易速傳真 (EFX) 2018 Q1 法說會逐字稿

Good day, and welcome to the Equifax First Quarter 2018 Earnings Call.

Today's call is being recorded.

At this time, I would like to turn the call over to Trevor Burns.

Please go ahead, sir.

Thanks, and good morning.

Welcome to today's conference call.

I'm Trevor Burns, Investor Relations.

With me today are Mark Begor, Chief Executive Officer; Paulino Barros; John Gamble, Chief Financial Officer; and Jeff Dodge, Investor Relations.

Today's call is being recorded.

An archive of the recording can be available later today in the Investor Relations section in the About Equifax tab of our website at www.equifax.com.

During this call, we will be making certain forward-looking statements to help you understand Equifax and its business environment.

These statements involve a number of risk factors, 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 our filings with the SEC, including our 2017 Form 10-K and subsequent filings.

Also, we'll be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of the underlying operational performance.

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

Adjusted EPS attributable to Equifax also excludes certain cost related to the cybersecurity incident.

These include cost to investigate the cybersecurity incident, legal and professional services and a contingent liability for cost associated with providing free credit file monitoring and identity theft protection services to consumers.

Included with cost related to the cybersecurity incident and therefore, excluded from adjusted EPS attributable to Equifax are the incremental nonrecurring project cost designed to enhance IT and data security.

This includes projects to implement systems and processes to enhance our IT and data security infrastructure, as well as projects to replace and substantially consolidate our global networks and systems as well as the cost to manage these projects.

These projects that will transform our IT infrastructure and further enhance our IT and data security are expected to occur throughout 2018 and 2019.

Adjusted EBITDA is defined as net income attributable to Equifax adding back interest expense, net of interest income; depreciation and amortization; income tax expense and also, as is the case for adjusted EPS, excluding certain onetime items, including cost related to the cybersecurity incident.

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

In the Form 10-Q to be filed later today, we will disclose that future losses from litigation are reasonably possible but not yet estimable at this early stage in the proceedings.

Now I'd like to turn it over to Mark.

Thanks, Trevor.

Good morning, everyone.

I think as all of you know, I joined Equifax last week.

So I'm into week 2 here at Equifax.

It's exciting for me to join my first Equifax earnings call and most importantly, take the helm of Equifax at such a pivotal time in our history.

I want to start my comments by assuring consumers and customers of my absolute commitment as well as our team's absolute commitment to making Equifax a leader in IT and data security to protect the sensitive consumer and customer data with which we have been entrusted and to empower individuals to understand and manage personal data.

I also want to take a minute to thank Paulino for the outstanding job he did as interim CEO and for continuing to be a part of our leadership team into early 2019.

During Paulino's time as CEO, Equifax has made significant progress in 4 areas of focus outlined as critical to our success in transforming Equifax following the cybersecurity incident.

Those 4 elements are: Number one, to protect and empower consumers; number two, become an industry leader in data security and identity protection while transforming our IT infrastructure and data security to industry leadership levels.

John will talk about the sizable investment in this area in the first quarter and in 2018.

Third, rebuild confidence with customers and partners, and I'll talk a little bit about our progress there; and fourth, respond to and work with the government and other regulatory bodies as they investigate the incident.

In the fourth quarter earnings call in early March, Paulino and John covered in detail our plans and progress across these areas.

Ensuring continued consistent execution in this transformation in this massive infrastructure investment that we're making is critical to the success of Equifax and has my personal commitment as well as the focus of the entire Equifax team.

I came to Equifax 2 weeks ago because I believe in the business.

I believe in the strategy and I believe in the team.

Equifax's strategy over the past decade has been baked on a sound yet simple principle of combining industry-leading analytics and machine learning, unique credit income and asset-based data and customer-specific data to be the leader in creating new analytical products that solve customer problems in financial decisioning, identity verification, fraud identification and human resource processes.

My experiences at GE and Warburg, including my 2 years on the FICO board, position me well to take over this leadership role and help lead the transformation to deliver industry-leading IT and data security, improve customer support and customer-leading products and services.

I'm convinced we have the opportunity to make Equifax again the leader in providing data-driven insights to our customers and deliver a great future for Equifax customers, consumers, employees, communities and shareholders.

It's that opportunity that drew me to Equifax, and I'm energized and excited to get going.

In my first 90 days as Equifax CEO, I'll work closely with my team to immerse myself in the business, and that's already underway.

As I do this, I'll prioritize my efforts in a few critical areas of our transformation: Number one, employee engagement and the team.

Delivering on commitments Equifax has made to consumers and customers will require that we fully engage our talented workforce and leadership team, deepen and expand that talent, particularly in IT and data security.

And I think you know we're taking very aggressive steps there to improve the leadership team and also bring new technologies into our deployment as part of our IT transformation.

I believe in our leadership team.

They have deep domain.

They understand our products, our customers and technology.

And I'm really excited about some of the new members of the leadership team.

I think you know a few weeks ago, before I arrived, we brought in a world-class CISO leader, Jamil Farshchi, from Home Depot, and we're very close to landing a new CTO to bring into the business from another leading company.

Number two, execution in our critical IT and data security and IT transformation initiatives.

This includes a continued focus on ensuring Equifax strengthens its security-first culture with supporting governance.

It also includes a focus on people and talent acquisition in these highly competitive areas.

And we're being very aggressive about attracting the absolute best talent in the IT and data security space.

We've -- we're investing heavily to ensure we are market leaders around data security, and we will also enhance the transparency of all our transformation efforts with all our constituents, our customers, consumers and the public as we drive this transformation forward.

Number three, strengthening customer and partner relationships and reestablishing trust in Equifax as a premier partner.

I'm already out meeting with customers.

I had a meeting 2 weeks ago.

I've actually got a dinner tonight with a customer and another one tomorrow in Boston.

Engaging with customers is a critical priority to me and our leadership team.

We're all out there spending time with customers to regain their trust and confidence in our business and the initiatives that we're taking to enhance our data and data security and IT infrastructure.

Number four, strengthening consumer support, both in processes and technology, and importantly, building a culture focused on continuously improving customer support.

