易速傳真 (EFX) 2018 Q2 法說會逐字稿

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

Today's conference is being recorded.

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

Please go ahead.

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; John Gamble, Chief Financial Officer; and Jeff Dodge, 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 tab of our website at www.equifax.com.

During this call, we will be making certain forward-looking statements, including third quarter and full year guidance, 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 will 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 second quarter of 2018, adjusted EPS attributable to Equifax excludes, among other things, acquisition-related amortization expense, the income tax effects of stock awards recognized upon vesting or settlement and adjustments for uncertain tax positions.

Adjusted EPS attributable to Equifax also excludes legal and professional fees related to the cybersecurity incident, principally fees related to our outstanding litigation and government investigations as well as the incremental 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 network and systems as well as the cost to manage these projects.

These projects will transform our IT infrastructure and further enhance our IT and data security are available -- 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 one-time 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 and regulatory investigations are reasonably possible, but not yet estimable at this early stage in the proceedings.

Now I'd like to turn the call over to Mark.

Thanks, Trevor, good morning.

Looking at second quarter performance, overall revenue and adjusted EPS results were consistent with our expectations and a solid performance as we continue to win that customers' trust following the 2017 security breach.

Revenue of $877 million was up 2% on a reported basis in local currency basis and was toward the midpoint of expectations we discussed with you in April.

As a reminder, back in April, we expected an FX benefit in revenue, growth of around 1%.

And as you know, that did not occur in the second quarter with some of the currency fluctuations, which negatively impacted our reported growth for the quarter.

John will discuss this in further detail later in the call.

Adjusted EPS was $1.56, to the high end of our expectations.

By business unit Workforce Solutions and International performed very well in the quarter on a local currency basis and GCS was consistent with our expectations.

USIS revenue was modestly below our expectations.

However, they continue to make very good progress with customers, further increasing the number of relationships where we're now able to pursue new revenue opportunities, and I'll talk more about that.

We also made very good progress on the critical areas of our transformation, including IT and data security and customer support, which we'll also cover this morning.

I'll start by looking at the BUs and start with USIS.

USIS revenue was down 2% versus last year and was below the 1% decline we saw in the first quarter and slightly below our expectations.

This was principally in Financial Marketing Services, and to a lesser extent, in Online Information Solutions.

As we've discussed consistently over the past 9 months, the critical strategic deliverable for USIS in 2018 is working with customers to complete their security views, and most importantly, win back their trust so that we can return to working collaboratively to pursue expanded or new solutions to drive the customer's business forward and create revenue opportunities for Equifax.

Starting in the first quarter, but accelerating into the second quarter, we made great progress in winning back this trust.

We closely track the status of our largest 80 customers.

And with the substantial majority, I mean, a substantial majority, we are now able to pursue expanded or new solution opportunities with those customers.

Or said differently, we're rapidly approaching a mode of being back to normal commercial discussions with the vast majority of our USIS customers.

Over the second quarter, I met personally with a significant number of our customers across all the business units, with a particular focus in USIS.

As recently as last Friday, I met with 2 key customers up in North Carolina, and I was back in North Carolina yesterday with another key customer.

And consistently, these customers recognize the value of Equifax's differentiated data assets, the strength of our analytical capabilities, driven by Cambrian, Ignite, Direct and Marketplace.

Customers are ready to work with us to solve their business needs, and with very few exceptions, our relationship has returned to more normal commercial discussion or commercial relationship focused on how we can help them grow.

Every week is a positive step forward for USIS to return to a more normal mode of operations.

As we discussed in the past, sales cycles in our business can be extended and are initially less predictable, particularly following an unprecedented incident like the 2017 data security breach.

Sales cycles historically could be as short as a few months for CMS off-line transactions to as much as 9 to 12 months for online products, including customer integration, both on their side and ours.

In the second quarter, in Financial Marketing Services, we saw this impact in sales cycle as the bulk of the decline in Financial Marketing Services was due to a handful of transactions we expected to close in June that pushed out to the second quarter.

We do not believe these transactions are lost and still expect to close the transactions and have closed several of them already in the first few weeks of July.

Importantly, we are seeing the USIS sales pipeline strengthen substantially, both in online and Financial Marketing Services.

Given this strength, we expect USIS revenue growth in third quarter and second half of 2018.

As in the second quarter, I will continue to devote a significant amount of my time with Paulino and his team working with USIS customers as we return USIS to a more normal mode of commercial activity.

We are intensely focused on this.

We're intensely focused on returning USIS back to a more normal growth mode and will continue to be a priority for me.

Turning to Workforce Solutions.

The team in Workforce had a really solid quarter, with revenue up 7%.

And importantly, Verification Services had a very strong quarter, with revenue up 15%.

Verifier revenue growth was broad-based, with double-digit growth across government, talent solutions, health care and auto.

The Work Number record growth was also strong, which as you know, is critically important.

We had the larger sequential growth in active and total records since the second quarter of 2017, so great progress there by the Workforce team.

And as you know, our growth in The Work Number makes our data increasingly valuable to our customers.

As we expected, Employer Services declined in the quarter, principally in unemployment claims and our ACA-related businesses, Workforce Analytics from the stronger U.S. economy and lower unemployment.

However, as we look to the second half, we believe Employer Services overall will see growth as unemployment claims stabilize and we see growth principally in our Employer Services businesses.

With continued strong growth with Verification Services and return to growth for Employer Services, we expect Workforce Solutions revenue to accelerate nicely in the second half.

Workforce Solutions continues to be an important strategic asset and growth engine for Equifax.

International also had another very good quarter with 8% reported in local currency revenue growth.

Our Latin American and Asia Pacific businesses, as well as our European credit businesses, all grew over 10% in local currency.

Canada had a very strong quarter, growing 8% in local currency.

As we discussed last quarter, our European debt management business is experiencing declines specifically in our venture with the U.K. government.

As we indicated last quarter, the venture continues to deliver greater-than-expected value to the U.K. government.

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

We expect to see improved performance in the U.K. debt management business overall in the third quarter and a return to growth in the fourth quarter of the year.

During the quarter, I spent a lot of time outside the U.S., in Australia, Canada, U.K. and Spain with our management teams.

I'm very excited about the future of our international businesses.

In Australia, we've seen a continued success of our business since our acquisition of Veda.

Recently, the largest banks in Australia announced that by the end of the third quarter of this year, they will supply the credit bureaus with at least half of the comprehensive credit reporting data they hold, paving the way for integration of positive data in the credit file and better consumer lending decisions.

We expect continued performance from Australia as well as our international team in the future.

Last, turning to Global Consumer Solutions.

Revenue declined, as expected, 5% in local currency in the second quarter.

To provide some perspective, our total U.S., Canada and U.K. consumer direct businesses represent just under half of our GCS revenue.

The U.S. is the bulk of this revenue.

And as expected and as a result of the suspension of consumer advertising following last year's data security breach, the U.S. consumer direct business revenue declined over 25% in the second quarter of 2018 and now represents just over 30% of total GCS revenue.

Our partner business is now the majority of our GCS revenue and represents direct-to-customer partners, principally Credit Karma and LifeLock, as well as our growing U.S. benefits channel business.

Our partner business revenue is predominantly in the U.S. and is a very important franchise for Equifax in our GCS business.

Our partner business was up nicely in the second quarter, both in direct-to-consumer and in benefits.

This growth partially offset the large declines in our direct-to-consumer business as we again did not advertise in the second quarter.

In terms of the future of our U.S. consumer direct business, and we talked about this before with you, we believe maintaining a broader direct relationship with consumers will be important to our commitment to substantially strengthen our consumer support in the U.S. as well as to our direct-to-consumer partner NPI efforts.

We intend to continue to invest in our U.S. consumer direct businesses and in the U.S. -- as well in the U.S. and in the U.K, Canada and Australia.

We expect to begin marketing in U.S. again before year end, likely in the fourth quarter.

