Equifax, Inc.

Good day and welcome to the Equifax first quarter 2019 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the call 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, 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 second-quarter and full-year 2019 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 2018 Form 10-K and subsequent filings. Also, we'll be referring to certain non-GAAP financial measures, including adjusted EPS attributable to Equifax and adjusted EBITDA, which will be adjusted for certain items that affect the comparability of our underlying operational performance. For the first quarter of 2019, adjusted EPS attributable to Equifax includes costs associated with the realignment of internal resources and other activities, acquisition-related amortization expense, the income tax effects of stock awards recognized upon vesting or settlement, and foreign currency losses from remeasuring the Argentinian peso denominated net monetary assets. Adjusted EPS attributable to Equifax also excludes and accrues for legal matters related to the 2017 cybersecurity incident. Legal and professional fees related to the cybersecurity incident, principally fees related to our outstanding litigation, and government investigations, as well as the incremental non-recurring project cost designed to enhance our technology and data security. This includes project cost 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 networks 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 were incurred throughout 2018 and are expected to occur in 2019 and 2020. Adjusted EBITDA is defined as net income attributable to Equifax, adding back interest expense, net of interest income, income tax expense, depreciation and amortization, and also is the case for adjusted EPS, excluding an accrual for legal matters related to the 2017 cybersecurity incident. Costs related to the 2017 cybersecurity incident costs associated with the realignment of internal resources and other activities, and foreign currency losses from re-measuring 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 addition to the non-GAAP measures that we post on our website, we will post, after this call, certain supplemental financial information on our website to better help you understand our business. Included with this supplemental information is historical, actual, and 2019 forecast U.S. mortgage market inquiries. Now I'd like to turn it over to Mark.