This is another area that's central to me in my 9 years leading the Synchrony Financial business at GE when it was a part of GE.

That B2C interaction with customers was critical to me, and it's one of the many things I'm going to be bringing to Equifax.

I'll also focus time in meeting with our shareholders and getting your input on our performance and our direction.

I expect to begin those meetings in the coming weeks.

Engaging with shareholders is a big priority for me, and I look forward to meeting with you in the coming weeks and months.

First quarter was a solid start to the year for Equifax.

We made positive progress in the quarter in our focus areas for improving IT and data security; improving consumer support with the launch of Lock & Alert; as well as importantly, progress with our customers and our financial performance.

I'll walk through the highlights of the quarter, and then John will take you through the details on our results.

Total revenue for the quarter was $866 million, up 4% on a reported basis and up 3% on a local currency basis versus last year.

Adjusted EPS was $1.43, down 1% versus last year.

Both revenue and adjusted EPS were above our guidance range and better than our expectations, so we feel some really positive momentum coming out of the first quarter.

USIS revenue was down 1% versus last year, consistent with the guidance we provided in March.

Total online revenue was down about 2%.

Marketing Services was down slightly, although importantly, we saw continued growth in credit marketing services.

Trade team are working -- are making great progress with working with our customers regarding the reviews following the cybersecurity incident.

I've been part of many of those.

We have institutionalized more formal customer communications.

We're holding regular updates with both security and the nonsecurity leaders from our customers, and I've been a part of those also.

In the period after the breach, customers were naturally focused on the incident and rebuilding confidence and trust.

While that is still a central priority and topic of discussion with our customers, we're also seeing them increasingly willing to reopen discussions with us about new business opportunities, and our pipeline is strengthening for both new -- or core and new products.

Our customers are focused on our investments in data security and infrastructure, but they also want to get back to a normal growth discussion with us.

We continue to have success moving our customers to that normal position around new and expanded business.

This allows us to better engage in new products as well as the credit marketing services transactions we've discussed in both third quarter '17 and fourth quarter '17 earnings calls.

Our Workforce Solutions business had a very solid quarter, with revenue up 6% versus last year, slightly better than we expected.

Importantly, Verifier revenue was up a strong 12%, driven by the strong growth across government, talent solutions, mortgage and debt management.

Employer Services was down 3%, but Workforce Solutions and Rudy and his team had a very solid quarter in the first quarter.

John and the international team had another strong quarter, with revenue up 13% on a reported basis and 9% on a local currency basis, slightly stronger than our expectations.

Latin America and Asia Pacific had double-digit local currency revenue growth, and European credit operations in Canada continued to show strong single-digit local currency growth.

Lastly, European debt services declined in the quarter, specifically in our venture with the U.K. government.

Global consumer revenue was down 3% on a reported basis and down 4% on a local currency basis, a slightly better performance than we had expected.

U.S. consumer direct revenue declined 21% in the quarter, again, within expectations.

As we indicated last quarter, we will not be doing any advertising in our U.S. consumer direct business through, at least, the second quarter '18.

And therefore, we will see continued decline in revenue driven by customer churn.

We expect to make a decision on the U.S. consumer direct business over the coming quarters.

This decline was partially offset by growth in our reseller business and the Canadian consumer direct business as we have seen continued growth in these 2 operations.

And also, our ID Watchdog acquisition performed well in the first quarter.

While our first priority must be to deliver our IT and data security and IT transformation commitments and to continue to improve customer support, it's also of critical importance that we get the broader team at Equifax back to focusing on the essential operations -- operating practices that will drive us to move back to a leadership position in delivering new products and insights to our customers.

So I'm spending a lot of my time both balancing on the infrastructure and data security investments that we're making, but even as importantly, working with our teams to get back to focusing on customer growth.

New Product Innovation, or NPI, has consistently been a growth lever for Equifax and is off to a strong start in 2018.

Despite being impacted as we focus product -- project management and technology resources on IT and data security, we're tracking to plan with a consistent number of NPI launches versus last year, which is good news.

Several of the new products we believe have strong revenue potential, and NPI will be a strong focus in the second quarter and in the future for all of us at Equifax.

Our global data and analytics practice is critical to NPI and leveraging Cambrian, Ignite Direct and Ignite Marketplace to advance our capabilities in combining Equifax public and customer data, utilizing sophisticated analytical techniques to deliver industry-leading insights.

We now employ Cambrian in 4 major geographies: the U.S.; Canada; Australia; and most recently, Argentina.

We've quickly followed Cambrian deployments with global deployments of customer-facing Ignite Direct and Ignite Marketplace.

These solutions, which are based on Cambrian capabilities, provide clients with premier data and advanced analytics in support of full analytic life cycle from data access to insight development and deployment.

Cambrian Ignite solutions routinely incorporate machine learning into customer decisioning.

An example of how we're using machine learning to improve results is our patent-pending NeuroDecision Technology, or NDT.

NDT is the first regulatory-compliant machine learning credit scoring system reviewed by regulators and credit scoring experts.

This technology develops a neural network model that improves performance and accuracy and gives customers the ability to make more informed decisions when assessing risks.

This unique process is important to customers and regulators and enables a deep learning of customer behavior and is applicable and deployable wherever traditional scorecards are appropriate.

So we're excited about this new technology.

In the first quarter, we also launched an extension of FraudIQ in the U.S., which allows us to better identify bust-out fraud, which, we all know, is an increasing industry problem.

FraudIQ utilizes unique machine learning techniques, which will address this growing industry issue.

The launch of Cambrian Ignite in Argentina demonstrates the progress we're making to deploy Cambrian data in the analytics platform globally.

The Ignite solution is providing customers in Argentina with access to more data, bringing our data together with our customers' data and enabling faster and improved decisioning.

We're also employing NDT in Argentina to enhance the performance of customer scoring models in that area.

Other drivers of NPI revenue in 2018 continue to include InstaTouch, Digital iD, ID and fraud and a variety of new solutions in the housing and auto verticals.

Continuing to ramp up NPI and new product efforts with our customers will be a critical priority for me and our entire team in the second quarter and beyond.

