've talked to you about for years now.

We often use, as you know, for more complex initiatives that cut across multiple business units and/or geographies.

The Workforce Solutions business model is very attractive and a great addition to our core financial information services businesses around the world.

The global opportunity here is significant.

We have a leadership team with an experience and in-depth understanding of how to make that happen, a good technology platform and working diligently right now in Australia and the U.K. In longer term, there are additional geographies beyond Canada, U.K. and Australia that we hope to take Workforce Solutions to.

Global Consumer Solutions revenue for the -- revenue performance in the first half of 2017 saw some significant annual customer delivery shift between the first and second quarters, as we discussed with you in April.

As such, to gauge performance, we need to look at the total first half versus the individual quarters.

At 2% local currency growth for the first half, performance is weaker than our long-term range of 5% to 8% in our previous guidance.

As we've discussed, Equifax recognized the shift coming -- shift occurring in the U.S. consumer market several years ago as new entrants, including those with lead generation-based business models entered the market.

We've broadened our strategy to embrace those new channels and partners and the expansion into new geographies as we do across our B2B businesses and performed extremely well, exceeding our growth targets.

Our long-term growth targets reflect the expectation of a softer U.S. pay consumer market.

GCS will deliver 5% to 8% growth in this environment through a 4-pronged approach: number one, expansion of partnerships with these new entrants as well as traditional players; number two, expansion into new geographies with paid offerings where Equifax's unique data will allow sustainable growth; number three, expansion of channels to reach consumers in the U.S. and other markets where Equifax's unique data assets and relationships provide a competitive advantage; and four, NPI, driving new products based on Equifax's unique data assets like our tax fraud product and additional credit identity protection or warning and breach products in our NPI pipeline.

We've executed well on the partnership expansion.

We're making good progress on the geographic and channel expansion and also on NPI, but the progress was somewhat slower than we expected in the first half.

Our confidence in the ultimate success of these initiatives, however, is unchanged.

However, the slower progress has negatively impacted revenue performance in the first half of 2017.

And as we go into the third quarter of 2017, we expect revenue for GCS to be likely approximately flat when compared to 2016 of third quarter.

However, we are expecting to see improving growth in Q4 2017 with GCS getting back into their long-term range of 5% to 8% growth, leading also to a stronger 2018.

International delivered another impressive quarter, delivering 10% local currency revenue growth with strong performance on new product initiatives that are performing well above our targets.

International also delivered 250 basis points of margin expansion through both strong growth in our higher margin countries and continued focus on cost management and our ongoing program to consolidate global functions.

Europe had another strong quarter with 12% local currency revenue growth.

The debt management business in the U.K. continues to be a growth driver, as we broaden our relationship with the U.K. government.

Collections performance continues to be -- continues to improve, and the outcomes are ahead of our expectations.

Additionally, the amount of debt placed remained robust in the second quarter, and we have a strong pipeline of additional new business opportunities with both new and existing customers.

Our core financial data business in the U.K. and Spain also saw a good growth in the quarter, driven by Decision Solutions growth, reflecting our accelerating growth in deployments of our global interconnect and EID platforms through both expansion in existing and winning new customers.

Our Asia-Pacific business grew 4% in local currency and was in line with our expectations for the quarter.

Our acquired Veda business grew at over 5% in the quarter with a nice adjusted EBITDA margin performance above 35%.

In the second quarter 2016 in Australia, we delivered a large onetime project that drove significant revenue in the year-ago period, impacting the year-over-year growth this quarter.

We're expecting to see good acceleration of growth in the second half of 2017 starting in the third quarter with overall organic growth for the period in high-single digits.

As we announced last month, Paulino Barros has moved to city to become President of Equifax Asia-Pacific.

Paulino delivered great results as President of our International business and most recently, our USIS business.

We're confident with Paulino in place, we'll see successful implementation of our critical management disciplines of NPI, EGI and Lean over the coming years as well as quickly restarting our focus on M&A in that region.

Latin America had another impressive quarter with 14% local currency growth.

Growth continues to be broad-based and led by outstanding performance in our largest countries in the region.

We continue to expand our technology capabilities in the region and we're on track to deploy InterConnect and Cambrian across the region within the next year.

Team in Latin America delivered strong results on New Product Innovation with NPI revenues more than 20% ahead of our second quarter targets.

Canada had a very strong quarter with local currency growth in the second quarter of 8% and over 9% growth for the first half of the year.

Team is driving improved new product innovation, accelerated by their implementation of Cambrian and those new solutions are resonating well with our customers and help us continue to drive share gain in a market where we already have very high share.

Canada had several nice wins in the quarter, including a contract with a large financial institution to provide unique Lean monitoring solutions for auto loans, which helps reconcile vehicle registration data with Equifax credit reporting data to ensure the integrity of the Lean throughout the life cycle.

Before I hand it over to John, let me make a few comments at the corporate level, and then John will get into the financial details.

First, our NPI portfolio continues to perform very well.

