易速傳真 (EFX) 2018 Q3 法說會逐字稿

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

This conference is being recorded.

At this time, I would like to turn the conference over to Mr. 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; and John Gamble, Chief Financial Officer.

Today's call is being recorded.

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

During this call, we will be making certain forward-looking statements, including fourth 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 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 affecting the comparability of the underlying operational performance.

For the third quarter of 2018, adjusted EPS attributable to Equifax excludes acquisition-related amortization expense, the income tax effects of stock awards recognized upon vesting our settlement and foreign currency losses from re-measuring the Argentinian peso-denominated net monetary assets.

Adjusted EPS attributable to Equifax also excludes legal and professional fees related to the cybersecurity incident, principal fees related to our outstanding litigation and government investigations as well as the incremental nonrecurring project costs designed to enhance technology and data security.

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

These projects that will transform our technology infrastructure and further enhance our data security are expected to occur throughout 2018, 2019 and into 2020.

Adjusted EPS attributable to Equifax also excludes the costs related to the agreement in principle to settle class action lawsuits related to reporting a civil judgment and tax claims on our credit files.

We reported a charge of $18.5 million in the third quarter with an adjusted EPS impact at about 11.5 cents per share.

Detail on this agreement will also be included in our third quarter 10-Q.

Adjusted EBITDA is also defined as net income attributable to Equifax adding back interest expense net of interest income; depreciation and amortization; income tax expense; and also, as the case for adjusted EPS, excluding certain one-time items, including cost related to the cybersecurity incident, costs related to the agreement and principal to settle class action lawsuits and foreign currency losses from remeasuring the Argentinian peso-denominated net monetary assets.

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

In the Form 10-Q, which we will disclose that future losses from litigation and regulatory investigations associated with last year's cybersecurity incident are reasonably possible, but yet -- but not yet estimable at this stage in the proceedings.

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

Thanks, Trevor.

Good morning.

We continue to make positive steps in the third quarter towards returning to our normal selling relationship with our U.S. customers while investing heavily in technology, security and customer support, transformational investments.

Our significant multiyear investments in technology and data security are critical to our long-term success and will differentiate Equifax in the future.

Our financial performance in the quarter was solid, as we delivered EPS -- adjusted EPS of $1.41 per share, which is at the midpoint of our range.

Revenue for the quarter of $834 million reflects local currency revenue growth of 2%, which was consistent with the second quarter, but below our expectations and yours for revenue growth in the quarter.

In excess of 1/3 of this revenue growth versus our expectation reflects the weaker-than-expected U.S. mortgage market, as well as weaker credit markets in Australia and the well-known economic conditions in Argentina.

Importantly for us in the quarter, USIS posted positive revenue growth for the first time since the cybersecurity incident despite the weakness in the U.S. mortgage market.

And equally important, EWS growth approached a strong 9%, a really strong performance by both businesses as they continue to focus on the future.

Currency continues to be substantial headwind for our business, negatively impacting revenue by over 200 basis points and adjusted EPS by approximately $0.04 a share versus third quarter '17.

Versus our expectations for the third quarter, currency negatively impacted revenue by about 50 basis points or $4 million and adjusted EPS by over $0.05.

USIS revenue was up slightly versus last year compared to the down 1% to 2% we saw in the last 3 quarters.

This was a solid performance and a very positive step forward for our U.S. business, as we work towards returning to a more normal growth mode with our customers.

We also saw growth in online information services, which was also up 1% versus last year.

These are both really important milestones for us, which were achieved despite the mortgage market headwind where inquiries were down over 10% in the quarter, which negatively impacted overall U.S. revenue by 3%.

So that positive performance with that headwind was a real positive for us.

While we showed this momentum in sequential improvement the USIS revenue, their performance was below what we expected, and John will provide some more details on that later in the discussion.

In the third quarter, the vast majority of our commercial relationships in the United States returned to a more normal growth mode, which is allowing us to return to working collaboratively with our customers to pursue expanded and new solutions that will drive their business forward and create revenue opportunities for Equifax.

We have now a very small handful and I would say, less than one hand, of customers who are still completing security reviews to address any remaining open items from the cybersecurity incident in 2017.

Our sales teams are successfully re-engaging and our pipelines are building in the U.S. However, as expected and as we discussed previously, sales cycles are extended and can be unpredictable.

Sales cycles historically have ranged from 6 months and can be as long as 12 months, including customer integration.

And as we discussed last quarter and prior quarters, these impacts on a sales cycles are having the impact on the pace of USIS's return to a more normal growth mode, particularly in Financial Marketing Services.

It will be sales cycle impacts in the third quarter that resulted in a 2% decline in Financial Marketing Services, which was weaker than our expectations as we had forecasted growth by that team.

Like in the third quarter, we saw a handful of contracts in that space that closed or are closing in October versus September, which is a reflection of the pace of this recovery and also, the unpredictability of the business as we work through that recovery.

As in the third quarter, I'm continuing to spend a significant amount of my time with Paulino and his USIS team, working with their customers as we return USIS to a more normal mode of commercial activity.

I met with over 30 U.S. customers in the last 90 days and will continue to spend a large portion of my time with our customers as we continue to return to a more normal growth mode.

I was with a big customer in Texas last Friday and another big customer this week on Monday, and our customers' perspectives are consistent and invaluable.

They value our differentiated assets in United States.

They are supportive of our significant investments in technology and data security, and they're ready to return and are returning to a more normal growth mode with us.

Our customers want to help them grow and they want to take advantage of our differentiated assets and insights.

Our pipelines of new deals continue to build in the United States and are at their highest level in the past 2 years.

Paulino and his team are aggressive and focused on driving growth, and we expect to see continued progress by USIS in the fourth quarter and in 2019.

Workforce Solutions had a very, very strong quarter, with revenue up almost 9%.

Importantly, verifications was up a strong 11%.

Mortgage revenue was impacted by a 10% decline, and this business also in the overall mortgage impact -- mortgage market, which negatively impacted their revenue growth by about 3 percentage points.

So excluding the mortgage impact, you can see the strong growth that the Workforce Solution team has outside of mortgage in the third quarter in other verticals and other markets as they expand their valuable assets.

Verifier revenue growth was broad-based with double-digit growth across government, talent solutions, auto, health care and cards, reflecting their focus on expanding in the key strategic verticals.

Strong government growth at both the federal and state level was driven by demand for existing services and ramping of new products into that space.

For example, several states are ramping a new eligibility product that bundles Workforce Solutions in USIS data that will benefit both businesses going forward.

Workforce Solutions has also benefited from strong double-digit growth in the fintech space.

While this is smaller -- while it's a smaller space for them today, it's a growing vertical.

Fintechs are looking to streamline online lending processes and simultaneously expand access to credit by leveraging our unique verified income employment data to further differentiate their risk within subprime and near-prime lending segments.

These type of applications are a win-win for lenders and consumers, where lenders are able to further expand loan originations with sub and near-prime customer segments without taking on additional risk, and a greater number of consumers are granted access to that credit.

In addition to the vertical strategy, the overall demand for The Work Number continues to grow as more verifiers establish automated system-to-system integrations that further embed our data deeply in their customer workflows and decisioning process.

It also expands our relationships in fintech that will benefit our renewed focus by USIS in this space.

The Work Number record growth was also strong.

The team continues to execute on its strategy to identify or acquire new data contributors by targeting market through direct and partner channels.

Through September, Workforce Solutions has added over 7,000 new employer contributors to The Work Number database and the vast majority of these through our partner channel program.

We expect Workforce Solutions' focus on growing their database of work numbers to continue in the fourth quarter and in 2019.

And as you all know, this is a very important asset as that database grows.

Further, as we expected, Employer Services returned to revenue growth, increasing 3% in the quarter.

This was principally driven by growth in onboarding services.

With consistent strong growth in Verification Services, the return to growth of Employer Services and the continued growth of their database, we expect Workforce Solutions revenue growth to further accelerate in the fourth quarter and continue strong growth in 2019.