I and the entire leadership team at Equifax are committed to delivering on the critical objectives discussed today and in the past quarters.

We're committed to regaining the consumers' trust and confidence in how we manage and secure information.

We're also committed to regaining the trust of our customers and partners.

This is a priority for the team and a priority for me personally.

In making Equifax the industry leader in IT and data security while delivering new products that deliver unique insights that allow our customers to execute against their most value-creating opportunities is critical to Equifax.

I'm excited to be at the helm here at Equifax.

I'm excited to be part of the team, and I'm excited about the path forward for Equifax.

I support the team strategy.

I support the leadership team.

The first quarter is a solid start to 2018.

We have a lot of work to do, and we are making very strong progress.

With that, let me hand it over to John.

Thanks, Mark, and good morning, everyone.

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

For 2018 additional items excluded from our non-GAAP results are the onetime costs related to the cybersecurity incident.

We will provide the details on this item so you can consider it in your analysis.

In total, in 1Q '18, we incurred nonrecurring costs related to the cybersecurity incident of $79 million.

These have been partially offset by insurance recoveries of $10 million, resulting in a net nonrecurring charge of $69 million.

The nonrecurring charge is excluded from adjusted EBITDA margin and adjusted EPS.

$29 million of gross cost were generally for legal fees and other professional services principally related to outstanding litigation and government investigations related to the cybersecurity incident.

$46 million were generally for onetime incremental project and other cost incurred to implement our IT and data security plan, improve our infrastructure and develop and launch the Lock & Alert free service launched in 1Q '18.

Going forward, all operating cost related to Lock & Alert will be included in our ongoing P&L.

$4 million in accrued and incurred gross expenses related to the TrustedID Premier service we offered free to all citizens.

The above costs were offset by about $10 million of insurance recoveries committed in 1Q '18.

Total nonrecurring and onetime incremental project and other gross costs incurred since 3Q '17 related to the cybersecurity incident are $243 million.

We have $125 million of cybersecurity insurance under our ENL policy, against which we received commitments to pay $60 million in recoveries to date, which partially offsets the cost referenced above.

We continue to expect to make claims to fully utilize the policy.

For Equifax in 1Q '18, as Mark indicated, revenue of $866 million was up 4% from 1Q '17.

Cash EPS of $1.43 was down $0.01 per share from last year.

Adjusted EBITDA margin was 33.5% in 1Q '18, down 250 basis points from 1Q '17.

About 2/3 of the reduction in margin reflects the increased security-related insurance and other ongoing cost we specifically referenced in March as part of our 2018 guidance.

Much of the security increases -- much of the increases in security-related ongoing costs are being incurred directly in business units.

As we discussed in March, we are expecting continued revenue impact from the cybersecurity incident in USIS and Workforce Solutions in 2018 with a greater impact in the first half of '18 and the impact declining throughout the remainder of the year.

This continues to be our expectation.

However, at this point and going forward, we'll not quantify an impact as the length of time since the incident does not allow for a reasonable comparison versus pre-incident expectations.

USIS revenue in 1Q '18 was $307 million, down 1% compared to the first quarter of 2017 and consistent with our expectations.

Online Information Solutions revenue was $220 million, down 2% when compared to the year-ago period.

Identity and Fraud Solutions and commercial risk online drove the majority of the decline.

The decline in Identity and Fraud was more than explained by the decline in our government business.

We saw a decline in commercial risk online as we transitioned to CFN.

We expect commercial risk online to return to growth in the second half of 2018.

Core online was also down about 1%.

Total mortgage-related revenue for USIS was up 8%.

Total mortgage-related revenue for Equifax, including Workforce Solutions, mortgage revenue was up 9%.

Our mortgage revenue growth was stronger than the overall market, which saw inquiries decline 3%.

USIS Mortgage Solutions business, in which we sell tri-bureau mortgage reports, was benefited by the launch of 3-Bureau trended data for mortgage.

In 2Q '18, we expect mortgage market volumes to be down high single digits for 2Q '17.

And for all of 2018, we continue to expect mortgage market volumes to be down about 10%.

Financial Marketing Services revenue was $46 million in 1Q '18, down slightly just under $1 million.

Importantly, credit marketing services revenue, which represents about 80% of Financial Marketing Services revenue, was up slightly in 1Q '18 as it was in 4Q '17.

IXI revenue was down in the quarter.

However, IXI revenue is traditionally lumpy, and the decline in 1Q '18 reflects the delay in timing of specific transactions.

As Mark indicated earlier, we continue to make progress working with customers and their reviews following the cybersecurity incident.

For our discussion in March, our plans and guidance reflect the diminishing impact of the event as we move through 2018.

Consistent with prior discussions, to date, the principal impacts have been in our ability to sell new products into certain customers, impacting NPI, and to sell batch transactions in Financial Marketing Services, principally credit marketing services as well as likely some impact to online.

This has resulted in lost sales and share as we have worked through this process.

We believe that the good progress we have made to date with customers will benefit our sales efforts as we look forward in 2018 and into 2019.

The adjusted EBITDA margin for USIS was 44.1%, down approximately 450 basis points from last year.

USIS margins were principally impacted in 1Q '18 by 3 factors.

Revenue mix, particularly increased mortgage, represented almost half of the impact.

The remainder primarily reflected increased third-party costs, particularly impacting mortgage; and increased security-related and other technology and legal costs.

Looking at 2Q, we expect USIS margins to increase substantially from 1Q '18 levels, reflecting a lower mix of mortgage revenue and expense management.

Workforce Solutions revenue was $211 million in the quarter, up 6% when compared to 1Q 2017.

The 12% growth in Verification Services that Mark referenced reflects double-digit growth across government, talent solutions, mortgage and debt management and was slightly better than expectations.

We also grew both active and total records again in 1Q '18.

Employer Service revenue of $83 million was down slightly less than 3% from last year, an improvement from 4Q '17.

Workforce Analytics was up slightly and continues to be impacted by uncertainty regarding the status of U.S. Affordable Care Act.

Unemployment claims, which makes up about half of the remainder of Employer Services, is being impacted by the very low unemployment rate.