The performance is broad-based across business units and verticals.

NPI revenues and our vitality Index were nicely above our expectations for the second quarter and for the first half of the year.

Number of products launched year-to-date were up 36% over 2016; and our pipeline of products, which we were talking about in the past, is up 45% over 2016.

Both those metrics bode well for the end of 2017 and 2018 and beyond.

We continue to realize significant value on our Lean initiatives across our business units and geographies.

In the second quarter and for the first half of the year, we exceeded our Lean target by more than 20%, with the portfolio of Lean initiatives for every business unit performing ahead of our expectations.

We continue -- we expect continued strong execution in the second half of the year.

Lean is a fundamental process to drive both revenue and operating efficiencies, and you continue to see the team's execution and focus reflected in our top line growth as well as our margin expansion that you're seeing over the past few years.

Client Lean where our teams work directly with customers at their locations this year, our Lean expertise to help our customers solve problems, has also had a great and strong first half of 2017.

Increasingly, Cambrian Ignite is becoming a tool for our client Lean teams as we help our customers accelerate their ability to utilize Cambrian in their own process improvement initiatives.

Last quarter, I briefly discussed the importance of enterprise vertical and alliance strategy and its importance in driving revenue growth across USIS and Workforce Solutions.

You will see continued integration of delivery channels across USIS and Workforce as we move throughout 2017 and 2018, including significant expansion of third party partner relationships.

This is a significant focus of our investment in 2017.

Enterprise vertical and alliance strategy is also a driver of growth in GCS, partnering with Workforce Solutions to expand customer access.

In summary, our performance in second quarter and the first half of 2016 has been very strong with first half local currency revenue growth of 11% and adjusted EPS growth of 14%.

Equifax continues to demonstrate a consistent performance delivered by our focus on and continuous improvement of our critical growth processes of EGI, NPI, Alliances and Lean.

Equifax has the most uniquely data in our industry, and we're building on our leadership position in the U.S. and around the world.

We're uniquely positioned to turn data into actual insights through leading-edge technology and data and analytics capabilities.

The opportunities in front of us are simply tremendous, and a high level of execution gives me confidence as I look ahead to the second half of 2017 and 2018 and beyond.

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

John?

Thanks, Rick, and good morning, everyone.

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

We had a solid 2Q and first half, which puts us on a good path to deliver 2017.

Revenue adjusted for FX was within our expectations, and adjusted EBITDA margins and adjusted EPS were very strong and well ahead of our expectations.

USIS revenue in 2Q '17 was $332 million, up 8% when compared to the second quarter of 2016.

This is very strong when considering the impact of the decline in overall mortgage market increase.

Online Information Solutions revenue was $233 million, up 6% when compared to the year-ago period.

Online Information Solutions reflect double-digit growth in Identity and Fraud Solutions and telecommunications revenues.

The 6% growth in Online Information Solutions represents very nice acceleration from 1Q growth despite the impact of a weaker mortgage market in 2Q.

Mortgage market increase weakened in 2Q versus 1Q, declining in the high single-digit percentages in the second quarter, which was consistent with our expectations.

Total market-related revenue for Equifax -- total mortgage-market related revenue for Equifax was up 13%.

We continue to expect a significant decline in mortgage market inquiries in 2017, but we now expect the decline to be somewhat less for the full year than the 15% we had discussed in our 1Q earnings release.

For 3Q '17, we expect the mortgage market to be down 10% to 15% year-to-year with a significant decline also expected for 4Q.

Financial Marketing Services revenue was $61 million in 2Q '17, up 15%.

While revenue performance can be lumpy quarter-to-quarter due to project-related revenues in this segment, we were very pleased with our 2Q growth of 15%, which was up nicely on a sequential basis from 1Q.

Performance was broad-based within the segment, and we are encouraged with trends we are seeing.

We saw strong double-digit growth in both our traditional credit marketing services to financial institutions as well as double-digit growth in our other marking-related revenue streams, including our unique asset and wealth database.

Through the first half of the year, Financial Marketing Services revenue was up 9% compared to 4% in the first half of 2016.

The adjusted EBITDA margin for USIS was very strong 51.5%, up over 100 basis points from 50.4% in 2Q '16.

As you remember, selling trended data reports to the mortgage industry on August of 2016.

USIS revenue and adjusted EBITDA growth in 3Q and 4Q '17 will be negatively impacted as we lap the launch of trended data in mortgage.

Also, the expected 10% to 15% decline in overall mortgage market increase creates an approximately 400-basis-point headwind to USIS revenue growth in 3Q '17.

Excluding these impacts, we would again expect USIS revenue to exceed our long-term range of 5% to 7%.

Reflecting these impacts, we expect USIS revenue growth to be low single-digit percentage in 3Q '17.

For the year, USIS revenue is expected to be stronger than we previously expected, but still slightly below their long-term model of 5% to 7%, with this again driven by the headwinds created by the expected decline in overall mortgage market activity.

