Equifax, Inc.

Good day, everyone, and welcome to the Equifax Second Quarter 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Trevor Burns. Please go ahead, sir.

Thanks, and good morning. Welcome to today's conference call. I'm Trevor Burns, Investor Relations. With me today are Mark Begor, CEO, and John Gamble, CFO. 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 equifax.com. During this call, we will be making certain forward-looking statements, including 3Q and full-year 2019 guidance, to help you understand Equifax and its business environment. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business 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 second quarter of 2019, Adjust the EPS attributable to Equifax excludes rules for legal matters related to the 2017 cybersecurity incident. Costs associated with acquisition-related amortization expense, income tax, effective stock awards, recognizable investing or settlement, certain acquisition costs, and foreign currency losses when we're measuring the Argentinian peso-denominated net monetary assets. Adjusted EPS distributed Equifax also excludes legal and professional fees related to the cybersecurity incident, principally fees related to our outstanding litigation and government investigations, as well as the incremental non-recurring project cost designed to enhance our technology and data security. This includes projects to implement systems and processes to enhance our technology and data security infrastructure. as well as projects to replace and substantially consolidate our global networks and systems, as well as the cost to manage these projects. These projects that will transform our 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, appreciation and amortization, and also as the case for adjusted EPS, excluding accruals for legal matters related to the 2017 fabric security incident, costs related to the 2017 cyber security incident, certain acquisition costs, and foreign currency losses for 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. Now I'd like to turn it over to Mark.