We are also seeing some weakness across tax-related services and on-boarding businesses.

The continued growth of the Verification Services and the work number and shift in mix of revenue toward Verification Services is positive long term and consistent with our plans.

The Workforce Solutions adjusted EBITDA margin was 48.9% in 1Q '18, down 130 basis points from 1Q '17.

The decline was more than explained by the expected increase in costs related to security and technology, partially offset by positive mix due to the growth in Verifier.

We continue to expect Workforce Solutions EBITDA margins to be flat to up slightly in 2018 versus 2017.

International revenue was $245 million in 1Q '18, up 13% on a reported basis and up 9% on a local currency basis.

Asia Pacific revenue was $82 million, up 14% in U.S. dollars and up 11% in local currency, driven by strong growth in our government vertical and identity, commercial and consumer products.

Europe's revenue was $71 million in 1Q '18, up 15% in U.S. dollars and 1% in local currency.

As Mark mentioned earlier, we saw high single-digit local currency growth in our combined U.K. and Spain credit operations.

This was offset by a local currency revenue decline in our debt management business, specifically in our venture with the U.K. government.

The venture continues to deliver greater-than-expected value to the government.

However, the U.K. government budget cycles have resulted in lower revenue in first half '18 than the prior year.

We expect, for the full year, total debt services local currency revenue to be about flat as revenue with the U.K. government recovers in the second half of the year.

Latin America's revenue was $56 million in 1Q '18, up 10% in U.S. dollars and up 15% in local currency.

Revenue growth was broad-based, with strong double-digit local currency growth in our Argentina cluster as well as in Mexico and Ecuador.

We also saw good growth across Chile and Central America.

Canada's revenue was $36 million, up 13% in U.S. dollars and up 8% in local currency.

Canada's growth was driven by online volume and Analytical Services and continues to reflect their strong execution.

International's adjusted EBITDA margin was 29.4% in 1Q '18, down 180 basis points from 1Q '17.

The decline reflects expected increased spend in technology as well as growth in data and analytics spend as we extend Cambrian globally.

Consumer Solutions revenue at $103 million in 1Q '18 was down 3% on a reported basis and down 4% on a local currency basis.

Our U.S. consumer direct revenue declined 21% in the quarter.

As we discussed in March, this reflects a reduction in subscriptions as we did not advertise during 1Q '18 and will not through at least 2Q '18.

The U.S. consumer direct business now is just over 30% of GCS revenue.

Non-U.

S. consumer direct revenue was up slightly, reflecting continued growth in Canada, offset by a decline in the U.K. Our partner and reseller business, which is approximately 40% of GCS revenue, delivered mid-single-digit revenue growth following growth in 4Q '17 as well.

Revenue in the quarter was benefited by the ID Watchdog acquisition completed in 3Q '17.

Adjusted EBITDA margin was 33.8% in 1Q '18, up 210 basis points from 1Q '17.

The increase in adjusted EBITDA margin is due to lower consumer advertising offset by the lower volume.

In the first quarter, general corporate expense was $124 million.

Excluding the nonrecurring cost associated with the cybersecurity incident, the adjusted general corporate expense for the quarter was $65 million, up $4 million from 1Q '17, reflecting expected increases in security transformation and insurance spend that we discussed with you in March.

Our GAAP effective tax rate of 23.9% includes a $3 million benefit from the income tax effect of stock awards.

Our non-GAAP effective tax rate used in calculating adjusted EPS for 1Q '18 was 26.4%.

We expect our effective tax rate for 2018 to be approximately 26.5%.

In 1Q '18, operating cash flow was $120 million and free cash flow was $63 million, up 15% and 19%, respectively.

Net cash flow benefited by lower cash outflow related to variable compensation and other working capital, partially offset by spend related to the cybersecurity incident, including capital spending net of the cash received from insurance recoveries.

Capital spending incurred in the quarter was $56 million.

For 2018, we continue to expect capital spending to be approximately 8% of revenue.

Total net debt at the end of 1Q '18 was 2.8 -- $2.38 billion.

Our gross leverage was 2.43x, and net leverage was 2.2x at the end of 1Q '18.

We did not repurchase shares in 1Q '18 and do not expect to in 2Q '18.

Now turning to our guidance for 2Q '18.

At current exchange rates, we expect revenue to be between $880 million and $890 million, reflecting growth of 3% to 4% versus 2Q '17.

FX, based on current exchange rates, is expected to be a 1% benefit in the quarter.

Adjusted EPS is expected to be between $1.51 and $1.56 per share.

This reflects a decline of 3% to 6% from 2Q '17 with no impact from FX in 2Q '18.

Using the midpoint of our guidance range, adjusted EPS increase is approximately $0.11 per share in 2Q '18 versus 1Q '18, which is consistent with our average over the last 5 years.

As a reminder, 2Q '17 was Equifax's strongest quarter ever at adjusted EPS of $1.60 per share and adjusted EBITDA margins of 39%.

Our full year 2018 guidance for Equifax revenue and EPS are unchanged from the March call.

In total, we continue to expect Equifax revenue for the year of between $3.425 billion and $3.525 billion.

This reflects revenue growth of 2% to 5%.

FX based on current rates is expected to be a 1% benefit to revenue in 2018.

Consistent with our March guidance, this assumes total mortgage market volumes decline about 10% in 2018.

We expect adjusted EPS to be between $5.80 and $6 per share, unchanged from our March guidance.

FX is expected to be a 2% per share benefit to EPS in 2018.

We continue to expect in 2018 to incur approximately $200 million of net incremental cost for investments in IT and data security projects and legal and professional fees being incurred specifically to address the litigation claims and governmental and regulatory investigations related to the cybersecurity incident.

This represents gross cost of $275 million, offset by $75 million of assumed insurance proceeds.

Investments in IT and data security are expected to represent about 75% of the cost.

These costs are being excluded from our non-GAAP financial results and guidance.

In 2Q '18, we expect these costs to be at or slightly less than what was incurred in 1Q '18.

These estimates do not include any estimates of damages, fines or other amounts that may result from the resolution of litigation and investigations related to the cybersecurity incident.