And it's likely our level of marketing investment will be consistent with that which we had in 2016 and the second half of 2017.

Turning to our commitment to becoming an industry leader in technology and data security and consumer support, this is fundamental to Equifax.

And we talked a lot about the significant investments that we're making in this area.

We made very good progress in the second quarter on all those initiatives.

We will deliver on these commitments through our IT and process transformation, but also, critically, through ensuring we have a culture that puts security and customer support first.

Our enhanced governance structure with a new risk office and a leader responsible for strengthening our enterprise risk management is designed to fully support this commitment.

This structure utilizing 3 clear lines of defense is effective for our customers, and it was for me in my prior role leading Synchrony Financial, and it will help us ensure the culture we are committed to will endure.

During the second quarter, we also made very good progress in building out the senior leadership team.

You saw the announcement a few weeks ago with the addition of our new CTO, Bryson Koehler.

Bryson brings very deep IT, cloud and transformation experience from leading IBM's Watson and cloud efforts; and prior to that, the CTO of The Weather Channel.

His deep product and cloud expertise, including experience in consolidating premise-based systems and transitioning them into both public and consistently private cloud environments, is directly applicable to the IT transformation we have underway.

Bryson joins our CISO, Jamil Farshchi, who joined us in the first quarter; and Prasanna Dhoré, Head of our Data and Analytics team, to really round out a very strong IT, security and data and analytics team.

They will really drive our initiatives going forward.

Jamil has already substantially strengthened our security team, bringing in leaders with strong technical backgrounds as well as security experience, and I know Bryson is quickly off doing the same thing to really build out and strengthen our technology team.

I want to thank personally Mark Rohrwasser for his strong leadership as Interim CTO over the past 9 months.

Mark did an outstanding job, and I'm really pleased that Mark will remain with Equifax as the CTO of our international business unit.

You also saw the announcement last Friday of Paulino Barros stepping back into lead our USIS business unit.

You know Paulino well from his prior leadership roles at Equifax.

He's been responsible for every corner of Equifax over many, many years.

He is well-known internally and well-liked by our customers and the team across Equifax.

Paulino was an outstanding operating executive, and his depth of experience and focus on results, laser focus on results, will be a boost to us in USIS and across Equifax and will ensure that we do not miss a beat as our U.S. business continues its path to recovery and return to a growth mode.

I expect Paulino to dial up the intensity and focus with the USIS team on driving growth, and I plan to partner with him closely in the second half.

We have the right team in place for growth at Equifax.

Our technology transformation is critical to our technology and data security and customer support commitments, and when fully implemented, fundamental to delivering revenue acceleration, speed to market and margin enhancements across Equifax.

We're making very strong progress in accelerating our technology transformation as our technology, D&A and security teams are executing on a transition to a standard global, data-centric infrastructure, enhancing and extending our leading Cambrian Ignite and global gateway in decision platforms with a cloud-first strategy.

As we accelerate progress, we now expect total gross nonrecurring spending related to the cybersecurity incident in 2017, principally nonrecurring project cost related to our IT transformation and security plan, which we've talked about many times with you previously, as well as legal and other professional fees to be approximately $300 million, up about $25 million from levels that we discussed in April.

And we view this positively as we continue to invest in our business.

As we discussed last quarter, our New Product Innovation and continued investments in the expansion of Cambrian and our Ignite analytics and linking platforms globally remains the top priority for our entire team.

Both are off to a great start in 2018, despite being impacted as we focus project management and technology resources on IT and data security.

As we talked on the last call in April, we're focused on making sure we keep resources focused on our NPI initiatives.

We worked diligently to keep those resources protected, and we have an active pipeline of over 100 new products at various stages in the funnel, and we're tracking to launch over 50 products this year, consistent with our track record of launching new products in 2017 and 2016.

As with all years, success in delivering NPI revenue in '18 and '19 will be heavily based on sales of products launched in '17 and '16.

As we move through '18, we're seeing a growing number of successes.

Ignite Direct and Marketplace placements, along with the pipeline of new products, are growing very nicely, with both delivering revenue and enabling faster NPI with customers that adopt the platform.

Our new identity and fraud products based on machine learning are gaining traction in the card space.

Yesterday, we talked, when I was with my -- our customer in North Carolina, we talked at length about our new identity and fraud products.

In commercial, trended data and trended database scores are also gaining in traction.

And InstaTouch, which we launched in 2017, is also expanding in adoption and was part of my discussion with our -- one of our key customers yesterday.

A second major card provider has now signed to implement InstaTouch, and we've signed several other agreements during the quarter, and the pipeline is very active.

M&A also remains an active avenue for growth for Equifax.

We are building our pipeline and have completed several bolt-on acquisitions supporting Workforce Solutions in Latin America in the first half of 2018.

You saw 10 days ago that we announced the acquisition of DataX, a leading U.S.-based specialty finance credit reporting agency and alternative data provider to lenders nationwide.

DataX will become a part of USIS and their data assets will complement our core credit, telco and utilities exchange and the Work Number databases to further broaden the base of consumers for which Equifax can assist lenders in making credit decisions.

This includes lenders in installment loan, rent-to-own, lease-to-own markets.

Additional DataX offerings included credit reporting, ID verification, bank account verification and customer risk services, are part of those offerings.

We are very excited about this new data set for our U.S. customers.

Stepping back, I've been with Equifax for just over 100 days.

And as I mentioned earlier, I've spent over half of my time on the road meeting with customers, partners and also regulators to, as rapidly as possible, gain their perspectives on Equifax while focusing on regaining their trust and confidence in us.

As I mentioned, I was with a big customer in North Carolina yesterday and 2 customers last Friday.

I'm spending better part of half of my time with customers with a big focus on our U.S. USIS customers.

Their insights are incredibly valuable, and overall, very consistent.

We have great support from our customers.

They value Equifax's differentiated data assets.

They're very supportive of our strong progress in security and technology, but they're also clear that we must execute on that data and security plan.

Given the events of 2017, the bar is higher for us, and we must deliver on our commitment to be a leader in these areas, and we will.

Our customers and partners have also been clear that Equifax data is unique and our analytical capabilities are very strong and differentiated.

However, competition is very aggressive.

And to win, our focus on the customer needs to be sharper.

This will be a personal focus of mine and the entire Equifax team going forward, resources, both people and investment, are and will move closer to customers.

New product generation jointly with customers in a collaborative way through our D&A and NPI teams and commercial teams will be accelerated.

This includes making access to Cambrian Ignite and our data scientists easier, faster and more co-collaborative with our customers.

Finally, our technology transformation will be prioritized to deliver speed of new products to customers.

We are committed to returning USIS to competitive levels of growth and accelerating the growth of Workforce Solutions international.

I also want to ensure consumers and customers of my absolute commitment and my personal priority to making Equifax a leader in IT and data security and customer support to ensure that we protect the sensitive consumer and customer data which we've been entrusted and to empower individuals to understand and manage their personal data.

We've made very strong progress in the past 9 months since the security breach, but we still have a lot of work to do.

Our focus is clear.

Stepping back, I'm incredibly excited about the path forward for Equifax.

Very excited.

It's a great business in a great space.

We have unique data assets and insights delivered solutions to our customers.

We're making strong progress winning back trust and confidence with our customers as we return to a more normal mode of operations, and we feel real momentum in our USIS business.

As I mentioned earlier, I will continue to spend a majority of my time with Paulino and the USIS team to accelerate the return of USIS to the growth path that it's delivered historically.

At the same time, our big investments in IT infrastructure will deliver industry-leading capabilities.

Our significant investments in security will bring us to an industry-leading position in protecting consumer data.

We have the right team in place to drive this transformation, and we are laser-focused and energized around delivering in the second half and the future ahead for Equifax.

Thanks.

And with that, let me hand it over to John.

Thanks, Mark, and good morning, everyone.

I will generally be referring to the financial results from continuing operations represented on a GAAP basis, but will refer to non-GAAP results as well.