Thanks, Trevor. Good morning, everyone. As you know, this is a busy week and quarter for Equifax with Monday's settlement announcement and our focus during the quarter on driving growth operations in the EFX 2020 technology and security transformation. Before I get into a discussion of our second quarter financial results in the business units, let me spend a few minutes discussing the announcement we made on Monday about the legal settlements we made in connection with the 2017 cybersecurity incident. Monday's announcement was a real milestone and pivot for Equifax, which allows us to fully focus on operations, driving growth, and our EFX 2020 technology and data security transformation. The comprehensive resolution we announced is comprised of multiple related settlement agreements with the Consumer Class Action Plaintiffs and the Federal Multidistrict Proceedings, the Attorney Generals of 48 states, Puerto Rico, and the District of Columbia, the Federal Trade Commission, the Consumer Financial Protection Bureau, and the New York State Department of Financial Services, and it resolves the claims and investigations brought by these parties related to the 2017 cybersecurity incident. As you recall from our first quarter earnings call in May, we recorded an accrual of $690 million for expected losses associated with certain legal proceedings and government investigations related to the 2017 incident. Principally as a result of the comprehensive settlement announced on Monday, we increased the accrual by approximately $11 million in the second quarter of 2019, resulting in total charges of $701 million. This amount excludes the costs we have incurred to date offering free credit monitoring to U.S. consumers in 2017, 18, and 19, for which we've already taken charges. Details of the settlement and related costs are available in the 8K we filed on Monday. Importantly, the settlement program establishes a single consumer restitution fund that will be available to pay consumer benefits and legal fees and expenses for and it is in addition to the protections provided by Equifax immediately following the 2017 cybersecurity incident, including free credit monitoring and our lock and alert service. A single consumer fund was a real priority for Equifax and is a win for consumers. The Consumer Restitution Fund will be available to pay for four years of additional free bureau credit monitoring for consumers whose information was impacted by the 2017 breach actual out-of-pocket losses related to the breach, and other consumer benefits such as identity restoration services. Equifax will also be providing free single-bureau Equifax credit reports for up to an additional six years. There are two circumstances in which Equifax could incur costs in excess of the $300 million consumer restitution fund. First, to the extent that more consumers enroll in credit monitoring than contemplated in the consumer fund, Equifax would have to fund this cost. The fund is structured to cover credit monitoring enrollees of up to $7 million. Second, to the extent consumer out-of-pocket losses exceed the amounts available in the fund, Equifax would have to fund the amount of these incremental losses up to $125 million. And as a reminder, We have not identified any instances of data being used for identity theft purposes or the data that was stolen being sold on the dark web. Our expected total $701 million accrual does not include any provision for Equifax incurring incremental costs for either of these two items because we believe that $300 million in the Consumer Restitution Fund will cover the expected costs. The settlement represents resolution of many of the significant issues legal and regulatory issues facing a company related to the 2017 cybersecurity incident, including the consumer class action and investigations by State Attorney General, New York State DFF, and our principal U.S. regulators, CFDB and FTC. There do remain other additional unresolved claims and litigation related to the 27 incident. A listing of these claims can be found in our 10-Q, which we'll file later today. We intend to work with all the parties to bring these remaining 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 program and freezing our dividends in 2017. Our current plans are to finance the settlement payments with existing borrowing capacity under our revolving credit and securitization facilities. As of the end of the second quarter, we had approximately $1.1 billion of borrowing capacity available to us. John will provide more details on the expected timing of the payments and impact on our second half guidance in a few minutes. This is a very positive step forward for Equifax and for our shareholders. The settlement will not have an impact on our $1.25 billion technology and security program, our internal investment plans, new product introductions, payment of our quarterly dividend at the current rate, or our plans to grow and expand Equifax with acquisition. This resolution allows us to fully focus on the future. Let me move now to our results for the second quarter. We were very pleased with our second quarter financial results as revenue was at the top end of our guidance and adjusted EPS was above the ranges we provided in May. These financial results are another positive step forward for Equifax. Revenue of $880 million was up 3% in concert dollar currency and up just over 1% on an organic constant currency basis and the strongest results since the cybersecurity incident in 2017. During the quarter, U.S. mortgage market inquiries were up about 2% compared to the prior year, better than our projection of down 1%, resulting in about $5 million of additional revenue in the quarter versus our May guidance. However, FX further weakened during the quarter relative to our May guidance, impacting revenue negatively by about $2 million. Overall, the strength in the quarter was driven by our U.S. B2B businesses, USIS, and Workforce Solutions. In the quarter, both USIS and EWS performed better than we expected. Both businesses performed extremely well online, with USIS online up 10% in total and 6% organically. And Workforce Solutions verifier revenue was up a very strong 15%. Both businesses grew their non-mortgage online business stronger than we expected, in addition to benefiting from the stronger U.S. mortgage market. In total, our U.S. online business, which includes USIS Online, EWS Verifier, and the GCS partner business, represents half of our total revenue and are expected to grow about 10%. International was weaker than we expected in the quarter, particularly in the U.K. I'll provide some more details on that in a minute. Adjusted EPS of $1.40 a share was above the top end of the guidance we provided in May, given lower than expected corporate expenses and slightly better than expected business unit margins from the stronger revenue growth. In the second quarter, total non-recurring or one-time costs related to the cybersecurity incident and our transformation, exclusive of any accruals for legal matters related to the 27 cybersecurity incident, which I discussed a few minutes ago, or $82 million, and consistent with our expectations. This includes $70 million of technology and security spend and $12 million for legal and investigative fees. We expect 2019 one-time costs related to the cybersecurity incident and our ESX 2020 technology and data security cloud transformation, exclusive of any legal accruals, to be just over $350 million. To the extent we are able to provide to further accelerate data exchange or Cambria Ignite deployments into our cloud data fabric at Google or customer transitions to our interconnect API decision engines at AWS or Google, spending could exceed these levels. Shifting now to USIS. USIS revenue was up 2.5% on a reported basis and down slightly on an organic basis compared to last year, but better than we expected. with USIS revenue, organic revenue up 1%, excluding over one percentage point negative impact from the mixed shift, our mortgage business, and the mortgage market. Importantly, we saw solid single-digit organic revenue growth in our USIS segment for the first time since the cyber incident. This is a very positive sign for USIS. Sid Singh and his USIS team are back in growth mode, and are showing some positive commercial traction and activity. USIS online revenue was up almost 10% on a reported basis and up almost 6% on an organic basis, reflecting solid growth in our government and insurance verticals and double-digit growth in identity and fraud solutions aided by new product sales. This is a very positive sign of USIS recovery in the marketplace. Online organic revenue growth, excluding the favorable impact of mortgage market and mixed shift, was still up over 3% compared to last year. This was the first quarter of positive online organic revenue growth since prior to the breach, a very positive sign as we return USIS to a growth mode. Mortgage Solutions was down 22% in the quarter due to the mixed shift we have discussed previously with mortgage resellers, which occurred in the fourth quarter of 2018. Mixed shift had a negative 2% impact on USIS revenue growth in the second quarter, while USIS operating profit was not material impacted. We expect the revenue headwind from this mortgage mixed shift to continue for the remainder of 2019. Financial marketing services was down 7% compared to last year and was weaker than we expected. As we indicated consistently in our May discussion, our financial marketing services revenue is choppy as the timing of closing deals is still not as predictable as it was prior to the cybersecurity incident. In the first quarter, FMS revenue was up 6% as we closed some large transactions and For the first six months of 2019, FMS revenue will be down about 1%. This six-month view has been relatively consistent for the past several quarters at about flat and much better than we saw in the six months through the third quarter of 2018, where revenue was down about 6%. Looking forward to the second half of 2019, we expect growth in FMS as our strength in sales efforts drive growth off the relatively stable and flat base we have seen over the past nine months. In terms of customers, the USIS team is back on their front feet with growing new deal and new product pipelines, as we saw with the strong online growth this quarter. USIS new deal pipelines are up 2x from January 2018 and up over 30% from December 2019, which is a very positive sign for the second half in 2020. We continue to believe that our differentiated data assets, coupled with our technology investments, will return USIS to its traditional growth mode, but we do remain cautious on the pace of the recovery. USIS adjusted EBITDA margins of 45.6% were down about 200 basis points from second quarter 18, primarily driven by increased royalty costs as well as the continued investments in security and data and analytics to drive new product sales. USIS continues to very effectively manage SG&A costs, while at the same time increasing the percentage of resources dedicated to sales, DNA, and NPI and product development to drive growth. Shifting now to workforce solutions, they had another very strong quarter, revenue up almost 11% compared to last year, and better than our expectations. Verification services delivered extremely strong results with revenue up 15%, driven by strong double-digit growth across healthcare, talent solutions, mortgage, and government. The strong verification services revenue growth reflects the continued growth in work number, active records, as well as new products and further penetration into key markets. EWS has a deep and growing pipeline of new twin contributors that they expect to add to their growing database in the second half of 2019. As you know, twin records are monetized virtually immediately as they are added to our database and increase hit rates on our twin file. Employer services declined in the quarter less than 1%, consistent with our expectations, driven principally by workforce analytics our ACA business, as well as our unemployment claims business. This was as expected with the strong employment market in the U.S. Offsetting the decline in workforce analytics, we saw slight growth in our I-9 and onboarding business. As we indicated last quarter, we expect employer services revenue to be down low single-digit percentage for the full year. The strong verifier growth resulted in very strong adjusted EBITDA margins of 49.3%, an expansion in the quarter of 170 basis points. We expect EWS EBITDA margins to continue to be very strong in the second half. EWS continues to perform very well and is a franchise business for Equifax. Shifting now to international, where revenue was flat in local currency and down 8.5% on a reported basis and below our expectations. Canada continued to perform well, consistent with our expectations. Australia declined in the quarter, as we expected, and we were seeing signs of stabilization in that market. However, the UK performance was much weaker than we expected, and although Latin America showed improved growth, the improvement was less than expected. Asia-Pacific, which is predominantly Australia, declined an expected 5% in local currency in the quarter, principally related to the weakening we began to see in the third quarter of 2018 in Australia consumer lending, particularly mortgage and other consumer and commercial credit markets in Australia. We are beginning to see stabilization in the Australia market following their election a few months ago, but we expect market growth to remain weak through the bulk of 2019, although the revenue growth impacts will begin to lessen in the second half as we approach the period of their initial decline in the third quarter of 2018. As I mentioned, we are seeing some positive signs in the Australia marketplace, including lower interest rates and regulatory actions that have been taken that we believe may stimulate consumer and commercial credit demand in the second half. We are also making very good progress on positive data in Australia, and by the end of this year, we expect to have an excess of 80% of positive data from contributors. Shifting now to Europe, our European business declined 3% in local currency in the quarter, a much weaker performance than we expected. The UK debt management business drove the largest portion of the decline, principally due to the deferral of debt placements by the UK government, which were not received until late June. As these debt placements were received late in the quarter, they did not generate the expected revenue from collection activity in the second quarter, but will deliver revenue in the second half. Our European credit business was down 1%, much weaker than the mid to high single-digit revenue growth we have seen over the last year. Online, which represents about half of credit revenue, grew about 5%, which although reasonable growth, was down from stronger growth we've seen over the past year. Project revenue also declined in the quarter due to timing of some deals that shifted into the third quarter, as well as some customer delays we're starting to see as a result of the Brexit uncertainty. Absence of substantial weakening in the UK economy in the second half, and as the Brexit approaches and hopefully gets resolved, we're expecting to see a recovery in the growth of our European business and U.K. business. Debt management is expected to see growth due to the debt placements from the U.K. government received in late June and expected growth over the remainder of 2019. And our credit business is expected to recover in the second half of 2019 due to solid deal pipelines and a much stronger leadership focus on improved executions. Shifting out of Latin America, our business grew about 7.5% in local currency in the quarter. This has improved from first quarter growth of 5%, but weaker than expected principally in Chile. While we saw high single-digit growth in Chile this quarter, a couple of deals and NPI launches were delayed into the third quarter. We did see double-digit constant currency growth in Argentina and Ecuador this and high single-digit constant currency growth in Paraguay and Chile, which was positive. We expect growth to accelerate in the second half as our Latin America businesses benefit from the expansion of Ignite and Interconnect SaaS rollouts and strong NPI rollouts in both 2017, 2018, and the first half of 2019. Shifting now to Canada, which grew almost 9% in local currency in the quarter, reflecting a continued focus on customer innovation and new products. We expect this growth to continue through the rest of the year. We recently announced that our Canadian leader, Lisa Nelson, will be transitioning to take over our Australia business in about a week. Lisa's done an outstanding job bringing our Canadian business to market leadership through an intense focus on the customer. We're excited to bring this customer-focused leadership to Australia. International adjusted EBITDA margins at 28.6% were down about 190 basis points in the quarter, principally reflecting lower revenue and margins on Australia and the UK, and slower growth in Latin America, partially offset by margin expansion in Canada. Importantly, EBITDA margins were up sequentially 330 basis points, reflecting strong revenue growth in Canada and and improved sequential margin in Australia from the fourth quarter and first quarter cost actions. We expect revenue growth in international to improve significantly in the second half, driven by continued good revenue growth in Canada, accelerated growth in Latin America, and a return to revenue growth in the UK and Australia. We believe this improved revenue growth, along with the full benefit of the cost reductions taken in the fourth quarter of last year, in first half of this year will significantly improve margins in the second half of 2019. We're watching our international business closely, particularly the Australian economy and the UK Brexit impact. Shifting now to global consumer solutions, revenue declined 6.5% on a reported basis and 6% on a local currency basis in the second quarter, which was slightly better than our expectations. Our global consumer direct business was down about 6.5%, and it was just under half of our total GCS revenue. Our U.S. consumer direct business saw revenue declines of 8% versus 2018 in the quarter as a result of the suspension of U.S. consumer advertising in the fourth quarter of 2017 after the cybersecurity incident. As you know, GCS began limited direct marketing to U.S. consumers in late 2018. And we are starting to see subscriber growth from our restart of marketing. And importantly, U.S. consumer direct revenue was up 3% sequentially. We expect to see U.S. subscriber growth increase as we continue advertising and the year unfolds. And our Canadian and U.K. direct businesses both also saw sequential revenue growth. Our GCS partner business, which is about half of total GCS revenue, declined 4.5% in the quarter. due to the timing of some project-related revenue with customers that occurred in the first quarter. We expect partner revenue to return to growth in the third quarter. We expect GCS revenue to be up slightly in the second half as we lap the periods where consumer direct revenue began to stabilize in 2018. Adjusted GCS EBITDA margins