Looking at the first half of 2018.

Using the midpoint of our 2Q '18 guidance, revenue of $1.75 billion and adjusted EPS of about $2.97 per share provides a strong start to 2018 relative to our full year guidance.

And with that, we'll open it up for questions.

(Operator Instructions) And we will take our first question from Manav Patnaik with Barclays.

And welcome to the call, Mark.

My first question, Mark, just in your initial assessment.

I know you've talked about the commitment to security and infrastructure, and there's clearly been a lot of spend in that area.

I guess how will you describe where you are in that process, early, mid-stages?

Or how long do you think this continues?

Thanks for your comments.

It is -- I'm only 2 weeks in, so it's hard to give me -- for me to give a detailed assessment.

I'll ask John maybe to weigh in also.

But my look is that there's a lot of work that's been done in the last 6, 7 months by the team, so we're making good progress.

But I would also say it's still early days.

There's still a lot of work to do.

As you know, our new CISO has only been on the ground for less than 60 days.

He's a really strong talent.

He's bringing some new people in.

And I guess, in summary, I would just say early days.

John, anything to add to that?

We've got a lot of work to do in the rest of this year.

Absolutely.

We've indicated that the spend and the activities will run at least through 2019.

And obviously, as we move through 2018, as we have greater visibility, we'll update people on how we're doing.

But, Manav, just maybe to close on that.

I hope you feel, and others on the phone feel, our commitment to this.

This is a very large effort by the team.

It's a massive undertaking, and it's one that we're extremely serious about.

And we're committed to industry leadership around data security, and it will go through, for sure, the rest of this year.

Got it.

And then, John, I think you went through it a little quickly, but just on the global consumer breakout.

I think that was the area that felt like you beat expectations the most.

But -- so I think you said direct, which was a little over 30% of the mix, was down 21%.

And then did you say that the rest of the piece was up slightly?

And then I think in there, you threw in something was up mid-single digits as well.

Can you just help me with that and what -- how much ID Watchdog contributed to that?

Sure.

So we said a partner reseller, which is about 40% of GCS revenue, we said it was up mid-single digits.

And our nonconsumer direct revenue was up slightly.

And that's really Canada and the U.K. And that was Canada growing and the U.K. declining.

And then ID Watchdog contributed just under $5 million.

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

This is Rayna Kumar for David Togut.

In terms of some of the government contracts that were delayed in previous quarters, can you just flesh out how some of those conversations are going?

And if you can just provide us some milestones we can track so we can get a better idea of how your progress is with those contracts.

Yes.

So I think we haven't actually spoken specifically about government contract.

What we'd indicated right is that in general, we continue to work with customers and that there had been some deferrals of agreements that -- where we execute on our -- in our CMS business, on our Financial Marketing Services business.

But as we talked about last quarter, we said anything that's really been deferred since the cybersecurity incident, which was September, we would assume as lost.

And then going forward, what we're doing is just working on winning new agreements with customers.

And as Mark walked you through, we think we're making very good progress there in moving our customers to the point of considering new transactions with us and new products with us.

So the -- what we provided was some discussion around the impacts of the cybersecurity incident last year, but I don't think we specifically talked about government.

Got it.

One of your competitors is starting to sell trended data outside of mortgage and into the auto and credit card verticals.

Can you just discuss your plans with trended data?

Do you want to take that?

Sure.

Sure.

Absolutely.

So we consider trended data to be a critical part of our NPI process.

We're seeing trended data growing in our business as well.

We do think there's applications in auto.

We do think there's applications in credit card.

And trended data, quite honestly, is something we'll also start to apply around the world.

So we would expect that we will see growth in those areas as we move through the future as well as.

And we did just launch a commercial trended score this quarter.

That's very helpful.

One final question for me.

When do you expect to restart share buyback?

Yes.

So we talked a little bit about this last quarter, right?

So until we have clarity around the outcome of the consumer and other litigation and class action litigation, we'll likely not be executing share repurchases until we have a good understanding of what that liability may look like.

We'll move to our next question.

It will come from Andrew Steinerman with JPMorgan.

Welcome, Mark.

John, you just mentioned that the IT spend will run "at least through 2019." And then last quarter, the description was heavy-lifting in IT spend and data security in 2018 and 2019.

And so my question is, does Equifax have a full sense of what the total spend will be to IT and data security to build an industry-leading system?

Yes.

I'll take the first crack at that and John should jump in with more color probably.

But -- Andrew, great to connect with you here for the first time.

The answer is no.

We don't have that full visibility yet.

We're working hard to do that.

The team has, I would characterize as, pretty good visibility for what we're planning to do in 2018.

And I think in the last quarter, John, we talked about that and sized that for you.

We haven't really gone beyond '18 yet.

But my expectation is that there will be work that will go beyond '18 to complete our data security and infrastructure rebuild.

And as we get into the second half of the year, I would hope we can give you some visibility around that.

We'll move next to George Mihalos with Cowen.

Mark, welcome aboard.

Thanks, George.

Just wanted to go back to one of your comments in your script around -- it sounds like the tenor of conversations with customers is improving.

Are you seeing more inquiries, though, from nontraditional customers as well, basically, people that have not been using Equifax in the past that are willing to have conversations around potentially buying some services?

That's one John maybe can give a little color on.

I can give you some color on the customer meetings that I've been in is that customers want to understand deeply our investments and our pace around our data security upgrades.

And as you know, we've got a myriad of communication processes with the CISOs at our customers, individual meetings with senior executives of our customers.

And I would characterize the dialogue that they appreciate the transparency.

They expect the transparency.

I think they're pleased with the scale of our investments and our commitment to it, how serious we're taking it and the comments that we've made about industry leadership around data security.

At the same time, my meetings with customers is that they also want to get back to the normal dialogues that we had pre the incident around growth, around new products, around NPIs.

So my interactions have been with existing customers.

I don't know, John, any color about beyond that?

Sure.

Some of the new products we talked about last year, a little bit like, for example, InstaTouch, is starting to attract interaction for us with different parts of our existing customers as well as potentially with new customers.

Also, we've increased our activity in terms of pursuing fintech in the fintech markets.