Workforce Solutions revenue was $195 million in the quarter, up 10% when compared to 2Q 2016.

Verification Services delivered a very strong quarter with revenue of $130 million, up 19%.

Growth was broad-based with strong growth in government, card, pre-employment screening, auto and mortgage.

Our enterprise vertical strategy is working very well as our enterprise sales teams across USIS and Verification Services work together to penetrate markets and deliver innovative solutions to our customers.

Combined revenue for USIS and Verification Services revenue was $462 million in the quarter, up 11%.

Employer Services revenue of $64 million declined 5% versus last year.

Employer Services, excluding our Workforce Analytics business, grew over 7% in the quarter, driven by nice growth in several of our tax and compliance and onboarding solutions.

Workforce Analytics, our business that helps employers stay in compliance with Affordable Care Act, was down about 40% in 2Q '17.

We mentioned in our last call that employers completed tax reporting for 1095s and 1094s much earlier in 2017 than they did in 2016, benefiting Workforce Analytics revenue in 1Q but creating a difficult comp in 2Q.

Our revenue for Workforce Analytics has progressed in line with our expectations so far in 2017, down a little over 1% for the first half.

We continue to expect our total ACA revenue to be about flat for 2017 versus 2016.

Looking forward, we expect employer to grow high single-digit percent in the second half of 2017.

The Workforce Solutions adjusted EBITDA margin was a very strong 51.2% in 2Q '17, up 100 basis points from 50.2% in 2Q '16.

This reflects continued strengthening of mix as high margin Verifier continues to grow aggressively as well as good cost control.

Workforce Solutions grew at 10% was very strong, but down from 1Q '17 due to the significant timing-related decline in 2Q '17 Workforce Analytics revenue.

As a result, we expect Workforce Solutions' overall growth to increase in the second half.

For the full year, we expect continued strengthening of Workforce Solutions revenue at levels above our long-term model.

Global Consumer Solutions revenue at $99 million in 2Q '17 was down 8% on a reported basis and down 7% on a local currency basis.

As we discussed in April, 1Q '17 revenue growth was benefited by more than 5 percentage points, as the timing of an expected annual purchase of data by our reseller partner occurred in 1Q '17 versus 2Q '16 in the prior year.

Adjusted for this occurrence, GCS 1Q '17 revenue was up about 7% on a local-currency basis and 2Q '17 revenue was down just over 1% on a local-currency basis.

For the first half of 2017, local currency revenue is up about 2%.

Adjusted EBITDA margin was 31% in 2Q '17 and was 31.4% for the first half.

As Rick discussed, revenue performance was weaker-than-expected in 2Q and is performing below our full year expectation as growth on our geographic channel and NPI growth initiatives has been slower than we had planned.

As a result, we expect GCS revenue to be about flat in 3Q '17 and for the full year to be below their long-term range of 5% to 8%.

However, as Rick indicated, we do expect to exit 2017 with stronger growth rates and improve the growth again in 2018.

Adjusted EBITDA margins in GCS will decline sequentially in 3Q and rebound in 4Q.

International revenue was $231 million, up -- in 2Q '17, up 6% on a reported basis and up 10% on a local-currency basis.

By region, Europe's revenue was $69 million in 2Q '17, up 2% in U.S. dollars and up 12% in local currency.

Asia-Pacific revenue was $77 million, up 6% in U.S. dollars and 4% in local currency.

This performance was in line with our expectations for the quarter.

Our acquired Veda assets grew at over 5% in the quarter, slightly below our long-term expectation, reflecting that in 2Q '16, Veda delivered a large onetime project, which drove significant revenue in the year-ago period.

As Rick indicated, for second half of '17, we're expecting growth for Veda in the -- we're expecting growth for Veda and high-single-digit growth overall for the 9 months ending 2017.

Latin America's revenue was $53 million in 2Q '17, up 13% in U.S. dollars and up 14% in local currency.

Canada's revenue was $34 million, up 4% in U.S. dollars and up 8% in local currency.

International's adjusted EBITDA margin was 30.9% in 2Q '17, up from 28.4% a year ago.

Margin expansion was outstanding and reflects the focused growth in high-margin products as well as continued execution on a long-term project to consolidate support services.

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

In the quarter, general corporate expense was $48.1 million.

For Equifax, adjusted EBITDA margin was 39.1% in 2Q '17, up 250 basis points from 2Q '16.

This was an outstanding performance and reflected positive revenue mix across the BUs and within the BUs themselves and very good cost control in the BUs and centrally.

Looking forward, we expect continued significant year-to-year improvement in adjusted EBITDA margin but not to the degree we saw in 2Q.

Revenue mix is unlikely to be as positive as the overall mortgage market weakens and lower margin GCS revenue recovers.

Timing of equity compensation grants increases variable compensation expense in 3Q.

Investment spending related to EGIs and other significant programs increases in 3Q.

This is mostly timing effect.

And also, acquisition and integration cost will increase.