We continue to be energized about the performance of Workforce Solutions and the runway in front of them, as they build-out their twin database and expand into new verticals and use cases that will benefit from their unique employment and payroll database.

Workforce Solutions is an important strategic business to Equifax and is performing exceptionally well.

International had a good quarter, with local currency revenue growth of 5%.

Revenue growth was down from the 8% delivered in the first half of 2018 and our expectations principally reflecting the current economic situation in Argentina that's well-known and a weakening credit market in Australia.

We continue to see very strong performance across many of our International properties.

Our Canadian business grew double digits in local currency again in the third quarter, which was a terrific performance.

Our Asia Pacific businesses, despite the weakening economy, had a strong quarter, and our European credit business and our Latin American businesses all grew high single digits 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, which is partially offsetting the strength we're seeing across the rest of the International businesses.

We expect the debt management business to return to growth in the fourth quarter and continue that performance as we move into 2019.

As John discuss further, currency negatively impacted the International revenue -- our International business by $18 million on the top line or almost 8% in the third quarter and with a larger negative impact in the third quarter than we expected.

Our U.K. credit business, which continues to deliver solid revenue growth, is also delivering innovative products and partnerships to leverage future growth with U.K. open banking and open data relationships.

Our U.K. business partnered with a third-party to provide a large U.K. financial institution and affordability referral application based on the gateway decisioning and API capabilities of our new interconnect platform.

This application uses bank account information sourced through open banking to enable bank underwriters to view an applicant's bank statement, access affordability and verify their income.

This streamlined customer journey reduces the application process length, improves customer service, reduces application fatigue and drop-offs, and leads to more effective lending decisions for our partners while adhering to the highest regulatory standards on an affordability assessment.

This solution is believed to be the first example of open banking -- or we believe this to be the first solution of open banking being used on a credit application customer journey in the U.K. I'm excited about our International business and the collaborative innovation we are seeing from their global franchises.

We expect continued strong performance from that team in the future.

Global Consumer Solutions revenue declined 12% on a reported and local currency basis in the third quarter.

And this was a little bit above -- a little bit better than our expectations.

As expected and as a result of our suspension of U.S. consumer advertising last fall, the U.S. consumer direct business revenue declined over 30% in the third quarter.

Our U.S. consumer direct business now represents just over 30% of GCS and our total consumer direct business, including Canada and the U.K., represents slightly less than half of GCS revenue.

Our partner businesses, which were strategically important, which we -- which are sales through direct-to-consumer partner advantaged channels, represent slightly more than half of our revenue and were up double-digit in the third quarter.

This growth was broad-based, fueled by growth from existing direct-to-consumer partners and the addition of new smaller partners and growth in our benefits channel.

As we discussed in our last call, the U.S. Senate passed legislation earlier in the year requiring credit bureaus to provide free services to consumers, including free credit freezes.

We fully supported the provisions of this legislation and our team successfully implemented these new services in September.

Free credit freezes is now available via our at website at www.equifax.com.

In September, we reopened the digital sales in our U.S. direct channel and GCS and began limited direct marketing to U.S. consumers in October.

Initially, our level of marketing investment will be low as we test the market, and we do not expect meaningful revenue growth in the fourth quarter from these marketing investments, but do expect to see positive revenue growth in 2019 from GCS on the direct-to-consumer side.

We believe retaining a direct relationship with consumers will be important to our commitment to substantially strengthen our customer support, as well as to our direct-to-consumer partner NPI efforts.

Turning now to our technology transformation.

It's an important priority for us, which continues -- which includes our actions to deliver on our commitment to become a leader in data security and our consumers support commitments.

And these continue forward at a rapid pace.

Our new CTO, Bryson Koehler, has been on the ground for 3 months and has hit the ground running.

He's actively shaping our multi-year technology plan to bring our technology to market-leading and cloud capabilities.

When fully implemented, this technology transformation is fundamental to not only our security and consumer support commitments, but also to delivering revenue acceleration and margin enhancement across Equifax.

We expect our full year technology investments to transform and differentiate Equifax in the marketplace.

We made strong steps forward in the third quarter and will accelerate those efforts in the fourth quarter and into 2019.

In the fourth quarter, we'll continue implementation of our global data Gateway decisioning and API framework applications that together, we call InterConnect.

Following our virtual private cloud approach in the U.S., Canada, Europe, Latin America and Asia, and including Australia and India.

We'll also complete in the fourth quarter the implementation of our Ignite Direct in the virtual private cloud in a public cloud environment in Europe, Latin America, and Australia and new deployments of Ignite Direct in U.S. and Canada following in the first quarter.

Existing U.S. and Canadian clients will be migrated to Ignite Direct throughout 2019.

Ignite marketplace will be deployed for all regions by the end of 2018 and be cloud-native by the middle of 2019.

As you know, Ignite is a market-leading decisioning tool that allows customers to easily Equifax -- easily access Equifax's differentiated data, third-party data and their own data for modeling and decision -- decisioning.

We're also making great progress in integrating, through Ignite and InterConnect, our ability to manage attributes and models, including those driven by machine learning from investigation through production.

We expect to have implemented a seamless integrated process for a major U.S. customer in the fourth quarter and are working to make this broadly available by the end of the first quarter 2019.

These investments and transitions will simplify and accelerate our consolidation of legacy platforms into modern cloud-based systems and substantially ease the ability of our customers to implement, access and utilize these applications and access our differentiated data.

The broader transformation of our architecture to a standard and consistent data fabric for data adjustments -- ingestion, governance, enrichment and management is also progressing well, and we'll provide you more detail on our broader technology plan as a part of our fourth quarter earnings discussion in early 2019.

All of these actions are being executed, consistent with our commitment to be a leader in technology and data security.

Separately, in the third quarter, we also informed eligible users of our free TrustedID Premier service that we are proactively extending that free service for an additional year.

The product includes a suite of credit monitoring and identity theft protection services.

This proactive extension by -- free product extension by Equifax is consistent with our ongoing commitment to consumers following last year's cybersecurity incident and is consistent with our commitment to be a leader in consumer support regarding personnel credit information.

The cost associated with the acceleration of our technology transformation, as well as the extension of the free credit identity theft monitoring services, are included in the one-time costs incurred in the third quarter, and I'll give a little -- I'll give an update on that a little bit later, as will John.

New product innovation continues to be a key priority for Equifax and a real Equifax strength.

We have an active pipeline of new product innovation with of over 100 new products at various stages in our funnel and are tracking to launch over 50 new products of this year, which is consistent with both 2016 and '17 pace.

This growing pipeline of new products will be valuable in all of our markets, but particularly in the U.S. as they work back to a more normal growth mode.

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

We are focused on protecting the technology, product management and marketing resources that work on NPI to ensure we keep that pipeline building and focused on bringing new products to market.

USIS is seeing an immediate success with several 2018 new products, including commercial trended data scores and also our identity value -- validation products protecting against synthetic IDs in both batch and online environments.

Workforce Solutions working collaboratively with our USIS business is seeing success in extending Equifax's identity validation products using the unique data maintained in the Workforce database through the Work Number and selected Employer Services applications.

These solutions are utilized by government customers as well as providing opportunities for our commercial customers.

International has seen consistent strong execution in NPI throughout 2018, particularly the installation of new Ignite solutions across our major geographies.

The International team is also developing a number of new data exchanges for industries such as telco, utility and insurance, which will enrich the solutions that we can offer through our global Ignite platforms.

These new data exchanges are important long-term bets by the business for the future in the markets that they're housed.

The addition of new data assets is integral to our strategy and provides long-term growth in those markets.

These are in addition to the successes we are seeing in the U.K, integrating Equifax data with customer data through the new open data and banking -- through the new open data and open banking initiative to deliver new solutions to customers.

Further, our GCS business through last year's acquisition of ID Watchdog, is developing new financial wellness solutions for the benefits channel market.