Thanks, Trevor, and good morning, everyone. As you can see from our press release this morning, this has been a busy quarter for us, particularly during the past few weeks and days. We're pleased with our start to 2019 with strong progress on our strategic priorities, and our financial results were within the guidance we provided in February. While we are continuing to return USIS to a growth mode, we're executing well against our EFX 2020 initiatives. Before I get into a discussion of our first quarter financial results in the business units, let me spend a few minutes discussing the $690 million charge we took this quarter related to outstanding litigation and potential fines related to the 2017 cybersecurity incident. We delayed our earnings discussion until this morning because we've made significant progress on our legal and regulatory settlements in the past few weeks. As you know, we've been in active discussions for months related to the 2017 cybersecurity incident, and those discussions accelerated in the past month. Importantly, the $690 million accrual we booked includes our estimate of probable losses associated with our global settlement discussions with certain federal and state regulators, as well as the federal class action cases. We recently reached confidential settlement terms in the consumer federal class action cases that upon approval by the court will resolve and dismiss the claims asserted in the consumer cases. The proposed global settlement provides for the establishment of a single consumer redress fund, which was our goal, and certain other non-monetary terms. As we've discussed previously, we believe that consumers are better served through a single consumer fund and a global settlement of the federal and state government investigations together with the consumer class action litigation. We expect to complete definitive settlement agreements with the parties in the coming weeks. While this charge represents our current estimate to resolve many of the significant issues facing the company, we expect to incur additional losses associated with the other claims and litigation related to the 2017 incident. We will continue to work with all parties to bring these matters to closure as soon as possible while balancing the needs of our company, employees, customers, and shareholders. As you know, we prepared ourselves financially for this settlement by strengthening our balance sheet, including suspending our stock buyback and freezing our dividend in 2017. This settlement will not have an impact on our internal investment plans, new product introductions, our $1.25 billion EFX 2020 technology and security program, or our plans to grow and expand Equifax with acquisitions. This is a positive step forward for Equifax as we work to put the 2017 cybersecurity event behind us. Let me now move to our financial results. We're pleased with our start to the year as our first quarter financial results were consistent with the guidance we gave you in February with revenue in the middle and adjusted EPS at the top of the range provided. Revenue at 846 million was up almost 1% in constant currency. Foreign exchange further weakened during the quarter relative to our February guidance, impacting revenue negatively by just under $2 million. During the quarter, U.S. mortgage market inquiries again declined meaningfully down 10%, but were better than our projection of down 13%. Excluding the almost 2% negative mortgage market impact, total constant currency revenue growth was 2.5%, and we were pleased with that. Overall, our combined U.S. B2B businesses, USIS and EWS, performed better than our expectations, both benefiting relative to expectations due to the mortgage market, with U.S. also delivering nice growth in offline revenue and EWS delivering very strong verification services revenue growth. EWS saw weakness in employer services revenue, which impacted overall growth. International revenue was only marginally weaker than our expectations, as somewhat weaker than expected revenue in Australia was mostly offset by stronger revenue in Canada. And GCS was a bit weaker than we expected, driven by lower U.S. subscriber growth. This weaker-than-expected GCS revenue was offset the better-than-expected performance in U.S. B2B. Adjusted EPS of $1.20 per share was on the top end of the guidance we provided in February. In the first quarter, total non-recurring or one-time costs related to the cybersecurity incident and our transformation, exclusive of the accruals for legal matters related to the 2017 cybersecurity incident, were $97 million and consistent with our expectations. This includes $83 million of technology and security spending, $12 million for legal investigative fees, and $2 million for consumer support. We continue to expect 2019 one-time costs related to the cybersecurity incident and transformation exclusive of any legal accruals to be about $350 million. Now for some comments on the business units. USIS revenue was down almost 3% on a reported basis as we expected compared to last year, with USIS up about 50 basis points, excluding the over 3 percentage point negative impact of the mortgage market on revenue. And that 50 basis point increase ex-mortgage was quite positive from our perspective. In the quarter, we also saw a mix shift in our mortgage business with transactions shifting towards our reseller channel. This also negatively impacted USIS revenue by over 1% in the quarter. Adjusting for both of these factors, non-mortgage revenue growth was up almost 1.5%, a positive sign of continued improvement by USIS and was slightly better than our expectations for the quarter. Our new USIS leader, Sid Singh, is driving a new level of energy and accountability with our customers and the USIS team. Inside of USIS Mortgage Solutions was down 23% in the quarter, given the decline in the overall mortgage market and due to the mixed shift with mortgage resellers, which occurred in fourth quarter 2018. Our USIS Mortgage Revenue can be impacted by movements between our Triburial Business and Mortgage Solutions, and selling a single file to a mortgage reseller, which is included in our online business. We manage our mortgage solutions tri-bureau business such that its dollar profit contributions exceed the dollar profit of a single file to the reseller. Mixed shifts had negative impact of over 1% in USIS revenue growth in the first quarter, while USIS operating profit was not materially impacted. We expect the revenue headwind from the mortgage mix shift to continue for the remainder of 2019. Financial marketing service was up about 6% driven by new deal wins. This is the first time we've seen growth in FMS since prior to the cybersecurity incident. While we are encouraged by the growth in FMS this quarter, the timing of closing deals is still not as predictable as it was prior to the cybersecurity incident, which may impact the timing of future revenue It may impact the timing of revenue in future quarters. Online was down 1%, but was up 2%, excluding the mortgage market impact. While online did benefit from the mortgage market mix I previously discussed, this was partially offset by a decline in our direct-to-consumer revenue, which is revenue we generate with the other bureaus. Online was also benefited from continued growth in our telecom and utilities verticals. In terms of customers, we're selling across the portfolio of USIS customers, and we should start to continue to see those benefits from these commercial engagements in the second half of 2019. Our pipeline of new business continues to grow positively. We continue to believe that our differentiated data assets in USIS, coupled with our technology investments, will return the business to its traditional growth mode, but we remain cautious on the pace of the recovery. We are confident in the USIS growth plan for 2019. USIS adjusted EBITDA margins of 42.9% were down 120 basis points from first quarter 18, primarily driven by lower fixed leverage as revenue declined in the quarter and additional investments in security and data analytics to drive new product. Partially offsetting these margin declines, USIS continued to effectively manage their SG&A costs reducing both the dollars and percent of revenue from the fourth quarter restructuring that we did. Shifting now to workforce solutions, they had a very strong quarter with revenue up 9%. Verification services delivered very strong results with revenue up 16%, driven by strong double-digit growth across healthcare, talent solutions, auto, and government. EWS, like USIS, was also impacted by a decline in the overall mortgage market, which negatively impacted revenue by about 2.5 percentage points. Overall EWS revenue, excluding the negative mortgage market impact, grew almost 11%, which we were very pleased with. Employer services declined in the quarter, down almost 4%, driven principally by tax management services given low unemployment levels, and to a lesser extent, workforce analytics and our ACA business, talent solutions, and our I-9 and onboarding businesses. All saw growth in the quarter, which we expect to continue throughout the year. We expect employer services revenue to be down for the full year, consistent with the levels we saw in the first quarter. The strong verifier revenue growth resulted from very strong adjusted EBITDA margins of 49.4%, an expansion in the quarter of 50 basis points. EBITDA margin growth was slightly offset by investments in sales resources to support incremental revenue growth activities. EWS continues to be a great Equifax franchise and positioned for a very strong 2019. International revenue was down 8% on a reported basis. and up 2.5% in local currency, but slightly below our expectations. The slower growth continues to be driven by the weak consumer and commercial lending markets in Australia that started to soften late in the third quarter of last year, and to a lesser extent, the ongoing weak economic condition in Argentina. We expect the Australia and Argentina markets to remain weak through the bulk of 2019, although the revenue growth impacts will begin to lessen in the second half of 19 as we approach the periods of their initial declines in the third quarter of 18 in Australia and the second quarter of 18 in Argentina. Our Latin America businesses grew mid-single digits in local currency in first quarter, despite the continued headwinds in Argentina. Revenue growth was driven by double-digit constant currency growth in Chile and and Ecuador and high single-digit constant currency growth in Paraguay and Uruguay. Our Latin America franchises continue to benefit from the expansion of Ignite and Interconnect SaaS and strong NPI rollouts in both 2017 and 2018. I was in Peru earlier this week meeting with our team and key customers. Our European business in the UK and Spain grew mid-single digits in local currency in the first quarter of 2019. We saw mid-single-digit local currency growth in our European credit operations and low single-digit growth in our European debt management business. I'll be in Madrid and London next week meeting with customers and investors. Canada delivered another strong quarter with high single-digit growth in local currency in the first quarter, consistent with the full-year revenue growth rate of 8% we saw in 2018, reflecting a strong focus on customer innovation and new products. We're excited about the benefits our technology transformation will have in Canada. In the first quarter, we migrated our first Canadian customer into InterConnect in the public cloud. We also completed a small bolt-on acquisition in Montreal, JLR, that brings unique real estate data assets to Equifax in Canada. Asia Pacific, which is predominantly Australia for us, declined 2.5% in local currency in the first quarter, principally related to the weakening we began to see in the third quarter last year in Australia consumer lending, particularly in mortgage and other consumer and commercial credit markets in Australia. Although only one month's data in April, we began to see signs of market bottoming in Australia. We expect second quarter to also see revenue declines, but Australia should return to growth in the second half, particularly with easier comparisons to last year in the second half. Despite the strong headwinds in Australia, we are encouraged by the growth potential. We continue to win top customers, particularly in telco, and we continue to hold a substantial data advantage in the Australian market. As we mentioned last year, the move to positive data in Australia continues to progress well. At the end of April, just over 50% of the consumer accounts have been shared, and we expect to have over 80% by the end of the third quarter of this year. Incorporating positive data will allow us to develop new products for our customers as well as enable new use cases. For example, incorporating positive data into portfolio management solutions we believe provides more predictive outcomes than just using negative data. I'll also be in Australia in the next few weeks to spend time with the team and customers. International adjusted EBITDA margins at 25.3% were down 410 basis points in the first quarter principally reflecting lower margins Australia and Latin America, driven by Argentina. We expect growth in international to improve in the second quarter and improve significantly in the second half. The second quarter