Our GAAP effective tax rate was 30.9% in the quarter and includes $4.8 million benefit from the income tax effect of stock awards.

Excluding this item, our 2Q '17 effective tax rate would have been approximately 32.9%.

Our non-GAAP tax rate for the full year is expected to be approximately 32.5% and somewhat below this level in 3Q '17.

As a reminder, our non-GAAP effective tax rate in 3Q '16 was only 29.1% due to the benefit of discrete items.

As I mentioned earlier, we expect to continue to see significant year-to-year expansion of adjusted EBITDA margin in 3Q '17, which will drive growth and operating income and adjusted EBITDA at a higher rate than revenue.

However, items below operating income, principally the tax benefit in 3Q '16 as well as higher shares outstanding as we have not repurchased shares since the Veda acquisition, negatively impacts 3Q '17 adjusted EPS growth by about 4 percentage points.

In 2Q '17, operating cash flow was $225 million and free cash flow was $176 million, both consistent with our expectations.

Through June, operating cash flow was $329 million and free cash flow was $229 million, up 10% and 6% respectively.

Capital spending incurred in the quarter was $47 million.

Total debt at the end of the quarter was $2.8 billion and our leverage was 2.32x EBITDA.

We raised cash in the commercial paper market in the last week of June to allow us to repay $272.5 million of bonds maturing in early July.

Excluding the additional $272.5 million in commercial paper used to prefund the bond maturity, leverage would have been 2.1x EBITDA.

As we have delevered from the Veda acquisition consistent with our plans, we will restart share repurchases in 3Q.

As Rick indicated, Equifax performance in first half of 2017 has been outstanding with local currency revenue up 11% and adjusted EPS up 14%.

As Rick will describe shortly, for the full year, our expectations for both revenue and adjusted EPS are improving versus when we gave guidance in February.

At that time, we expected the mortgage market to be down about 15%, principally in the back half of 2017, driven by increasing interest rates.

We indicated that we would offset the overall 3% revenue headwind caused by the weakened mortgage market by accelerating new product innovation, accelerating growth in nonmortgage segments of USIS and Workforce Solutions, driven by product innovation as well as improved market conditions as increasing interest rates cause an acceleration in growth of credit card and other nonmortgage markets and continued very good performance from GCS and International.

As we look at our current expectations for the full year, we expect to continue the strong performance we have shown to-date, executing on what we had committed.

For the full year, we expect NPI continues to be strong.

Overall mortgage market revenue decline will be somewhat less than the 15% we expected, and therefore mortgage revenue in USIS and Workforce will be stronger than expected.

USIS and EWS nonmortgage revenue will continue to be strong.

We expect market conditions to continue to be favorable, but not at the accelerated rate expected earlier in the year as interest rates have not increased as expected.

International growth will continue ahead of schedule.

GCS revenue growth being weaker-than-expected is now expected to be below our long term 5% to 8% range for the year.

Taken together, performance looks to be better than our expectations when we started the year.

Now let me turn it back to Rick.

Thanks, John.

Let me just give you a little color first on the third quarter and then the full year, then the operator will open up for some questions for all participants.

For the third quarter at current exchange rates, we expect revenue to be between $853 million and $861 million, reflecting a growth rate of 6% to 7% with limited FX impact for the quarter.

Mortgage market headwinds impact third quarter revenue growth by approximately 300 basis points.

Adjusted EPS is expected to be between $1.50 and $1.54, which is up 4% to 7% for the third quarter also with minimal FX impact.

Mortgage market headwinds impact adjusted EPS growth by over 500 basis points in the quarter.

Also John mentioned earlier, third quarter 2016 had a tax benefit that did not reoccur in third quarter 2017 and that will impact adjusted EPS growth by about 300 basis points.

As you know, our long-term growth model of 7% to 10% revenue growth and 11% to 14% adjusted EPS growth, adjusting for the expect mortgage headwinds.

Our outlook for both revenue and adjusted EPS for the third quarter is nicely within our long-term model.

The full year of 2017 guidance has improved as we've narrowed the range and increased the midpoint, shifting both revenue and adjusted EPS toward the upper end of our previous guidance.

At current exchange rates, we expect revenue to end the year between $3.395 billion and $3.425 billion, reflecting constant currency revenue growth for the year of about 9%.

We're increasing the bottom end of our range by $20 million in the guidance we had given earlier, which was $3.375 billion.

We expect adjusted EBITDA margin for the year to be above 37%, which is up nicely from our previous guidance.

We now expect adjusted EPS to be between $6.02 and $6.10, which is up about 10% and up from our earlier guidance of $5.96 to $6.10, and this reflects the high level of execution by the team and the strength of our diversified business model.

And this is -- just to refresh your memories, on top of 23% adjusted EPS growth we delivered last year.

Within framework of our long-term model and adjusted for mortgage market impact this year, our full year guidance for both revenue and adjusted EPS is also at the high end of our long-term model.