For 2018, additional items excluded from our non-GAAP results are the onetime costs related to the cybersecurity incident and the onetime benefits for adjustments to uncertain tax positions.

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

In total, in 2Q '18, we incurred nonrecurring costs related to the cybersecurity incident of $71 million.

These have been partially offset by insurance recoveries of $35 million, resulting in net nonrecurring charge of $36 million.

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

The $71 million of gross cost include $16 million, were generally for legal fees and other professional services, principally related to outstanding litigation and government investigations related to the cybersecurity incident; and $55 million were generally for onetime incremental project and other costs incurred to implement our data security and technology plans and to improve our technology infrastructure.

Total nonrecurring and onetime incremental project and other gross costs incurred year-to-date were $150 million; and since 3Q '17, related to the cybersecurity incidents, were $314 million.

We have $125 million of cybersecurity insurance under our ENL policy, against which, we have received payments to date of $95 million, which partially offsets the cost referenced above.

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

For Equifax, in 2Q '18, as Mark indicated, revenue of $877 million was up over 2% from 2Q '17, both on a reported and local currency basis and at the midpoint of the constant currency expectation we discussed in April.

At the time of our conference call in April, our expectation was for local currency growth of 2% to 3% with reported growth of 3% to 4%, reflecting foreign exchange rates at the time, which would have generated an FX benefit to revenue of about 1%.

Cash EPS in the second quarter of $1.56 was down $0.04 per share from last year and at the high end of our expectations.

Adjusted EBITDA margin was 35.0% in 2Q '18, down 410 basis points from the record 39.1% margin we had in 2Q '17, but up 150 basis points from 1Q '18.

About half of the reduction in adjusted EBITDA is directly related to the increased ongoing cost we discussed at the beginning of the year, specifically the ongoing cost with security and related technology, our transformation and risk office and increased insurance cost.

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

The improvement in sequential EBITDA margin is driven by margin growth in USIS as well as international.

USIS revenue in 2Q '18 was $325 million, down 2% when compared to the very strong second quarter of 2017 and slightly below the 1% year-to-year decline we saw in both 1Q '18 and 4Q '17 as well as our expectations.

The decline in the overall mortgage market impacted USIS revenue negatively by about 1%.

Sequentially, revenue was up 6%, consistent with average sequential growth over the last 5 years and slightly below the 7% sequential growth in 2Q '17.

The stronger sequential growth in 2Q '17 was heavily driven by Financial Marketing Services.

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

Total mortgage-related revenue for Equifax, including Workforce Solutions mortgage revenue, was up 8%.

Our mortgage revenue growth was stronger than the overall market, which saw inquiries decline by 5%.

USIS Mortgage Solutions business, in which we sell tri-bureau mortgage reports, was benefited by the launch of 3-Bureau trended data in 1Q '18 and increased share in Mortgage Solutions, the portion of our business that delivers tri-Bureau reports.

In 3Q '18, we expect mortgage market volumes to be down high single-digits versus 3Q '17 and to weaken further in 4Q '18.

For all of 2018, we expect mortgage market volumes to be down high single-digit percent, an improvement from the down 10% we previously expected at the outset of the year.

Online Information Solutions revenue was $224 million, down slightly less than 4% when compared to the year-ago period.

Core online was down less, declining slightly less than 3%, with the remainder of the decline principally in Identity and Fraud Solutions, driven by reductions in our government customers.

Commercial revenues within OIS were down slightly compared to the year-ago period, but up slightly when compared to 1Q '18, reflecting the progress we are making in our transition to the commercial financial network.

Sequentially, OIS was up 2% when compared to 1Q '18 and core online was up 3%.

This was in line with average for OIS over the last 5 years of about 3% and 2Q '17 sequential growth of 3%.

Again, a portion of the slightly weaker sequential growth this year reflects the weakening of the mortgage market between 1Q and 2Q and the increasing share in the Mortgage Solutions business in 2Q.

Financial Marketing Services revenue was $55 million in 2Q '18, down 9% compared to a very strong 2Q '17, which grew 15%.

As Mark mentioned earlier, several transactions we'd expected to close in 2Q slipped to later in the year.

We still expect these transactions to close.

Sequentially, Financial Marketing Services was up 21% from 1Q '18, a very good performance, below the 31% we saw in 2Q '17, but above the average for the last 5 years and the second-highest sequential growth rate over that 5-year period.

As we have discussed previously, the impact on the USIS selling process as customers completed their security reviews was principally on our ability to sell new product into certain customers, to sell batch transactions in Financial Marketing Services and some impact as well to online.

Also, as we have discussed, we have seen our competitors be more aggressive.

Overall, this has resulted in lost sales and share.

As Mark discussed earlier, we believe we have made very good progress with customers and now for the substantial majority of customers are able to actively participate in new sales opportunities, but we expect will benefit our sales efforts toward the end of 2018, but principally into 2019.

The adjusted EBITDA margin for USIS was 47.7%, down 380 basis points from last year, but up 360 basis points from 1Q '18.

Similar to 1Q '18, year-to-year USIS margins in 2Q '18 were principally impacted by the following factors, specifically: Increased third-party costs, principally in mortgage; negative revenue mix, including a higher mix of lower-margin Mortgage Solutions; and increased security-related and other technology costs.

We continue to expect USIS 2018 revenue to be flat to up slightly from 2017 for the full year.

For the second half of 2018, reflecting the items that impacted the first half of 2018, we respect -- we expect USIS EBITDA margins to approach the levels delivered in 2Q '18.

3Q '18 EBITDA margins will likely be lower than 4Q '18 as mortgage revenue generally is lowest in the fourth quarter.

Workforce Solutions revenue was $208 million in the quarter, up 7% when compared to 2Q 2017.

Verification Services had another very strong quarter, with 15% revenue growth, driven by double-digit growth across government, talent solutions, health care and auto and also was better than our expectations.

We also grew both active and total records again in 2Q '18.

Employer Services revenue of $58 million was down 9% or about $6 million from last year.

As Mark indicated earlier, the decline was principally in unemployment claims and our ACA-related business, Workforce Analytics.

However, as we look to the second half, we believe Employer Services will see growth as unemployment claims stabilizes, and we see growth principally in our employee services businesses, including I-9 and onboarding.

The Workforce Solutions adjusted EBITDA margin was 47.6% in 2Q '18, down 360 basis points from 2Q '17.

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

Given the positive revenue mix driven by strong growth in Verification Services that we expect to continue throughout 2018, we expect to see continued sequential improvement in Workforce Solutions margins.

For the full year, we continue to expect Workforce Solutions adjusted EBITDA margins to be flat to up slightly versus 2017.

International revenue was $250 million in 2Q '18, up 8% on a reported and local currency basis.

Asia Pacific revenue was $86 million, up 12% in U.S. dollars and in local currency, driven by continued strong growth in our commercial business.

Europe's revenues was $72 million in 2Q '18, up 6% in U.S. dollars and down 1% in local currency.

We saw low double-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.

As Mark mentioned earlier, we expect to see improved performance in the debt management business overall in the third quarter and a return to growth in the fourth quarter of this year.

Latin America's revenue was $54 million in 2Q '18, up 2% in U.S. dollars and up 15% in local currency.

Revenue growth was broad-based, with strong double-digit local currency growth in Argentina, Chile, Ecuador and Mexico.

Beginning in early May, the country of Argentina saw substantial increase in inflation and currency devaluation of the Argentinian peso.

In the quarter, Equifax Argentina continued to perform well, although we are expecting a more significant impact from foreign exchange in the second half of 2018.

Also beginning in the third quarter, under GAAP accounting, Argentina will be considered a highly inflationary economy and foreign exchange changes related to monetary assets will be recognized in the income statement.

We will exclude these impacts from our GAAP results beginning in the third quarter and do not expect them to be material to our consolidated results.