will be driven by stronger growth in Canada and Latin America, and in the second half, growth returns to Asia-Pacific with easier comparisons. We believe this improved growth, along with some additional cost reductions taken not only in the fourth quarter but in the first quarter, will significantly improve margins in the second half. Shifting now to global consumer solutions, their revenue declined almost 9% on a reported basis and 8% in local currency basis in the first quarter, and this decline was greater than our expectations. Our global consumer direct business was down about 20% and was just over 40% of total GCS revenue. As we discussed throughout 2018, our U.S. consumer direct business saw revenue declines about 20% as a result of our suspension of U.S. consumer advertising in the fourth quarter of 2017 after the cybersecurity incident. GCF began limited direct marketing to U.S. consumers in the fourth quarter, which continued into the first quarter, and we're starting to see subscriber growth from our restart of marketing, a good sign as we begin 2019. We're also continuing to invest in our new consumer platform and are rolling out our MyEquifax consumer portal and seeing growth in MyEquifax members. We expect to see U.S. subscriber growth as the year unfolds. Our GCS partner businesses, which are almost 60% of total GCS revenue, delivered mid-single-digit growth in the quarter. And ID WashDraw grew double digits in the quarter, which we expect that growth to continue in 2019. We expect GCS revenue to be down in second quarter at levels similar to the first quarter, However, starting in third quarter, as we lap the periods where the consumer direct revenue began to stabilize in 2018, we expect to see revenue to return to flat and begin to grow in the second half as we move through the remainder of the year and into 2020. Adjusted GCS EBITDA margins declined as expected in the first quarter as we saw the effective revenue loss and an increase in advertising. However, margins were up nicely on a sequential basis from fourth quarter 18, reflecting the sequential revenue growth. We expect margins in GCS in the second quarter to remain in the low 20s. However, we expect margins to increase in the second half as we see the benefit from stable to growing revenue driven by our return to consumer marketing and growing partner revenue, as well as some cost actions that we took in the fourth quarter and some additional cost actions we took in the first quarter. Shifting now to our technology transformation, in the last call we laid out detailed plans for our $1.25 billion EFX 2020 technology transformation for 2018 to 2020. We're convinced that our technology transformation will differentiate our products and our ability to deliver them by combining unique data assets, analytics, and leading technology It will also accelerate the speed of our products to market and the ease at which they're consumed and reduce our costs as we move our data and applications to the cloud. We're on plan with our timeline to be completed with most major activities in our EFX 2020 transformation program by the end of next year. We'll be posting after this call, as we did in the first quarter, our quarterly technology plan milestones for 2019 in our investor relations deck. Let me give you some commentary on where we stand with our major technology plan tracks through the first quarter. First, our data fabric is being built on the Google Cloud platform in a virtual private cloud environment utilizing GCP native tooling. Our data fabric will fundamentally make it easier to bring our unique assets together, including customer data, to create new products and solutions for our customers. Our data fabric pattern is now in place at Google Cloud – in the Google Cloud platform. And our USIS, EWS, Canadian, and corporate teams are working actively on migrating the US consumer credit, the work number, and Canadian consumer credit exchanges to our new cloud fabric. Establishing our data fabric pattern at GCP was delayed from our original planning. However, we remain on track to migrate several of our other U.S. and EWS exchanges, including NCTUE, IXI, DataX, I9, and unemployment claims, as well as Ignite to the common data fabric by the end of this year. Beginning in the third quarter, any new data sets will be directly ingested into this new cloud-based data fabric. So very strong progress on this first priority for us in our EFX 2020 transformation. Second, building on the latest suite of interconnect and Ignite cloud-native product offerings, we are using reusable application and cloud-native services to rebuild our customer applications. Over the past year, Equifax has worked to migrate these applications to a virtual private cloud using cloud-native services. We've completed production implementations of Ignite Direct and interconnect in a virtual private cloud in all global regions. We expect to complete the integration of Ignite and Interconnect app services in our VPCs this quarter to allow customers to seamlessly promote attributes and models defined in Ignite, including those driven by machine learning into production on Interconnect. These services should be broadly available by the end of the second quarter. Third, we will migrate customers from legacy decisioning systems, interface systems, and Ignite instances to Ignite and Ignite product suite. Over the course of 2019 and 2020, we expect to migrate the vast majority of our customers to our next generation interconnect and Ignite cloud applications. In USIS, we are on track to migrate approximately half of these customers by the end of this year, with the balance of the customers migrated during 2020. The technology and business teams are focused on deploying standard industry solution sets that will both productize this Ignite and interconnect service and make the migration experience as frictionless as possible for our customers. Last, we'll migrate our global consumer systems and customer and consumer support systems using standard application services and cloud-native services and operate them in the private cloud. Our new consumer system, Renaissance, that will include digital consumer support is in the process of being migrated to a virtual private cloud environment using cloud-native services. We expect to launch the first phase with AWS in the third quarter. Separately, we are deploying Salesforce and an integrated Genesis Google Contact Center AI solution for customer and call center support worldwide. We expect significant deployment of all these systems to be ongoing through the third quarter with consistent quarterly releases thereafter. I hope this gives you a sense of our intense focus and positive progress we have on making our technology transformation that will deliver new cloud-based technology to our customers. We're excited about the strong technology team that Bryson Keller has built in the past nine months, and all of these actions are being executed consistent with our commitment to be a leader in data analytics and cloud-based technology. We continue to be convinced this investment will differentiate Equifax and move us back to a growth and market-leading position. We made good progress in the first quarter and will continue our focused efforts in 2019 and 2020. Shifting now M&A remains an important avenue of growth for Equifax and is one of the key elements of our strategy for the future. Last month, you saw that USIS closed the acquisition of PayNet, a leader in commercial lending data and insights. We're excited to add PayNet and the team to Equifax. Their proprietary commercial leasing and loan data enables commercial finance and lending institutions to improve credit analytics on business credit underwriting and portfolio reviews. PayNet complements our existing commercial database that includes trade line information on short-term loans with longer-term loans and leasing payment data, a very unique commercial data asset. Customer reaction on the acquisition is very positive and integration is proceeding quickly. USIS revenue was not benefited in the first quarter by the PayNet acquisition. We expect the contribution to USIS revenue growth to be about 1.5% in the second quarter from the PayNet acquisition. Next, on new product innovation, That continues to be a key component of our strategy and a core strength at Equifax. We have an active pipeline of new product innovations with over 110 new products at various stages in the funnel, and we expect to launch over 50 new products in 2019, a pace similar to each of the past three years. We're starting to see an increase in new product deployments in USIS. In the first quarter, USIS launched seven new products, which will start to generate revenue later this year, but have greater opportunities for revenue growth in 2020 and 2021. As we have discussed, we expect NPI revenue in 2019 will be below historic levels in the U.S. However, this is a positive sign as U.S. collaborates with customers and returns to a growth mode with their new product integrations. In the first quarter, USIS launched a new insight score for personal loans, which developed in collaboration with FinTechs. is a risk score optimized to help lenders evaluate applications seeking unsecured personal loans. The Insight Score for personal loans uses advanced modeling techniques by combining Equifax's unique data assets from telecommunications utility and trended data using patented explainable machine learning capabilities to cover a broad spectrum of consumer profiles for personal loans. The new Insight Score for personal loans is a win for FinTech companies and consumers as we help lenders develop greater predictive power and improve accuracy when evaluating applicants with thin or no credit files. While M&A and NPI are core to our long-term strategy, we believe partnering opportunities are another avenue to deliver revenue growth at Equifax. As you recall, in March, we announced a strategic partnership agreement with FICO to launch the Data Decisions Cloud, an integrated end-to-end data and analytics suite that addresses key needs across risk, marketing, and fraud to enable financial institutions to meet the needs of consumers faster and more precisely than ever before. While we continue to focus on embedding our Ignite and interconnect platforms with customers, the FICO partnership is an example of using partnerships to extend our reach You'll see more partnerships to extend our distribution as we move through 2019. We also expect to identify additional areas to partner with FICO on as we continue to work closely with them. I'm very energized about what the FICO partnership means for our financial institutions and consumers. So wrapping up, we've made several big and positive steps forward in our drive back to market leadership and growth during the first quarter. First, we're pleased with our continued progress with our global settlement discussions with certain federal and state regulators, as well as the federal class action lawsuits. We expect these settlements to be completed in the coming weeks and include a single consumer fund. We are also pleased to reach confidential terms in the U.S. consumer class action lawsuits. As you know, we've been preparing for this settlement, and we have the financial structure to absorb it while continuing to invest in the growth of Equifax internally and externally and via acquisitions, including new products and our 1.25 billion EFX 2020 investment and security program. This is a positive step forward as we work to put the 2017 cybersecurity event behind us. Second, financially and operationally, we're pleased with our start to the year. USIS has a new level of energy under Sid Singh. The team is on their front feet with customers, with pipelines and commercial activity growing positively. EWS had a very strong quarter and is positioned for a very strong 2019. We are watching our international business closely, particularly with the Australian economy. Third, we continue to invest in strategic acquisitions to expand our data assets, including the PayNet acquisition we announced last week. Fourth, we continue to focus intensely on our EFX 2020 technology and transformation plans that will move our data and applications to the cloud. We believe the investment will deliver speed, growth, and reduce costs and differentiate us from our competitors. We'll continue to share our progress on EFX 2020 during the rest of the year and in 2020. Fifth, we continue to focus on expanding partnerships, and this quarter launched our new strategic partnership with FICO that brings unique data assets, technology, and analytics to our customers to help them grow faster. further expansion of partnerships from Equifax as we move through 2019. And then we also continue to focus on new products with strong collaboration with customers. As I pass the one-year mark at EFX, I'm more confident than ever that we are moving Equifax in the right direction with positive progress on all fronts. We're investing at record levels to make Equifax a market leader in data, analytics, and technology, and security. We know that we still have a lot of work to do. We are excited about the opportunity ahead. John will share more detail, but we're also committing to our prior guidance for 2019. We are confident in our path forward and expect continued positive progress in 2019. With that, let me turn it over to John.