Some of it because of the new products we have offered, and then also for other reasons.

So we think that's an expansion of the focus that we have had probably over the past 6 to 8 months.

Okay.

That's helpful.

And then, John, just as a quick follow-up.

The 2Q guide on the revenue side suggests, call it, 3% revenue growth, down a little bit from the 4% in the first quarter.

Anything that particularly will be slowing down?

Or is it just sort of the tougher comp in USIS that's impacting the number?

Generally, what should be occurring as you go throughout this year is we're going to see GCS performance weaken.

So that will be the thing that probably drives the impact more than anything else as we move through the rest of the year.

We would expect you'll see the decline in consumer likely accelerate.

Our next question will come from Brett Huff with Stephens Inc.

Mark, welcome to the call.

Thanks, Brett.

Two quick questions.

One is sort of a big picture one.

We've kind of talked around it.

But on GCS or the direct-to-consumer business, we've gotten a lot of questions on kind of the fate of that.

I know, Mark, you're kind of in the middle of that decision strategically.

But could you just outline sort of the puts and takes or the main issues that you all are weighing as you consider that?

And then I have one follow-up.

Yes.

I'll start, and I want to ask John to jump in, too.

For me, it's early days on that.

I've only been here for a little better than 1.5 weeks and had some dialogues around it.

Really, what I want to take a hard look at is what are the opportunities.

There's going to be real balance in the consumer space around a lot of the activities that we're going to deliver to consumers for free.

And that's something we're committed to and we're committed to giving consumers more control and access around their data and really looking at what are some of the paid services that we may offer in the future and the value-added nature of those.

That's really the kind of calculus for me.

I think I've mentioned my background is kind of B2B2C from the Synchrony days.

And I've got a real appreciation for both the protection of consumer data as well as the kind of value-added services you can add -- you can deliver to consumers.

But it's going to take the better part of second and the third quarter, I would think, for us to come to some conclusions about a strategy there that we feel good about.

We're going to be thoughtful about it, and we'll share that when we complete that analysis.

And as Mark covered, we're also relooking at basically the consumer direct market broadly because that market has been changing, as we know, over the past several years and how much of that market do we believe is continue -- going to be delivered direct or through resellers and through the premium models somewhat as Mark referenced.

So we'll look at the market in general to see what we think has happened.

We did that a couple of years ago.

We're doing that again now.

And then also, obviously, specifically whether or not we think we have anything differentiated that would let us participate well if we think that market is still going to be a growing opportunity.

So still more work to do.

That's helpful.

And then just second question is on the NPI.

I know this is one of the key hallmarks of Equifax and something you guys continue to do really well and part of your culture.

But my understanding was there was some shift in talent from some of the NPI sort of projects to the cybersecurity incident issues.

Am I understanding that right?

And if so, how do we think about the ongoing allocation of resources to NPI?

How much talent will that -- will the cyber issues kind of eat up for how long?

And will that sort of negatively impact NPI in the near term?

Yes.

It's a great question.

It's one that's on my mind just the short time I've been here.

First is I think you appropriately point out, NPI has been a real strength of Equifax's.

It's one of the things that -- many things that attracted me to the business.

Their rigor, their processes around partnering with customers around bringing new products to market, and we've got a long history of doing that.

And as you also pointed out, we have had to divert some resources on the technology side and other areas working on the data security breach and the infrastructure rebuild.

But we're working hard to refill those resources on the NPI side.

So we expect there'll be some pressure there.

My goal is to work hard to mitigate that with the addition of resources and focus around NPI because it's important to us and important to our customers going forward.

I think it's probably hard to articulate any kind of metrics around that.

But the first quarter was encouraging on the NPIs that we did bring to market versus our expectations.

So even 6-plus months into -- since the incident, we are bringing products to market.

But it'll be a real focus of ours to continue to resource that to make sure that momentum continues.

As Mark mentioned, Brett, we're making progress with customers.

So one of the -- we're launching products.

And then, obviously, one of the impacts as well is how rapidly we're able to turn them to revenue.

And so it's very important that we improve the engagement with customers as we are so that we can get back to a more normal pace of customer acceptance of the new products even after their launch.

So certainly an impact on NPI this year for those 2 reasons.

Our next question will come from Andrew Jeffrey with SunTrust.

Look forward to working with you, Mark.

Thank you.

As you think about this replatforming, it -- obviously, there are a lot of costs and management focus attended to it.

But as you get past the technology investment and the security investment, have you started to think about how the -- a new platform and a new delivery motion could benefit the long-term growth and competitive positioning of Equifax's business?

Yes.

I think it -- it's a great question.

It's one that's on my mind being 9 days in here at Equifax.

And it's one that -- we're in the heat of it, obviously, of ramping up these projects around data security, about infrastructure rebuild.

Some of the dialogues I had with the team of goals I'd like to get on the other side of this investment is speed to market, that the investments we're making will allow us to bring products to market more quickly, an ability to have higher dependability and reliability of our infrastructure on the other side.

So my goal is to be faster to market.

I hope it'll improve our cost structure as we make some of these investments.

And first and foremost, we're going to have a data infrastructure and a data security infrastructure that will be industry-leading, and that should position us well competitively going forward.

Okay.

And would you anticipate to the extent there are benefits associated with that, that we're talking about those at this time next year?

Is that a reasonable expectation?

At this time next year, I think having some visibility in our side and yours around that, I think, is very reasonable, and that would -- that's a great goal.

Okay.

And then as a follow-up, with regard to the U.K. and TDX in particular, John, it sounds like some of the demand softness is transitory.

Could you just flesh that out a little bit and how you think that impacts specifically the European subsegment revenue growth this year?

Yes.

So as we've said, the credit business performed very well, right, with high single-digit local currency growth.

So the impact really was specific to the debt services business.

It was very specific really mostly around the one large contract with the U.K. government.

The contract itself is performing very well.

We think we're collecting at rates that are above the expectations.

We're improving collections at rates that are above the expectations of our customer, which we think is very good.

However, we're -- the funding of the project is part of the U.K. government budget cycle, and we're working through that right now.