All of our business units are benefiting from the technology transformation; specifically the deployment of Ignite and its integration with InterConnect.

We are focused on making it easier for our customers to utilize Ignite, both by increasing the D&A resources to working directly with customers and by implementing it in a virtual private cloud for easier access by our customers.

Getting our industry-leading Ignite platform and many of our experts in data science in the hands and working directly with our customers is an area of personal focus for me and Equifax more broadly.

I'm confident this will accelerate NPIs for Equifax as we finish the year and move into 2019.

We're also making some structural changes within Equifax, focusing on driving more of our resources and decision-making closer to customers.

Over time, this will make us more responsive and reduce our overhead costs.

We started making these changes in August, with an organizational realignment of resources and decision-making closer to our market and customers and aligning those resources directly in our business units.

We expect this to continue during the fourth quarter, as we take a hard look at optimizing our G&A and headquarters cost structure across the business.

M&A remains an important avenue growth for Equifax.

We have a solid pipeline of opportunities and completed several small bolt-on acquisitions in 2018 supporting USIS, Workforce Solutions and International, including our acquisition of DataX that we announced in July.

In the third quarter, we also acquired an additional 10% ownership interest in our India joint venture, bring our overall ownership interest to 59%.

We continue to see India as a long-term growth market for Equifax.

While M&A is core to our long-term strategy, we believe partner opportunities are also another revenue to deliver revenue growth.

We recently entered into an important strategic partnership agreement with Yodely, a financial data aggregation and data analytics platform provider, to help simplify the mortgage loan process by making it easier for lenders to drive insights from borrowers' financial data.

This collaboration provides Equifax with access to real-time asset expense and other information on prospective customers who have granted permission and helped streamline a loan evaluation and production process for our customers, reduce broad exposure in the application process and get banks, loan originators and lenders additional tool to assess risks and underwriting and portfolio management in the mortgage space.

As Trevor mentioned in his opening comments, our 10-Q will provide disclosure on the status of our litigation and regulatory and other investigations related to the 2017 cybersecurity incident, as well as other matters in which Equifax has involved.

We continue to be responsive and work with all parties involved to address these matters in a timely and reasonable matter, and we expect our discussion to continue to move forward positively in the fourth quarter and into early 2019.

I want to reiterate to consumers and to our customers of my absolute and Equifax's absolute commitment to protecting the sensitive consumer and customer data with which we've been entrusted and to make Equifax a leader in data security and technology, while enhancing our customer support to make it the most friendly -- consumer-friendly credit bureau.

We made strong progress on these priorities over the last year and are committed to continuing to invest resources in people towards achieving these goals.

In summary, over the first 9 months of 2018, Equifax has made strong progress on our strategic and tactical goals as we move past the cybersecurity incident in 2017 and move back to a more normal growth mode.

We are confident we are moving in the right direction and that we have -- and that our momentum is accelerating as we approach the end of 2018 and work toward 2019.

We made important steps in the third quarter as we move back to a more normal growth mode in USIS, and we expect this progress to continue as we move into fourth quarter in 2019.

We're investing at record levels to make Equifax a market leader in data analytics technology and security, and we're excited about our future and the opportunity path ahead.

While our overall third quarter performance was below your expectations and ours, we delivered strong top line growth in Workforce Solutions, clear revenue performance in USIS and continued good performance in International.

However, the level of improvement was less than we expected.

Despite this, we delivered on our EPS commitment.

Before I turn it over to John, let me provide some further perspective on 2018 and how we're thinking about 2019.

Looking at 2018, our largest BUs, the 3 BUs: USIS, Workforce solutions and International, if you exclude GCS, comprised 90% of Equifax revenue and delivered 4% local currency growth, an improvement from first half, and we're pleased with this performance.

Looking forward into 2019, we believe that we will see improved growth from each of our business units for the following reasons:

First, we're confident that USIS is on a path factor growth.

USIS' online business grew in the third quarter for the first time since the cybersecurity incident, despite a weaker-than-expected mortgage markets.

This is a really important milestone for us and step forward.

While we've seen increased competitive pressures in USIS in the past 12 months, we've retained an extended new relationships, our new deal pipelines are building strongly and as I mentioned earlier, are at the highest levels they've been in the last 2 years, and we have a growing pipeline of new and innovative products to deliver to our U.S. customers.

We feel good about the U.S. progress in the fourth quarter and as we look forward to 2019, as they work back to more normal growth mode.

Our Workforce Solutions business is performing extremely well and has very strong fundamentals.

The verification business continues to grow its database strongly.

We're penetrating existing and new verticals and expanding product offerings, which will provide strong double-digit growth.

Employer Services returned to growth in the third quarter, fueled by Employer Services.

As we discussed earlier, we expect Workforce Solutions to have a strong fourth quarter and continue strong growth in 2019.

This is an important and strategic business for Equifax.

Third, our International business has leadership positions in strategic global markets that enables us to bring new products and data access to markets.

We expect the U.K. debt management business to return to growth in the fourth quarter and substantially improve in 2019, along with solid growth from our other International businesses.

And last, we all know that GCS was impacted significantly in the second half of this year by the lack of marketing over the past 12 months.

We've restarted marketing in October in online sales, and we're seeing continued growth in our indirect channel.

These actions will result in significant improvement in GCS in 2019 and allow the business to move towards revenue growth in the second half of 2019.

These dynamics of USIS returning to growth, the strong fundamentals of Workforce Solutions, International growth and the removal of the drag from GCS as they move back to a growth mode should allow for improved revenue growth as we move into and through 2019.

This high-margin incremental revenue growth, combined with our focus in the fourth quarter on cost efficiencies following our resource realignment in August, should also positively impact our margins as we move into 2019.

Last, John will give you an update on our Sierra technology and security spend during his comments.

Our 2018 spend is now forecasted $350 million, which is up $50 million from our prior forecast as we continue our security efforts and accelerate our technology refresh and cloud efforts.

We expect our spend to be significant again in 2019, but below this run rate.

We continue to be energized about the future for Equifax and the investments we are making in the future.

With that, let me turn it over to John.

Thanks, Mark, and good morning, everyone.

I will generally be referring to 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: acquisition-related amortization expense, the one-time costs related to the cybersecurity incident, charges associated with an agreement in principles to settle class actions lawsuits not associated with last year's cybersecurity incident, and income tax effects of stock awards that are recognized upon vesting our settlement, the foreign currency losses from remeasuring the Argentinian peso denominated net monetary assets.

We have provided the details on these items so you can consider them in your analysis.

In total, in 3Q '18, we incurred total nonrecurring costs of $136 million.

The nonrecurring charges are excluded from adjusted EBITDA and adjusted EPS.

Included in these nonrecurring costs were: Nonrecurring costs related to the cybersecurity incident of $117 million; $117 million of gross cost includes $16 million were generally for legal fees and other professional services principally related to outstanding litigation and government investigations related to the cybersecurity incident; $93 million were generally for one-time incremental project and other costs incurred to implement our data security and technology plans and improve our technology infrastructure; and $8 million in accrued and incurred gross expenses related to the TID premier service we offered free to all U.S. systems.

As Mark indicated, we are extended credit monitoring and identity theft services to eligible members for an additional year.

[The following] nonrecurring and one-time incremental project and other gross costs incurred year-to-date related to our technology and data security initiatives are $267 million, and since 3Q '17 related to the cybersecurity incident, are $431 million.

We have $125 million of cybersecurity insurance under our ENL policy against which we received payments to date of $95 million.

While we did not record any recoveries in the third quarter, we continue to expect to make claims to fully utilize the policy.

The one-time incremental project cost for implementing data security and technology of $93 million in 3Q '18 are up from 2Q '18 and higher than the guidance we provided in July.

As Mark indicated earlier, our actions to substantially consolidate and transition our technology infrastructure, applications and data environments, including aggressively moving to a virtual private cloud, are accelerating rapidly.