Canada's revenue was $38 million, up 13% in U.S. dollars and up 8% in local currency.

Canada's growth was broad-based and continues to reflect on their strong execution.

International's adjusted EBITDA margin was 30.5% in 2Q '18, down 40 basis points from 2Q '17, but up 110 basis points from 1Q '18.

The year-over-year decline reflects the expected increased spend in security and technology as well as increased investment in sales generation.

We expect EBITDA margins to continue to increase as we move through the second half of 2018.

Global Consumer Solutions revenue was $94 million in 2Q '18, down 5% on a reported and local currency basis.

As Mark covered, our U.S. consumer direct revenue, which now represents just over 30% of GCS revenue, declined more than 25% in the quarter as we had suspended advertising.

Our partner base business, which now represents over half of the GCS revenue, grew substantially and offset the majority of this decline.

As Mark indicated, we intend to restart limited marketing in the U.S. consumer direct business in the fourth quarter.

GCS adjusted EBITDA margin was 31% in 2Q '18, flat with 2Q '17.

The net decline in revenue and related gross margin was offset by lower marketing expense in our U.S. consumer direct business, resulting in flat margins.

In 3Q '18, we expect a further sequential revenue decline, reflecting a further decline in U.S. consumer direct business and a resulting sequential reduction in EBITDA margins.

Also as we move into 4Q '18, we would expect EBITDA margins to decline relative to 3Q '18, reflecting both the lower U.S. consumer direct revenue and an increase in marketing expense as we seek to add new consumers to our U.S. consumer direct business.

In the second quarter, general corporate expense was $73 million.

Excluding the nonrecurring costs associated with the cybersecurity incident, the adjusted general corporate expense for the quarter was $63 million, up $16 million from 2Q 2017.

Over half of this reflects the increased ongoing cost we discussed at the beginning of the year, specifically the ongoing cost to the security and related technology, the free Lock & Alert product, our transformation and risk office and increased insurance costs.

Our GAAP effective tax rate of 13.7% includes GAAP-only tax benefits of $14 million related to adjustments from uncertain tax positions resulting from a settlement with tax authorities for prior tax years and $2 million from the income tax effect of stock awards.

For 2Q '18, the effective tax rate used in calculating adjusted EPS was 23.5%.

This lower tax rate in 2Q '18 reflects the following factors.

First, we believe our ongoing effective tax rate is approximately 25%, down from the 26.5% we discussed in April.

Catching up year-to-date to this lower tax rate in the second quarter, as well as several small discrete tax items, resulted in a non-GAAP effective tax rate for the quarter of 23.5%.

For 2018, we now expect our effective tax rate, including discrete items, to be about 24.5%, with 3Q '18 somewhat lower than that level.

In 2Q '18, the 150 basis points benefit between the 23.5% effective tax rate achieved and our 25% ongoing rate was a benefit of about $0.025 per share.

In 2Q '18, operating cash flow was $235 million and free cash flow was $173 million, up 4% and down 2% compared to the prior year, respectively.

Through June, operating cash flow was $355 million and free cash flow was $236 million, up 8% and 3%, respectively.

Net cash received from insurance recoveries in 2Q '18 and year-to-date was $45 million.

Capital spending incurred in the quarter was $92 million, and year-to-date, was $149 million.

Capital spending was up sequentially in the second quarter, principally based on the renewal and extension of a large software database licensing agreement.

Year-to-date, capital spending is over 8% of revenue.

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

Total net debt at the end of 2Q '18 was $2.31 billion.

Our gross leverage was 2.58x and net leverage was 2.26x at the end of 2Q '18.

In 2Q '18, we issued $1 billion of 3- and 5-year fixed and floating rate senior notes.

The net proceeds of the sale of notes were used to repay borrowings under our revolver, term loan and commercial paper program.

We now have no meaningful debt with a maturity prior to 3Q '21.

We did not repurchase shares in 2Q '18 and do not expect to in 3Q '18.

Before returning to guidance, I wanted to cover the impact of the substantial strengthening of the dollar that occurred in May and June.

When we provided guidance, we assumed FX will remain at the current level through the entire period.

In 2Q '18, as we indicated earlier, actual FX results versus 2Q '17 was only a very slight negative impact to revenue.

However, relative to our expectations for FX when we provided 2Q '18 guidance, the movement in FX in May and June negatively impacted revenue by about 1% and EPS by $0.02 per share.

The impact of changes on our guidance for all of 2018 is, of course, much larger.

The impact on revenue of FX rates at their current levels relative to our prior expectations is a negative impact to revenue of almost 2% per quarter in 3Q '18 and 4Q '18 and on the order of $0.03 per share in each quarter.

In total, for all of 2018, the impact on revenue of the stronger dollar is a negative impact of over 1% and on the order of $0.08 per share.

Now turning to our guidance for 3Q '18.

At current exchange rates, we expect revenue to be between $853 million to $863 million, reflecting recorded growth 2% to 3% versus 3Q '17.

Foreign exchange, based on current exchange rates, is expected to be negative almost 2%.

Local currency revenue growth is expected to be 4% to 5% versus 3Q '17.

Adjusted EPS is expected to be between $1.39 and $1.44 per share.

Versus 3Q '17, FX is expected to negatively impact adjusted EPS by approximately $0.03 per share.

Using the midpoint of our guidance range, 3Q '18 is about $0.11 per share weaker than 3Q '17.

In addition, the lower tax rate in 3Q '18 is a benefit of over $0.10 a share.

Offsetting this over $0.20 per share is the following 3 factors: Increased security cost for security, technology transformation and insurance related to the cybersecurity incident, which we have discussed of over $0.10 a share; expected negative FX and higher interest cost of over $0.05 a share; and in 3Q '17, we had a benefit from lower bonus accruals, which will not recur of about $0.05 a share.

Sequentially, again using the midpoint of our guidance range, 3Q '18 is down about $0.14 per share versus 2Q '18.

The factors explaining this lower adjusted EPS are: About half of the business units, principally as lower GCS operating profit is partially offset by nice growth in Workforce; USIS is down slightly due to revenue reduction; and the remainder principally from increased security, technology, transformation and insurance costs related to the cybersecurity incident; negative FX and increased interest expense and each year, third quarter equity expense increases sequentially versus second quarter as we issue employee equity grants in the third quarter.

Our full year 2018 guidance for Equifax revenue and EPS are unchanged from our previous guidance.

In total, we continue to expect Equifax revenue for the year to be 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 over 1% negative to revenue growth in 2018.

This assumes total mortgage market volumes decline high single-digit percent in 2018, which is slightly better than our previous guidance.

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

FX is expected to be approximately $0.08 per share negative to EPS in 2018.

Given the substantial change in FX from our original expectations, we believe that it's more likely we will be in the middle to lower end of our adjusted EPS guidance.

For perspective, looking historically at the last 5 years, excluding 2017, our adjusted EPS in 3Q and 4Q has been sequentially about flat.

We expect in 2018 to incur approximately $225 million of net incremental cost for investments in technology and data security projects and legal and professional fees being incurred specifically to address litigation, claims and governmental and regulatory investigations related to the cybersecurity incident.

This represents gross cost of approximately $300 million, offset by $75 million of insurance proceeds.

This represents a $25 million increase in gross cost from our prior estimate.

Investments in technology and data security are expected to represent just over 75% of these costs.

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

In 3Q '18, we expect these gross cost to exceed the levels incurred in either 1Q '18 or 2Q '18.

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

Our first half results provide a very strong start to 2018 relative to our full year guidance.

Before turning it over to the operator, as this is Jeff Dodge's last earnings call with Equifax, I want to thank him for the tremendous job he has done over the past 10-plus years.

He is the standard by which IR professionals are measured in our industry.

And he also was a critical player in Equifax's strategic and operating decisions over that period.

Thanks from me and the entire Equifax team.

Enjoy a well-earned retirement.

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

(Operator Instructions) We will now take our next question from George Mihalos of Cowen.