Obviously, that's something that's a little bit new to us in terms of working through the U.K. government budget cycle.

But it's specific to that cycle that has resulted in a lower level of activity in the first half of this year.

So we're hopeful that we'll be able to work through that.

And as I said, it'll move back more toward a flat type of performance throughout the year.

But it isn't an issue of the performance of the product or of the venture.

It's performing very well.

It's really just very specific to the U.K. government budget cycle.

Our next question will come from Tim McHugh with William Blair.

Mark, maybe the first one, it was helpful, you've given us a lot of context.

And I understand it's early days in terms of your time there.

But I guess, at a high level, a lot of what you described, I guess, are some of the things I thought were kind of in motion.

Are there things that you would call out as you walked in at this point that you want to do differently or emphasizing, I guess, maybe more than we otherwise thought?

Kind of this -- the plan was prior to you getting in there.

Just kind of want to understand your perspective.

Yes.

I think, first, I'll start with I think the team has been -- has got a great plan in place.

And when I think about areas of emphasis for me 9 days in, it's around the pace and accountability about -- around all our projects.

As you might imagine, there's a lot of work being done here.

And I'm a big ownership, accountability, follow-up kind of leader.

So the team had processes in place around that.

I would just say that I'm going to try to strengthen those and make sure that we're really executing on these projects on a timely basis.

Second would be around pace.

This team was operating quickly.

I'm a leader that sets a high bar and rule for my team.

And that pace is really around let's get these projects done and get on to the next one.

Third would be around people.

We're adding a bunch of resources here.

And I want to make sure we're adding top talent to the organization and retaining the talent that we have.

So that's an important initiative.

And the last one is really around customers and transparency.

I've tried to be clear about that, and I think the team in the last few months was pivoting towards a lot more open and transparent conversations with our customers.

And that's kind of a table stakes for me, is being really clear with our customers, having really strong relationships and connections with them.

And those 4 items I rattled off really aren't different probably from what they were doing.

But you can take for me, perhaps, some emphasis and really focus on those areas as being important in how I want to lead the business.

That's helpful.

And John, the -- one question, just the numbers one.

The lift from tri-bureau reports now being fully trended.

I guess I believe that -- does that kick in, I guess, throughout the full year?

Is that a type of effect that we should see during the next couple quarters?

You should, yes.

That's -- that was, I think, the bulk of the quarter that occurred this quarter.

So you'll see it in each quarter going forward.

Obviously, mortgage tends to be a relatively high percentage of revenue earlier in the year in the first quarter and somewhat the second quarter.

That does tend to tail off, but yes, you'll see that lift throughout the year.

Our next question will come from George Tong with Goldman Sachs.

This is Allison Chou on for George.

The International segment revenue grew 13% in 1Q with strength in a couple of key regions.

Can you discuss how the operating environment for the International business is evolving and your outlook there as well as internal initiatives you have in place to sustain that growth?

Yes.

So International actually performed very -- other than debt management, which we talked about, International performed very nicely.

The growth rates we talked about across Latin America, U.K., Canada and Australia were all very good.

We're fortunate that it looks like the economies really in all of our major countries are going to perform, we think, relatively well this year.

And so we feel very good about that.

Some of the major focus areas for them are really -- continue to be around NPI.

Mark already covered it, right?

NPI is the growth engine of the company.

International has long been a very strong performer in NPI.

They tended to perform frequently above our goal of a Vitality Index of 10%.

And the deployment of Cambrian and then our decisioning systems international -- in international is really accelerating.

And our expectation is that will allow them to deliver new products faster and develop new products faster.

Also, what Mark talked about in terms of delivering machine learning through Cambrian and now most of our major international markets, we think, is something that is going to be very beneficial as we go forward.

So we're excited about it, and the trend across those businesses really in the credit business has been very strong.

That's really helpful.

And on NPI and kind of as a follow-up to Brett, you guys launched 70 new products in 2017, which is up about 30% year-over-year.

Can you discuss how the ongoing personnel changes -- or kind of headcount shifts will impact the number of new product launches this year and NPI contribution to revenue growth?

Yes.

Just a correction, we launched kind of mid-50s is what -- in terms of new products in 2017.

But...

I think I mentioned in -- with the prior question on NPI is there's no question we've got some resource constraints versus pre the incident in all areas of the business, including NPI.

And as I said earlier, we're working hard to backfill those resources that have been diverted over to work on the data security infrastructure rebuild and IT infrastructure rebuild.

So I would say we expect to see some pressure.

We want to work hard to try to mitigate that pressure as we go through the year.

And it's only the first quarter.

And I think we said earlier, the first quarter was a good start versus last year when it comes to NPI rollouts, and we want to stay on that.

It's an important growth quarter for us.

We'll move next to Bill Warmington with Wells Fargo.

So Mark, first of all, welcome to you.

But I have to confess, it's a bit of mixed feelings, though, because I think it's a nice hire for Equifax, but we're losing you on the board of FICO.

So that's kind of the offset, but welcome.

Thank you.

I'm going to miss that.

Will and his team have a great business and I enjoyed my 2 years on the board.

So a couple of questions for you.

The first is, in talking about the return of the project-based business on the marketing side, I wanted to ask, how are the reviews by clients going?

Are most of those now completed?

Or still there are some that are ongoing?

When do you think you can expect them to be completed and so you'll be fully greenlighted for new business?

Do you want to...

Sure.

So Bill, I think it's really what Mark covered in his opening comments, right?

We continue to make very good progress.

The discussions are ongoing.

We haven't really set an end date, right?

And quite honestly, they'll probably continue as we -- through much of the year as we continue to make progress with customers because this is an evolving process.

But as Mark indicated, very good progress in moving conversations back toward normal, back toward consideration of new products and back toward consideration of the type of CMS jobs that have been impacted, certainly, last year and through this quarter to a degree.

So we think very good progress.

But in terms of setting an end date, I don't think that's something we can do.

I'll give you a live example from a meeting I was at a week ago, Bill, with one of our big customers.

We spent the first 30 minutes or so giving them an update on all the actions we're taking around the data security incident, the investments in technology and data security.