In the second half of '18 and early 2019, this is resulting in us incurring increased project costs to make need investments in existing infrastructures, as well as investing to build new infrastructure and consolidate applications and data platforms and begin the journey to migrate our global customers to this new infrastructure.

We view the higher costs we're incurring over this period as short term in nature.

I will provide more detail in our outlook for these costs later in the presentation.

In addition to the nonrecurring costs related to the cybersecurity incident, we expect -- we expensed $19 million related to an agreement in principle to settle class action lawsuits related to the reporting of civil judgments and tax liens on consumer credit files.

For Equifax in 3Q '18, as Mark indicated, revenue of $834 million is up 2% on a local currency basis and flat on a reported basis for 3Q '17 and below the local currency expectation we discussed in July.

At the time of our conference call in July, our expectation was for local currency growth of over 4%, with reported growth of over 2%.

Actual FX impact in the third quarter was negative $18 million or 220 basis points and was more negative than expected by approximately 50 basis points or $4 million.

This larger-than-expected impact was principally in our Argentina and Australia markets.

Local currency growth was less than expected by over 200 basis points.

This weaker-than-expected performance was in USIS, International and also Workforce Solutions.

Market factors represented over 1/3 of this impact as USIS and Workforce were impacted by weaker U.S. mortgage market inquiries and International was impacted by weakening dynamics in Australia and the weaker currency situation in Argentina.

I will provide details during my discussion of each of these that follows.

Adjusted EPS in the third quarter was $1.41 per share.

Reflecting the weaker-than-expected FX in the quarter, adjusted EPS would have been $1.42 per share, above the midpoint over $1.39 to $1.44 guidance we provided in July.

Although our adjusted EPS came in as expected, this composition was different.

The lower-than-expected revenue resulted in lower the EBITDA dollars and margin percentage.

Offsetting this was slower-than-expected corporate expense and a lower tax rate.

As we will discuss later, a portion of the lower tax rate we expect to continue.

Adjusted EBITDA margin was 33% in 3Q '18, down 440 basis points from 3Q '17.

Just over half of the reduction in adjusted EBITDA compared to the third quarter of 2017 is increased corporate costs, principally increased cost in security and related technology, our transformation and risk office, the cost of supporting Lock & Alert as well as increased insurance cost.

These increases are consistent with what we described in our original guidance for 2018.

Corporate costs in 3Q '18 are also reflecting increased variable compensation accruals relative to 2017.

In 2017, following the cybersecurity incident, our incentive comp was eliminated for members of the senior leadership team and significantly reduced across the company.

The remaining just under half of the decline was principally in USIS and International, which I will cover in more detail shortly.

USIS revenue in 3Q '18 was $308 million, up slightly compared to the third quarter of 2017 and importantly, our first quarter of revenue growth since the cybersecurity incident.

USIS delivered growth, despite a decline in the overall mortgage market inquiries of about 10%, which impacted USIS revenue growth negatively by over $9 million or 3%.

In the quarter, DataX -- half the DataX acquisition benefit revenue by about 1%.

Mortgage Solutions and total USIS mortgage revenue -- related revenue were up 1%.

Total mortgage-related revenue for Equifax, including Workforce Solutions mortgage revenue, was up 2%.

Overall, mortgage market inquiries declined by 10%, more than a high single-digit decline we had expected.

Equifax total mortgage revenue benefited from the launch of trended complete tribunal report in 1Q '18.

In 4Q '18, we expect mortgage market inquiries to be down over 10%, higher than our estimate from July and down high single digits for the full year.

Online Information Solutions revenue was $222 million, up 1% when compared to the year-ago period.

Again, this growth was achieved despite the negative impact of the mortgage market of about 3%.

We saw growth in both consumer online and commercial online revenues in the quarter.

This is the first quarter of commercial revenue growth since transitioning to the CFM, reflecting the progress we are making and delivering new solutions to our commercial customers, including commercial trended data.

Financial Marketing Services revenue was $47 million in 3Q '18, down 2% or $1 million compared to 3Q '17.

The decline in Financial Marketing Services, as Mark indicated, is principally due to delays and longer cycle times on closing new batch opportunities.

We continue to see the strengthening of our sales pipeline in USIS overall and our Financial Marketing Services.

We expect to see that reflected in revenue performance as we move forward in 2019.

As I indicated earlier, USIS revenue growth was lower than we had expected in 3Q.

Approximately 1/3 of the lower USIS growth was driven by the weaker-than-expected overall U.S. mortgage market.

The weaker mortgage market and to a lesser extent, some weaker auto online volume, resulted in OIS revenue being up only 1%.

Financial Marketing Services was also weaker than expected, principally due to delays and longer cycle times and closing new batch opportunities, as was indicated earlier.

The adjusted EBITDA margin for USIS was 46.2%, down 300 basis points from last year.

Year-to-year, USIS margins in 3Q '18 were principally impacted by the following factors: Increased third-party costs principally in mortgage and increased security-related and other technology costs.

We expect USIS 4Q 2018 revenue to be up versus 4Q '17 and for calendar year 2018, revenue to be flat to down 1% from 2017.

For 4Q 2018, we expect USIS EBITDA margins to improve sequentially.

Workforce Solutions revenue was $202 million in the quarter, up 9% when compared to 3Q 2017.

Verification Services revenue of $144 million was up 11%, driven by strong double-digit percentage growth across government, auto, card, health care and talent solutions.

Mortgage was lower than our expectations due to the weakening overall mortgage market.

This weaker mortgage market, as well as some offline revenue that did not close in the quarter as expected, drove the bulk of this somewhat lower performance at Workforce against our expectations when the quarter began.

Importantly, we also grew both active and total reference again in 3Q '18.

Employer Services revenue of $58 million is up 3%, in line with our expectations and better than the down 3% and down 9% we saw in 1Q and 2Q.

As Mark indicated earlier, the increase was principally in our I-9 and onboarding businesses.

The Workforce Solutions adjusted EBITDA margin was 47.5% in 3Q '18, down 110 basis points from 3Q '17.

This decline was driven by increased production costs, reflecting initiatives across our infrastructure and also increased cost of security.

Given the positive revenue mix driven by strong growth in Verification Services that we expect to continue in 4Q '18, we expect to see sequential improvement in Workforce margins.

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

International revenue was $235 million in 3Q '18, down 2% on a reported basis and up 5% on a local currency basis.

Asia Pacific revenue was $81 million, down 1% in U.S. dollars and up 7% in local currency.

Growth is down from the 10% plus growth seen in the first half of '18, consistent with the weakening we are seeing in consumer, particularly mortgage and other consumer credit markets in Australia.

We continue to see nice growth in commercial.

Europe's revenue was $68 million in 3Q '18, down 1% in U.S. dollars and flat in local currency.

We continue to see high single-digit local currency growth in our European 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 and a return to growth in the fourth quarter.

Latin America's revenue was $49 million in 3Q '18, down 11% in U.S. dollars and up 7% in local currency.

Revenue growth was weaker than the almost 15% growth we delivered in first half of '18, principally due to slower growth in Argentina, which reflects the current economic situation there and slow growth in Chile, which we believe is timing and we expect to see recover in fourth quarter.

Similar to the first half of '18, we continue to see good growth across Ecuador, Mexico, Uruguay and Paraguay.

Canada's revenue was $37 million, up 6% in U.S. dollars and up 11% in local currency.

This was another great quarter for Canada, even stronger than the approximately 8% local currency growth they saw in the first half of '18.

Canada's growth was broad-based, including strong double-digit growth across decision solutions and analytical services.

Investments in technology, including Ignite, as well as the focus on customer innovation, have resulted in strong growth with new FI and fintech customers and volumes and fraud products.

International's adjusted EBITDA margin was 29.4% in 3Q '18, down 380 basis points from 3Q '17.

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

We expect EBITDA margins to increase in 4Q '18 as compared to 3Q '18.