Thanks, Mark, and good morning, everyone. I will generally be referring to the financial results from continuing operations represented on the GAAP basis, but will refer to non-GAAP results as well. As Mark covered our overall results, the business unit details, I will cover overall margins, some corporate items, free cash flow, and our guidance. For all of 2019, U.S. mortgage market inquiries are expected to decline about 2% versus 2018, which is stronger than the down 5% we had expected in February. 1Q19 inquiries were down 10% versus the 13% we had expected in February. Inquiries in 2Q19 are expected to be down about 1%, to be about flat in 3Q19 and slightly positive in 4Q19. In the first quarter, we extended the resource realignment activities, principally in Australia, the UK, and GCS, that we began in 4Q18 to further improve our cost structure. Related to these activities, we incurred an $11 million charge in 1Q19. Total savings from the two combined actions are expected to exceed $60 million in 2019, with second half 19 savings exceeding the first half by about $10 million. In the first quarter, general corporate expense was $833 million, excluding the non-recurring costs associated with the 2017 cybersecurity incident and technology transformation, and the costs associated with the realignment of internal resources, the adjusted general corporate expense for the quarter was $74 million, up $9 million from 1Q18. This was about $5 million better than we had expected, The increase versus 1Q18 predominantly reflects the increased investment in security and transformation and related technology as we ramped these costs in the first half of 18 and increased variable compensation given the timing of hiring certain executives last year. Adjusted EBITDA margin was 30.5% in 1Q19, down 300 basis points from 1Q18, and in line with our expectations. As we discussed in February and as is covered in Mark's remarks, The decline in adjusted EBITDA margins year to year is principally about two-thirds in the BU's, about half in GCS, reflecting the lower consumer revenue and return to consumer advertising that Mark discussed, a quarter in USIS as declines in revenue impact fixed leverage, and a quarter in international, again, principally as revenue declines impacted fixed leverage. About a third was increased corporate costs in 1Q19, as I just covered. The BU's continue to do a very good job managing SG&A. For 1Q19, the effective tax rate used in calculating adjusted EPS was 24.1% in line with our guidance. We continue to expect our calendar year 19 tax rate used for adjusted EPS to be about 24.5%, with 2Q slightly higher than this level. In 1Q19, operating cash flow was $31 million compared to $120 million in 1Q18. The decline was driven by the following items, several of which are one time in nature. In 1Q18, Equifax received $35 million in insurance proceeds offsetting costs incurred related to the cybersecurity incident. Equifax received no proceeds in 1Q19. Investments in security and transformation of $97 million were up $18 million in 1Q18. Employee variable compensation for 2018 paid in 1Q19 exceeded the levels paid in 1Q18 for 2017 and the year in which no bonuses were paid to the CEO and senior staff by about $15 million. And payments in 1Q19 related to the $57 million of charges taking in 4Q18 and 1Q19 for cost reduction actions were about $11 million. Capital spending or the cost of capital projects that was incurred in 1Q19 of $95 million was up $38 million from 1Q18 as we ramp investment in the cloud capabilities Mark described earlier. The capital spending is aligned with our estimate of $365 million for 2019. Capital expenditures, which are equal to capital spending, plus the net change in payables related to capital spending, were $115 million in 1Q19, as activity that completed just prior to year end was not paid until January. We do not expect similar large decreases in capital-related payables to occur in the remainder of 2019. The negative free cash flow we saw in the first quarter reflected this high level of capital expenditures. Excluding any payments related to settlements of litigation or regulatory actions, as we look forward, we expect to deliver positive free cash flow in each of the remaining quarters of 2019 and for 2019 free cash flow to exceed $200 million. Now turning to our guidance for 2Q19 and 2019. For 2Q19, we expect revenue to be $865 to $880 million, up 1.5% to 2.5% in constant currency. FX expected to negatively impact revenue by 2.5%. Adjusted EPS is expected to be 132 to 137 per share. FX is expected to impact adjusted EPS negatively by about 3.5 cents per share. In February, we provided some perspective on the factors impacting 2019, resulting in an unusual seasonal pattern for Equifax and overall negatively impacting both 1Q and 2Q19. Impacting revenue in the first half of 2019 were market factors, including the U.S. mortgage markets, Australian credit markets, and Argentinian economic weakness, and expected GCS revenue declines in the first half. In February, we had expected that in total these factors would impact 1Q19 revenue by about $30 million and would continue to impact revenue in 2Q19, although to a lesser degree. In 1Q19, although the U.S. mortgage market was about 3% better than expected, GCS, which declined about $8 million, and to a lesser extent, Australia, were weaker than expected, offsetting this benefit. In 2Q19, in line with our February review, we expect these factors to impact revenue by over $15 million. Again, although the U.S. mortgage market is now expected to only decline slightly, GCS will be down more than previously expected at about the same levels as 1Q19. International is still being impacted by Australian credit market weakness. FX is also negative to revenue versus our February view by about $5 million. Impacting operating profit and EPS in the first half of 2019 were profit impacts of the revenue impacting factors and higher corporate costs in first half 2019 relative to first half 2018. As we indicated in February, the higher corporate costs reflect the significant ramp in security and related technology costs in 2018 that did not reach their run rate until the second half of 2018. Also, higher equity and variable comp in 2018 relative to 2017, and increased spending on data and analytics. In 1Q19, these factors impacted operating profit by approximately $30 million as expected, as lower corporate cost increases were offset by greater impact from GCS. In 2Q19, we expect these factors to impact operating profit by over $15 million. Although mortgage market impact will be minimal and much less than anticipated in February, GCS operating profit will have a negative impact that will be greater than expected. Increased corporate costs, principally in security and related technology and data and analytics, as well as lower Australia operating profit, will continue to impact 2Q19 as we had expected. The 2Q19 tax rate and interest expense are expected to be consistent with the guidance we provided in February and specifically that our 2019 tax rate for adjusted EPS is expected to be just over 24.5%, and that quarterly interest expense is expected to be approximately $2 million, reflecting our May 2018 bond issue. The combination of the over $15 million impact to operating profit, as well as the increased interest expense and expected 24.5% tax rate, principally explain the year-to-year decline in adjusted EPS in the second quarter of 2019. Our full year 2019 guidance for Equifax revenue and EPS are unchanged from the previous guidance we provided in February with revenue between $3.425 and $3.525 billion and adjusted EPS between $560 and $580 per share. Revenue improvements from the acquisition of PayNet and a smaller decline in the U.S. mortgage market are principally offset by a decline in expected GCS revenue, a somewhat deeper decline in the Australian credit markets impacting international revenue, and negative effects to revenue of about half a percent since our February view. This change in revenue mix is negative to margin and operating profit. Our actions to manage cost will allow us to maintain our adjusted EPS guidance as well as see year-over-year improvement in BU EBITDA margins. Our guidance for 2019 implies that our second-half performance will be stronger than the normal sequential pattern in both revenue and operating profits. This is principally driven by non-mortgage growth in USIS, as well as sequential growth across all regions international. We expect EWS to continue the strong year-to-year growth that they will show in the first half of 2019 into the second half, and we expect GCS to return to year-to-year growth in the second half of 2019. In terms of operating profit, we expect all VUs to show stronger than normal sequential operating profit growth in the second half. This is driven by the stronger sequential revenue growth in USIS and international. It is also driven by the cost reductions executed over the last two quarters that will benefit sequential margins in international, as well as GCS and workforce. Delivering this performance requires we continue strong execution across our team, as well as continued focus on firmly managing costs throughout 2019. And with that, operator, we'll now open it up for questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. Our first question will come from Manav Patnaik with Barclays.