Good to hear about the momentum in USIS and the reiteration of guidance there.

John, maybe you can talk a little bit about the cadence in USIS growth, 3Q and 4Q.

Is it going to be relatively steady?

I know the comparison is a bit easier in 3Q.

And also, what the contribution exactly will be from DataX that will be included in the USIS segment.

Yes, George.

Thanks for the question.

We're not going to be specific, obviously, in terms of the type of growth cadence by third and fourth quarter.

But needless to say, as Mark indicated, we expect to see growth in those periods as well as growth for the year.

The contribution from DataX is relatively small.

The company is quite small, and the contribution, really, isn't very large.

Okay, great.

And just 2 quick ones, if I may.

Mark, the decision to kind of stay committed to the GCS direct business, if you could talk a little bit about that and coming back into the market in terms of advertising spend.

And just as it relates to Europe, have we sort of hit the bottom in terms of that minus 1% local currency growth that we saw in 2Q?

Does that now start to turn positive in 3Q and then improve upon that in 4Q?

Sure, I'll start with GCS and maybe John could -- can start on Europe.

On GCS, we think this is a business that's important to us, just dealing with consumers.

We have a lot of interactions with consumers when they're dealing with us in the credit bureau side.

And we had a nice business prior to the breach that we think we can continue with.

We've been consistent in prior calls and meetings that we've had in our investors and others, George, that this isn't a business that we're going to have as the front of our strategy.

It's not our primary focus, but it's one that we think is a business that's a good one for Equifax and it will start working our way back into doing some advertising and selling value-added products later in the year.

Yes, in terms of Europe, right, I mean, basically, the discussion is around debt management, as you know.

And we do expect to see the -- some improvement in the debt management business in the third quarter, and we expect to see that business return to growth in the fourth quarter.

So that -- those should both be very positive effects for Europe.

(Operator Instructions) We'll now take our next question from Manav Patnaik of Barclays.

This is actually Greg for Manav.

I just wanted to see if I could get any additional color on how you're thinking about the phasing of the IT and cybersecurity investments in terms of what's going in the buckets this year versus into next year.

And also along those lines, now that you have the CISO and the CTO in place, has that changed in areas of focus or emphasis on the investments?

Yes, it's a good question, Greg.

First on, I think John give you the guidance, as I did, that we're taking up our forecast for this year by $25 million of the spend that we expect to do broadly.

The bulk of that $25 million is between security and IT.

Beyond this year, we're not ready to give any indications of what it looks like for 2019.

But I think we've been clear that we expect to have a sizable investment again next year.

And our goal is, as we get into the fourth quarter or later, but probably in the fourth quarter versus third quarter, to get some real visibility to you and others around that as far as what our spend will be next year.

With regards to our new CTO from IBM, Bryson, he's only been on the ground for 3 weeks.

We don't expect any significant changes in either spend level or forecast, how we're going to spend it as a result of him joining.

But we do expect him to make some refinements to it.

He's got really deep experience around going from legacy to private as well as public cloud.

And that's part of our strategy, so we think he's going to help us enhance that.

He's very product-oriented, which will also be a positive for us, and maybe some tweaking, if you want to call it, to our plan.

I think his bigger impact will be in the plan that we have for 2019 as that gets shaped in the, call it, the next 3, 4, 5 months.

And we'll be ready to share that with you later in the year.

Okay, that makes sense.

In terms of USIS, I think you talked about some of the larger customers and the conversations you're having there.

Maybe if we think about it from a vertical perspective, are there any areas that are starting to turn on the spigot faster versus slower?

And how we should think about that going forward.

It's hard to think about verticals that would be any different.

When we had the call back in April, we said, look, fourth quarter was really tough.

First quarter was very tough with regards to customers wanting to understand our security plans and getting back to giving us some confidence and trust.

And when we talked in April, we felt some momentum there and some positiveness.

That continued into May and June.

As we're into July, I think I tried to indicate, it's just a small handful, like, less than the 5 fingers on my hand, where we have what I would characterize some ongoing tensions with customers that still want to see more of our security plans.

The vast majority of the rest are just back to normal mode of operations.

And really, it's just -- our focus now is just getting our NPIs back in front of them, getting that collaboration with their risk team, their marketing teams around how we can help them grow.

And I try to be quite consistent in that the message I've gotten everywhere is that Equifax is valued.

They value our differentiated data, meaning we've got data assets that we can bring that others can't, which is a real value for us.

And from my perspective, we're kind of getting back to that more normal mode of operations.

And I'm quite energized around Paulino coming back in.

You know and others on the call know, he's an experienced leader.

He's an aggressive leader.

He's a commercial leader.

And he and I and the team are going to be laser-focused, we have been for the last couple of months, and we will be for the rest of the year, on really getting ourselves back to the normal growth mode in USIS.

And we expect to see progress as we go week-by-week and month-by-month through the rest of this year and into next year.

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

First, I guess, just coming back to the discussions with customers.

I know you said the vast majority of it got better.

Is this still the case, I guess, as you move further, where you're not seeing a disruption to the kind of the online business, it's more of the batch processing?

Or is that still a fair description?

And then secondly, you talked about competitors being aggressive, I guess.

Have you seen that intensify or change at all?

Or is it basically -- is the environment similar to what you would have described 3 to 6 months ago.

Let me kind of tie together, Tim, these are good questions.

Look, this is a competitive space, every space is.

And we operate versus 2 principal and dozens of other competitors.

And it was competitive before the security incident last fall and it's competitive since then.

And as I think you point out, that it is and will continue to be.

Our competitors, I'm sure it wasn't lost on them what happened to us last September.

And they would certainly probably try to take advantage of that in the past 9 months.

That said, we're going to be aggressive, too.

We're going to be aggressive about maintaining our business.

We're going to be aggressive about getting new business.

And your question about online versus batch.

For the most part, I would characterize any changes in online of being really related more to that normal competitive environment that we all live in versus something related to September.

There's no question that the September incident impacted our batch and some of our NPI stuff.

We've been clear about that.

And you know our competitors have put up some really impressive numbers in the U.S. And a lot of that has been them taking share from us, we believe, in some of the batch and new product stuff.

We're laser-focused in getting back our share of that as we go into July and the third quarter and the second half of the year, and we expect to do so.

And as we talked about before, right, with NPI, lot of NPI is -- drives online.

So when you're asking does it impact online revenue?

Certainly, it does.

Absolutely.

So there's been impacts across the board, as we've said.

Online, batch have both been impacted by the fact that we were impeded in our ability to sell, absolutely.

And Tim, just wanted -- one other point about.

This obviously is an active world.

And we're out there competing.

But last night, I got a verbal from our commercial team from one of our U.S. customers that moved some business to us in a positive way that was with one of our competitors.

So those things happen all the time.

But the good news is, is this is happening, meaning, we're out there winning in the marketplace.

And I expect to see that continue, particularly under Paulino's leadership and with the kind of focus and effort I'm going to put on it, continue to put on it, as we go through the rest of the year.

Okay, great.

And then just secondly, the increase to the spending on technology, I guess.

Is it just proving to be more expensive than you would have said before?

Are you increasing the, I guess, the magnitude, I guess, of what you're trying to achieve?

Or are you trying to get it done sooner?

I guess, how should we think about that spending?

Yes, I would think about it as pace, right?

So when we gave you initial guidance back in March, we were in the process of trying to ramp the resources necessary for us to deliver the changes that we committed to.

And quite honestly, at that time, the exact pace at which we could ramp that level of resources wasn't completely clear.

So what we found is, I think, we've been able to ramp a little more effectively so that our pace of completion is faster.

I think when we gave the guidance initially back in March, we said to the extent we could go quicker, we would.

And I think that's what you're seeing, that as we can go quicker, we are.

We will now take our next question from Andrew Jeffrey of SunTrust.