Global Consumer Solutions revenue was $89 million in 3Q '18, down 12% on a reported and local currency basis.

As Mark covered, our total consumer direct business comprising the U.S., U.K. and Canada represents just over half of GCS revenue.

U.S. consumer direct revenue, which now represents just over 30% of GCS revenue in total, declined significantly in the quarter as we had suspended advertising and online sales in September of 2017.

We restarted U.S. online sales late in 3Q '18 and have begun limited digital marketing earlier this month.

As Mark indicated, we do not expect this to benefit subscriber levels until 2019.

Our U.K. consumer direct business is down due to price reductions related to GDPR, but we have seen nice growth in subscribers, which is positive as we move into 2019.

Our partner-based businesses, which now represent over half of GCS revenue, grew nicely in the quarter and offset a portion of this decline.

We saw nice growth both with existing customers and added several smaller customers in the quarter.

ID Watchdog, the business Equifax acquired in 3Q '18, that provides consumer credit and identity services through the employer benefits channel, has been performing very well.

We continue to see growth that we believe should accelerate in 2019 and 2020.

We also believe this business has opportunities to expand into Canada, the U.K. and Australia.

GCS adjusted EBITDA margin was 28.3% in 3Q '18, up 40 basis points from 3Q '17.

The net decline in revenue and related gross margin was more than offset by lower marketing expense in our U.S. consumer direct business and other admin costs.

In 4Q '18, we expect a further sequential revenue decline, reflecting a further decline in the U.S. consumer direct business and a resultant sequential revenue reduction -- sequential reduction in EBITDA margins.

4Q '18 EBITDA margins are expected to decline relative to 3Q '18, reflecting both the lower U.S. consumer direct revenue and an increase in marketing expense as we restart U.S. consumer marketing.

In the third quarter, general corporate expense was $140 million.

Excluding the nonrecurring costs associated with the cybersecurity incident, the adjusted general corporate expense for the quarter was $68 million, up $22 million from 3Q '17.

The increase reflects 2 main factors:

First, the increased ongoing cost related to security and related technology, the free Lock & Alert product, our transformation and risk office and increased insurance costs.

These increases are consistent with what we described in our original guidance for 2018.

Second, as I indicated earlier, corporate costs in 3Q '18 are also reflecting increased variable compensation accruals relative to 2017.

In 2017, following the cybersecurity incident, our incentive comp was eliminated for members of the senior leadership team and significantly reduced across the company.

For 3Q '18, the effective tax rate used in calculating adjusted EPS was approximately 19%.

In our 3Q '18 guidance in July, we indicated that we expected our 3Q '18 effective tax rate used for adjusted EPS to be lower than the 23.5% we had incurred in the second quarter.

The 19% we incurred was slightly better than we had expected, reflecting both a reduction in our ongoing effective tax rate to 25% from the slightly higher rate incurred in 2Q '18.

In 3Q '18, we had the benefit of this lower expected ongoing rate, as well as the year-to-date catch-up.

This lower rate will benefit us in 4Q '18 and 2019.

And we had discrete benefits in the quarter, principally related to the annual return to accrual true-up.

The difference between our GAAP effective tax rate and the effective tax rate used in calculating adjusted EPS reflects adjustments for costs associated with our cybersecurity incident, litigation settlements not associated with the cybersecurity incident, the income tax effect of stock awards and foreign currency losses for re-measuring the Argentinian peso-denominated net monetary assets.

These non-GAAP measures are detailed in reconciliation tables, which are included in our earnings release.

For 2018, we now expect our full year effective tax rate, including discrete items, to be about 23.5% with 4Q '18 slightly better than that level.

In 3Q '18, operating cash flow was $153 million and free cash flow was $63 million.

They're both down from 3Q '17, principally reflecting the cash costs of our investments in security and technology and ongoing legal costs related to the cybersecurity incident.

We also did not have any insurance cash collections in the quarter.

As we indicated earlier, we expect to fully claim on $125 million of cybersecurity insurance.

To date, we have collected $95 million of insurance with $80 million received in the first half of '18.

Through September, operating cash flow was $507 million and free cash flow was $299 million, down 17% and 34%, respectively.

Capital spending incurred in the quarter was $102 million and year-to-date was $250 million.

Year-to-date capital spending is approximately 10% of revenues, slightly higher than we had expected at the beginning of 2018.

For all of 2018, we expect capital spending to be about 10% of revenue.

Similar to our discussion related to project cost for security and technology transformation as we accelerate our progress in building new cloud-based infrastructure and then migrating existing applications to this new infrastructure, we're seeing higher project, and therefore, higher capital spending.

Total net debt at the end of 3Q '18 was $2.4 billion.

In September, we entered into a $1.1 billion 5-year revolving credit agreement that replaced our $900 million revolving credit agreement that was scheduled to mature in November 2020.

This new agreement is structured to allow flexibility over the next several years, as we transform our security and technology infrastructure.

We have now refinanced all near-term debt and credit facilities.

Now turning to our guidance for 4Q '18.

We are expecting local currency growth of 2% to 4% in 4Q '18 as compared to 4Q '17.

At current exchange rates, FX was a negative 2.5% impact on revenue growth in 4Q '18.

This results in reported growth of down 0.5% to up 1.5% in 4Q '18, while revenue between $835 million and $850 million.

Adjusted EPS is expected to be between $1.30 and $1.35 per share versus 4Q '17.

FX is expected to negatively impact adjusted EPS by about $0.04 per share.

Our 4Q '18 adjusted EPS guidance is down at the midpoint of our range and on an FX-adjusted basis by $0.03 from the 4Q '17 adjusted EPS of $1.39.

This decline is principally impacted by increased corporate expense of about $0.12 to $0.15.

This increase is driven by 2 main factors:

First, cost for security and related technology, the free Lock & Alert service, our transformation risk office and increased insurance costs and increased variable compensation accruals relative to 2017 and also higher interest expense in 4Q '18 of approximately $0.03 a share.

These negative factors were partially offset by higher operating profit at USIS, Workforce and International, partially offset by a reduction of GCS and a lower tax rate in 4Q '18 as compared to prior year due to the 2017 Tax Act.

For perspective, since we provided our July guidance, FX has negatively impacted revenue by $4 million, $8 million and $12 million in 3Q '18, 4Q '18 and calendar year '18, respectively.

Adjusted EPS has been negatively impacted by $0.005 per share, $0.01 per share and $0.15 per share in 3Q '18, 4Q '18 and calendar '18, respectively.

Looking at our guidance for calendar year 2018, we now expect revenue to increase on a local currency basis by 2.2% to 2.7%.

At -- FX, at current rates is approximately 0.75% negative to revenue.

This results in calendar year 2018 reported revenue guidance of $3.412 billion to $3.427 billion.

Adjusted EPS guidance was $5.70 to $5.75 per share.

FX was a negative impact of $0.10 per share.

We expect in 2018 to incur in excess of $350 million of gross incremental cost for investments in technology and data security, projects and legal and professional fees being incurred just specifically to add rest to litigation claims and governmental and regulatory investigations related to the cybersecurity incident.

We continue -- net costs after insurance proceeds are still expected to be approximately $275 million, although timing of insurance receipts is difficult to forecast.

Investments in technology and data security are expected to represent over 80% of the gross cost of -- in excess of $350 million.

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

In 4Q '18, we expect gross costs to be lower than what we incurred in 3Q '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.

This represents an increase of over $75 million in gross costs from the original estimate of these gross costs that we provided in March.

The increase is principally in technology investment and is occurring in the second half of '18.

As was indicated earlier, as we begin the phase of building our new infrastructure based on our virtual private cloud approach and our transition of our applications of this new infrastructure, we believe we are in a bubble period where we're incurring costs related to the needed investments in our existing infrastructure, at the same time that we are moving to the new.

We are excited by this progress as we begin to more rapidly migrate applications to our future leading technology.

These higher costs that I referenced are expected to be incurred in the second half of '18 and early 2019.