Thank you. Good morning. Mark, just first on the legal settlement, can you just help frame for us, you know, the remaining cases? Like, is this 690 million basically take care of, I don't know, 90% of the issues or so forth? Just wanted some color there.

Yeah, thanks, Ben. You know, as you heard me earlier mention, you know, we're not prepared to talk about which settlements are included here and which are not, but we were trying to be clear that included the significant settlements issues facing the company. You know, our expectation is in the coming weeks, as I also mentioned earlier in the call, we'll have some real clarity around that once we finalize the discussions that are actively underway.

And, Manav, there'll be quite a bit of disclosure in the 10-Q that'll be filed later today.

Okay, got it. And then, John, if I could just follow up on some color on the guidance in terms of the total M&A contribution? I know Mark just called out PayNet, but what was that contribution from M&A this quarter and then for the full year, I guess?

Yeah, the contribution from M&A this quarter was relatively small, right? Really the most substantial contribution was DataX, and it's less than $5 million in a period. And then we had some other very small acquisitions in international and very small acquisitions in EWS, none of which were material in any way.

And for the full year?

The full year, we gave a view for PayNet. As you get into the second half, the substantial impact for Equifax of acquisitions is really just PayNet because we start to wrap around the period in which we bought DataX as we get into early in the third quarter.

I think I said, man, often my comments that we expect PayNet to add 1.5% to USIS in the second quarter.

Yeah, got it. All right. Thank you, guys.

Thanks.

We'll now hear from George Mihalos with Catwin.

Hey, good morning, guys, and nice to see the progress on the settlement side. I guess maybe, Mark, two things to kind of kick it off. First, you sounded upbeat about the pipeline. Maybe you can provide a little bit more color if that's vertical, anything vertical-specific, or if you're having a lot more success, maybe leveraging the workforce and winning new business. And then understand that financial marketing is probably going to be a bit choppier, but it's nice to see the 6% growth Should we expect that to now be positive throughout the course of the year, or will there continue to be some variability?

I think on the last one, that's one that I tried to be clear in my comments. First off, we were pleased to see that growth, which is really the first growth that we've had since the cyber incident in 2017. Those pipelines are building also, but I would still characterize the pipelines there and then broadly in USIS as still building, meaning they're not at full maturity. We've made great progress. As you know, You know, go back a year ago, you know, we were, you know, on hold with many of our customers, and that, you know, really improved as it went through the years. So the pipelines broadly, as well as in the financial marketing side, you know, really started building in the fourth quarter and into the first quarter. And, you know, I tried to give some color that that pipeline is continuing. And I also highlighted our new leader is, you know, brought what I would characterize as a new level of energy and focus and accountability to you know, with that team, as well as commercial engagement. You know, I'm spending a lot of time with customers, as is Sid, our new leader. And, you know, all the discussions are around growth. You know, help us with new products. Help us with, you know, new ways to grow our business. We want to access Equifax assets. So we're seeing good momentum there. But we still expect USIS and financial services to be what I would characterize as choppy until they get to full maturity around their pipelines, which it's hard to predict when that's going to be. We just haven't seen it yet. Okay, great.

And just as a quick follow-up, if we look at mortgage, I think you talked about this sort of mid-shift, if you will, to reseller. Is that secular? Would you expect that to continue over the long term? And is the right way to think about that sort of a lower revenue per transaction, but sort of a de minimis impact on profitability. Thanks.

So to your second question, that's correct, right? The revenue per transaction is lower, but the level of profit per transaction is relatively similar. Slightly higher in mortgage solutions, obviously, but relatively similar. In terms of whether it's a secular trend that's going to continue, no, I think it's really more market-based, right? So it depends on competitive forces in the market. and you've seen our share of mortgage solutions go up and down within our portfolio over the years, that will probably continue to happen. Just right now, we're in a situation where the competitive environment is such that we're better off having more of those sales go through the channel.

And there was really one big customer that drove this one situation, which I think we talked about in the fourth quarter, maybe some of the first quarter, too, that really drove that change in the revenue and I don't view it as kind of a secular change. It was really one customer made that change, and we focus on margin. Thanks, Chaz.

Our next question will come from David Toggett with Evercore ISI.

Thank you. Good morning. Could you provide an update on demand trends from the other major drivers of U.S. consumer credit services like auto and credit card, for example – And then just as a follow-up, if you could update us on your progress with trended data, how you're doing in your existing verticals, and then are there some new verticals that you could enter with trended data in the future?

In terms of the overall market performance, we haven't seen much of a change really. You've probably seen that from what the banks have announced, right? Over the last several quarters, we're continuing to see the same trends that we saw in the fourth quarter continuing into the first quarter in the card market. In the auto market, you're starting to see delinquencies tick up a little bit in subprime, but that really tends to be relatively localized, we believe, and you're actually seeing the overall credit quality we think of the entire auto portfolio actually improving. But generally speaking, the trends in the markets we serve, as you mentioned, other than mortgage, we think are relatively consistent with what we saw late last year. And the trended? Sure. Trended data, I think – well, trended data is a key part of what we're trying to deploy, and we continue to expand our product focus on trended data. I think probably the most important thing, as Mark indicated, is as we move more and more to data fabric, you'll see an increasing number of products that are focused on trended information. We still think we're the only party out there with trended commercial products, which will certainly extend now that we've acquired PayNet. and it's something that we continue to expand in our portfolio. It isn't the driver behind our NPI, but it is something that we're focused on in NPI.

Understood. Thank you very much.

Thanks. We will now hear from Andrew Steinerman with J.P. Morgan.

Hi, this is Andrew. I wanted to ask about visibility in USIS. I definitely heard you talk about the new leadership and the growing pipeline and the new level of energy, but could you just give us a sense of how much revenue visibility you have now versus six months ago in USIS? And I mean that separate from any mortgage dynamic.

Yeah, maybe I'll start, John, and then you can jump in. Andrew, you put a great marker on there. You go back six months ago, it was probably a good mark to look back on. There's no question our revenue visibility has increased dramatically in how we can look through in USIS versus where we were last summer. That visibility has improved as we went through the fourth quarter and certainly into the first. We are still trying to be clear with you and our other investors and analysts that You know, while that visibility is getting stronger, which, you know, one metric for that is our pipelines and how they're growing and, you know, how they've been rebuilding, you know, it's still not back to where it was before the cyber incident in USIS. You know, that's really the business where that's still, you know, moving forward. So I would say a lot more visibility than we had six months ago. And part of that is, you know, gives us the confidence in, you know, our – our comments around guidance, you know, for both second quarter and, well, it's the second half. I think, as you know, we're showing, you know, the second half of this year improving, you know, on a year-over-year basis at a faster rate than, you know, the first half. And we're doing that based on, you know, our confidence and our visibility. What did you have, John?