So with that, operator, if you could open up for questions, please?

(Operator Instructions) And we will take our first question from Toni Kaplan from Morgan Stanley.

This is Patrick in for Toni.

John, you referenced in your prepared remarks that total mortgage-related revenue was up something like 13% this quarter, while inquiry volumes were down in the high-single digits.

I believe you reported a similar level of outperformance last quarter.

So I'm just wondering as we think about the third quarter, 3 point headwind from mortgage and sort of the guide for the back half, whether or not that mortgage guidance might be overly conservative?

Patrick, let me jump in first and then John -- well, this is Rick.

The performance you saw, one, we don't think is overconservative, to answer your question.

Two is the performances you saw in the second quarter of outperforming the market and market is defined in many different ways, has not been a 1 quarter or 2 quarter or 1 year or 2 year anomaly, it's been long-term trend.

So we continue to expect ourselves to outperform whatever the market does.

We've given guidance, assuming the mortgage market that I think is pretty consistent with many economists, we expect to outperform that.

The big gap you saw in Q2 and Q1 between our performance and market performance, a chunk of it is trended data, right.

So we had a nice growth from trended data, which started, as we said, in the third quarter of last year.

And so part of that very wide gap is because of trended data revenue.

But as Rick said, we'll still outperform the mortgage market as we go forward.

Great.

And then a quick follow-up, if I could.

I believe in the past, you've talked about Canada as more of a mid-single-digit grower.

Given the stronger performance in the first half of this year, I'm wondering if at least over the next couple of quarters, whether or not we should expect that to be more like high single-digit grower.

You get a lot of noise quarter-to-quarter and geography-to-geography.

And I don't pay much attention to that.

We get great momentum in NPI, great momentum in Cambrian and across many verticals.

So you may see quarter-to-quarter something outperforming and some quarter is underperforming, but long term, we still felt very good about being in that mid-single-digit growth as we spoke of high margins.

And we will take our next question from Manav Patnaik from Barclays.

This is Greg calling on for Manav.

I appreciate all the color on the mortgage segment.

I was just wondering if you could give a little color on how you're thinking about some of the other consumer classes like auto and cars, just given the interest rate backdrop.

I think from macro perspective, with interest rates not rising as maybe the economy had expected earlier in the year, it's not as -- you're not seeing the growth at the macro level maybe in the car business as you would have expected earlier in the year.

But we have a wide range -- array of customers, and we've got some that are doing extremely well.

You saw the performance in our marketing services, prescreening was really strong in marketing.

Auto, even though you're seeing a plateauing of new car sales in the U.S. projecting it will be something over $17 million for the year.

As you know, we participate on used car, Greg, as well as new car.

Used car continues to grow.

And we talked about our EWS business being lightly penetrated with a lot of room to grow.

We signed a great contract with a partner in that arena in the last 6 months.

That's continuing to fuel growth.

So even though new car sales are plateauing, we continue to expect place like EWS and auto to be a good growth driver for us.

And then on the fraud and ID side, you sounded pretty excited about the InstaTouch and some of the other things you're doing there.

A bunch of your peers have also talked about fraud and ID as being an important growth driver.

So I'm just hoping if you could give some color on what you think can be the differentiator for you guys versus the peers?

Well, one, it's important to know, Greg, that we thought about fraud and ID is not just in the U.S. where we have the traditional competitors.

It's in countries where we don't have necessarily traditional competitors.

You go to Latin America, we plan on bringing fraud and ID we have into those countries.

You think about Australia, we're really excited about bringing products like InstaTouch to Australia.

So it is a global excitement that you're hearing from us, not just in the U.S. And InstaTouch is very unique.

And what makes InstaTouch unique is not just the technology itself and the first mover advantage.

And that's one small piece of fraud, by the way.

It is also that coupled with our unique data assets that makes InstaTouch really powerful.

And by the way, Greg, we also alluded to InstaTouch being a really exciting capability we're bringing to Workforce Solutions.

And as you know, Workforce Solutions has the unique capability that we have in our business.

And we will take our next question from George Mihalos from Cowen.

Just wanted to ask, Rick, on the financial marketing again, which historically has kind of been -- if that's strong, it's sort of a harbinger of future growth coming your way.

Do you still view that sort of relationship intact, that if you have the prescreen and everything else going up that, that will lead to a bit of an acceleration, if you will, in some near-term revenue?

Good question, George.

So the strength, first of all, was in 3 unique areas.

It was the portfolio management, it was prescreen and it's out IXI business, all 3 exhibited really strong growth.

The correlation and connection between prescreen and online, and we talked about this last few years.

There seems to be a slight decoupling.

It used to almost be a one quarter lag between prescreen growth and an uptick in online.

We're not seeing that -- necessarily that correlation.

We're keeping an eye on it going forward.

And if it does correlate, obviously, that's nice upside for our online business and USIS.

We've not seen that direct correlation for the past few years.

Okay.

I appreciate that.