Mark, with regard to the aggressiveness of the competition, which I guess should be expected, and your commentary about growing and improving consumer -- customer, I should say, receptivity.

Are you as confident now, recognizing 100 days in, as you might otherwise have been about having the right technology and the right solutions in USIS.

Is there, given the current offerings, the potential to meaningfully reaccelerate the growth, in your view, is it just a matter of continuing to improve the selling motion and customer relations and ramping NPI?

Or do you think there's new technology or new solutions that you might need to fill gaps at this point?

That's a great question, Andrew.

I think last time we spoke, I was maybe 10 days into my role.

And now being 3-plus months, I've covered a lot more ground.

And you know what, I was energized then.

But I know a lot more now, and I'm even more energized, frankly, about our market position.

I believe -- and I hear this from our customers, that's where I get the data point from, is that our customers view our data assets as being differentiated.

So that's a very good thing.

Second is they view our products, our technology, our NPI cadence, our D&A resources as being a real asset also.

So I view that as a real advantage, and I'm excited about that.

I think we've also been clear that we've got some technology opportunity to allow us to speed up our ability to get products to market.

Our competitors, my sense is that, over the last 5 years, made some investments there that we did not.

We're doing that now, and that's part of the investments we're making this year, and that will roll into next year, that will allow us to be even more differentiated, I believe, as we go forward.

And the last one is that there's great commercial relationships with Equifax.

There's customers -- the customer I was with yesterday has been with us for 40 years, and they're one of our key customers and we're primary there.

And there's just a very strong relationship with or without the data security breach.

They were supportive as we went through it.

They paused, if you want, in the first 6 months about new things, but now we're back to the races.

So we don't -- I'm really energized about the future.

And then I don't need to remind you.

If you go back literally a year ago and look at USIS, with our data assets, with how we want the market with our commercial infrastructure, the business was performing very well.

And 12 months later, with the data security breach, obviously, putting some pressure on the business and the team, I look at that and it gives me great confidence, along with the dozens and dozens of commercial discussions I've had, that we're going to get back.

We'll get back to that growth mode that you're used to and that we want to deliver for you and our other shareholders.

And I add on top of that the team.

I'm really energized about Paulino agreeing to step back into a role that he did really well.

Many of you saw him operate, you saw him lead.

And he's been there a week.

I had dinner with he and his leadership team last night, and they are charged up.

And that is a long list of things that gives me confidence and it gives me more energy and confidence, frankly, than I had when I was 2 weeks in.

So a long answer to your question, which is a very good one.

Okay.

And if I may just follow up with a quick one.

Just for my own edification.

When I think about Ignite, Cambrian just as a framework, could you put a little meat on that bone for me just in terms of an example of maybe a vertical or a specific function where that technology changes the -- sort of the -- I guess, the value proposition?

Or a specific example of Ignite, Cambrian's value proposition, I guess, so we can think about it a little more clearly.

John, might be able to give you a very specific example, but I'll just give you kind of in a generality.

By getting Ignite into our customers and allowing their data and analytics, their risk teams to have quicker and easier access to our data is incredibly valuable.

And remember, Andrew, I was a customer.

I ran Synchrony for 9 years, so I know how data is used, I know how data and analytics teams work from a customer perspective.

And this tool is so valuable to them to have really broad access to our data to experiment, to model.

And by having Ignite embedded with our customer, it just makes us more sticky with them.

It makes their access to us more valuable, allows them to test and model things in just a faster fashion, allows us to co-collaborate with them.

So it's an incredibly valuable tool that, as you know, we're actively deploying in the marketplace with our customers that we think is just going to be another step-change in that integration and close commercial collaboration with our customers.

Will you add, John, to that?

The only thing I'd add, that's very complete, with Ignite Direct, obviously also, our customers, their data scientists can contribute their own data, can use third-party market data and can use our Neural Decisioning Technology to generate products and understand whether relationships exist that we can deliver faster.

And as Mark says, the technology investments we're making will allow us to get those products to market faster with those customers.

And I know you know this, Jeffrey, Ignite Marketplace is more of an app, right?

So it allows our business users within our customers to take a look and run analytics against their broader business more simply like you would with an app as supposed to requiring a data scientist to do the work.

So we think we have a great solution in Cambrian and Ignite, Direct and Marketplace, and we think we compete very well.

We will now take our next question from David Ridley-Lane of Bank of America Merrill Lynch.

So with the strategic decision to continue on the U.S. direct-to-consumer business, it sounds like you'll restart marketing in the fourth quarter.

I heard that you expect that marketing spend to return to pre-breach levels.

Just to help level-set expectations for your investors, would that be in the kind of single-digit million of spending per quarter?

Yes, we kept -- as you know, David, we don't give a number out on that.

But I would say we're still finalizing these plans.

We've been consistent -- I've been consistent that we view this as a business that we want to be in.

It's a business that we're never going to be as big as some of our competitors.

Use that as a boundary on it.

And our entry is going to be what I would characterize as measured.

And whether we're actually at those levels or not, I think it's difficult to forecast it at this stage.

But we're going to walk our way into this in the fourth quarter, and then we'll look at the performance and then make decisions about what we do in 2019.

And everything we've talked about is inside of kind of the guidance we've given you.

And just in the fourth quarter, since we're just starting doing, as Mark said, you shouldn't expect to see anything really large, right?

(inaudible) ramp that up slowly.

Again, all we are trying to do is give people a perspective that we're not looking at a large reentry here.

We weren't really large in that business in 2016 and 2017, either.

This is a relatively small business that doesn't have large investment.

And I'll take another approach to the question about ongoing IT and security cost.

Will you be fully ramped up in terms of the staffing and headcount and spending on those plans in the second half of '18?

And I understand you don't know if those costs will be up or down in 2019.

But potentially, could you start to see some cost savings from simplification, perhaps some benefits from these, the work that you're doing in '18, as you move into '19?

Yes, I think on the first half of your question about kind of getting fully staffed.

It's -- staffing's difficult to forecast, but it's our goal to kind of be at a full staffing level.

Now Bryson's looking at it, bringing some new talent just like Jamil, our CISO, did.

And that will happen.

It's happening as we speak.

He's already worked a couple of hires.

So my view to that first question that we should be at kind of a run rate as a team as we finish out the year.

With regards to 2019, I think we've been clear that we'll work those plans between now and the fourth quarter and share those with you once they're complete.

And with regards to cost base, too early to predict that.

But to be clear, our goal in making these a significant IT investments are to allow us to accelerate our revenue growth, to increase our speed of products to market, and as you point out, to simplify our structure, both from redundant systems and using cloud either private or public, as appropriate, to improve our cost structure.

And yes, we expect, through these investments, to have efficiency that will deliver along with the revenue growth.

And as we define those, which our goal is to do that as we get into the latter parts of the year and Bryson had some time to get on the ground, we'll share them with you.

Our next question from George Tong of Goldman Sachs.

This is Allison Chou on for George.

Could you speak to trends you're seeing Workforce Solutions, and particularly in Employer Services, post-breach?

And where you expect the margin improvement in the back half of the year to come from?

Yes.

So just again, I think we talked a bit about this in the script, right?

I mean, what you're seeing in terms of the weakness in the first half of the year is principally around unemployment insurance claims, our tax services business, as well as in our ACA business.

A lot of that is being driven, obviously, in the UC side by unemployment.

And at ACA, I think it's kind of well-chronicled, what's going on there.

So I think what we're expecting to see as we go through the rest of this year is that we believe that those businesses are somewhat stabilizing, and we're starting to see a little bit of growth in some of our Employee Services business.

By Employee Services, it's the services we provide to our customers to help them board employees and manage their employees.

And there, I think we're expecting to see some improvement in our I-9 business.

We're expecting to some improvement in our on-boarding business.

And that should allow us to deliver a little bit of growth as we go through the back half.

So we believe the declines should be behind us, and we're starting to see -- we expect to see some growth as we go through the rest of this year.