I think Mark covered it all, right? And the fact is I think we're starting to see more consistency in terms of delivery versus near-term forecast, right? And and that gives us comfort that the visibility that we believe we have as we look forward is starting to improve. It's not what it was two years ago, but the accuracy of our forecast versus delivery is certainly getting better.

I think we mentioned, Andrew, that in the first quarter, USIS was slightly above our expectations, which those are the kind of signs we're looking to see, meaning that the team says they're going to deliver something and they deliver it, you know, that gives us more confidence that they have the visibility and we have it also.

Right. They do. I appreciate it.

Yep.

Our next question will come from Tony Kaplan with Morgan Stanley.

Thank you. Good morning. Question for you, John. You mentioned the $200 million free cash flow guidance for the year, and you have a cash balance right now of $133 million. And so just looking at the size of the after-tax accrual you're making, I guess what's the timeline for paying the cash for the losses? And are you planning on raising debt? I'm assuming maybe not because the interest expense incorporated in the guidance didn't go up. So I just wanted to hear about that. And also, does the settlement mean that you'll resume buybacks at this point, or are you going to wait until all the litigation is done?

So, in terms of the timing of any payments, I think we need to complete the discussions, as Mark mentioned. So, when that's done, we'll have a lot more clarity on that, but the payments are likely sometime in the future. And our expectation is that we'll be borrowing to make any payments that we make. So, that is our expectation.

On the second half of your question about buyback or dividend, You know, we're not prepared to, you know, have any discussions about what our plans are on that front yet. You know, we need to finalize these discussions. As John pointed out, finalize the timing of the payments. You know, we've been clear with you and other investors that, you know, we also want to see some clarity on the USIS recovery, which is positive but still not, you know, as, you know, predictable as we would like. And then the other leg on that chair about, you know, our capital allocation plan is around the the EFX 2020 technology investment that, you know, we're in the middle of and we want to see a little more visibility on kind of say-do and delivery on that. So, you know, a long-winded answer around a question around stock buyback or our dividend, you know, that's the discussion that we'll be having in the future with you. We're not ready to have that today.

Okay. Very helpful. And then I just wanted to ask a little bit about sentiment during the quarter. It sounds like, you know, you're happy with you know, the growth and the new business starting to come back. Just wanted to also just sort of get a sense of a competitor of yours mentioned maybe some client caution, you know, after the fourth quarter market volatility. So did you see that as well? And, you know, just wanted to hear about your sense on what's going on with the industry and the clients. Thank you.

Yeah, no, we haven't seen those kind of dialogues, you know, around you characterize client cautions. We have seen an increased dialogue with our customers around their work, and we're partnering with them to do that, about preparing for a potential economic slowdown. And what that really means, as you know, some of their focus around data assets changes to line management, credit line decreases, credit and collections, a different focus on underwriting. So we've got a number of customer dialogues going about wanting to work with us to be prepared for a potential economic slowdown. I don't think anyone's predicting it, but I would say that's a change, you know, for me in the last three, four, five months than it was, you know, kind of the middle of last year, you know, where that dialogue's been added to the kind of growth dialogue.

Perfect. Thanks a lot, Mark.

We'll now hear from Kevin McVeigh with Credit Suisse.

Great, thanks. Hey, congrats on shifting that first Canadian customer to the cloud. Just any thoughts as to kind of the guideposts on that and what it can ultimately mean for the USIS business overall and is there a way to maybe just frame that out within the context of the US transformation?

I assume you're referring, Kevin, to like the benefits of speed to market and cost savings and all that stuff. If that's where you're heading, we're working on that. We're going to be prepared to share that in the future with you and our investors. We're not ready to do that yet, but you know, we tried to be quite clear that we view this investment not only for USIS, but what we're doing around the globe, you know, as being transformational. We think it's going to differentiate us from our competitors. You know, it's something that, you know, would be hard for our competitors to do at the same pace we're doing. And, you know, we're seeing, you know, there's clear cost benefits of cloud versus legacy. There's clear stability, reliability benefits, meaning You know, our focus is to move to always-on versus 3-9s, 4-9s, 5-9s of stability. And in today's world, that's critically important. And then the speed to market, the ability to, you know, get products to market or ingest data assets in weeks versus months is going to be another real benefit. So, you know, we continue to be energized about what it's going to deliver, and we know we've got, you know, a plan and a requirement to really share with you guys, you know, some clarity around those benefits. And I think that'll certainly come, you know, to the table when we're ready to put our long-term framework back in place. You know, I think that's the time that we'll, you know, share some real visibility about not only our view of Equifax for the future, but the view of Equifax, including our investment in technology and security through EFX 2020.

And I think we said previously that in both cost of sales and then also our development expense, that we would expect to see the type of savings that you have seen from other companies that have moved to the cloud. So, you know, you've seen savings that are double digits in percentages, and we would expect to be able to deliver those types of savings.

It's super helpful. And then just any initial thoughts on the reception to the FICO partnership from a client perspective?

Yeah, it's a great question. It's quite positive. You know, we made the announcement back in March, and we were working with FICO for about six months on this and talking to customers, you know, really in the fourth quarter about it. And, you know, between us and FICO, we've got a pipeline of, you know, I don't know, a couple dozen customers that, you know, are really energized about it. But the feedback is quite positive from customers about this is an option. You know, customers still want to buy from FICO directly. They want to buy from Equifax directly. But there's a set of customers that are really energized about the benefits that come from an integrated solution of FICO's software assets and Equifax's Ignite, Interconnect, and differentiated data assets. So we're energized about it as we roll through the second quarter and into the second half. Super. Congrats. Thanks.

Our next question will come from Ashish Sabhadra with Deutsche Bank.

Hi, thanks for taking my question. Just a quick follow-up on an earlier comment in regards to FMS. So FMS is essentially batch downloads, both for marketing as well as decisioning. Have you seen a better demand on one versus another or any particular vertical where we have seen strength? Thanks.

So our financial marketing services business is principally CMS. If I don't cover your question, sorry, but it's principally CMS. And we saw nice growth in CMS this quarter. CMS is really consistent with the normal type of product that you'd see go into credit marketing services at financial institutions. So we don't sell anything particularly different than that. We have seen an expansion into a new customer base. We've started to start selling into consulting firms and some other firms that also can utilize data for appropriate reasons. So we're starting to see an expansion of the customer base. But other than that, no trends that are different than normal.

That's good. That's good. And then maybe just quickly on GCF, I understand the results there came slightly below expectations. But as you look forward, are there anything on a strategic front that you're planning to do in order to improve the growth there?

Yeah, there's really two efforts there. One is on our partner business. As you know, we've got relationships with Credit Karma, LifeLock, and others like that, so continued growth there, and that's performing well, that side of the business. On the core D2C business, direct-to-consumer, we're both accelerating our advertising, so that's going to help grow our subscriber growth there, but The real game changer for us is the big investment we're making in our technology, you know, our Renaissance platform that's going to allow us to do things like cross-selling and, you know, other things with the business that we think will help later in the year and particularly in 2020. So, you know, that's some of the things that the team's working on in GCS.

Thanks. That's helpful.