And then just I might have missed it, but just your confidence on consumer coming back in the fourth quarter.

It just a matter of there was a push out again of some new products, and is that the driver or anything going on in the customer base that might worry you a little bit?

The confidence level, George, is extremely high, and we've got great visibility into contract-level details.

And again, if you look at the first half in compared to third quarter, we saw modest growth in the first half, slight decline to flattish in the third quarter.

We got that visibility.

It gives us high level of confidence that fourth quarter will exit nicely in the range, and that will bode well for 2018.

Okay.

Operator.

And we will take our next question from Brett Huff from Stephens.

2 quick ones.

One, you'll mentioned that you're going to try and get back to doing some buybacks later in the year or in 3Q.

On a broader question of capital allocation, how are we still prioritizing things?

I know you want to invest a lot organically.

But as you look around, is there anything that you're particularly more focused on now inorganically?

Yes.

First of all, strategically, Brett, the priority remains the same.

It's investing in organic growth, it's protecting the dividend we talked about and it's investing in share repurchase and inorganic growth.

As you might guess, we have been focused the last whatever it's been, 18 months or 19 months or so, on the integration of Veda and de-leveraging.

So as you think about capital allocation in the back half of this year and going into 2018, John mentioned share repurchase.

We're back in that arena and expect us to get back in the arena of acquisitions as well.

We do a good job of that and it's tied to our strategy.

We've got a good pipeline and we have the financial capacity to do so.

Great.

That's helpful.

And then second question is when you think about prioritization of sort of the growth opportunities at some -- I know you have a lot of them, but do you think -- do you see a greater opportunity of simply taking the existing products you have in your most developed markets like the U.S. and spreading them around the world to different geos?

Or is it do you feel there's more growth opportunity in sort of your NPI and just generating brand new products or maybe there's a balance?

Yes, let me start at a high level and drill down.

Number one, if I had to prioritize a single highest growth prospect we have over the next 3 to 5 years, it's obviously The Work Number.

We alluded to that, that we have had a record number of adds of employers and records to the database.

We talked back, I think it was October of last year, that we had a short-term goal of getting 300 million records on that database.

We have blown through that number and are over 320 million and we're on our way to 350 million.

And you couple that with the penetration of different verticals, you penetrate it's get smarter in that arena and taking that then global.

So Work Number is by far the #1 area that I see for growth over the next 5 years in the U.S. and globally.

Number two, obviously, NPI is always a very strong part of our growth, and that hits across many verticals and many countries.

Categorically, we've talked about fraud being a very, very important market for us.

We talked about InstaTouch just a second ago, and that hits all markets.

Your comment on moving products around the country, we're getting better at that.

That's a big part of what we are.

It's cost efficient and it's effective to do.

We'll continue to move things like our OSHA platform globally, Cambrian globally.

Ignite will be another area in both direct and marketplace.

It excites us as we port Cambrian worldwide.

And oh yes, and debt services.

Debt services.

Interesting point in debt services, we tend to talk a lot, and there may be some questions today about Indesser.

Debt Services in Indesser that the government in the U.K. has been a great growth driver for us.

And interesting thing is over 50% of our revenue for debt services now comes from opportunities outside of Indesser and roughly 30% to 40% of it is outside of U.K. all together.

We're deploying debt services now in virtually every country we operate around the world, and that's a great driver of growth this year, next year and beyond.

And we will take our next question from Tim McHugh from William Blair.

You probably explained this, but I may have missed it.

I guess what part of consumer underperformed in the second quarter, relative to what you had expected?

I think you had said.

And then as you think about 2018, can you elaborate on, I guess -- I know you said you have line of sight to specific contracts, but I guess what parts of the business just more qualitatively are you expecting better performance in?

Yes.

The miss, Tim, was -- I don't know if I mentioned specifically or not but it was in our direct business.

And we're trying to reposition the business as we talked about, before we have four-pronged approach that Dan Adams and his team have been operating on.

NPI is a very important part of that, globalization is a very important part of that, working with our indirect partners, getting new indirect partners.

So it's not a silver bullet.

It's a continuation of repositioning of the business that he's been on now for 6 to 9 months.

John, you want to add something?

Actually, the biggest area was really consumer direct business and also some of the white label areas just didn't quite show the growth that we expected.

And as Rick said, we didn't see the expanded growth through channels and geographies that we had expected we would see in the quarter, and that's just lower than we thought.

And Tim, to reiterate, so we have great transparency.

We can look at contract level, customer level, product level, channel level and we wouldn't see replacing.

We've got confidence in returning to that long-term growth model in the fourth quarter unless we saw it, and we do see it.

Okay.

And then just some model questions quick.

On the debt, that was, I think, fairly expensive debt.

So is that just a change in kind of the absolute debt level will run at going forward?

Or I guess, will you replace that?

Or how should we think about the balance sheet in that regard?

I mean just the guidance -- sorry, go ahead.

We refinanced it with commercial paper.