Margins in that business -- in the total Workforce Solutions business, we don't give margins by subsegment.

Again, you saw margins down a little bit in the first half.

I think we said that specifically related to the substantial security investments that we made, as well as the decision to add more marketing and sales, because that business is doing very, very well.

So I think what you're seeing, as Verifier growth continues and escalates as we go through the year, and as you've seen so far, and as we Employer somewhat flatten out, therefore, the growth of that business grows.

It's a very high variable margin business, and we're expecting that you'll see gross margins increase from the levels we're at right now.

Great.

And in terms of NPI and product generation in collaboration with customers, can you give more color on the areas of focus there?

Any competitive changes you've seen?

And maybe which businesses you expect to most benefit from NPI going forward, whether you expect that mid-50s level to ramp meaningfully in '19 and '20?

Yes, the NPI focus that, Allison, we talked about on the call today and we tend to talk about with you is really around our core credit bureau USIS, and it's both in the U.S. And of course, our products travel globally.

I don't see any different trends or competitive impacts there.

This has been a really strong muscle for Equifax for a lot of years.

And I think we talked in prior calls that we've worked hard to make sure we protect the resources around our NPI processes as we're ramping up our IT and data security investments.

And it feels like we've done a good job at that, meaning that the NPI engine is still working at Equifax.

And with regards to getting north of the kind of pace we've had, I don't think we see that.

And I'm actually quite pleased that we're still on pace to kind of a consistent and attractive engine working at Equifax.

It's a big priority for us.

We got a lot of people focused on it.

It's one of our -- it has been one of our growth levers, and it will be going forward.

So it's clearly a priority.

If you look historically, international's been very strong at NPI, too.

So historically, and they continue to work at it.

International's performed very well in NPI.

We will now take our next question from Brett Huff of Stevens.

Jeff, congratulations to you.

It's been good working with you.

Two questions for me.

On the EBITDA declines that you mentioned, I think, John, I think you mentioned this.

You said about half of the overall decline year-over-year for the company in margin was due to the ongoing security investments and things like that.

I'm just trying to make sure I'm parsing out kind of what the onetimers are, if you will, that you're excluding versus what the ongoing kind of base costs will be.

Is that -- if we just do that math and take half of that margin and multiply it times the revenue, does that give us a reasonably good ballpark on what the current ongoing investment will be?

And I know '19 may be more or less, I'm not asking that question.

But is that right way to think about magnitude from an ongoing addition to the base that we should expect to continue?

Well, maybe getting at it another way, right?

When we gave guidance initially back in March for the full year, we indicated that you'd see about $0.40 a share from investments in security, technology, free product, Lock & Alert and insurance, right?

And we're kind of on pace for that type of number.

Not exactly, but they will be -- we're pretty much on pace for that type of number.

So I think that's the way you should think about what those types of ongoing costs look like as we're looking at this year.

Okay, that's helpful.

And the second question, you all talked a little bit about getting closer to your customers and you also mentioned the growth in some of your competitors had been better for a variety of reasons.

Wondering, in terms of the moving to reaccelerate -- or working on reaccelerating particularly the USIS business, how do you think about getting closer to your customers versus the money you want to put into NPI or the processes around those 2 things?

It sounds like there's a new focus on getting closer to the customer.

How does that rank in terms of growth acceleration relative to NPI?

Well, they're both important.

The NPI, Brett, from my perspective, has been a strong muscle of Equifax for a long time.

So that's in place, and I think it's well organized.

We've got very rigorous processes in place and we collaborate with customers.

So that one's working.

And the thing we try to manage, what we're trying to manage this year, is make sure we keep the resources dedicated to that so it doesn't slow down when we're doing our security and IT transformation.

So that's happening.

The closer to customer one is really one that's initiative that I'm really driving.

And it's obviously quite logical, if you're closer to your customers, you're going to be able to engage more in commercial discussions, you're going to be able to show them new products, you're able to show them new data analytics to help them grow.

And it's really -- it's probably twofold.

One, it's my DNA.

That's how I lead as a business leader.

I want our team to be close to customers.

I think Equifax has always been that way.

And it's quite natural, following the data security breach last September, the organization turned somewhat inward, which is natural.

There was a lot of work done inside of the business.

And that focus externally, when I landed, call it, 3 months ago, wasn't where I would want it to be.

And that's what I've just been ramping up.

And I'm leading from my chair by spending, call it, half of my time in the field with customers.

I'm in there with our key client teams and with our data and analytics teams.

And it's really a mode of operation that I want to be a part of.

And with regards to priority, I would say the NPI and being close to customers kind of go together.

I'm just putting more emphasis on it.

Okay.

That's -- and then just one smaller question on the analytics, the Cambrian, Ignite group.

Kind of most of your competitors have something that is similar, a kind of flexible data and analytics product.

How do you all see the differentiation between what you offer and maybe what they offer?

Is it in the analytics?

Or is it in the base data?

Or is there a simple way to think about that from us, looking outside in?

Yes, I think outside in, I think it's what we've talked about really consistently.

The differentiation that we believe we bring is the data assets, as Mark mentioned, right?

So we think we have differentiated data assets beyond credit in terms of The Work Number; in terms of NCTUE; in terms of now, obviously, DataX, right?

So we think that the data assets we bring to bear is what helps differentiate what we offer.

We think we have an outstanding technology platform.

We think it's incredibly flexible.

It's very modern.

So we're extremely happy with it.

And also, the other thing that's critical, remember, it's NeuroDecision-ing, right?

I mean, it's a patent pending activity where we can do machine learning.

And through that machine learning, we can actually determine reason codes, and so use the machine learning algorithm to determine algorithms that we can sell to customers and that they can use in production because we can determine reason codes.

So all those things, we think, are what give us a product that's extremely strong.

I'm sure our competitors have reasons they like theirs, those are the reasons we like ours.

We will now take our next question from Andrew Steinerman of JPMorgan.

Mark, are you able to give us any more color on your confidence on USIS returning to organic revenue growth in the third quarter and into the fourth quarter?

I know you said more normal commercial activity.

Obviously, I see the easier comp.

Is any more specific you could give me around that dynamic of returning to growth and staying in the growth mode for USIS?

Yes, I'll start with I've been -- I said maybe 4 or 5 different ways in this call that the focus from our team is like crystal clear and laser.

It's our biggest priority.

It's one that the team is on.

The addition of Paulino, we think, is going to be quite attractive.

I'm spending a lot of time there.

So the resources and focus are there.

And then it's -- I'm really giving kind of my perspectives and the team perspectives.

As I said, I had dinner with the team last night, we had a detailed discussion with them last week and where we're going through pipelines.

And when we see pipeline building of commercial activity, that gives me confidence.

When you -- when I'm out with customers and we hear them, and then just had the dialogue yesterday, last Friday, earlier last week, when I'm meeting with customers, they're ready to get back into a growth mode.

You think about, if you're a customer and they're an Equifax partner, meaning, we've been doing business with them, they've got growth needs.

They want to access our unique data.

They want to access DataX.

They want to use The Work Number.

They want to use Ignite because they want to grow.

They've got their own growth challenges, and we're one of the levers of growth for them.

So I've got a lot of confidence in the team.

It feels like there's some wind building behind our sails, which I think is a positive.

And we're focused on getting back to that growth mode.

It's still going to take time.

It's not going to be something that's going to happen tomorrow or next week.

But the -- with the pipeline building, converting those to deals and revenue, that's the kind of mode that we're going to be in as we go into -- as we're into the third quarter already and as we go through the rest of the year.

We will now take our next question from Jeff Meuler of Baird.

And a big thank you and congrats to Jeff from me as well.

I guess, first question.

On the Verifier growth, the mortgage market is down, the auto market is not overly growthy, and you're growing at a really good rate and accelerating.

I hear you on the records growth, but anything else going on with Verifier or any sort of, like, new go-to-market product refinement?