Beyond that, we will see a substantial reduction in technology [in this year's] spend.

We will provide much more detail in our technology plans in our 4Q '18 conference call early next year.

As Mark indicated earlier, we remain focused on delivering to our commitments in data security and consumer support.

Over the past year, Equifax has made tremendous progress in delivering on the commitments made last year and moving our commercial relationships back to delivering new solutions for customers and opportunities to grow Equifax.

However, as expected, at times the progress is choppy, but we firmly believe the pace of change is accelerating and we are looking forward to the progress we will deliver in 2019.

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

(Operator Instructions) We will take the first question from Toni Kaplan with Morgan Stanley.

I wanted to ask about USIS growth.

I know it was flat this quarter, the first quarter positive post the breach.

Just wanted to know your thinking of how quickly could this business return back to pre-breach levels?

And also just in terms of -- so still lower level than where it has been since the breach.

How much is it just the end market versus how much is reluctance from customers still trying to get comfortable with the security?

Sure.

Thanks, Toni, for the question.

I'll start and John can jump in.

It's hard to forecast how quickly USIS will return to kind of previous share growth levels, that 6%, 7%, 8% that it was doing 18 months ago.

We've been pretty clear that, that would -- our recovery is positive.

It's progressing.

In my comments, I talked about that U.S. about other customers who don't want to do business with us.

That's not the case.

We've got less than a handful that -- meaning one hand that were still finalizing some of the security audits they're doing.

The rest of our customers are back to a more normal growth mode.

Meaning, we're in there talking about competitive situations.

We're in there talking about our NPIs.

We're in there engaging around our Marketing Services business, our batch business.

So we're back to a more normal growth mode.

But that recovery is hard to predict at how quickly we're going to get into that normal growth mode.

We've seen progress, which we're very pleased with.

I talked about our pipelines continue to build with our customers.

I'm spending a lot of time with them.

They want to take advantage of our differentiated data, our new products, whether it's Ignite or InterConnect or our differentiated data and the NC-plus database, our twin Work Number database.

Customers want our data, and it's just going to be a matter of time.

And we do expect continued improvement from third quarter to fourth quarter.

We expect that to continue into 2019.

It's just hard to predict when we'll actually get to that pre-breach growth level.

But from my perspective, it's not a matter of if, it's really just when, and we expect that progress to continue.

And then just on International.

On a constant currency basis, Lat Am and Asia Pac came in a little bit below where it's been -- where both have been in the last 3 quarters.

And so just wanted to get a sense of -- I know you mentioned Argentina and Chile for Lat Am.

But anything to call out that could reaccelerate or any sort of a onetime-ish type issues in 3Q that sort of made those a little bit slower?

Well, we talked about in our comments, right, what that we've actually was a bit weaker in the third quarter but we thought that, that was something we'd recover as we got through the fourth quarter and into next year.

So Chile, we do think it's a short-term issue.

Argentina, we'll have to see how the economy progresses.

And Australia, as we indicated, we are seeing some credit tightening there.

You're seeing commentary recently by government officials and the Australian banks.

So there has been a credit there that's impacting our consumer business.

But overall, that business continues to grow nicely with relatively high single-digit type of growth rates, and we would expect them to continue to innovate as they have.

So as with all of our businesses, the ability to generate and sell new products is key to growth.

And we think given the strong positions, Argentina, Chile, generally in Latin America, and Australia, we have -- that we should have the opportunity to do that as we look forward.

Okay, great.

And one last quick one and then I'll turn it over.

Mark, you mentioned in prepared remarks you expected litigation to move forward positively in the fourth quarter and into '19.

Could you just elaborate on what you meant by that?

Sorry, I lost the first part of the positively forward in fourth quarter '19, which business?

You expected litigation to move forward positively.

Great.

Yes, it really is just trying to signal and actually, not signal, just to be clear about it.

We're in active dialogues with all parties involved in that.

And those discussions are positive, meaning that we're engaging with them.

And I'd say that they are at accelerated pace.

And we expect those to continue with that pace in the fourth quarter as we go into '19 and are working towards resolutions to push those forward.

We'll now take the next question from Manav Patnaik from Barclays.

This is actually Greg calling on for Manav.

Just trying to square kind of the disappointment in 3Q with the positive commentary into 2019.

And maybe some comments on how you're seeing the visibility of the business.

I think you've talked about 6 to 12 months sales cycle.

Are you seeing those extended even further as you kind of reengage these customers post breach?

And how we should think about the sales cycle there?

Yes, you're referring I think, Greg, to USIS.

As opposed ...

Yes, that's correct.

My comments were broadly -- we'll talk about USIS.

I think our disappointment -- we were pleased with USIS' progress.

While it was a bit below what we had hoped for, the fact that they move forward positively versus fourth quarter, first quarter, second quarter, that sequential improvement was important to us and quite meaningful.

And what's behind my comments and John's about our outlook for as we go forward is you go back 6 months ago, 9 months ago, even 4 months ago, we had a longer list of customers that were still completing their post security incident audits.

That's a very small number now.

As I said, less than what you count on one hand.

Meaning that we'll resolve those and we're back to more normal discussions.

Our customers want to differentiate data.

I'm spending tons of time with customers.

I was with a big one on Monday.

Another big one on Friday.

They want our differentiated data.

They want our decisioning assets.

So they're engaged around getting back to growth.

There is some unpredictability when you get the green light to get back in a mode of operations to be putting new products in front of them or new data assets, the unpredictability really comes about from them evaluating them, going through a purchasing process and there's a technology element of actually getting them -- those new products installed on their system or getting them access to our tools.

We don't see any extension of the sales cycle, as we try to be consistent every quarter that these are different in every situation.

But with the pipelines at the highest level they've been in USIS in the last couple of years, the momentum I see in this space, the way our commercial teams are engaging with customers, my involvement, Paulino's involvement, that's what gives us the confidence that USIS will see continued improvement.

And for your earlier question from Toni, we can't predict when we'll be back to that more normal growth mode.

But we have a lot of confidence we're going to see continued improvement going forward.

And as I said earlier from our perspective, getting back to that more normal growth mode is not a matter of if, it's only timing.

And we do expect to see continued improvement in fourth and then as we go into 2019.

And looking into 2019, I think the commentary in general was just around -- was looking at history, right?

I think we feel good about the fact that the 3 big business grew 4% on a local currency basis and actually improved their growth from the first half rate in the third quarter.

And really, a significant impact on our overall growth in the third quarter was GCS and the large decline there, which we think there's a very -- fairly clear path as to why that's going to substantially mitigate it again the next year.

So just based on what happens this year and what's fairly clear about GCS in the trends we're seeing, it feels like the trend is positive in terms of the type of growth rates that should occur.

Okay.

And then maybe quickly on the organizational realignment.

I think I heard it a couple of times.

Just any more color there and how you're thinking about the potential cost save opportunities from that process?

Yes, we're in the midst of that now.

The alignment was made where we moved resources and reporting relationships back to the BUs and closer to the market, which is an approach that I find makes a lot of sense to get decision-making closer to markets and customers.

And we're going through a process now of a re-look at all of our cost efficiencies, as we do our budgeting for 2019, and we do expect some efficiency to come out and we'll be sharing those with you later in the year, for sure.

Those will be quite visible, as we have our discussion in January around our first quarter -- our fourth quarter results.

We'll move to our next question from Georgios Mihalos from Cowen.

Mark and John, you outlined a few factors that impacted the constant currency growth rate in 3Q kind of going from sort of 4 to 2. Can you just, in order of magnitude, break those out for us?

I mean, I guess mortgages is clearly the biggest, that's almost 1 point.

But just maybe break down for us the different components that led to the slower growth.

And has pricing with customers been a bigger impact recently than maybe a couple of quarters ago?

Yes.

So I think, Georgios, it's really what we covered in the script, right.

So I think we indicated market factors, which clearly by far the biggest is mortgage.