declined as expected in the quarter as we saw the effect of revenue loss and an increase in advertising. We expect margins to increase in the second half as we see the benefit from stable and growing revenue, as well as cost actions taken in the fourth quarter of 2018 and first quarter. Our GCS business is making solid progress recovering from a challenging 2018. Now for an update on our EFX 2020 technology transformation plans. As you remember, there are five significant pillars to the cloud transformation, and I'll give you a brief update on each of them. First, we're moving our credit and other data exchanges to a standard data fabric at GCP. In the second quarter, we saw a significant milestone as our data fabric pattern based on GCP native tooling, including our full security stack, was completed in the new GCP cloud format and made available to our business units to begin migrating their data exchanges to this new cloud environment. Our USIS and EWS teams, as well as our Canadian and corporate teams, are actively working on migrating critical data exchanges to our new GCP cloud-based data fabric. Although data fabric was made available slightly behind schedule, we remain on track to migrate several of our US and EWS exchanges, including replicas of the US Consumer Credit Exchange, or ACRO, the Work Number Exchange, NCTU eXchange, I-9, and unemployment claims databases to the common data fabric in the third and fourth quarters of this year. Also beginning in July, any new data sets will be able to be directly ingested into our new cloud-based data fabric. We are at a place where our migrations are now beginning to be tied to new customer workloads so we will continue to update our delivery to align to near-term customer projects. As we discussed, moving from siloed databases, in the U.S., for example, we have close to 50 siloed databases, to a single data fabric in the cloud will enhance the speed and ease of accessing our differentiated data assets for our customers. It will also allow us to add more differentiated alternative data assets to enhance decisioning for our customers. Second, we made very good progress in continuing the integration of our Ignite analytics environment and interconnect interfaces in decisioning production platforms at AWS and soon in the Google Cloud. We've completed initial implementation of attribute services in Ignite with open source production languages so that clients and customers can develop attributes in open source languages and seamlessly deploy into Equifax platforms. We are well on our way to having both online and offline seamless integration completed in the fourth quarter. The integration of Ignite and Interconnect will give Equifax a market advantage around speed and ease of moving from modeling directly to production. Third, we are continuing to migrate customers from legacy decisioning and interface systems onto our cloud-native Ignite Interconnect SaaS product suite. Progress on this effort is now accelerating. For example, USIS continues to deploy the new cloud-native products onto which they will migrate existing customers. Although we are slightly behind schedule on completing these standard patterns and migrating customers, we still expect to complete the migration of a significant majority of our customers by the end of this year and continuing into 2020. Fourth is our network migration. In the second quarter, we achieved another significant milestone, enabling for dual redundant high-speed cloud integrations in the U.S. that will allow us to move traffic securely and directly between our cloud vendors and from our cloud vendors to Equifax to substantially improve network performance and strengthen security. This is a critical step in taking full advantage of the virtual private cloud strategy and enables us to begin to eliminate our legacy technical debt. We will expand the use of this capability in the U.S. over the rest of the year and into 2020, as well as deploying this capability in Canada, Europe, Latin America, and Asia Pacific in the second half. And last, our global consumer systems and customer performance. and consumer support system migrations continue to progress as planned. While many of the support applications are not customer facing, they are expected to significantly enhance the efficiency of our sales organization, as well as the operational effectiveness of our client delivery and call center teams. In the fourth quarter, we launched MyEquifax consumer portal, and we are quickly adding consumer accounts to this new database. The new capabilities will enhance our customer service and allow for low-cost cross-sell of Equifax or partner products to consumers. Last quarter, we started to discuss some of the benefits we expect from the EFX 2020 technology transformation to the cloud. We continue to refine our view of the top-in-line benefits, and John will update you on our current thinking. But we continue to be energized about the benefits that will be delivered by the cloud transformation to both our top and bottom lines. I hope this gives you a sense of the positive progress we are making in our technology transformation that will deliver new cloud-based technology to our customers. We remain committed to strong progress against our milestones in the second half. I also want to give you a quick update on our progress with FICO on the commercial and technology partnership we announced in March called Data Decisions Cloud. Our teams are working extremely well together and making great progress both on the technical integration of our capabilities and the commercial discussions with our joint customers. The first three joint product launches include, number one, Connected Platform, which integrates FICO's decision management solution with Equifax's Ignite decisioning sandbox, interconnect, and Equifax data in a cloud environment. We believe this combined solution will deliver functionality that is not available in the marketplace today. Second, AML Connect will integrate Equifax's differentiated data with FICO's AML and KYC platform to offer a full-service end-to-end compliance offering that we believe will offer best-in-class search match capabilities and insights to the marketplace. And number three, Prescreen Central integrates FICO's marketing solution suite with Equifax's differentiated consumer data to deliver a turnkey direct marketing solution to our joint customers. We're making great progress on the three new product collaborations and expect to identify additional ways to leverage our joint capabilities in our FICO partnership for new product offerings in the future. Shifting the new product innovation, this remains a key component of our strategy and a long-term muscle for Equifax. We have an active pipeline of over 80 NPIs and new products at various stages in the funnel, and we expect to launch about 60 new products in 2019, which is a similar pace from the past three years. While new product introductions primarily came from international markets last year, About 40% of the new products introduced this year are from our U.S. businesses. This is a good sign as we collaborate with customers to bring new products to market. On the M&A front, in May we announced the acquisition of PayNet, a leader in unique commercial lending data and insights. Customer feedback on the PayNet assets is very strong, and integration activities with USIS are proceeding very well. Our USIS data acquisition program Our USIS DataX acquisition from July 2018, which brought a unique set of U.S. near and subprime consumer data, is also performing well and ahead of plan. M&A is an important growth lever for Equifax, and we continue to look for new opportunities to expand our data sets around the globe through M&A. So wrapping up, this was a pivotal quarter for Equifax, in which we delivered several important steps forwards, towards our goal of returning Equifax to market leadership and growth. Number one, Monday's legal and regulatory settlements was a big step forward for Equifax by resolving the significant issues, including the consumer class action, state attorney generals, FTC, CFPB, and New York Department of Financial Services facing us following the 2017 cyber event. This resolution allows us to more fully focus on operating and growing Equifax and driving our technology and data security transformation. Second, second quarter was a solid performance for Equifax operationally. EWS delivered very strong top-line verification growth with expanding margins and is a clear franchise business for Equifax. USIS took another big step towards their recovery with 2.5% growth and 10% online results. We are focused on second half execution in international after a disappointing second quarter results with some macro headwinds in Australia, Argentina, in the UK. Third, we continue to execute on our EFX 2020 cloud technology and data security investments. As we discussed last quarter, we are convinced that our move to the cloud will differentiate Equifax from competition and deliver always-on capabilities, bring speed of new products to market, allow us the ability to move products and technology more quickly across our global platform, and we expect the investment to enhance our revenue growth and deliver double-digit savings to our technology spend and capitalize development costs. And last, we continue to execute on our strategy of adding strategic acquisitions. PayNet's a great example of the kind of bolt-on acquisitions we will look to add to the Equifax portfolio. And we're looking for ways to leverage our differentiated assets and decisioning assets with partnerships like FICO. We know we still have a lot of work to do, but we are energized about the momentum behind our EFX 2020 initiatives, and we expect continued positive operating progress through the balance of 2019. I'm more excited than ever about our future as a market-leading data, analytics, and technology company. John will share more detail, but we remain committed to our prior 2019 guidance adjusted for the financing costs from the settlement payments. 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 a GAAP basis, but will refer to non-GAAP results as well. As Mark covered our overall results and the business unit details, I'll cover some corporate items, overall margins, free cash flow, and our guidance. The finalization of the consumer settlement was a significant step forward for Equifax, and we now have a clear view of the timing of near-term payments, including to the MSAG, CFPB, and NYDFS, and the initial $25 million contribution to the Consumer Restitution Fund. In total, we expect to make about $350 million in payments in 3Q19 against the $701 million in charges taken in the first half of 19. We intend to fund this initially with commercial paper issuance and have included related interest expense of about $0.03 per share in second half 19 in our guidance. The timing of the remaining approximately $350 million payment to the Consumer Restitution Fund is uncertain, but not expected to be made before 1Q20, and we therefore have not included any interest costs related to this payment in our guidance. As Mark mentioned, we continue to make good progress with our technology transformation. This includes progress in estimating cost savings we hope to achieve when we have fully executed the transformation, and the incremental capital to execute the transformation is fully depreciated. there are two areas in which we initially see savings. First, we have estimated the savings we hope to achieve in the technology portion of our cost of goods sold based on analysis of cost to operate our US consumer credit exchange at GCP in a virtual private cloud versus our current premise-based system. This analysis was done both working with our technology partner, GCP, and compared to general studies from industry consultants. Based on this analysis, We hope to achieve savings in the technology portion of our cost of goods sold of 15 plus percent. For perspective, our technology cost represents just over half of our total COGS, excluding any one-time costs related to the technology and data security transformation. Second is development capital and expense. The move to dramatically more standard cloud-native offerings should substantially reduce our cost to develop and deploy new products and applications. Our belief is on the order of 25%. This impacts both development capital and expense. We will continue to refine our view on cost savings in the second half when we cost our EWS twin database on the data fabric. We remain energized about the top and bottom line benefits of our technology transformation. For all of 2019, US mortgage market inquiries are expected to decline slightly versus 2018, which is stronger than the down 2% we had expected in May. 2Q19 inquiries were up 2% versus the down 1% we had expected in May. Inquiries in 3Q19 and 4Q19 are expected to be up 3% and 4%, respectively. We are on track to deliver the savings from the resource realignments we executed in 4Q18 and first half 19. Total savings from the two combined actions are expected to exceed $60 million in 2019, with second half savings exceeding first half by about $10 million. Savings were generated across Equifax, but were most substantial in corporate, international, and at Workforce Solutions. In the second quarter, general corporate expense was $135 million. Excluding the non-recurring costs associated with the 2017 cybersecurity incident and technology transformation, the adjusted general corporate expense for the quarter was $68 million, up $5 million from 2018 to Q18, but better than we had expected. The increase versus 2Q18 predominantly reflects the increased investment in security and transformation and related technology as we ramp those costs in first half 18 and increase variable compensation given the timing of hiring certain executives last year. This was partially offset by savings from our 4Q18 and 1Q19 restructuring plans. We expect 3Q19 and 4Q19 corporate expenses on average to be at the level similar to 1Q19. Adjusted EBITDA margin was 33.7% in 2Q19, down 130 basis points from 2Q18, and better than our expectations. As we discussed in May and as is covered in Mark's results, comments, the decline in overall adjusted EBITDA margins year-to-year is principally driven by global consumer, principally due to the reduced consumer direct revenue and a return to marketing spend in 2019. We expect substantially improved margins at GCS in second half 19 as revenue begins to recover and they benefit from cost containment actions taken in the first half. International and USIS also saw margins decline, but to a much less extent than GCS. Strong growth in margins at workforce solutions partially offset these declines. For 2Q19, the effective tax rate used in calculating adjusted EPS was 24.6% in line with our guidance. We expect our calendar year 19 tax rate used for adjusted EPS to be just under 24.5%. 3Q19 tax rate should be below 23%. In 2Q19 and first half 19 operating cash flow of $217 million and $248 million, we're down $18 million and $107 million, respectively, from 2018. For both periods, these declines were more than driven by the following non-recurring items. In 2Q18 and first half 18, Equifax received $45 million and $80 million, respectively, of insurance proceeds offsetting costs incurred related to the cybersecurity incident. Equifax received no proceeds in 2019. 2Q19 and first half 19 investments in security and transformation included of $82 million and $179 million were up $10 million and $28 million, respectively, from 2018. And payments in 2Q19 and the first half of 19 related to the $57 million of charges taken in 4Q18 and 1Q19 for cost reductions were $10 million and $21 million up, respectively. Capital spending or the incurred cost of capital projects in 2Q19 and first half 19 were $103 million and $198 million, up $11 million and $49 million, respectively, from 2018. We expect capital spending to be about $385 million for the full year, higher than our original guidance of $365 million, reflecting incremental spend on our technology transformation. Excluding payments related to settlements of litigation or regulatory actions, as we look forward, we expect to deliver positive free cash flow in second half 19, and for the full year, 2019 free cash flow should exceed $200 million. Now turning to our guidance for 3Q19 and full year 2019. For 3Q19, we expect revenue to be $865 to $880 million. up 4.5% to 6% in constant currency. Mortgage inquiries are expected to be up 3%, and FX is expected to negatively impact revenue by about 1.5%. Adjusted EPS is expected to be 141 to 146 per share. FX is expected to impact adjusted EPS negatively by 2 cents per share. And lower tax benefits in 3Q19 versus 3Q18 are are expected to negatively impact adjusted EPS by about $0.06 per share. Our improved revenue growth in 3Q reflects growth acceleration at USIS, continued strong growth at workforce, international moving back toward more normal growth levels, and GCS moving back toward flat revenue. Adjusted EPS also returns to growth in 3Q. This despite taxes representing about a $0.06 per share or 4 percentage point headwinds, versus 3Q18. 3Q18 had a low tax rate of below 19% due to discrete benefits that will not be repeated in 3Q19. We are seeing nice growth in operating income in the quarter. The full year 2019 guidance we provided in March and May of this year excluded the impact of any significant settlement charges. This quarter, we are including in our guidance the financing cost of funding the consumer settlement. Our 2019 guidance ranges for Equifax revenue is unchanged from the previous guidance we provided in May, with revenue between $3.425 and $3.525 billion. Our adjusted EPS guidance range is being adjusted by the $0.03 per share for the cost of financing the consumer settlement, and is now between $5.57 and $5.77 per share. We expect revenue to be above the midpoint of the range and adjusted EPS to be toward the bottom of the range. Our guidance for 3Q19 and 2019 implies a strong fourth quarter with better than seasonal sequential growth in revenue and operating profit. Looking at 4Q revenue, we expect strong sequential growth to be seen in USIS, reflecting the normal seasonal growth in financial marketing services and a better than normal sequential performance in online. Workforce will continue to show strong growth, better than their seasonal pattern, particularly in verifier. And international should show sequential growth in 4Q but consistent with seasonal patterns. GCS revenue is expected to strengthen as we move through 2019. In terms of operating profit, we expect the 4Q19 stronger than seasonal sequential revenue growth to deliver stronger than normal sequential BU operating profit growth. This, along with the cost reductions we announced in 4Q19 and 1stF19, and cost containment actions being executed, will further benefit sequential margins at international, GCS, and workforce, as well as corporate. Delivering our second half performance requires strong execution across our commercial teams, 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. And ladies and gentlemen, 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. Once again, press star 1. And we'll take our first question from Manav Patnik with Barclays. Please go ahead.