So the debt level didn't change but the mix of debt did.

Okay.

And the guidance -- the small acquisition you did earlier or at least announced, I don't know if it's closed yet, is that incorporated into this at this point?

It is, but it's extremely small.

It is not closed yet, to be clear.

The hope is that gets closed sometime here in the third quarter, but it will be de minimis in the third and fourth quarter.

More importantly, it's strategically an opportunity for Dan to get in that world of the benefits world and sell and monetize products.

So long term, we're very bullish on that, I mean in 2018, but 2017, yes, it's in our guidance but it's de minimis.

And we will take our next question from Gary Bisbee from RBC Capital Markets.

This is Gunnar Hansen in for Gary.

I just want to touch base.

I guess going back to Veda, you guys cited the onetime project making for a tough comp last year.

I guess any sense as to how big that was?

And I guess, just the underlying growth in Australia and Veda in particular?

And any particular product or verticals that are seeing strong growth or maybe a little more insight there?

Yes, it was -- by the way, the guidance we gave in the second quarter, obviously, we have full transparency in the onetime contract we had last year.

So it was not a surprise on our end.

Two, we remain very bullish on Australia and Asia as a whole.

It can end the year with great growth.

It will have a great third quarter and have a great fourth quarter.

Well positioned for next year.

Economic outlook remains very good for Australia.

The consensus is 2.3 4 5 6 7% growth next year.

Paulino, as I mentioned, is down there if he'll accelerate the adoption of some of our platforms and products and processes.

So I remain very bullish on the entire region.

We also said that we're going to see for the last 9 months of 2017 growth in the high-single digits, so that includes the second quarter.

And that high-single digit is at the high end of the range we indicated we'd see for Veda when we acquired them.

So again, we feel very good.

Okay.

And then, I guess, just you guys, I think, in December announced the enterprise-wide agreement with Silicon Valley firm.

It -- has that driven a meaningful contribution to revenues?

And has that established or driven any new partnerships that you guys have been working on?

Gunnar, the latter is the more important.

As we talked about, it's a nice revenue contributor.

But more importantly, it gives us the kind of the cache, the credibility in the digital market space, and we're seeing the benefit of that.

And we will take our next question from Andrew Jeffrey from SunTrust.

Couple of questions for you.

I guess, first of all, Rick, it's good to hear that Verifier is enjoying new vertical growth.

Can you talk a little bit about how penetrated you think you are at some of those new verticals and how long the runway might be for sustainable growth in that subsegment of EWS?

Yes.

Andrew, it's amazing.

I say this all the time.

It is -- one, the visibility into the long-term growth is phenomenal.

Meaning we see the levers that we can pull to continue to grow.

If I look out 5 years, I see significant growth over the next 5 years for that business just in the U.S. alone and it could even be longer.

And then you say growth, planting the seeds we're planting in Canada, Australia, U.K. gives you confidence in growth for years to come even after that.

So vertical penetration, expansion, I think there's a whole new world of things we can do in that entire employer space and HR space that is yet to be tapped.

So I'm extremely bullish.

It's been hell of a run for us since we bought that company 10 years ago.

On the revenue side, on the profit side is converting the model from a BPO model to a data and analytics and insight model is remarkable.

And it shows through, as you know, in the top line as well as the margin expansion.

So I mean, it would not be farfetched to say that in a period of time, that may be our largest, most profitable business we have in the world.

Okay.

I mean, that's exciting.

And obviously, there are lots of moving pieces still around ACA.

But given what you know today or where you think we are in the potential legislative process, barring, say, a full repeal of ACA, it sounds like EWS is a business that could grow above your current long-term trends for some time.

Is it reasonable to expect that as we get clarity, you might be upping those targets?

Right now, we're assuming that there is continued headwind around ACA.

And if that changes, if there's no repeal and no replacement, obviously, that bodes well for the analytics business within EWS.

But as an example, for the second half an employer we're expecting to see the whole employer business to grow nicely in the second half of the year, right.

So kind of high single-digit range.

So we've not only seen good growth in Verifier, we're seeing good growth in employer as well, and that's with a flat FWA business.

Okay.

So anything short of full repeal could be an incremental positive, maybe in the way you're thinking about that business right now?

Yes.

I think so that would be more for 2018 rather than 2017.

Right.

Okay.

So hopefully, we'll have clarity by then.

And we will take our next question from Shlomo Rosenbaum from Stifel.

John, why aren't we seeing like an uptick in the minority interest as Indesser is doing better?

Or shouldn't we start to see that increase more?

So minority interest generally scales with the performance of our International property because we have partners in many of our International properties around the world.

So what you should see -- it doesn't tie perfectly because it -- obviously, the performance of different countries varies in any individual quarter.

But in general, as you see, International growing more aggressively, you're going to see minority interest continue to go up as well.

And we take that into account in our EBITDA calculation.

So you're saying that there's more than just Indesser in there?

Absolutely.

We have partners in multiple Latin American countries, in Spain, in Russia.