We're about 1/3 of it.

And then the remainder of it was non-market factors.

And then we gave you the specifics really by BU as to how BUs were specifically impacted.

So I'll just probably refer you back to those, to our overall comments to give you the breakdown of where revenue came in below expectation.

Was there anything sort of, from a competitive angle or from our pricing angle, that sort of stood out that maybe had a bit of a bigger impact than what you guys were expecting?

No, no.

There was nothing there on pricing competitive that was any different than our expectations in the quarter or frankly, that we've seen during the year that would be different.

Okay, great.

Just a quick follow-up.

Should we expect, in conjunction with the 4Q earnings, should we expect you guys to kind of talk about your long-term targets and how you're thinking about the business going from there?

And then, Mark, you talked encouragingly about the trends going into '19, both at the top line and even from a spend perspective.

Should we be assuming that at least directionally margins will be up in '19 versus what you posted in '18?

Yes.

I think it's early for us to give that kind of guidance in specific on margins.

What we wanted to you is give you some visibility of things that we're working on in the fourth quarter.

And you can do the math.

With the revenue growth that we would hope to deliver in 2019, that should be helpful to margins.

And cost actions that we're going to take -- if we don't have a sizing on that, those should be positive for margins.

And with the long-term growth model, we haven't made a determination yet at the timing of putting that back in place.

We'll certainly give some guidance for 2019, as we get into finish up the year.

And we're still thinking through the right timing to put that framework back in place.

I think we've tried to be consistent in our prior dialogues with you about the long-term guidance that we wanted to see some track record from USIS, and that's building.

So I would say that, that's going in the right direction.

But we wanted to see that continued growth from USIS, which we expect, and that will be determined in that long-term framework.

And the second one is that we want to have some visibility for us and for you around our legal settlements, and those are still uncertain.

And as I mentioned, we're in active dialogues with a lot of the parties but there's still lots to discuss and lots to work on there.

So those are kind of the 2 big ones.

And then the third would be around our Sierra spend.

John mentioned that we've accelerated some spending in the second half of this year as Verizon has come on board, and we're working through some of the rebuild and cloud initiatives.

We don't have visibility yet on what that is for 2019.

I think we've been clear that it will be a significant number, but we wanted to give you some visibility that our expectation is it'll be up -- below the run rate that we're currently running at.

But it will still be a big number.

It's going to be a multi-year effort, and we try to be clear on that.

I think those 3 points, USIS, our legal settlements effort and then our Sierra spend, getting those in a spot where we feel confident in discussing those with you, would really be in front of putting our long-term framework back in place.

We'll now take the next question from Brett Huff from Stephen.

Congrats on the progress on USIS.

I know it's a tough mortgage quarter but the underlying seemed really didn't matter.

I have a question on the lowered guidance.

I just want to make sure I understand the drivers of that.

My understanding is you talked a little bit about 1/3 of the 200 basis points disappointment in rev growth is mortgage, maybe $4 million of forex and kind of the rest was the International, Australia and Argentina, as I understand it.

The guide was a little bit lower than that disappointment.

It's implying more pressure on the 4Q.

Is the spread of kind of the headwinds in the 4Q going to be similar to maybe what we saw in 3Q?

Or is there anything else that maybe we need to be paying attention to?

I think as we indicated, right, you're going to see more mortgage headwind in the fourth quarter, as we think -- you'll see the mortgage market may be down lower than 10%, which is greater than what we saw in the third quarter.

And you're going to continue to see the headwinds in Argentina, and you'll continue to see the headwinds in Australia.

So I think the things generally impacting the business overall aren't substantially different and -- but we are expecting to continue to make, as Mark has said, good progress with USIS, continue to make good progress in EWS.

And we do think there are some positives that should occur on International.

Again, the debt management business, we would expect to turn positive or at least flat in the fourth quarter as we wrap around the difficulties we had with the U.K. government contract, which started in the fourth quarter of last year.

And then also, we expect to see some better performance out of Latin America.

So net-net, we think that is what we're expecting to see as we move forward, as we indicated.

Great, that's helpful.

And then just a quick follow-up is just a model question.

You mentioned that the tax rate was a little bit better than you expected even though you guided it to be a little bit better in the original sort of 3Q guidance.

I think you said it came in at 19.

Kind of what was the delta?

I mean, we tried to do some math on the tax and I don't know if our math is right, but was it a $0.10 benefit ultimately or was it less than that?

Is there a way you can dimensionalize that for us?

We just want to make sure we get our numbers right.

Yes.

So when we indicated slightly better than 23.5, it would have been only slightly better than 23.5.

So to dimensionalize it, you can go from a number of slightly under 23.5 and compare that to 19.

The next question comes from Andrew Jeffrey from SunTrust.

To the extent that one of your competitors, as we refer to ongoing share gains, I think some have nothing to do with the breach and maybe some that, and I know they're hard to identify, maybe related.

But to the extent their share shift is taking place in the market, Mark, can you just talk a little bit about sort of what you view as the tail on those?

In other words, do some of the initiatives you highlighted in your comments, and John in yours, start to sort of turn the tide, do you think, from a net share perspective at some point next year?

How do you think about the tail on this?

Yes, we understand there was a comment yesterday about one of our competitors in the earnings call about share gains against an unnamed competitor that had a data security breach.

So we're guessing they were talking about us.

We -- as I've been clear, my -- our comments, we clearly -- their revenue growth is stronger than ours.

There's no question about that, both TU and Experian.

So they're executing well in the marketplace and they're taking advantage of some of the pressures Equifax had post the data security breach.

We'd be consistent on prior calls that this is a competitive space.

It was competitive before the data security breach.

It was in the last year, as we've moved past the data security breach, and when we're in the penalty box with customers, which we were in kind of the first half of the year and the fourth quarter last year, it's hard to do new business.

It's hard to do some of the marketing solutions work.

We haven't seen any loss of customers.

So we are clear about that.

There's always movements between primary and secondary that happen on an ongoing basis.

And as I tried to mentioned in my comments, we've got our own pipeline of work that we're doing, and those include competitive wins that we've notched on our belt.

Pipeline of new deals that we're working on that we've got expectation of winning.

And a pipeline of deals that we're working to win.

So it's a space that has always been competitive and continues.

I think the sequential improvement that you saw out of USIS in the third quarter versus second, and we expect that to continue going forward.

When I meet with customers, they really value our differentiated data and now that their security reviews are complete, they want to re-engage around our new products and our new insights.

Okay, helpful.

And with regard to GCS and the return to marketing on the direct side of that business, are there going to be any changes to the product or enhancements or price adjustments that you think could influence adoption and to give you confidence that you can sort of stem the tide on that subsegment of your business?

Yes, there's always work going on inside that business, as you might imagine.

They're always testing new products and looking at new opportunities to offer protection products and other products to the marketplace.

As you know, the biggest impact was they went dark for a year.

That was intentional on our part.

And when you're not doing any marketing at all, we actually took the products off the site.

Even if someone found our site, there was no products there to buy over the last 12 months.

That has a significant impact on the business.

And as we said, we would have the site in October and we're doing some targeted online marketing in the fourth quarter.

And we expect that to accelerate.

This isn't a large business for us on the direct-to-consumer business in the United States, but it's one that we want to be in, and we will continue to invest either in products or in the advertising.

But don't take these comments that we're like doubling down or tripling down.

This is a business that we like.

We want to be in.

We expect it to grow in the second half of next year, as we get the benefits of some of the marketing work and the online advertising work that the team is doing starting now in October and flowing into the fourth quarter and into 2019.

They'll also benefit from the technology reinvestment.

They get a new platform next year that we think will ease the way they launch products and the way customers can interact with us and make that substantially improved.

So they will get a benefit there in addition to the -- to what Mark already referenced.

The next question comes from Gary Bisbee from Bank of America Merrill Lynch.

John, I think you have a second career if you want it, as one of those people who talk so fast on drug TV commercials.