Thank you. Good morning, guys. Mark, you know, in your prepared remarks, you talked to, I think you alluded a little bit to, but still being a little cautious. And I was wondering if you could just elaborate on that in terms of you know, is the recovery or the better results you're seeing in guiding more sort of, you know, catch up from what you lost? Or maybe can you just elaborate a little bit more on the competitive environment and your visibility improvement?

Yeah, no, it's a great question. You know, we do still remain cautious. You know, we've kind of had now three quarters from USIS where they've delivered either at or above our expectations. And as I mentioned, and John and I mentioned, you know, second quarter is one of those. And we're very pleased with the online growth. We also mentioned the growing pipeline, you know, in USIS, which is a really positive sign. We're really pleased with the new leader. But then you look at some of the businesses, for example, our financial marketing services business, you know, they had a strong first quarter. And I think we talked about that, you know, in May that we thought that that was probably a bit stronger than, what we expected because of a couple of large deals. And then in the second quarter, you know, they were below our expectations. And, you know, that business is still on its recovery mode. So, you know, we're very pleased. I think I used the words that second quarter was a very strong step forward for USIS. You know, it's a business that, you know, competitively, you know, we're in the marketplace when you have deal pipelines that are, you know, up 30% from year end and 2X, you know, from 18 months ago. You know, there's no question that we're back in the marketplace. I'm really pleased with our leader there, who's no longer new, Sid Singh. He's bringing really commercial leadership. But, you know, it still takes time, you know, to rebuild all of those relationships. And as you know, the deal closing, you know, pipeline, while we're seeing some progress on that conversion, that's still not at a historical level. So I think that's what we're still, you know, watching. But we've laid out guidance for the second half where we expect that business to continue to grow and recover as we go through the second half.