Just any other leg to growth that's driving, really, the growth relative to the end market?

Now look, overall, continuing to execute of the strategy as they've had for an extended period of time.

As the records continue to expand, then obviously, that drives growth themselves, but it also makes the specific application more attractive in each of the end markets you just referenced, right?

So we talked about the markets that we're growing, and they've done a nice job of selling into markets where the expanded record base now makes us even more attractive.

They started -- they focused on NPI.

They're offering new products that allow us to give more information to individual verticals.

If, for example, they don't need the entire Work Number record but they can use a subset of the record to drive revenue at a lower price, we've structured products to allow that to be the case; and to also provide them historical information that may not be as valuable as the current information but is valuable in their decisioning process.

So they've just broadened what we can sell, and it's been more effective in selling.

So they've done a nice job.

Jeff, I'll just add.

We probably don't give Workforce enough justice in dialoguing with you, at least since I've been here.

This is a really good business.

And from my perspective, we're still in the early innings of the kind of creativity we can bring about how The Work Number can be used.

New verticals, new spaces, more penetration in auto, more use cases around governments for verification.

There are a lot of opportunities, and as John pointed out, and then how we deliver it.

This is a very exciting business that we view is a growth engine for us as we go through the rest of this year and into the future.

As I said, I view it as early innings because there's just a lot of potential here.

Okay.

And then second, can you give us any kind of sensitivity to the potential outcomes from the ongoing conversations with the customers where you're still in the -- working through the risk zone or getting them comfortable with your data security, et cetera?

Like, if one of those customers would go from primary to secondary or tertiary, is that a 1% consolidated revenue headwind?

Is it more?

Is it less?

Just any sizing of those -- of that risk factor.

Yes, it's hard to size.

First off, it's very few.

I think I characterized it as, like, less than the 5 fingers on my hand.

We've got a couple that we're really working on.

And what the dialogue is that they just want to see more progress on our security efforts.

We're dialoguing with them on a biweekly, weekly basis.

We're showing them our work plans.

We make progress every day with them.

And I'm trying to be open and transparent with you, is sure, there are a couple.

I don't anticipate what you described happening, meaning us changing our position.

But growing with them is not happening right now.

The NPI discussions aren't happening with a couple of customers.

And that's something we want to move them to the more normal mode of discussions, and we're going to work on that.

The vast, vast, vast majority of our customers, that's behind us.

They understand our data security plans.

They believe in them.

They see the kind of spending we're making, the kind of people we're bringing in.

So they're confident in us executing that is quite strong, and the dialogues are normal and we're into testing products, testing data sets, putting agreements in place to roll out new products.

That's where the vast majority -- vast, vast majority of our customer discussions are.

And you know this, right?

Our customer base is extremely diverse.

We generally don't have really large customers.

But we have no customers that are near 3% of revenue.

And any of that would be even moving up in that geography.

It's -- the number is very small.

Right.

Yes, good point.

We will now take our next question from Bill Warmington of Wells Fargo.

So first, shout out to Jeff Dodge and congratulations on setting a new record for the longest drumroll pre-retirement.

Well done.

So it sounds like the revenue momentum is improving and -- in the USIS, and we can see that in the sequential trends.

When do you think we'll start to see margins return to historical levels?

They want to take that margin question, John?

Both questions.

When will margins return to historical levels?

Yes, so we haven't really done a long-term model, Bill, right?

So I mean, basically, that's the question.

And so I think what we've indicated is, as we move forward here, we'll make a determination as to when we're ready to talk about the long-term model again.

But we're just not there.

So...

And I think, Bill, we've also been clear in the last call and in the other conversations, our goal is to do that.

We're trying to do that before the end of the year.

We want to have some more clarity around our legal discussions and some more clarity around the USIS trajectory and then some more clarity around our investment in technology spend and data security and IT.

And then my second follow-up question.

The DataX acquisition, I know that's a smaller deal.

The -- but it is the first acquisition that you guys have done since the breach last September.

So is that a one-off?

Or are you guys back in the M&A market?

Yes, we've actually done a couple, as I mentioned in my comments, Bill, one in Latin America and one in Workforce and then DataX.

I don't know this is number 3 or 4. Is that...

I think we've done 4 or 5.

Okay.

So We've done 4 or 5. And these have been bolt-ons and tuck-ins.

And the other thing in my comments, Bill, I tried to be clear about, is the M&A machine was never turned off.

But if you want to characterize it that way, we've got it turned on, meaning that our team is out there.

We have monthly meetings on it.

I meet with the team all the time, the team that works for me that works on M&A, and we're in the marketplace.

And we're going to be looking for more of these DataX-type acquisitions, where we can do something that's going to bolt on to our business.

I've been clear in prior discussions that I'm a bolt-on guy, looking for acquisitions where we can either have capabilities or product, or importantly data assets, is a real priority for us.

And at the same time, I don't foresee another Veda in our near future.

But we look for those.

That was an example of a platform that gave us a really great position in Australia and is going to turn out, I believe, to be a very attractive acquisition for us.

Those are the things we've been looking at, too.

So the M&A machine is on.

We will now take our next question from Shlomo Rosenbaum of Stifel.

I know you haven't come out with a longer-term model yet, but I just want to ask you on -- after your first 100 days, is there anything that you are seeing within Equifax or you're anticipating from the data breach that, longer-term, changes the way that this company operated within the industry?

And historically, Equifax had a leadership position in terms of being a leader in terms of growth through the cycle, ability to generate certain amount of growth.

Is there anything that you're seeing, after taking more of a deep dive, that says that, over time, you can't get back to more of a leadership position over here?

Or is there -- either with in terms of the assets you have, in terms of the position with the clients that you've got or anything else that you're looking at?

Yes, it's a great question.

I think if you step back and look at Equifax, look at our Workforce Solutions in international franchises, they performed well prior to the breach, they're performing extremely well post the breach.

So those are strongly intact.

And I look at of those as really attractive businesses for Equifax going forward.

And I mentioned earlier that I would characterize Workforce as being early innings, meaning there's just a lot of opportunity for Workforce here in the United States.

And we're looking at bringing Workforce to a couple other markets, like Canada and U.K. and perhaps Australia.

So you take those.

And in USIS, there's no change in our differentiated assets.

We've talked about that multiple times today.

There's no change in our ability to bring new products to marketplace.

And obviously, we took a real dent in customer confidence and trust as a result of the security breach.

But literally 12 months ago, on this call, second quarter last year, USIS was performing quite well, and it's my expectation that we go back to that.

I'm going to be careful because I don't want get into long-term model.

But when you think about the investments we're making in our data security, that's kind of tablestakes.

We're going to be industry-leading there.

But investments in our information technology have to deliver positive differentiation to us.

When we get products to market quicker, when we're a more reliable data partner to our customers, that has to be positive to us in the future.

And as been pointed out in a prior question, our investments in our data infrastructure are going to deliver efficiencies.

When we have 5 versions of something we're running today and we go to 1 and you move either to private or public cloud, that's going to be a positive moving forward.

So we're going to spend more money on security.

I think John's pointed that out.

But when I think about the future for us, this is a business that performed extremely well for many, many years.

I expect it to do the same in the future, to be a very strong competitor in our space, to be a big -- great partner to our customers.

And I'm very energized about the future for Equifax.

When you combine the underlying business and add to that the technology investment we're making, you get out into '19, '20, this is a very attractive business in our space.

Great.

And I also want to give a shout out to Jeff Dodge.

It's been a pleasure working with him over the last 10 years.

I'm keeping track, Jeff.

They're racking up the shoutouts.

Thank you.

That concludes today's question-and-answer session.

At this time, I would like to turn the conference back to Trevor Burns for any additional or closing remarks.

So thanks, everybody, for their time today.

And I'll be consistent and give Jeff another shoutout.

Anybody has any follow-up questions, we'll be available after the call.

Thank you very much.

Thanks, everybody.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participation.

You may now disconnect.