And the CEO of the business, we were kind of halfway through our presentation, and she said, "Great dialogue.

Let's spend the rest of the time talking about what we're going to do about partnering together to help us grow." So I think that's an example of that.

We're going to be in this dialogue with them for as long as I can see, meaning, the next 3 quarters or maybe even longer of reporting out how we're doing.

But customers are counting on us, making those investments.

They're counting on us making the data and infrastructure security improvements.

They see our seriousness and our progress, and they want to get back to talking about business and growth in our NPIs and how we can help them grow.

And then my follow-up question for you is on the IT and security systems side.

It sounds like part of what has -- the breach has done is given you an opportunity to really shut down a number of older versions of products and move clients to the latest-based SaaS delivery as well.

And it sounds like a win-win in terms of getting a more secure system.

And then also, for you guys, simpler and less expensive to support going forward.

I wanted to ask, how are those transitions going with clients?

Have you found them receptive to it?

I think they're -- first off, you hit the nail in the head.

I think you've laid out what we're trying to do and the opportunity for us and the benefits that will come to us and our customers on the other side of this transformation.

And it's still early days.

We're -- I would say that, first, John, correct me if I'm wrong, but the first 6 months or so since the incident, most of our work was around our data security efforts.

And I would say in the last couple of months, we've started to move towards a lot of the infrastructure improvements that you described to have a data security element to it.

But they're also going to bring a lot of simplicity, a lot of cost, hopefully, improvements to us and also allow us to be faster to market with products because we've got a simpler infrastructure on how we interact with our customers.

And some of the transitions, for example, on decisioning systems, are accelerations of things that had been occurring.

So we've been moving customers to SaaS systems for some time.

This is just going to make that go much quicker.

We will take our next question from Jeff Meuler with Baird.

Nick Nikitas on for Jeff.

Just looking at the margins outside of GCS.

Some of the other segments, I guess, were a little surprising to us in the quarter despite stripping out the onetime costs that you've outlined.

So just trying to think about, John, you mentioned the mix shift to mortgage.

But is there anything else you guys can talk about, about what you're ramping on onetime costs that may be impacting Q1 and then how that should sequence throughout the rest of 2018?

Yes.

So I think in the bridges that we tried to provide in the script, right, we did talk in -- I think in each of the businesses other than GCS, and it's present there as well about security and transformation costs.

We -- in the fourth quarter, we had given some very specific discussion around cost we expected to incur in 2018 related to security and IT investments as well as related to insurance costs.

And we think we're seeing those.

And those are impacting our -- those are certainly impacting the margins we saw in the first quarter and will likely impact throughout the year consistent with the guidance we gave in March.

Okay.

Just specific to GCS, given that you guys are marketing in Q2, would you expect a similar kind of year-over-year margin in Q2 as relative to 2017?

We didn't really provide guidance on margins.

But please do remember, right, we're going to see continued acceleration and decline in the consumer direct business.

So the marketing spend is out.

It was out in the prior quarters, and you're going to see an acceleration in the decline of the consumer direct business.

So that certainly has an effect on margin.

Our next question will come from David Ridley-Lane with Bank of America Merrill Lynch.

Appreciate the details on revenue related to the U.S. direct-to-consumer business.

When you're making that decision on the business later this year, would the direct-to-consumer business still be profitable at that point?

Just to help shareholders understand the potential impact.

Do you want to take that, John?

Obviously, the outcome of the decision, right, on how we're going to move forward will take into account the level of profitability we think we can deliver.

So at this point in time, I don't think I can really address that specifically.

But we'll have -- we'll wait and see.

We'll give you updates on how we're performing in GCS as we move through the year.

And as we get to the point of making that decision, obviously, the level of profitability we think we can drive going forward will be an important consideration.

Understood.

And just how is the NPI-related revenue contribution faring in first quarter of this year versus last year?

Yes.

So we don't generally give very specifics around NPI revenue by quarter.

We tend to give it by year.

I think the update we gave today was simply to give people some perspective on the number of products that were launched in the quarter.

So that we're seeing some -- we're continuing to see momentum in product launches, but we have indicated pretty specifically that we would expect to see NPI revenue impacted in the year because of the customer impacts that we talked about a few times today.

We will take our final question from Toni Kaplan with Morgan Stanley.

Welcome, Mark.

Thanks, Toni.

I know there has been -- I know this has been asked in a couple of ways and -- even on the last question, but I think it could be helpful in understanding.

There's a pretty stark difference between your growth in USIS and that of one of your primary competitors.

And you mentioned the government deferrals.

But is there some sort of way to quantify some of the impacts on the commercial side?

So just directionally, like how much is sort of this lower growth coming from, like lower upselling or versus delayed spending at customers just directionally?

Or if you just want to quantify in some other way, I think that would just be very helpful.

Yes.

I think the level of detail we provided is what we can give right now, Toni.

I mean, we specifically indicated that we weren't going to be trying to quantify a dollar impact from the cybersecurity incident going forward just because it's been so long since the event occurred that really isn't a reasonable comparison point.

So at this point, I think going forward, we'll talk about the revenue we generate and how it's moving forward.

But I don't think we can provide more detail than we did in the script.

I think as we said in the call a couple of times, there's no question that the USIS team is seeing some pressure and had seen some pressure from customers really around the delay of new product work while they get comfortable around our cybersecurity and data infrastructure rebuild.

And I characterized a couple of times, it feels like those conversations are moving back towards more normal discussions as they get more comfortable with the seriousness that we're -- and the large investments we're making in our infrastructure.

So that's kind of the color that we have so far.

And the team is working hard, as you might imagine, to get those NPIs and other product rollouts in front of customers.

Okay.

And I'm sure the answer is no, but I guess, there's no way to sort of give us some color on how many customers have just actually gone somewhere else versus continuing conversations with you.

Toni, I think what -- the detail we've given today is what we can provide.

This concludes our question-and-answer session for today.

I would like to turn the conference back over to Trevor Burns for any additional or closing remarks.

Just want to thank everybody for joining the call.

Appreciate your time.

Have a good day.

This concludes today's conference.

Thank you for your participation.

You may now disconnect.