Got it. And then just another one for me, just on the tech savings you talked about or at least referred to, just to clarify, like, you know, maybe some color on, you know, the timing around which you think you get there. Is that the end state or is that kind of what the project should deliver that there will be other costs along the way where we might not see the absolute 15 and 25% that you guys referred to?

Yeah, what we're trying to do, Manav, is give some visibility to what we expect this cloud transformation to deliver. And as you know, in the last 90 days or so, we're starting to share with you and other investors where we see some of the cost benefits. That's probably an easier piece. And they're quite substantial. And you know, when you just talk about the cost benefits, you know, those numbers we've talked about, the 15 to 20 on our tech costs and 25% on our development costs, you know, those are on a run rate basis when we're fully completed. And, you know, we're not getting visibility yet, you know, past 2019. But we've also talked about the fact that, you know, we expect those benefits to roll into, you know, 2019, 2020, you know, as we work through the full implementation of this technology transformation. And You know, we're just not ready to give a date when these benefits will fall to the bottom line. We're also working to try to quantify what our expectations are about the top-line benefits. You know, we think the always-on capability, the speed to market, the ability to move products around the globe are also going to help us on our top line. So, you know, we're going to have additional costs, which we've tried to – it's in our guidance for 2019. We'll put it in our guidance for 2020 – you know, around the tech transformation and migration. And then we should start seeing benefits as we retire legacy debt this year and next year. And we'll give guidance once we are ready to do so on what we think the full transformation is going to deliver. We're just trying to give some perspective that we think is going to be quite positive for Equifax.

All right, got it. Thanks a lot, guys.

Thanks, Matt.

We'll take our next question from Judith Sokol with JP Morgan. Please go ahead.

Hi. Thank you for taking my questions. The first one is just about guidance for EPS for the year. I just wanted to make sure I understood that the total change to guidance was simply because of the interest expense related to the settlement, or is there any other shifting of costs, perhaps an acceleration of the tech spending, as you mentioned, the 350?

No, the guidance that John shared is – We're sticking to our prior guidance with only the change of the financing costs we have from the settlement payments in the second half. That's the only change we're making.

Okay, perfect. And then my other question was just around USIS margins. You have a lot of helpful color on margins in the other segments as well as revenues, and I was just wondering if you could help us think through more specifically USIS margin expectations for the back half of 2019.

Yeah, so our expectation is, I think we've mentioned it in the script, is we're expecting USIS margins to also improve as we get through the back half of 19. As their revenue continues to grow, since we're seeing nice growth in online, the expectation is we'll see continued improvement in margins as the online variable margins are very high.

All right, thanks.

We'll take our next question from Kevin McVeigh with Credit Suisse. Please go ahead.