And we will now hear from Tim McHugh with William Blair.

I guess just wanted to follow up on some of the technology comments you made and the prepared remarks. One, I think there's a comment that the move to the data fabric is slightly later than you thought. I guess elaborate on why that is. And then secondly, you talked about the target of trying to migrate half of the customers on to interconnect the cloud version by the end of the year. As you plan for that, I guess, how disruptive is that to the clients? What's the approach you're using as you migrate people? And kind of what's the profile of people migrating this year versus next year? Thanks.

Yeah, so maybe on the first one, you know, obviously this is a big project that we're doing and, you know, we're going to have slight delays. This was delayed by, you know, weeks or whatever, you know, and that's going to happen. And we just want to be transparent with you that, you know, we're working on it, you know, and when we have something that's a little bit behind, we'll share it with you. And when we're ahead, we'll do the same thing. So we don't do that as a big issue, but it's just a level of transparency that we want to have because of the scale of the investment. With regards to the customer piece, our goal and what we work on is to make this as easy as possible. But as you know, these are never easy. Each customer has their own technology department. And we've done this before, and we do it all the time. And it's when you just have to be open and transparent with the customer. You've got to be visible with them. You know, we've got to work around their schedule, you know, make sure it works on, you know, where they want to do it. But our goal is to make it as frictionless as possible for them. But there's always work that they have to do, you know, when you make these transformations.

The team's done a nice job of putting the customers in categories. We have some customers where the impact on them will be relatively minor because they use gateways more than anything else. So that's a relatively small lift for them and quite straightforward. Other customers that use our decisioning very heavily, we actually manage the decisioning system for them. So in that case, we can do most of the work, and for them it's mostly testing, which isn't a nothing lift, but we can try to take a lot of the heavy lifting ourselves. And then with kind of the rest of the customers, which is a large group of customers, the team's done a really great job of building out standard solution architecture sets that they can help the customers deploy more rapidly, and that should actually give them more functionality than they have today. So it's not just a migration for SANE. It's a migration that gets them more and gets them onto a standard product set that will allow them to actually extend the usage of the product, and we're going to build on that as we go forward, and that's a promise we're making to the customers. So I think they have a very good plan that's structured well and that they're progressing on.

Those customers that you're starting with, I mean, should I think of those as the simpler ones that you want to start with, or the bigger or smaller customers, anything about it? That's kind of the initial cohort.

Actually, it's done, as Mark said, based on when the customer is ready to engage. So a lot of the smaller ones occur. That's certainly true because that's more within our control. But there's also substantial customers where we're also working on migration already. So it's really depending on when the customer is ready to receive the work.

Okay, thank you.

Your next question will come from Andrew Jeffrey with SunTrust.

Hi. Good morning. Appreciate you taking the question. I wonder if I could just drill down a little bit on the commentary in USIS about visibility. Mark, you mentioned, I think you referenced delivery, timing from sort of customer engagement to delivery. What about close rates? I mean, when you start your sales cycle, I guess, to close rate, you know, from engagement to actually getting the customer to commit. I mean, has that changed at all? I mean, how much of, you know, the improvement that you're anticipating as a function of customer behavior versus Equifax's ability and timing and delivery?

Henry, do you want to? Sure. So I think what Mark kind of mentioned, timing, which is certainly important, right? And that's really what's going on now is as we continue to build the funnel and there's more opportunities available, our comfort with our ability to close within the funnel, which is now larger, is improving, right? So to us, timing of closure and rate of closure are very similar because they're just separated in time, right? And we continue to focus, and Sid and team have done a great job of focusing on just building the funnel So that if the timing is variable, which it has been and continues to be, and is more variable than it used to be, that's all still true. But as we continue to build the funnel to have more opportunities, we're getting more comfortable that we're able to deliver our forecasts because we have greater opportunities to deliver. So I don't think it's really any more complicated than that. And as the funnels continue to fill better, we get more comfortable with delivery. And quite honestly, as months pass and we deliver on the numbers that we commit to ourselves, we get more comfortable as well. And that's really what's going on. It's still choppy.

And you go back to, you know, fourth quarter, USIS was kind of where we thought they should be and where they committed to be. And we saw that again in the first quarter. You know, they were actually a little bit ahead of our expectations. So that kind of a track record gives us confidence that all the things you're talking about are happening. You know, close rates are getting more predictable and pipelines are building, but it's you know, we still remain cautious. It's only a couple quarters in here of that kind of a track record.

And the choppiness is still there. We don't want to have you think that it's not. It's still there, and certainly there could be periods where things just don't occur the way we expect because the pipeline isn't as big as normal. We could still end up with an unexpected outcome. So it's better but not different than what we said a quarter ago.

Okay. I appreciate that. And then with regard to sort of your broad FinTech perspective, facing solutions and position in the market. Could you just sort of characterize where you think you are competitively and whether you'd anticipate a ramp, generally speaking, in fintech and markets?

I think we've talked in the past that this is a space that, you know, you go back as recently as a year ago or late 2017, we weren't as focused on fintech as we should have been. I think that's an understatement. I think it's clear our competitors are you know, are much stronger. We have a great market position with the FinTechs with workforce solutions. You know, a lot of the FinTechs are using, you know, the work number, you know, so that's a strong market position. But if you look at our overall share in FinTech, it's quite small. And we talked last year, I think mid last year, we doubled our commercial team in FinTech. You know, we've got real pipelines now of dialogues with FinTechs. You know, I've met with a bunch of them personally, and the dialogues with them are really quite positive, you know, about the fact that we have differentiated data, you know, work numbers one, you know, our credit file is another one, NCTUE, the utility cell phone database. So, you know, the dialogues are quite positive. And we would expect to see fintech growth from, you know, a fairly small level, you know, where it is today, you know, as we go through the rest of this year and into next year. You know, we are really focused on you know, getting into FinTech and being a bigger player there.

All right. Appreciate it. Thank you. We'll now hear from Gary Bisbee with Bank of America.

Hi, guys. Good morning. You know, I guess the first question, just how should we think about the risk of customers pushing out, signing new business until after the tech transformation is complete? And are you, you know, are you hearing that feedback? Hey, hey, it sounds good, but, like, let's wait and see you get your house in order before we sign on rather than coming on board amid the migrations and everything?

Yeah, zero. Don't hear anything on that. And, you know, the term house in order, you know, we look at it, our house is in order, you know, meaning, you know, our technology is sound, you know, it works. And, you know, I don't have to remind you, you go back to last year before the cybersecurity breach, our technology was working fine. It still does today. you know, we're taking advantage of our big investment in security to really transform our technology. And the dialogues with customers is really, you know, they're quite positive. You know, they look at it, well, this is the partner I want to be with if they're going to make this kind of investment in their technology. And you couple that with our differentiated data assets, you know, the discussions are very positive. So we don't have any customers, you know, saying, well, we're going to hold off. You know, they're really quite energized. When I sit with them and talk about the commitment we have to them through this technology investment, you know, the dialogue is we want to be partners with you guys. You know, so that's kind of what I'm hearing in the marketplace.

Okay. We have customers that want to work with us to help us do this faster so we can help them, right? Totally. It's a very positive thing.