That was an unbelievable pace and a lot of stuff you went through.

I guess the question for you on margin.

So obviously, there's a lot of these costs that you're pulling back for the tech transformation.

But you also cited over the last couple of quarters, some security in other costs at the segment level.

Can you talk through the margin headwinds?

I guess you also talked about third-party data costs being up to adjusted EBITDA , comp coming back is obvious.

But what are some of the others?

And what's the duration on some of those increased costs?

So I don't think I spoke about third-party data costs.

But in terms of the total security cost, we talked about this early in the year, right, that we had thought that we would see about $0.30 a share specifically related to security, technology related to security, our risk office, our transformation activity.

And that we expected that to impact us through the year.

And a lot of that is in corporate.

But a substantial amount of it is also in the businesses.

So that's impacting both corporate expenses as well as business -- as expenses you're seeing in the businesses and therefore, impacting our margin.

We also indicated in the beginning of the year that there's about $.10 specifically related to insurance, and you're seeing that in corporate.

So my comments, I think, in the script in several places are really referencing those total costs, and they just happen to show up in both corporate as well as in the businesses, as the businesses continue to grow out their security infrastructure and then also invest in technology.

Okay, great.

And then the follow-up.

Just the -- if we think longer term, like 3 to 4 years from now, what will be the benefits from the tech transformation other than the security side of it, which I think is clear?

And is this a help revenue and reduce costs when all is said and done?

Or how do you think about the long-term benefits?

Yes, it's a great question.

It's one that we want to give you some more visibility about as we finalize that technology plan for '19 and beyond.

And I think you hit the nail on the head.

It's clearly going to be a cost structure improvement.

As we simplify our applications and our infrastructure, there should be some meaningful cost savings there.

And of course, the cloud should also deliver that.

But we also believe there's going to be some meaningful revenue opportunities for us as we ingest data more quickly.

And then also bring products across -- to customers and also across the globe more quickly.

Today, we have to rebuild too many products when we take them from the States to Australia, Australia to Argentina, et cetera.

As we build -- as we rebuild those products in the cloud, they will be more easily moved from one market to another.

So there's multiple layers of benefits from this that we think are going to be quite sizable.

And our intent is to really differentiate ourselves from our competition with this investment in our technology infrastructure.

And our goal is to share with you and the rest of the investment community our kind of thoughts on those benefits, which as you point out, and we agree are multifaceted.

The next question comes from Bill Warmington from Wells Fargo.

So a question for you on the auto weakness.

I was going to ask if you could give us some color on that similar to what you've given on mortgage, in terms of what the percentage was of revenue and the impact in the quarter.

I know that your portfolio tends to be weighted towards the southeast and the impact of the storms there.

Yes.

So effectively, the auto market will be solid but we'd expected to see a little bit of improvement in the auto market in the quarter.

And we really didn't see that.

So I think the comment was relative to our expectations.

And so we saw, relative to our expectations, lower revenue.

Part of it certainly was the fact that we're heavily weighted to the Southeast and there was certainly some impact from the storms that occurred.

Part of it also is that we're weighted to subprime and we've seen some more weakness in the subprime part of the auto space than you have overall.

But we had expected to see a little bit of improvement, and we really just didn't see that in the auto space.

Okay.

And then you called out the increased spending in the third quarter to accelerate the technology transformation.

Being based in Boston, baseball is top of mind and so I wanted to ask, what inning are we in, in terms of the technology transformation?

When can we expect that to be complete?

Yes, it's a tricky way, Bill, to try and -- congrats on your team there, but mine's not in it.

But it's a tricky way to try to get some visibility of how long our spend is going to be.

I don't think we can give -- I would say, it certainly is early innings.

But I would say that we're making a lot of progress.

We've really moved forward.

I would characterize in the second half of the year in the third quarter, we expect that to continue in the fourth quarter, particularly with our new CTO on board.

We feel good about that progress going forward, and we'll give you some clear visibility of which inning when that plan is complete and our expectation is that will be in January, when we report our fourth quarter results.

We'll now take the next question from Jeff Meuler from Baird.

On the improvement in online information, I get that the mortgage market is tough and you're seeing improved year-over-year trend despite that.

But the year-over-year comp is also significantly easier.

So just help us understand that, what's driving or that there is real improvement.

Here, you called out that commercial trended product.

But maybe if you could talk about some new sales trends with clients or other specific products?

Just help us understand that there's real improvement beyond the easier comp.

So again, as we indicated in the script, right, the positive what we saw, nice growth.

We saw growth both in commercial and consumer.

There's a 300 basis point headwind specifically because of the mortgage market being down 10%.

And despite that, we saw improved performance in both of those.

And yes, there was a breach impact in 3Q '17, but it was really heavily in the -- in Financial Marketing Services.

The impact in online was much less just because of the timing of the announcement, since the announcement was in September.

So I think really what -- we were heartened by the fact that we saw growth across both consumer and commercial, and it was in an environment where we had a substantial headwind from mortgage in the period.

Okay.

And then on the guidance, I get the tougher assumed mortgage market for Q4 relative to the pace of decline in Q3.

But -- and I know there's a variation of this question asked earlier.

But I want to re-ask it, given that part the reason for coming in below guidance this quarter was that there were some markets that got incrementally worse.

So when you talk about headwinds in Argentina and Australia, are you assuming that you're going to see further deceleration in those businesses?

And just maybe a comment on your thoughts on the consumer credit markets in the U.S. outside of mortgage.

Are you seeing other risk factors in any of them?

So specifically, in terms of our guidance for the fourth quarter, I think we try to cover it in the script, right?

We -- the biggest market effect that we indicated affected us in the third quarter was really U.S. mortgage.

And we indicated that was the largest, the most substantial by far, and we are expecting further weakening there.

And that's really the biggest driver, in terms of the market-weighted effect that impacted us in the third quarter and likely the biggest one that will impact us in the fourth quarter.

(Operator Instructions) We'll now take our next question from David Togut from Evercore ISI.

Could you expand upon your comments with respect to Australia?

The data acquisition did well for quite a while.

But clearly, this is more macro-oriented.

But how are you thinking about the growth outlook for your Australian business over the next year or 2?

Yes.

So again, so when we acquired data, we indicated we expect that it would be a business that should grow mid- to high-single digits, in that range.

We've seen relatively good performance over '16 and '17 and now through '18.

We've seen nice growth in 2018.

The macro effects are certainly impacting us right now.

But the goal is that we should be able to continue to try to drive growth across that business as we move forward, and our expectation is it should deliver consistent with our long-term expectations for the business.

Now obviously, there can be ups and downs in any given quarter, any given year, but the trends we see in the business, we think continue to be positive.

We expect to be able to continue to drive some growth in Australia.

As we look forward, we're hopeful about the benefits that we'll see out of comprehensive data that's now expanding there.

That's something will take hold slowly.

But again, it's something that we're expecting to provide us with some benefit as we look forward.

So overall, we continue to think the Australia acquisition was a good acquisition, and we would expect this to continue to see positive growth trends.

Just to clarify, are you saying you expect mid-to high single-digit growth to continue next year in Australia?

Or you just expect to do well in '19?

I wasn't trying to make a specific comment about rate -- about overall growth rates for next year.

Just that as we look at the business over the long term, we think the expectations that we had for it initially continue to be reasonable.

As we -- when we get into providing guidance for 2019, we'll talk more specifically about Australia for next year.

Obviously, there are market effects that are going on right now in terms of consumer credit, which are certainly going to negatively impact Australia in the fourth quarter and depending on the duration, certainly could into next year.

As there are no further questions, I would like to hand the call back over to the host for any additional or closing remarks.

Yes, this is Trevor Burns.

I just wanted to thank everybody for joining the call.

If anybody has any follow-up questions, I'll be available today and tomorrow.

Thank you very much.

That will concludes today's conference call.

Thank you for your participation.

Ladies and gentlemen, you may now disconnect.