Great, thanks so much. really helpful color on the TTI initiative around the expense. I know it's early in terms of quantifying what the revenue could be, but is there a way to kind of frame it relative to kind of NPI where you'd expect it to be above that? And then just within the context of the FICO partnership, when should we start to see the revenue associated with that kind of start to come into the numbers? And I don't think there's anything in the guide for that. Is that right?

Yeah. Thanks, Kevin. You know, on your first one, uh, You know, we're not ready to talk about, you know, what our expectations are around the revenue. And, you know, we tried to get some color on the expense benefits from our cloud transformation. So, you know, I guess stay tuned. You know, as we, you know, work to refine that, we want to share that with you as we bring it forward. But we clearly believe it's going to be positive for Equifax on the top line. And that's as far as we've gotten on that. You know, on the FICO partnership, you know, we're in the marketplace. We've got, you know, joint deal pipelines. We haven't landed any revenue yet, nor have we given any revenue guidance on that. You know, my guess is we won't give specific guidance on that revenue. You know, it will be a part of Equifax's revenue, and, of course, FICO is going to benefit it from, too, as a part of our, you know, joint revenue sharing in that. But I just wanted to give an update to you and other investors that that project is continuing. There's great momentum with it, and there's really positive customer reaction to it, particularly around – the Data Decisions Cloud where we're combining FICO's decisioning software with Equifax's Ignite, Interconnect, and Hardline typing in our data. And we believe that there will be a set of customers that are going to really be attracted to that turnkey solution as well as the other products that we're working to bring to the marketplace.

Thank you.

We'll take our next question from George Mahalos with Calendly. Please go ahead.

Hey, good morning, guys. I wanted to ask on the international side, specifically for APAC now, as the comp sees in the back half of the year, it sounds like you're expecting a return to modest growth over the back half. But then as we start going into 2020 and all the progress you've made related to positive data, Would you expect Positive Data Initiative to benefit APAC growth in, you know, as early as 2020?

Yeah, we're not ready to give 2020 guidance, of course. But, you know, we've been consistent around, you know, we believe positive data is going to be attractive to our Australia business. And, you know, we expect some benefits in the second half. And as we get closer to 2020, we'll give you some perspectives, you know, on 2020. You know, but it really goes to the premise that more data is going to be, you know, attractive for us, and it's going to be more data is going to be attractive for our customers, and more data opens up more revenue opportunities for us.

Okay. And then, John, just a point of clarification. If we look at USIS revenue growth at 2.5%, I think, you know, you talked about, if we look at that organically, it's down slightly, I think something like 50 bits or the math works, something like that. If we sort of adjust for the impact from mortgage solutions thanks to the mix shift, which, again, is kind of voluntary and the benefit that you've gotten from mortgage in the quarter, is it safe to say that sort of on a normalized basis, the USIS was sort of, you know, sort of flattish?

That was up about one, right? I think we tried to put that in the script. It's up about one. And again, as you look forward, right, so we've seen nice progress in online, as Mark talked about quite completely, and then the financial marketing services was down in the quarter, and we expect to see growth in financial marketing services as we get into the back half. So when you think about why are we getting comfortable that we're going to see some improved growth out of USIS, it's really the momentum in online, and then financial marketing services starting to grow again. And those are the two pieces that that we need to deliver on. Clearly, it requires execution. As Mark said, lots of execution for that to be true, but that's the basis on which we're getting comfortable. We're going to see improved performance in the back half.

Okay. Thank you.

Further improved. It's already been improving. Further improved performance.

We'll take our next question from Tony Kaplan with Morgan Stanley. Please go ahead.

Thank you. I'm still not 100% clear on the EPS guide. So you mentioned you lowered the guide by $0.03 from the interest expense, but you beat this quarter by like $0.05, $0.055, and now you're saying you'll come in towards the bottom end of the range. So I'm essentially thinking of that as outside of the interest expense, basically, you know, up to 15 cent guide down. And so I just don't, I'm not sure I understand what's driving that.

So our full year guidance, as we said, was only adjusted for the three cents. Yes, we had a good quarter. And as we talked about last quarter, right, you know, for us to deliver the full year, we needed to have very strong execution as we were expecting substantial improvement in USIS and then across the business broadly. And I think what you saw in the second quarter is good direction toward the improvement that was necessary for us to be able to deliver the full year that we talked about in May, and that's why we repeated the guide here that we did in July. So the execution to continue to show the improvement that's necessary for us to deliver the year I think is what you're seeing in our guidance and hopefully improve confidence in our ability to deliver it. And that's very important to us, and that's where we're focused.

Okay. And then on M&A, from your comments, it sounded like acquisitions contributed over 250 basis points or roughly to USIS, a little higher than what I was thinking. Should that continue? Is that the main driver of the revenue guide being above the midpoint now?

Thank you. No. So, again, we've got to remember DataX was acquired in July of last year. So we, like most companies, right, we – In our organic calculation, we consider the acquisition for its first year to be incremental. But now that we have comparable periods starting in July, that will move to organic, right? So it isn't driven just by acquisitions. You're seeing improved performance broadly. And, again, you should see a nice big step up, hopefully, year over year in FMS.

Okay. Thanks a lot. We'll take our next question from Asish Sabadra with Deutsche Bank. Please go ahead.

Hi, thanks for taking my question. Just a quick question on the FMS improvement going forward. Is that related to the timing of closing the deals which got pushed out from the second to third quarter?

Now, I think as Mark talked about, we closed some large deals in one queue that just didn't repeat in two queues. I don't think we made any comment about anything pushing out. I think the comfort we have is that if you take a look over some longer periods, we said it's choppy, right? So if you want to kind of wash the choppiness Out of the results, you look over slightly longer periods, and over those longer periods, basically we've been performing kind of flat over the past nine months. So we feel we're getting comfortable that we've stabilized at that flat level, and we're starting to see funnels grow, and our expectation is better performance as we get into the back half. So that's really what it is. You know, if you go back to last year, we've said you'll start to see improvement in our sales execution as you got into the back half of 19 based on the fact that we had a year to sell once we were free to sell again following the cybersecurity incident. And effectively our forecast for USIS represents success at that model. So again, as we said, we need to execute and it is a substantial effort for us to do, but that's what's built into our forecast. Our forecast assumes success in that selling effort and therefore growth in those businesses.

I think I'd add to that that we gave you some visibility around the USIS New Deal pipeline, which includes FMS in there. And, you know, that's up substantially from a year ago and, of course, up substantially from the beginning of the year. So that continues to build. So that gives us some of the confidence that the teams out there, you know, win real commercial discussions of transactions that will benefit the second half. And I think John mentioned in FMS that there's also seasonality. That typically is stronger. you know, in the second half. And, of course, last year we were still, you know, working on the post-cyber, you know, we view that we're more normal, you know, commercial, in a very normal commercial mode today versus where we were a year ago.

That's very helpful. And maybe just on OIS, we saw some pretty good improvement, even excluding PNAT and mortgage. Can you just give any more color on any particular verticals or products that drove that strength? Thanks.