So we have partners in many places around the world.

Generally speaking, they have relatively small percentages, but yes, we have partners in many of our businesses around the world.

And Shlomo, that's not new.

We've had those partnerships for a long time.

In many cases, long as my tenure here; in some cases like Russia where it's occurring since we've been there, but that's not a new phenomena for us.

Right.

I'm just wondering, if that -- is that what we should expect though over the next year or so that we should see this line item expand as Indesser does better?

Well, the line item will expand in general as International does better, right, because the partnerships are broader than just Indesser, right.

And the impact of minority interest is really driven by improvements in Argentina, in Chile, in Spain and in other parts of the world where we have -- Peru or where we have partners.

Okay.

And then can you give us a little bit of order of magnitude between the variance in the mortgage services line item and kind of the MBA applications index that was down like almost 18.5%?

How much of that was that -- the trended data and how much of it was the fact that you guys generally are working hard to outperform the market?

So we focus on different measures.

So as we indicated, second quarter increase was down high-single digits and we'll probably try to variance off of that.

Historically what you've seen is Equifax has outperformed the overall mortgage market by 5, 6, 7, 8 points, right.

So that's kind of what the historical -- it looks like historically.

It moves around quarter-to-quarter, but that's been historical move.

Again, as we said, we've done much better than that for the past 4 quarters, and it's something that's because of trended data.

Also you're seeing, as Rick mentioned, a continued improved penetration in Workforce Solutions, and that continues to drive outperformance relative to the mortgage market in general.

And that, we believe, has legs for quite some time as well as new products continually being added by USIS.

And we will take our next question from Jeff Mueller from Baird.

Just on the global consumer side, I guess, as the DTC component and then slower than planned on the geographic and NPI.

So in terms of the -- I hear you loud and clear on the confidence for Q4.

When you talk about delays, is it a delay where you're slower to get into a market?

Or is it a delay where once you're in market, there's a slower rate of market adoption?

And then on the DTC side for Q4, are you assuming kind of a stabilization in the year-over-year trend?

Or is there some assumption that it could continue to worsen and you can still get to the growth you're talking about?

Yes, Jeff, it's largely a stabilization on DTC.

And really, the slowness was not as geographic expansion in new geographies, but it might be taking products into new geographies and products into existing geographies.

So to be honest, that was an execution mostly around NPI within GCS.

But to your question, we do expect DTC to slow -- stabilize in the fourth quarter.

And again, the confidence level is very high that we'll be back in that range.

And then the Verification Services growth was phenomenal in this mortgage environment.

I think that you said that mortgage grew, and I understand the growth is broad-based, but can you just confirm that that's the case?

And where are you in terms of mortgage penetration within Verification?

Well, we indicated that we gave our growth rate for mortgage for all of Equifax, and we think we said up 13%, right.

So I can confirm that's correct.

And in terms of penetration for mortgage in the GCS -- in the Workforce Solutions business, I think we believe we still have a long way to go, right.

Our penetration continues to grow, but as we continue to add more records, the hit rate continues to go up substantially, so our opportunities to generate revenue off mortgage from the Workforce Solutions business is substantial.

That's key.

And we will take our next question from Kevin McVeigh from Deutsche Bank.

I wonder if you could give us a sense, given the success you've had on the trended data side on mortgage, does it make it an easier transition to other parts of the business, and thus, even kind of quicker acceleration, if you would, across auto and consumer credits, so on and so forth?

Or was it just the power that data speaks for itself?

It's a lot of it, Kevin.

It's every vertical.

We're excited.

And to be very clear, we're excited about the opportunity to trend data.

We're trending data right now in different verticals in different parts of the world.

But every case has got a stand on its own merits.

The KS list and the value you get.

In auto, in a particular country, it got to stand on its own.

The fact you've got a success in mortgage market has no real bearing on the adoption in that new vertical in that new country, but we're excited short term and long term about trended data.

Got it.

And then, Rick, could you just remind us the mix in new versus used in the auto side, I mean given the growth and things like that.

Just is it pretty similar in terms of where the revenue sits new versus used?

We don't break that out, but we play in both.

That's what you need to know.

So we are -- any time a car is financing, [whether used] we're there to play on verification of income, verification of employment and credit and credit score.

So we're agnostic.

And we will take our next question from Andrew Steinerman from JPMorgan.

It's Andrew.

I just wanted to clarify and check on the Employer Services within Workforce Solutions.

I definitely appreciate the outlook.

I'm just talking about the second quarter.

Was the decline solely related to ACA analytics?

Or is there anything else to discuss?

The decline was specific to ACA analytics, right.

Other than -- if you exclude the Workforce Analytics business, we had growth of over 5% and the remainder of Employer.

Thank you, Andrew.

Okay with that, operator, we will terminate the call.

I appreciate everybody's time and interest in Equifax, and have a good day.

And this concludes today's conference.

Thank you for your participation, and you may now disconnect.