Well, the other thing is most of our customers, you know, we have a few that are you know, quite advanced on the cloud, but very few. And, you know, those customers see what we're doing, the amount of investment we're making, and, you know, our technology teams are increasingly engaging with their technology teams about their own cloud transformation, and they want to, you know, learn from us. They want to, you know, follow what we're doing, you know, so that's another element of the dialogue. And the same thing happens on security. You know, we obviously have a commitment to be an industry leader in security, and we've you know, made massive investments in the last 18 months in security. And that's another dialogue with the technology teams about, you know, what are you guys doing around security so we can, you know, learn from that.

Great, thanks. And then just a second, the follow-up, you know, you've talked a lot about the savings you expect to get from the transformation over the next several years. I guess at this point, you know, do you have a view on how much you'd likely let fall to the bottom line versus, you know, is there maybe a view that stepping up innovation spending or some other to drive the top line would be a way to reinvest, you know, meaningful portion of those savings?

It's hard for me, Gary, to talk about the technology savings. I think we'll get to that when we put our long-term framework back in place. But I think you see us making decisions now, and we have in the last six, 12 months around investment decisions. You know, we did our, you know, fairly significant restructuring in the fourth quarter. And, you know, took some of those cost savings to the bottom line, but we also plowed savings back into more commercial resources. We plowed savings, you know, back into more DNA resources. We're obviously investing a ton in technology. You're very visible on that and security. So, you know, and then NPI and new products has been and continues to be a priority for us where we're, you know, continuing to make significant investments. And, you know, we give you visibility on the new products we're rolling out to the marketplace. And some of that new product work is coming through our technology transformation. So, you know, we're investing in the future, you know, today. And, you know, what we do, you know, with the benefits from our technology and security investment, you know, I think we'll talk about that when we get to our long-term financial framework.

Great. Thank you.

Our next question will come from Bill Warmington with Wells Fargo.

Good morning, everyone. First, congratulations to Mark on hitting the one-year mark and on the settlement. First question for you is on the price increase that FICO put through this year, starting January 1st. That's going to phase in throughout 2019. Equifax is a big player.

in auto and i was hoping you could help us understand how that could potentially help usis in the second half so so obviously the fico price increase impacts us it impacts our customers we pass it through to our customers and and it's it will impact both revenue and margin it's kind of a very similar story to what we had last year with the price increase related to mortgage so So it's really no different than that. In terms of magnitude, we don't give specific numbers in terms of the magnitude of dollars that occur with a partner. But it'll be very similar in concept to what happened with mortgages, just much smaller. Got it.

And then you mentioned in your prepared remarks that there was a potential for you to work with FICO in some new ways in the near future. I was hoping you could expand on that.

Yeah, I don't think we're ready, Bill, to talk about those. But, you know, we've got, because of this partnership kind of structure or umbrella that we've created, we're, you know, in kind of constant dialogues with Will Lansing and his team and different ways that we might work together. And, you know, we're seeing some new things that we're kind of percolating on that could be beneficial for us and FICO. You know, I'm a big believer in, you know, leveraging our strengths, you know, with another company through partnerships. And, you know, this is an example of where we're trying to exercise that muscle and find ways to do things that are going to benefit us, you know, FICO and our joint or new customers. So stay tuned, I guess, is the right answer.

All right. Well, thank you very much.

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

Hi, thanks. Good morning. You've indicated that you're still cautious around the pace of recovery of USIS, but are confident that the business will get back to traditional growth levels over the long term. Can you discuss any structural factors that may be holding you back from formally reinstating long-term growth targets?

You got two different questions in there. I think, George, on the long-term growth targets, we've been very clear with you and others that you know, we certainly intend to put a long-term growth framework back in place. You know, we've been clear that there were a number of things we wanted to see some clarity on. You know, one was, you know, our legal and regulatory settlements, which we've made progress there, but that's not complete yet. Second was on our technology transformation, and again, we're making progress on that, and we want some more visibility there. And third was on USIS, which may have been part of your question. You know, we want to see some, you know, stability in the recovery, and, you know, we're kind of a couple quarters into, you know, say do, meaning they're delivering where we thought they were going to deliver. And, you know, we want to see some continued, you know, performance as well as sequential growth there. And those are kind of the three things that John and I and the leadership team think about before we're going to put a long-term, you know, framework in place. And we continue to be confident, you know, that not only USIS but Equifax will recover you know, to where it was pre-breach. And that confidence comes from our discussions with customers, you know, our growing pipeline, our differentiated data assets. You know, all those, you know, we think are going to allow us to return. I don't see anything structural. It's just a matter of time. And, you know, we're seeing some positive progress in the first quarter. We expect that to continue in the second quarter as well as through the rest of the year.

Got it. That's helpful. And turning to the pipeline specifically in USIS, it sounds like the pipeline is still building and not yet back to full maturity. Can you talk about how quickly the pipeline is growing and what changes to the sales force you may have made to drive better and faster close rates?

Well, on the sales force, we continue to energize our sales team. We're you know, incenting them, and, you know, there's some new talent coming in. Obviously, we have a new leader in the business now, which I'm quite energized about the last 60 days under Sid's leadership. You know, with regards to the pipeline building, I don't have any metrics, John. And we don't disclose pipeline metrics, so. But we try to give visibility and just maybe more anecdotally here that John and I are seeing those pipelines build, and, you know, the evidence for you is, you know, USIF kind of delivering what we – you know, commit that they're going to do, and we've done that for a couple quarters, and we want that to continue. Got it. Thank you.

We'll now hear from Brett Huff with Stevens.

Good morning, guys. Thanks for taking the question. Two questions for me. One, can you talk a little bit about PayNet? I want to make sure I understand that it was 150 basis points in 2Q on USIS help or total company help? That's a housekeeping question.

USIS.

Okay. And then was that originally in the guide? I don't think it was. So is there something else in the guide that, you know, is it Australia that's a little bit more muted? Is there an offset to that inorganic help that we didn't raise our overall guidance for, or is it just kind of conservatism?

Yeah, so for the full year, so the full year, pay net was a plus. Actually, we said the mortgage market would be better, would be less bad than we had indicated initially. And then the weakness is GCS is a bit weaker than we said. initially back in February than we thought. And FX was quite a bit more negative than we thought, right? We said half a point of growth is we're being impacted by FX. And probably the smallest of the three is, Australia's a bit weaker, but that isn't the driver.

Okay, that's super helpful. And then on the migrations that are happening, congrats on the remarkable pace you guys are gonna take up on that with half, I think, of USIS being done in 19. Once that starts, have we done a couple of trials, or are we right in the middle of that? Do we have early results on smaller clients being moved over, or how do you feel about that?

We currently have moved. We're not going to give numbers as we go, but we're well into the migration. It's still early days, but the team has moved a substantial number of clients onto Cloud Fabric. We think that's going well. and the migrations are going on to interconnect SAS. And initially, things move on to our private cloud, and then they'll move on to the public private cloud as things move forward, but that migration is going well, and that last step is simple. So we feel very good about how things are progressing, and the team is working really well. Great. Appreciate the insights.

Ladies and gentlemen, that does conclude our question and answer session. I would now like to turn the call back over to management for closing remarks.

No further comments. Just thanks, everybody, for participating in the call and appreciate your time. Thank you.

Again, that does conclude our call for today. Thank you for your participation. We may now disconnect.