I think Mark included in his script, right, we saw some strength in insurance, some strengthening in performance in government. Identity and fraud, which are really separate businesses, also performed better and nicely and saw some growth. And quite honestly, the momentum in banking and lending is improving. Now, banking and lending obviously has the acquisitions in it, but the momentum is improving and we're expecting that momentum to yield in the second half. So those are all areas where we feel where we feel we had improving performance in the second quarter and are expecting continued performance going forward.

Next. Taking our next question from Tim McHugh with William Blair & Company. Please go ahead.

Yes, thanks. Just wanted to add a higher level to talk about maybe the technology transformation. This may be too high of a summary, but I think you talked a little bit about some small parts of the projects that are, is maybe started or a little bit delayed relative to the original plan. You also talked about spending more than you had originally planned this year. I guess I think the spending was conveyed in a sense of strength in terms of opportunities to do this. But I think just to address the question, I'm sure I'll get questions from people who will take those other two data points and try and talk about the difficulty of the project. So can you just, in that context, maybe talk about how you're progressing and, I guess, the confidence and kind of the pathway that you've laid out to achieve the overall technology transformation?

Yeah, you know, first off on the spend, I think we tried to be clear, Tim, that, you know, our current forecast is to spend what we've already committed to you, so no change in that. We did give the caveat that if we see some opportunities to accelerate migrations in particular, You know, we might spend a little bit more, but, you know, it's going to be in that same framework. You know, we're not having overruns or things like that. We didn't want to give that impression because that's not the case. You know, one area that was a bit more complex than I think we anticipated, you know, over the last 90 days was the build-out of the data fabric at Google Cloud. That's now complete. You know, we had hoped to complete that, you know, maybe – you know, 30, 45 days earlier, but it's, you know, it was completed a month ago, and it's, you know, in the hands of all the business teams. But we're just trying to be transparent. You know, this is, you know, a big project. There's a lot of pieces to it. One of the ways we tried to de-risk it was breaking it down to the pieces, and we're attempting to just be transparent and, you know, let you know where we're going on it and how it's progressing. You know, overall, we're very pleased with the progress. The teams are embracing it. Customers are very excited about it. Our dialogues with customers about, you know, the overall investment, where we're going to take it, you know, the benefits they're going to get, as well as the migrations of things like interconnect and ignite to the cloud environment are very, very positive.

I think capital is up a bit. We did say capital would be up a bit in the year. And I think the way you should think about that is, you know, capital is more driven by bills than migration, right? So... So I think, as Mark talked about, data fabric is built and moving, interconnect built and moving. We made some commitments around and are executing against things we're doing very nicely with Ignite and integrating Ignite and interconnect. That's all build, right? And then also, quite honestly, when we gave the guidance in the beginning of the year, the investments we were going to need to make to do important partnerships like FICO weren't necessarily in our guidance at the time. So you're seeing increasing spend around some of those things, but it's more around the build activity, which is up front. than the migration activity, so I think you should view it as good progress. And in the context of the $700 million of spend, or just over $700 million of spend we're talking about, we still think we're in a pretty narrow band with an adjustment during the year of about $20 million. So we're not feeling like there's big overruns, as Mark indicated, and the capital is really around the build segment, which we think is progressing. And some things have been added. that weren't in the original guidance that we gave you back in February.

Okay, great. Thanks. That's all I had.

We'll take our next question from Gary Bisbee with Bank of America. Merrill Lynch, please go ahead.

Hi, good morning, and thanks for the commentary on how you're thinking about savings over time from the technology program. You know, I guess one area of that that we haven't heard a lot about is how you're thinking about, you know, potential reinvestment for a portion of those savings, would it be right to think that a lot of that, you know, falls to the bottom line? Or are you more likely to, you know, reinvest a significant portion of that as you continue to drive innovation and trying to drive the top line?

Yeah, it's a great question, Gary. And you might imagine that's one that we're thinking a lot about. And, you know, we're not at the stage to talk about it. And, of course, we're not at the stage where we're ready to put our financial framework, you know, back in place. But, You know, there's no question we expect there to be benefits. You know, we're going to look hard at what portion of those benefits do we, you know, plow into more new products, you know, into more growth, and what portion do we, you know, bring to the bottom line to increase our margins. And, you know, we'll have some clarity on that as time progresses and share it with you.

Okay. And then just the follow-up to that. In a couple of public appearances during the quarter, it sounded like you were indicating that completion of the program could, you know, slip beyond the 12-31-2020 timeline initially. I just wanted to get your latest thoughts on that. Is mid-2021 a more realistic target, given what you know at this point, or where are you thinking today?

Thank you. What we try to do, Gary, in all of our discussions is to be clear with you that our intent is that the incremental spend that we have in 18, 19, and 20 will end the end of next year. and then anything that's left to be done. And there certainly will be elements of this cloud transformation that is going to flow into 2021. You know, it's not going to be 100% complete. We do expect to complete a lot of the work between now and the end of next year. And then anything that's required after that, our intention is that would go into our normal operating expenses and normal capitalized costs as opposed to the incremental spend that we've been doing you know, for the last 18 months, and then we plan to continue for the next 18 months. That was the kind of boundary we put around it, and we're still sticking to that.

Great. Thank you.

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

Good morning, everyone. So I feel like it's been a while since we've heard anything about the commercial business. It used to be its own division up until a few years ago, and but now we've done an acquisition of PayNet, which is B2B data around commercial lending and leasing. And then you also mentioned strength in the USIS B2B business. So I wanted to ask what's changed there and how are you thinking about the B2B business going forward?

It's still an important business for us. As you know, that's why we made the PayNet acquisition, because we knew it would enhance our position commercially. In the earlier comments when we talked about B2B, that was really referring to our online business, you know, with our normal customers versus the commercial business. Ah, got it. But the business, you know, is – we didn't talk about it in our prepared remarks, but, you know, had, you know, growth in the quarter that was similar to the overall business, so it's performing quite well.

Ex-Payment, the commercial business, has actually done very nicely this year. And with PayNet, it's only accelerating. So, as you know, as you remember, we made substantial investments in building out the CFN, and that's improving. We integrated SBFE, so we think we have a very good partnership here. We announced earlier in the year that we think we're very early and think we have outstanding risk scores in commercial and have won some significant customers. So that business was making progress on its own, and with PayNet, we think it's going to accelerate.

I think, Bill, we may have mentioned on the May call that we were so impressed with the PayNet leader that he's now leading our U.S. commercial business, which combines our core commercial business with the new PayNet assets and business. And we're really energized about the last 60 days as he's been out in the marketplace, you know, really driving that business.

And then a housekeeping question. The – You didn't explicitly give the organic revenue growth for the third quarter. I just wanted to check that. It looks like it's probably about 2.5% to 3%, but I just needed to run that by you.

Yeah, we didn't give guidance on organic growth in the third quarter, so you are correct. We did not. Please remember, right, that DataX is no longer inorganic. starting in July, right? Because we acquired them a year ago this month. So the amount of acquisition revenue actually declines. Got it. Okay. Got it.

All right. Well, thank you very much. Thanks, Bill.

Our next question will come from Jeff Mueller with Bayer. Please go ahead.

Yeah, thanks. Mark, question on pipeline conversion and USIS. And I guess what I'm wondering is, Is the slower conversion than historical, is this just a function of you've had a lot come into the pipe recently, so therefore it's at an earlier stage, but it's progressing through as normal? Or has the selling motion and the hurdles that your clients are putting you through changed because of the breach or maybe some other factors? Can you just help shape that up for us, please?

Yeah, it's definitely not the latter, Jeff. You know, we're in a normal commercial mode, and there's no change I would characterize it today than it was, you know, in 2017, you know, prior to the cybersecurity breach. You know, if anything, our commercial discussions are more positive, meaning that, you know, we've got a dialogue around new data assets. We've got a dialogue around our technology transformation and, you know, how we're going to deliver more capabilities to our customers today. you know, your comments in the pipeline were right on. You know, the pipeline, you know, as we said, is up 2x over what it was the beginning of last year and is up, you know, strong double digits from the beginning of the year. So the pipeline is growing and as you pointed out, you know, some of those opportunities, you know, are newer and the life cycle on those on when they get actually converted, you know, vary, everyone varies, but, you know, generally newer items, you know, have a longer tail on them than more mature items in the pipeline. So, really good news that the pipeline is growing and is at, you know, increasingly high levels. And, you know, the comments about, you know, we continue to be, you know, watching the conversion is it's just not fully mature yet. And, you know, when we'll get there is hard to forecast as far as maturity of the pipeline. But, you know, clearly every day we're getting closer, you know, to that. And, you know, it should continue to progress in the third quarter and fourth quarter. And, you know, our leader there, Sid Singh, who's driving the business is, you know, really bringing a lot of drive and energy around the commercial side of the business. And, of course, I'm still spending a bunch of time, you know, with our U.S. customers, you know, to continue to help drive the USIS, you know, return to their historical growth.

Okay. And then let me take a third shot at the ETS guidance question. So, I'll ask it this way. You're guiding revenue above the midpoint of the prior range. You're guiding EPS to the low end in what's typically a good incremental margin business. So is the offset something with mix with, I don't know, UK and Australia, or is there increased investment? Just if you could, maybe the third time's a charm. Thanks.

So I think as you mentioned, As you take a look at our back half, what you'll see in our back half is improving revenue growth and growing margins, right? So what I suggest we do is not look at this kind of relative to guidance movements, but relative to absolute performance. I think what you're seeing is improvements across both. And that's what we would expect to try to deliver, and it is what we think we're delivering.

Okay. Thank you.

We'll take our next question from George Tong, who's Goldman Sachs. Please go ahead.

Hi, thanks. Good morning. Online information systems accelerated to 10% growth in the second quarter. Can you break out how much of the growth is coming from PayNet and how much is coming from improving underlying performance post the data breach?

Yes, so George, we gave organic growth at six. Six percent. Yes, so of the 10, four was from acquisitions. That's just not PayNet. That would be DataX as well. Right, because DataX was, as we said, bought in July of last year.

Right, and if you were to break out the impact between PayNet and DataX, since DataX will be rolling off next quarter, how would you split the difference?

We didn't give revenue of each, but they're not that different in size.

Got it. That's helpful. And then the follow-up question around margins. Your EBITDA margins contracted 130 BIPs year-over-year in the second quarter. Can you discuss what expectations – for margins in the second half of the year are embedded in your four-year guidance, and what factors you have that you see that can drive better margin performance in the second half?

Yeah, so again, we think our margin performance improves as we go through the year, and again, that's driven by the growth rates we're seeing in revenue in general, right? So I think it's similar to the answer I gave to the last question. It's really the same here, and that's our expectation as we go through the rest of the year. I think as you take a look at our EPS guidance relative to our revenue guidance, again, you're starting to see us forecasting improved EPS, adjusted EPS, sorry, in the second half. And that would go along with the improving overall profitability.

Our next question will come from Shlomo Rosenbaum with Spiegel. Please go ahead.

Hi. Thank you very much for taking my questions. Could you just talk a little bit about the competitive situation in online? I'm just trying to understand, was the 6% organic growth coming from white space that you guys have created with some of your MPI, or are you just become more competitive in the marketplace? Are you taking business from a competitor? If you can just kind of, you know, talk about that a little bit, and then I'll have a follow-up or two.

Yeah, it's pretty broad-based. It's hard to put it on one item. We're clearly back in the marketplace. We're working with existing customers to try to increase our share with those customers, so that's helpful. I think we've talked about the fact that we reentered the fintech space really 12 months ago, and we've got almost a dozen commercial people there. Again, I'm talking about the U.S., which is your question. You know, so that's, you know, there's some wins happening there in the marketplace. And then, as you pointed out, you know, we're in there with NPIs. I'll leave PayNet and DataX out of it, just talk the organic piece. You know, we're in there with NPIs that drive, you know, new online volume. It's fairly broad-based, and it's what you would hope to see, you know, with Equifax, you know, getting back into a more normal commercial mode.

Okay. Okay. And then I guess a similar vein type of question just on the U.K. If I could look at the U.K. performance versus, say, what I'm seeing from call credit. Now, I understand that there's a different mix of business over there, but it still seems like there's a dichotomy between the growth that you guys are having and what they're having. Can you talk to that a little bit, or do you compete with them directly? Is it really a difference in mix and like for like? Do you think you're growing the same way? If you could just elaborate on that.

Yeah, you know, I think we talked about that we've seen some, you know, pressure from Brexit and just some of the NPIs in the U.K. We didn't expect that. We didn't see it in the first quarter. So, you know, there was some pressure there. We talked about, I think, are you focused on the credit side? The debt management business, I think we talked about, you know, some new business from U.K. government, you know, moved over, you know, from second quarter into third quarter. You know, so we're expecting that business to get better as we go into the second half. It's hard to forecast the Brexit, you know, impact. But, you know, we're watching that business closely.

If you look at our credit business, right, we said our online business grew mid-single digit and have been growing high single digit, which we think is very good and probably consistent with what you're seeing from other people. Actually, I think there's been other results reported in the quarter. that were not quite that high, right? So the difference for us was offline, right, was the deal business, and we just had an execution issue in the second quarter. It's basically consolidated to that. So our expectation is online will continue to perform and that we'll improve our execution in the back end.

Okay, can I just squeeze in one last thing just on the settlement? There's going to be another $350 million or so that gets paid in 1-2-20. Is that the way to understand that?

We don't have clarity on the timing of that payment, as we've tried to be clear. It could be, you know, as soon as then. It's driven by the court approval process. And when we have clarity on that, we'll share it with you.

And there's highly unlikely to be 7 million people signing up for this. What happens if there's excess funds? Does that get kicked back to you? That gets absorbed by Uncle Sam?

No, no, no. Nope, nope. It stays in the fund, and there's various ways that it's used to – you know, to fund other consumer activities, but the consumer, you know, benefits, but nothing comes back to Equifax.

Got it. Thank you so much.

There are no further questions at this time. I'd like to turn the call back over to Trevor Burns for any additional closing remarks.

Just thanks, everybody, for joining the call, and I'll be around today if anybody has any questions. Thank you.

This does conclude today's call. Thank you for your participation. You may now disconnect.